While many experts have turned optimistic about the global financial system in recent months, Stephen Roach, chairman of Morgan Stanley Asia, isn’t one of them.
The probable collapse of major lender CIT Group reinforces his pessimism.
"Sorry to break to the news, but the financial crisis is not over, à la CIT. You’ve got plenty more write-offs of bad paper to come," Roach told CNBC.
Developed economies haven’t broken out of recession yet, he said.
"Seventy-five percent of the world’s economies today are still contracting, and the biggest piece on the demand side of the global economy is the American consumer, who is dead in the water," Roach said.
Stock markets, along with many bonds, have rallied sharply in recent weeks. But Roach said markets have overdone it, given the "anemic character of the recovery."
The rally largely reflects the excess of liquidity poured into the financial system by central banks, he said.
"Liquidity is seeking return, and right now these markets are priced for a recovery that’s going to end up disappointing," he said.
Some experts are excited by recent news of better-than-expected corporate earnings. But those anticipating high profits "are going to be in for a rude awakening," Roach said.
Economist Gary Shilling agreed with Roach. “I expect the recession to run into the early part of next year,” he told Bloomberg.
Excess home inventories and retrenchment in consumer spending will restrain the economy, he said.
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