Chips, Double-Dips, and a Bullish Bias

- Risk aversion migrates to overstated double-dip concerns — "Sovereign sensitivity has diminished, but the ongoing downward revision to growth expectations is weighing on the markets. The negative momentum probably isn’t over, but an increasing part of the market is discounting the full doubledip and this isn’t reflected in the forward-looking data."
- Expect mixed messages in 2Q earnings — "Strong earnings momentum will be hard to maintain. Our economists expect a meager 2% earnings beat in 2Q. Outlook statements are likely to reflect weaker economic sentiment, though we believe the downside is largely priced in."
- Maintaining a long bias in credit — "The resilience of credit spreads over the last month suggests positioning is now much more balanced. Against attractive valuations and our impression that cash holdings have been built up, we continue to believe that credit spreads can perform despite the challenging backdrop."
- Bonds over CDS — "Derivatives and CDS indexes have outperformed in the rally. Our preference is for adding to cash positions."
- Pockets of value — "Basic materials, energy, financials and TMT are still our favorites. We also see good value in tobacco post-DOJ. Add exposure to highcoupon bank TruPS, which are likely candidates for take-out in 2013."
Citigroup US Credit Outlook 20100716

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