The rise in yields in peripheral Europe and US Treasuries is likely indicative of reflexive market vigilance. Uncurbed, the mix of trade, currencies and employment that engulf both United States and China in differing but symbiotic form pose capital flow and trade threats to the rest of the world. With real life experience, we link managed trade proposals with the shoddy goods of Soviet attempts of globalization versus quality goods from Germany and Switzerland , despite ingrained currency strength. Expectations of valuation expansion in equities are likely to be a red herring. Earnings recovery is underway but that substantive gains beyond the prior peak are likely to be pushed into 2012, not the consensus 2011. Instead, changes should be considered reflective of need to focus on quality and of the still strong potential for volatility (1230-1030 for the MSCI World index and 1220-1020 for the S&P500 with valuation neutrality as 5% long Treasury yields).
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