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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: 2MAR$ who wrote (76943)	7/29/2011 4:26:57 AM
From: TobagoJack	Respond to of 218090

just in, greed n fear · The latest Greek bailout leaves GREED & fear unconvinced that this marks the end of the Euroland crisis. It is, however, another incremental step towards fiscal integration. The key political question is now whether Euroland’s political establishment can sell a transfer union to their own electorates. · GREED & fear’s base case remains that when market pressures put Frau Merkel on the spot, she will move in the direction of fiscal integration. GREED & fear continues to recommend macro investors keep on the “core infection” trade by betting on a rising German CDS spread. · Investors can expect a typical bear market rally in European bank stocks. Still GREED & fear continues to recommend that those who want to hedge the Asia ex-Japan long-only portfolio do so by remaining short European financials. · As for the ongoing debate about America’s debt ceiling, GREED & fear has been assuming there will be a deal at the last minute. But if the Republicans in the House of Representatives are really determined to stick to the principles many of them were elected on, then there could be a problem for markets to confront in terms of a lack of a deal. · In GREED & fear’s view it would not be an immediate disaster if there is no deal. The US government debt would continue to be serviced. But the federal government would have to start cutting public services to save money. This would be contractionary for the economy in the first instance, and could actually prove Treasury bond bullish. · The risk for the financial markets, both equities and bonds, is rather the attitude of the credit rating agencies. In this respect the issue is not just the debt ceiling deadline but whether the US has laid out a credible plan for a reduction in the fiscal deficit over, say, a 10-year period. · If the S&P does in due course move on its threat to downgrade, in the absence of a credible fiscal reduction plan, it will be interesting to see if the Treasury bond market sells off on such concerns or rather continues to trade on nominal GDP growth trends. Meanwhile, investors should not expect any help from the Federal Reserve on this debt ceiling issue. · The Reserve Bank of India has clearly become the most proactive central bank in Asia in terms of implementing monetary tightening. After its surprise 50bp hike this week, the RBI has now raised repo rates by 325bp in this tightening cycle. All this means that growth will continue to slow while earnings downgrades remain a risk. The RBI is clearly willing to sacrifice growth at the margin to lower inflation expectations. · This policy context means it will be hard for the Indian stock market to make much progress in the short term. Still GREED & fear continues to like the long-term Indian story and the more tightening that occurs now, the more likely inflationary expectations will be cracked. Meanwhile, the key macroeconomic variable remains, as previously noted here, the infrastructure investment cycle. Please consider the environment before printing this email. The content of this communication is subject to CLSA Legal and Regulatory Notices These can be viewed at clsa.com or sent to you upon request.