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Wall Street rallies as Roubini says worst might be over

Sue Lannin reported this story on Friday, July 17, 2009 12:37:00

PETER CAVE: Wall Street rallied again overnight as investors grow more confident that the global
recession is ending.

A speech by the US economist Nouriel Roubini said that the US recession could be over by the end of
the year. That was seized on by investors.

But Professor Roubini later put out a statement saying that he had not changed his economic outlook
and that any recovery will be weak.

Other economists and market watchers though think the worst may be over.

Finance reporter, Sue Lannin.

SUE LANNIN: When Nouriel Roubini talks the markets take notice.

The Professor of Economics at New York University is a well known bear who predicted the global
financial crisis.

Wall Street added to this week's gains after Professor Roubini made a speech in New York repeating
his view that the US recession would finish by the end of 2009 but any recovery will be shallow.

Justin Urquhart-Stewart from Seven Investment Management in London agrees we are not out of the
woods yet.

JUSTIN URQUHART-STEWART: Well, certainly there was quite a remarkable turnaround based on well, not
a lot really. We had some astonishing figures out of Goldman Sachs and they were generally positive
news but I think you have to take a step back and say the global economy might well come out of
recession technically by the end of this year but the global economy has been very seriously
damaged and the ability to be able to start going back as we were before I'm afraid is not going to
be happening for some considerable time.

SUE LANNIN: The market's optimism was also boosted by a good profit result from US banking giant,
JP Morgan.

But the bank's chief financial officer, Michael Cavenagh warned of more write offs ahead.

MICHAEL CAVENAGH: When you look at home equity prime and subprime, you are going to see the charge
offs continue to trend higher versus prior period and in a couple of the cases, prime and subprime,
we up our future guidance but the second point is that each of these portfolios, I just want to say
it once, they are flowing to the early delinquency bucket and the dollar value of loans that are
sitting in the early delinquency bucket has started to stabilise so that is a new trend versus what
we have seen previously.

SUE LANNIN: Fariborz Moshirian is Professor of Economics at the University of New South Wales.

He thinks a corner has been turned but the lack of credit and a downturn in international trade
will hamper any recovery.

FARIBORZ MOSHIRIAN: It is going to slow down the process. In other words on the one hand we are
seeing less lending by the US banks. On the other hand we are saying that international trade is
not basically flowing well, protectionism is very strong plus massive budget deficit in the United
States are negative factors for a sustained global recovery.

SUE LANNIN: The Australian market has rallied nearly seven percent over the past few days as
optimism grows in the US and China.

Martin Lakos from Macquarie Private Wealth says he believes the market bottomed in the March
quarter.

MARTIN LAKOS: We've seen the market rally hard and pull back 9 per cent since the middle of June.
Although we have seen a very sharp rebound from those lows over the last three days, certainly
there is some more information that has now emerged that is inspiring markets to rally so the
outlook really is probably a little bit more positive.

In fact our numbers suggest that earnings will be down about 19 per cent across the broad market
but that hasn't changed for three months. That is that analysts are no longer downgrading.

SUE LANNIN: Do you think a corner has been turned?

MARTIN LAKOS: It certainly does look like that. We have now seen the bottom of markets and that
bottomed out in March of this year.

There is still a lot of water to go under the bridge for markets. There is no doubt about that.
Best example of that is the CIT Group in the US which is a medium-sized lender to small to medium
enterprises in the US.

That is in financial trouble so there will be ongoing negative surprises to come into the economy
and into markets but broadly speaking, markets are really looking for that broad recovery and all
leading indicators at this stage would be suggesting that is the case.

PETER CAVE: Martin Lakos from Macquarie Private Wealth ending that report from Sue Lannin.