Financial markets are in "the middle to later innings" of a bubble that will last through next year, as the Federal Reserve moves slowly to raise interest rates, says ace economist Nouriel Roubini of New York University.
The S&P 500 index has more than tripled from its March 2009 low, and the 10-year Treasury yield has slid to 2.26 percent from 3.04 percent last Dec. 31.
"Next year we’ll see economic growth and easy money," Roubini told Yahoo Finance. "This frothiness that we’ve seen in financial markets is likely to continue from equities to credit to housing."
But things will look different in a couple of years, he said.
"Most likely, asset inflation will become asset frothiness and eventually an asset and credit bubble. That means a bust and a crash. I don't expect that's going to happen next year, . . . but two years down the line we could have a shakeout."
The problem is that excess liquidity is flocking to financial markets, Roubini said. He's especially concerned about the surge in issuance of high-yield bonds.
Meanwhile, Mohamed El-Erian, chief economic adviser to Allianz and a Moneynews insider, says stocks may be vulnerable next year.
"A big surprise is the extent to which record equity prices have diverged from declining commodity prices and unusually low yields on government bonds," he writes in the Financial Times.
And that divergence may not last, he says.
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