Archive - Dec 6, 2011

The onslaught of 2012-Outlooks continues to unmercilessly suggest bullish biases in most risk assets, particularly higher quality equities and credit, and while almost as ubiquitously noting the binary nature of outcomes in the medium-term and significant downside potential. Most of the upside/downside biases reflect heavily on Europe's outcome which in turn seems to have the majority forecasting recessionary contraction being 'stabilized' by a round of quantitative easing by the ECB. BofA's Global Asset Allocation group notes, however, as the Fed has recently discovered, QE alone may be enough to stabilize a situation but a credible plan for growth is harder to achieve. Furthermore, in a topsy-turvy potentially chaotic manner, they point out that the market's expectation of QE has been enough to calm waters (or more aptly levitate markets) leaving policy makers with little choice now for fear of the instability created by not delivering what Mr.Market (as we have been noting for weeks - pressure for a 'crash' from the likes of Deutsche Bank) demands or expects. But away from European disunity, if that is possible, BofA's key global risks include a worse-than-feared-EU-recession, Mid-East unrest, US fiscal tightening, and a China hard landing but given their perspective on the extreme levels of bearishness, they prefer to hedge upside risk from their correctly cautious view.