Via Credit Suisse:
(1) Global growth does not slow down as much as some of the lead indicators in the US have temporarily highlighted. (Realisation: Q4E);
(2) China announces a recapitalisation scheme for the UDICs (Urban Development Investment Corporations) and slightly eases the administrative tightening that it undertook in Q1 and Q2. (Realisation: Possible Q4E);
(3) US fiscal tightening for 2011 is tempered in the run-up to the mid-term election (are we beginning to see this with the renewal of $34bn of unemployment relief);
(4) Much more corporate M&A and buybacks, reflecting the gap between the FCF yields and the corporate bond yield. (We think this could happen any time);
(5) The MPC (in the UK) or the Fed (in the US) say that they are willing to restart QE earlier than the market expects. Thus the threshold of a policy response is less than expected. We would note that there was some surprise in the market that in its latest published minutes the MPC actually discussed QE.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.