Dr. Doom is back. Last week, New York University economist Nouriel Roubini decided to speak out about the current economic recovery, warning that it cannot last. I'm not quite sure how this blog missed my radar screen, so I must thank Robert J. Samuelson for bringing it to my attention yesterday.

Roubini contends that while there was a massive rally in "all sorts of risky assets" has caused the dollar had weakened sharply and government bond yields have "increased but stayed low and stable." These risky assets that Roubini discusses are equities, oil, energy, and commodity. Dr. Doom believes that the prices for these risky assets have risen too far and too fast compared to macroeconomic fundamentals.

TheStreet.com's Jim Cramer says stocks connected to the sector will take it on the chin if the housing index falls further.

A perusal of the charts this weekend shows something surprising: The weakest group out there has been the homebuilders for several weeks now. KB Home (NYSE: KBH) (Cramer's Take), D.R. Horton (NYSE: DHI) (Cramer's Take), Lennar (NYSE: LEN) (Cramer's Take), and Toll Brothers (NYSE: TOL) (Cramer's Take) have simply been a horror show. What's going on here? How can these stocks be so dangerous when mortgage rates have crashed through 5%, the level that every banker I talk to says mortgages jump off the table and refinancings rush to be done.

What's going on? This group's tracking more than just mortgage rates. It's tracking employment and news flow and both are terrible.

He was two years early and now he might be two years late. His facts were right. His timing was off, and I think if you wait for the illustrious NYU professor Nouriel Roubini to give the "all clear sign" you will miss even more of the market upside than you have missed already.

On February 18 of this year I wrote Buffett says buy, then sells, Roubini says wait -- what's an investor to do? -- and it will make interesting reading today. After all it was about three weeks before the market really hit bottom, and I called that, too, posting on March 9: Nostradamus was a punk! Have we reached bottom? -- a lucky call for sure. However, the number of folks thinking the world was coming to an end seemed like the ultimate capitulation.

U.S. stocks may be poised to drop for a third day following yesterday's disappointing results from Alcoa Inc. (AA), the first major Dow component to report this earnings season.

According to Bloomberg News, futures on the S&P 500 expiring in June decreased 0.9 percent to 806.60 at 10:50 a.m. in London, while Dow Jones Industrial Average futures slid 1% to 7,683 and Nasdaq-100 Index futures fell 0.6% to 1,273.75. Markets in Europe and Asia were also down.

The plight of the US and global economy, and how it touches everyone, has most people believing we are in for a long drawn out period of sluggish growth, and that a lot of pain is still to come. For most companies and individuals this means they can not obtain enough liquidity, reduce debt or increase their net cash positions fast enough.

You thought New York University Professor Nouriel Roubini was simply another one of those 'liberal academics' who criticize only Republicans like former U.S. President George W. Bush, or was merely trying to attract media coverage?

Not quite. Roubini's forecast has not changed since President Obama's election and inauguration, and his once-extreme forecasts have proved to be more accurate than estimates by most economists.

China to weigh on stocks

Roubini, the once obscure New York University economics professor who two years ago predicted the current global financial crisis and recession, now believes stock markets around the world will fall 20% from current levels, due to China's recession, Bloomberg News reported Friday.

Further, Roubini believes China is already in a recession despite its most recent GDP report, which showed 6.8% growth in Q4 2008 and a 9% growth rate for 2008.

"Demand is falling in China, they're over-invested in capacity and there's a global supply glut," Roubini told Bloomberg News. "It has very, very important implications."

People are really losing their appetite for equities. In the wake of last year's 39% drop in the S&P 500 index, investors seem to be scrambling for some way to preserve the money they have -- and they lack an appetite for taking the risk of buying stocks. One way I measure this is that despite the 15% increase in my newsletter's stock picks in 2008, there's not much appetite for subscribing. I think most people have concluded that the plunge in stocks does not make them cheap because there is not likely to be earnings growth to prop them back up.

Among the biggest losers in the stock market is TARP. The Congressional Budget Office (CBO) estimated last week that the U.S. Treasury's $247 billion in TARP investments made in financial institutions -- including 262 banks -- through the end of December have lost 25% of their value. NYU economist Nouriel Roubini estimated that potential credit losses for U.S. banks could hit $3.6 trillion -- $2.2 trillion more than their $1.4 trillion in capital.

This suggests that investors are wise to stay away from bank equities. But there is vast uncertainty regarding how many other industries and companies will suffer the collateral damage of a bankrupt banking system. It seems likely that any industry -- such as automobiles, airplanes, big computers, MRI machines -- that depends on financing to close deals will be in deep trouble. And with 2.6 million lost jobs in 2008, so will any industry that depends on the recently or about-to-be fired workers in these companies. Are there any equities that could emerge unscathed?

Those investors, including market absolutists, who interpret the current economic state-of-things as just a typical downturn that a few tax cuts and some good, old-fashioned, free market-based supply side economics can solve, may want to stop reading the economic data points in the months ahead. At least, that's the view of one economist.

Nouriel Roubini, the once obscure New York University economics professor, who two years ago predicted the current global financial crisis and recession, said the worst is still ahead for the U.S. economy and for economies around the world.

"In the next few months, the macroeconomic news and earnings reports from around the world will be much worse than expected," Roubini wrote in a column for Bloomberg News, adding that the aforementioned will put downward pressure on prices of risky assets.

Further, Roubini said the U.S. economy will remain in recession through at least the end of 2009, with only a mild recovery starting in 2010 -- with GDP growth in the initial recovery year of 1%. For 2009, Roubini also forecasts continued recessions for the United Kingdom, euro zone, Japan and Canada. Russia will also fall into recession, as will Brazil, and China will experience a hard landing, with growth slowing to 5%, he said. India's economy also will slow substantially.

Nouriel Roubini, the once obscure New York University economics professor who two years ago predicted the current global financial crisis and recession, said those who are turning bullish on the U.S. stock market need to reassess the data.

Roubini told Bloomberg News he was "still quite bearish on U.S. and global equities." Despite losing much of their value already, Roubini thinks they could still lose another 15-20% before any recovery beginning towards the end of 2009.

Caveat emptor: let the (stock) buyer beware

The S&P 500 has fallen more than 40% in 2008, and with a forward P/E of about 12, one could make the case that stocks are at least approaching cheap levels, based on the post-World War II P/E average of about 17. Economist Richard Felson is not of that camp.

"Cheap compared to what? Compared to bull market high P/Es of 25 or 26, yes, but that assumes a) a return to GDP growth levels experienced before the recession hit; and b) that stocks won't drop to lower levels. You can't assume either, so Roubini's downside forecast may represent 'discretion being the better part of valor'," Felson said. "This is a risky time to own stocks or increase positions. Stocks could become much cheaper, particularly if the recession lasts into Q3 2009."

Nouriel Roubini, the once obscure New York University economics professor who two years ago predicted the current global financial crisis and recession, said a bankruptcy filing by two of the Big Three automakers would deepen and lengthen the U.S. recession.

Roubini said if General Motors or Chrysler are forced into bankruptcy without a U.S. government rescue, the U.S. recession will extend well into 2010, Bloomberg News reported

"The economic ramifications of an outright bankruptcy would be severe," Roubini told Bloomberg News, adding that the already-weak U.S. fundamentals mean that a recovery of growth will not occur until 2010.

General Motor's (NYSE: GM) shares rose 15 cents to $3.81 on Monday at mid-day; Chrysler is privately held. Ford's (NYSE: F) shares rose 13 cents to $3.17.

Economist David H. Wang agreed with Roubini's assessment. "A GM bankruptcy would create a ripple-effect. The steel, aluminum, textile, auto parts supplier, and support sectors would be immediately impacted, resulting in large lay-offs within weeks. The credit market also would be effected, and obviously the stock market would not have a pleasant time," Wang said. "Chrysler would fold, Ford would also be hurt on a deterioration of sector confidence, and the industrial sector would experience its biggest decline in generations."

Nouriel Roubini, the once obscure New York University economics professor who two years ago predicted the current global financial crisis, now says the United States will likely face its worst recession in 50 years.

"I expect the worst recession in 50 years," Roubini told Bloomberg News. "There will be a cumulative fall of output of 4% from the peak, and unemployment will jump to 9%."

Further, predicting that future U.S. Federal Reserve interest cuts will be ineffective, Roubini also reiterated that the U.S. economy needs "a major, aggressive fiscal stimulus, a $300-400 billion package, because private demand is collapsing."

Roubini's forecasts were once considered to be 'too harsh' or 'implausible,' due to what many economists and analysts argued were premises that were incorrect or off-the-mark. These conclusions earned Roubini the nickname 'Dr. Doom.' However, in less than two years, and especially in 2008, U.S. financial and economic fundamentals have deteriorated to such an extent, that at least in some metrics, conditions are closer to Roubini's forecasts than those of the many, mainstream economists who had scoffed at his predictions.

Nouriel Roubini, the once obscure New York University economics professor who two years ago predicted the current global financial crisis, now says the world's largest economy will need a large fiscal stimulus from the federal government to avoid a serious economic downturn.

Further, failure by Congress to pass a large fiscal stimulus, as well as undertake other measures, will lead to a 18 to 24 month recession, which will push unemployment above 9%, Roubini said on his website, the RGE Monitor.

Sees need for large fiscal stimulus

"Much more needs to be done including further monetary policy easing, a large fiscal stimulus program to boost demand at the time when private aggregate demand (consumption and investment) are sharply falling; and a plan to reduce the mortgage debt burden of millions of distressed households," Roubini said.

Further, Roubini said the U.S. government will have to double its purchase of bank stakes and require these banks to eliminate dividends to save them from bankruptcy. He also now sees bank/financial institution credit losses stemming from the collapse of the subprime mortgage market of about $3 trillion, up from his earlier estimate of $1-2 trillion.

The above statistics paint a sobering prospect/picture of economic contraction, but Roubini does see a ray of light:

Nouriel Roubini, the once obscure New York University economics professor who two years ago predicted the current global financial crisis, now says leaders of the world's major industrialized economies and developing countries must implement an 'all fronts' approach to avert a financial calamity and a global depression.

"It will take a significant change in leadership of economic policy and very radical, coordinated policy actions among all advanced and emerging-market economies to avoid this economic and financial disaster," Roubini said on his web site, RGE Monitor.

Roubini urged that national policy makers take immediate action to end the crisis, which has dramatically tightened credit conditions worldwide, constraining the ability of corporations to undertake daily operations, which will hurt GDP growth rates in every region.

And, ironically or by coincidence, leaders will have an opportunity to dialogue and implement a common strategy: officials from the International Monetary Fund, World Bank, and Group of Seven (G-7) nations meet in Washington, D.C. this weekend for their previously-scheduled annual meeting.

One of the largest concerns about the economic downturn is that hundreds of banks might fail, putting stress on the resources of the FDIC. Yesterday, regulators shut Columbian Bank of Topeka, Kan. But, it is a small bank and the effects of the action should have almost no impact on the local economy.

According to the Associated Press, "It was the ninth failure this year of an FDIC-insured bank." Not many experts would have predicted that only nine banks would be gone as the calendar approaches labor day. Some analysts predicted that a thousand banks could go under. This group is lead by famous NYU economist Nouriel Roubini. Roubini expects total mortgage-related write-offs to hit $1.5 trillion.

While the predictions may be dire, where are the bank failures? There is no indication from the FDIC or any other federal government agency that the rate at which banks are going under will accelerate between now and the end of the year.

If there are supposed to be scores of more bank failures, the pace better pick up before the recession is over. The pessimists appear to have missed the mark.

Douglas A. McIntyre is an editor at 247wallst.com.

Nouriel Roubini, a professor at New York University, has recently been profiled in both Barron's and The New York Times. There may be nothing special about his training or methods, but what is fairly unique is his opinion that we are on the brink of a modern version of the Great Depression.

It is hard to say why the media wants to give his analysis voice, but he has become the object of almost endless fascination.

The foundation of his view of the economy is that the current housing disaster will get much, much worse and that banks will end up writing off almost $1.5 trillion in mortgage-related paper. That is about three times what they have taken as charges so far. The New York Times quotes Roubini as saying, "A good third of the regional banks won't make it."

While a number of experts believe that the recession could last a year, Roubini would he called an extremist by most measures. He foresees a downturn lasting 18 months.

The media does not like Roubini because he may be right. They like him because predictions of great economic collapse and mayhem sell papers. That is too bad. The public deserves a more balanced view.

Douglas A. McIntyre is an editor at 24/7 Wall St.