Stock market gains of recent weeks represent a bear market rally, not the beginning of a sustained recovery, economist Nouriel Roubini said on Monday.

Speaking at the CFA Institute’s annual conference in Orlando, Florida, the New York University’s Stern School of Business professor said he does not believe stock markets have hit their bottom.

“We’re not at the bottom of this financial crisis, we’re not at the bottom of the real economic contraction, and this is a bear market rally,” Roubini said.

He admitted that financial system conditions have improved since late last year, largely thanks to central bank measures to enhance liquidity and assist ailing financial institutions. But government efforts are still insufficient, Roubini added.

“What we’re doing right now in terms of credit policy and cleaning up the banks, is not enough,” he said. “We’re not doing the right things, and we’re not doing them fast enough.”

Roubini expects that economic performance in the next year will fall short of expectations. Specifically, he predicts that the U.S. rate of unemployment could reach 12% next year, and GDP growth will average 0.5%. This compares with consensus calls for an average unemployment rate of 10.3% next year, and growth of as much as 2.75%. Roubini does not expect economic recovery until late next year.

He noted that the recession has already become far worse than many economists expected.

“There’s not going to be any meaningful recovery of consumption for the time being,” he said. “Next year is going to feel like a recession, even if technically we are out of recession.”

Roubini also expects corporate earnings to be weaker than expected throughout the rest of the year. The combination of disappointing economic news and financial news will send stock markets to a new low in the months to come, he said.

“If the flow of macro news between now and the end of the year is going to be weaker than expected, eventually that’s going to have negative effects on valuations.”

Roubini pointed out that during the economic downturn earlier this decade, stock prices continued to fall for a year and a half following the end of the recession.

“That was in 2001 with a mild recession,” he said. “This time around the recession is more severe, more deep.”

The deleveraging process will also continue to have negative impacts on valuations, Roubini added. In particular, he expects highly leveraged investors, such as hedge funds, to sell off illiquid assets in huge quantities in the months ahead.

“I would not be surprised if half of the whole hedge fund industry is going to disappear in the next two years,” he said.

Roubini encourages investors to seek as much safety and liquidity as possible in the current environment.

IE