Continuing on with Roubini’s suggestion that we may be in for a “W-shaped” recovery. Here are some comments via The Big Picture from Andy Xie, former Morgan Stanley economist. His thoughts are from a Chinese perspective and use the current rebound in their stock market as a jumping off point. You should note that this stuff is not for the faint of heart.

I am not sure this bubble that began six months ago is truly over. The trigger for the current selling was the tightening of lending policy. Bank lending grew marginally in July. On the ground, loan sharks are again thriving, indicating that the banks are indeed tightening. Like before, government officials will speak to boost market sentiment. They might influence government-related funds to buy. “Experts” will offer opinions to fool the people again. Their actions might revive the market temporarily next month, but the rebound won’t reclaim the high of August 4.

This bubble will truly burst in the fourth quarter when the economy shows signs of slowing again. Land prices will start to decline, which is of more concern than the collapse of the stock market, as local governments depend on land sales for revenue. The present economic “recovery” began in February as inventories were restocked and was pushed up by the spillover from the asset market revival. These two factors cannot be sustained beyond the third quarter. When the market sees the second dip looming, panic will be more intense and thorough.

The US will enter this second dip in the first quarter of next year. Its economic recovery in the second half of this year is being driven by inventory restocking and fiscal stimulus.

However, US households have lost their love for borrow-and-spend for good. American household demand won’t pick up when the temporary growth factors run out of steam. By the middle of the second quarter next year, most of the world will have entered the second dip. But, by then, financial markets will have collapsed.

Xie sees inflation spurred by massive increases in money supplies around the world as the catalyst for capitulation by the Fed, who he predicts will be forced to raise rates to 5%. He calls it the final chapter of the “Greenspan Bubble” which ends in stagflation and massive declines in asset values.

Take a minute and read the whole thing and then let’s all hope he’s terribly wrong.