Thursday, May 31, 2012

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.

Wednesday, May 30, 2012

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.