Sunday, November 27, 2011

>GREED & FEAR (Stock Market)

Trickling down

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

To read the full report: GREED & FEAR