>GREED & FEAR (Stock Market)

Trickling down

Gurgaon

World stock markets clearly continue to want to go up since they continue to ignore the

deteriorating action in the Eurozone credit markets. Thus, the S&P500 and the MSCI AC Asia

Pacific ex-Japan Index have only fallen by 4% and 6% from their recent high reached in late

October, and are still 13% and 15% above their recent low reached in early October. While the

all important spread between the 10-year French government bond yield and the 10-year

German bund yield has again widened to a new euro-era high of 190bp on Wednesday, up from

150bp last Friday (see Figure 1).

The stubborn desire to buy stocks is driven in GREED & fear’s view primarily by the time of the

year. Those who have done well in 2011 betting against risk naturally want to lock in their

gains. While those who have not are desperate to chase a year-end rally. Still GREED & fear

remains firmly of the view that it will pay to bet against risk if the S&P500 makes it temporarily

above the 200-day moving average (see Figure 2). Any such rally is likely to be driven by the

new technocratic government in Italy coming up with seemingly meaningful austerity

measures.

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