Nouriel Roubin issues a clarification that his views were "Taken Out Of Context" - will it affect S&P 500 market levels?

Readers interested in knowing what Nouriel Roubini thinks will want to know about this article he wrote yesterday - below is an excerpt from it, with the link to where you can locate the full text of it. He refers to his view that the recession will ultimately be a "U" shape affair rather than a "V" shape recovery. Does this mean that the S&P 500 index and other broad equity markets have left the lows behind, at the March levels, or not? Well ... the answer depends. First, notice that he's talking about the economy, not the equity markets as such. Perhaps it's possible that the markets could stage a "V" recovery even if the economy itself needs to complete a large "U" (or maybe even "W") shaped recovery that has a double-bottom with another big economic low next year. We always have to remember that the market can look one way while the economy looks another - especially since the markets tend to be a leading indicator of the economy anyway!

Second, it also depends on the sector. We've already seen that some sectors especially in the technology space have been outperforming others (with the obvious example being that the Nasdaq did not make a new low in March). Third, we also have to consider that the broad markets can even make a double-bottom that does not go below the March 2009 (or as applicable, November 2008) lows.

Fourth - while technical analysis must always respect fundamental analysis of great minds like Nouriel Roubini, no one analyst is infallible, or for that matter can have a perfect track record all the time. It remains possible for new information to crop up that even he hasn't been able to factor in. Let's face it, something new could happen that would auger either way. For that matter, when looking at the possibilities for example with the Objective Elliott Wave counting of Tony Caldaro, you can see that it's possible for another leg down to test but not necessarily go drastically under the March lows. For that matter, with my own thought about a large EW flat in the indices, I can see the S&P 500 just going down to 600 before starting another rally upward which could be significantly stronger than what we've already seen.

Having said all that, let's take a look at a quote from his article as posted at Phil's Stock World, and you can click the links shown to read the full text:

PSW Report: Nouriel Roubini: "My Views Were Taken Out Of Context"

published at Phil's Stock World

Nouriel Roubini: "My Views Were Taken Out Of Context"

Posted: July 16, 2009 - 5:56pm

By Nouriel Roubini

It has been widely reported today that I have stated that the recession will be over "this year" and that I have "improved" my economic outlook. Despite those reports - however – my views expressed today are no different than the views I have expressed previously. If anything my views were taken out of context. (see original Forbes article here)

I have said on numerous occasions that the recession would last roughly 24 months. Therefore, we are 19 months into that recession. If, as I predicted, the recession is over by year end, it will have lasted 24 months with a recovery only beginning in 2010. Simply put I am not forecasting economic growth before year's end.

Indeed, last year I argued that this will be a long and deep and protracted U-shaped recession that would last 24 months. Meanwhile, the consensus argued that this would be a short and shallow V-shaped 8 months long recession (like those in 1990-91 and 2001). That debate is over today as we are in the 19^th month of a severe recession; so the V is out the window and we are in a deep U-shaped recession. If that recession were to be over by year end – as I have consistently predicted – it would have lasted 24 months and thus been three times longer than the previous two and five times deeper – in terms of cumulative GDP contraction – than the previous two. So, there is nothing new in my remarks today about the recession being over at the end of this year.

I have also consistently argued – including in my remarks today - that while the consensus predicts that the US economy will go back close to potential growth by next year, I see instead a shallow, below-par and below-trend recovery where growth will average about 1% in the next couple of years when potential is probably closer to 2.75%.

I have also consistently argued that there is a risk of a double-dip W-shaped recession toward the end of 2010, as a tough policy dilemma will emerge next year: on one side, early exit from monetary and fiscal easing would tip the economy into a new recession as the recovery is anemic and deflationary pressures are dominant. On the other side, maintaining large budget deficits and continued monetization of such deficits would eventually increase long term interest rates …