A slowdown in global economic growth combined with continued problems in credit markets and housing will haunt the economy, Roubini said.

Watch the interview at left.

In addition, he sees hundreds of hedge funds getting wiped out, combining with earningsto provide another weight on stocks.

"I believe that the worst is still ahead of us. I think that the next few weeks and months are going to be negative surprises on the economy," he said. "I think that overall the earnings are going to surprise to the downside."

An expected short recession will be replaced by a reality of a longer and more drawn-out slowdown, Roubini said.

For investors

"The risk is that it's not going to be a 'V.' Frankly, (the notion that) there is going to be a short and shallow recession, six to eight months, is out of the window," he said. "Right now we are in a 'U' shaped recession. It's going to last at least two years."

The only good news is that systemic risk in the financial sector, or the idea that damage won't be isolated to specific companies but rather will spread through the industry, has been reduced by government intervention, he said.

"But we're going to have a severe recession. If this is going to be a two-year recession, that's not priced by the market. And there are significant downside risks for the stock market and credit markets in my view," he said. "Yes, we're going to avoid the Great Depression, we're going to avoid a 10-year stagnation. That's not going to be the case."