It?s come to this. For day-to-day guidance on the likely direction of American stocks, there?s an unlikely contrarian indicator: the battered Greek bond.
?You?ve got to keep your eyes on Greece, if for no other reason than that everyone else is,? said Richard Bernstein, formerly the chief investment strategist at Merrill Lynch and now the proprietor of his own firm and a fund manager for Eaton Vance.
Bernstein says his main focus right now is actually American stocks, which he favours for fundamental reasons: they are relatively cheap, he says, given the earnings they are likely to produce over the next decade. But for the short term, those virtues are often being overlooked by investors, so as a guidepost for Wall Street he has been looking at an unlikely benchmark, the Greek 10-year note.
It has had little intrinsic connection to the American stock market in the past, as Bernstein is quick to acknowledge. But it has been a perversely contrarian signal of late. As the European rescue plan for Greece appeared at times to unravel last week, Greek 10-year notes hit new lows, falling to less than 30% of their nominal value ? a 70% discount. As the price dropped, the American stock market often rose.
?A decade ago, you?d have thought I was crazy if I told you there was a connection? between American equities and the fixed-income market in Greece, Bernstein says. Recently, though, there does seem to have been at least a loose correlation, he says, because American banks , both directly and indirectly, are exposed to the debt of Greece and other troubled European countries.