Macroeconomics

Cyprus is the reminder. The Eurozone is forecast to shrink 0.3% this year. Apple has just cleared its 50-day moving average and found support at $425 — a pairs trade with structural logic.

The bulls just went five-for-five on the week. For investors who missed the early innings of the U.S. rally, China may be the lagging horse worth riding — and FXI is the cleanest way to ride it.

January is starting strong, the VIX sits at a five-year low, and Italian and Spanish bond yields have settled. The risks are real — Algeria, Senkaku — but the macro setup favors the bulls into Q1.

Twenty percent of U.S. exports head to Europe, fourteen percent to the Eurozone alone. The LTROs solved the banks; the elections are about everything else. The dysfunction trade is back on the table.

The Dow’s 8.1% Q1 ranks among its best in 128 years. But the LTROs only delayed the structural problem, and Spain may yet vote against austerity. VGK, IEV, and EWP all merit a look on the short side.

The 2010 contagion assumption was a clean domino fall. What’s actually unfolded looks more like a flu spreading at random. Two ETF shorts — VGK and FXE — have already returned 16-18%, and remain in play.