Equity Derivatives Dynamics

Equity Derivatives Dynamics

The real medium/longer term issue for the markets is not whether troubled sovereigns get the needed aid/liquidity, but rather, whether the aid and the accompanying necessary fiscal retrenchment leads to an unexpectedly soft mid-cycle economic slowdown—or, worse, a double dip—for the developed world.


• Risk differentiation
• The euro will continue to weaken regardless of how the Greece situation evolves

•The significant economic growth differential of the emerging world (6.9% vs. 2.3%) will reassert itself, and thus its outperformance relative to developed markets

•If and when markets settle down, we expect the 10-year to meaningfully underperform as the flight-to-quality subsides

•The trade in global equities is still high-quality stocks that can handle uncertainty-induced swings. We are tactically bearish for 1H10, but become strategically more positive afterwards as recovery takes hold and equities are the risk trade to own

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