Risk-free return versus free-return risk

Well now,Spainish 10-year government bonds are yielding around 6.7%, given a negative or positive news day or two, versus US 10-year government bonds coughing up the prodigious sum of 1.65%. Confusion reigns top draw as to just how the Spainish government will rescue one of its largest banks,Bankia,that has been grabbing much of the negative headlines for a while now. Over in the UK 10-year government bonds are yielding 1.64%,the lowest on record since records have been kept,dating back to 1703. The current yield on 10-year German government Bunds is a paltry 1.37%. This so-called flight to safety,many believe, reflects investor worries about more deflation,but a surprise when all is said and done and government printing presses finally go tilt could be just the opposite of what the safe haven crowd expects.

The Unexpected

Just a short time ago the S&P 500 index closed above 1400, a move it's made several times over the last decade or so. The first time it closed above 1400 was July 9,1999. Looking at a chart, the S&P 500 formed a classic M-shaped top in late April-May before dropping down to its 200-day moving average support area of 1282. Less than a year ago the S&P traded well below its 200-day moving average, making a classic W or inverted-M double bottom at the 1100 level. The end of May just might be signaling a big move below the 200-day moving average. It's for sure no one knows what the upcoming summer will bring investors. Pessimism is high,especially over Euroland. However well-deserved given Europe's ugliness, a rally could be in the offing even if the index breaks below the 1200 level.