NYU economics professor sees no bubble in US stocks

A New York University economics professor says that he doesn't believe there's a bubble in the U.S. stock market but one could develop in about two years. "I don't think today there is a stock market bubble because earnings have been growing so fast that probably valuations today are justified by what has happened with earnings," said Nouriel Roubini, whose critical and consistently bearish economic views have earned him the nickname "Dr. Doom." Roubini told Xinhua after the "Pan European Days" conference at the New York Stock Exchange Monday night that if the economy doesn't accelerate significantly, then the market will develop into a full-fledged bubble in two years. There then would be a crash in three years, said Roubini, who was a senior economist in the White House Council of Economic Advisers during the Clinton administration. "I wouldn't say today there is one (bubble), but I'm worried about essentially easy money pushing asset prices higher and that is going to have an effect on economic activity," Roubini said. The Fed's massive stimulus was commonly seen as the key driver of the stock market's bullish run since the start of this year. But major stock indices have been very volatile since last week. That was when Federal Reserve Chairman Ben Bernanke hinted at a possible reduction of the quantitative easing plan in the next few policy meetings if evidence showed the economic improvement is strong and sustainable. Roubini told Xinhua that there has been a recent paradox between the stock market and fundamentals as prices go up on both good and bad economic news. "'The bad news is good news for the market' implies that the Fed is going to give more asset inflation," the professor said. Roubini said, however, that "eventually, the levitation forces of liquidity cannot dominate the gravitation forces of economic fundamentals." As the present numbers suggest that the U.S. economy is growing slowly and unemployment remains high, Roubini predicted that the Fed will keep quantitative easing for another year. The exit process, Roubini said, will be very slow "in a way the market can digest."