From The Wall Street Journal:

Roubini Warns of ‘Significant Amount of Froth’ in Markets

by Kelly Evans

Nouriel Roubini, a New York University
economist known as “Dr. Doom” for his warnings about the U.S. economy,
said in an interview Thursday he is concerned about the run-up in U.S.
stock prices since March, which seem priced for a V-shaped recovery
that he says is unlikely to happen.

“Some of [the rally] is fundamental,” he said. “We avoided
Armageddon, there is a light at the end of the tunnel, and risk
aversion is lower.”

“But it has occurred so fast, so soon, in my view that it’s
diverging from the underlying economic fundamentals,” he said. “Markets
today are pricing in a V-shaped recovery and they have to start pricing
in a U-shaped recovery, so the fourth quarter or first quarter could
see a correction.”

Mr. Roubini also denied that he is a “permabear” and joked that his
nickname should be “Dr. Realist” rather than “Dr. Doom,” given his
warnings about the U.S. housing market prior to its collapse.

He — along with other economists — has cautioned recently that the
Federal Reserve must raise interest rates aggressively to avoid
creating another asset-price bubble as happened earlier this decade in
housing. “Monetary policy has to be more proactive to prevent asset
price bubbles from occurring,” he said.

However, “it is not time to hike [rates] right now,” given the
weakness in the U.S. economy, he said, so “you need another tool to
prevent an asset bubble — regulation.”

“Either we [increase regulation] or we’re going to create another
problem,” he said. “I’m somehow optimistic that a lot of that stuff is
going to be passed by Congress — there’s a recognition that if we
don’t, we’re going to create the seeds of the next crisis.”

“You cannot achieve two goals with one instrument,” he said, meaning
that both stimulating the economy and fighting an asset-price bubble
cannot be simultaneously accomplished through the federal-funds rate.

“There is froth in markets — a significant amount of froth,” he
said, but “the recovery is going to be so weak, there is no way the Fed
can start raising interest rates anytime soon.” The U.S. unemployment
rate, for example, “will certainly be well above 10%” for some time
since “many of these lost jobs are gone forever,” he said.

He added, “I’m as worried or more about the euro zone and Japan as I
am the U.S.,” given the “institutional impediments” those countries
face.