“[Markets] are overestimating the positives of the US-Trump policies. Infrastructure, stimulus, deregulation, tax cuts: I think Trump will achieve much less on those dimensions,” he said. “And they’re underestimating the risk that the U.S. protectionist policies are going to lead to trade wars, that the restrictions on immigration are going to slow down labor supply, and that micromanaging the corporate sector is going to be negative.”

Roubini added that the policy mix for the U.S. also presents a challenge: Fiscal stimulus is going to force the Fed to tighten more, it’s going to push up interest rates and the dollar, he said. “In a way it’s going to weaken the economy over time.”

Still, he acknowledged, confidence is reigning.

“Over the next six to 12 months, maybe the positives are going to dominate because you have animal spirits, a build-up in consumer and business confidence, you’ll have some policy action. The economy is growing and hopefully those positives are going to stay for a while,” he said.

“But the more there’s going to be trade friction, the more there will be restriction of migration, the more this stimulus is going to be excessive, forcing the Fed in a full-employment economy to tighten more and faster, the more some of these negatives start to effect markets and economic growth over time.”

While Roubini sounded a note of caution on the U.S., he didn’t take a rosy view of the world’s second-largest economy either.

China, he said, has some positive economic news in so far as growth has stabilized after recent fears about the risk of a hard landing. But the problem, Roubini added, is that Beijing has accomplished that feat with a new round of credit-fueled fixed investment.

“That means more bad debts, more bad assets, more leverage, and more overcapacity. So you are kicking the can down the road, you are stabilizing growth in the short run,” he said. “Of course, this is the year of stability given the political transition in China, but then you might be creating more financial vulnerability over the medium term that you’re not addressing.”

“Reforms so far are stalled, restructuring is so far stalled, especially of [state-owned enterprises] of the financial system, and that’s a danger that is building up for the future,” he added.

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