Which way is the stock market headed, up or down? That question is on the minds of many investors these days.

We've a 50% run up since the January lows. Nouriel Roubini said: "Markets have gone up too much, too fast." I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U-shaped.

The stock market seems like it needs a rest today.

After posting strong performances earlier this week following growing optimism about the economy and the reappointment of Federal Reserve Chairman Ben Bernanke, the main indexes appear headed toward a muted opening. The Dow Jones industrial average and the Nasdaq Composite Index were trading down in pre-market action.

Whether this rally will hold depends on a few things. The U.S. Commerce Department is due to issue its durable goods report for July later this morning. As the Associated Press notes, "Economists polled by Thomson Reuters predict orders to U.S. factories for items expected to last at least three years increased 3 percent in July, due in part to increased auto sales from the government's Cash for Clunkers program." They fell in June.

What are Roubini's new predictions? This time the noted economist is future casting the price of commodities. He is looking for the global economy to move toward growth in the later part of 2009 into 2010.

When the world moves into greater production, the need for raw materials rises. Roubini, sees commodity prices moving up during this expansion stage.

Already China's $585 billion stimulus package has spurred lending and sent share prices skyrocketing. China's economic growth surged 7.9% from a year earlier and is well on the way to meeting its target of 8% growth this year. China's purchasing manager's index stood at 53.3 in July, up from 53.2 in June. A reading above 50 indicates expansion in the the economy.

Today's jobless claims data came in strong enough that we would have expected further recovery, but the fears over all this CIT fallout weighed on investors' minds. Hank Paulson took his grilling. Homebuilders even started sounding less negative again. But then came reports that perma-bear Nouriel Roubini was finally throwing in the towel and showing that the recession would end. His report was what helped traders have comfort in buying stocks at the end of the day.

Here are the unofficial closing bell levels:

Dow 8,709.02 +92.81 (1.08%)
S&P 500 940.54 +7.86 (0.84%)
Nasdaq 1,884.66 +21.76 (1.17%)

Top Analyst Upgrades
Top Analyst Downgrades

The guru's of the present financial crisis, Nouriel Roubini and Robert Shiller, are saying that the present financial crisis may continue for another six months. They cite the psychological mood during the Great Depression when people were gripped with "fear," a fear that prolonged the depression and which President Franklin Roosevelt addressed.

People are not seeing job creation or an improvement in the economy. Consumer sentiment is deteriorating. The stock market is falling again. Specifically they cite:

• Consumer confidence fell to 49.3 in June from 54.8 in May.
• The economy shrank 5.5% in the first quarter.
• The savings rate reached 6.9% in May, the highest since 1993.
• Home prices in seven metropolitan areas fell .7% in April.

Nouriel Roubini, professor of economics at New York University, was one of the first to predict the collapse of the U.S. banking system and the current financial crisis. Well, he's back in the news with his forecasts.

What does he see in our future? More bad news. The bear market is not over, says Roubini. The stimulus package will slow the rate of contraction, but that will take time. Macro news, earnings reports and financial shocks will be worse than expected.

Late last year my colleague Joseph Lazzaro posted a story about NYU's 'Dr. Doom' Roubini: Stocks may fall another 20% during recession. That has to make one take pause when considering an investment in the stock market today, even after a major drop retesting November lows this week. On the other hand, Warren Buffett went out of his way to encourage the investing public and money managers alike that it was safe to go back into the market.

However, today it has been widely reported that Buffett sold off half of his holdings in Johnson & Johnson and trimmed his stake in Procter & Gamble.

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."

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, 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, 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.

Bloomberg News reports that banks' subprime write-downs have hit $500 billion. The last time I checked, that figure was $400 billion. Bloomberg reports that New York University economist Nouriel Roubini forecasts such losses will ultimately total $2 trillion. I wonder if he would revise his estimate upwards.

Recently banks have been taking write-downs for their Auction Rate Securities (ARS). Bloomberg reports about $1.9 billion has been set aside so far to cover ARS losses. It notes that UBS AG (NYSE: UBS) set aside $900 million to cover potential losses and Citigroup, Inc. (NYSE: C) and Wachovia (NYSE: WB) each estimate that their ARS buybacks will cost $500 million.

Write-downs have been going hand in hand with capital raising. But banks and brokers have not been able to raise enough capital to offset the losses. Bloomberg calculates that they've raised "$353 billion of capital to cope with the write-downs. The gap between the losses and capital infusions, which stands at $148 billion, has regularly narrowed to about $80 billion as capital raising follows write-down announcements."

Can banks and brokerages raise another $1.7 trillion to keep up with the write-downs that Roubini forecasts? I sincerely doubt it.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup stock and has no financial interest in the other securities mentioned.