Credit Suisse has issued a list of surprises for 2012 this morning and the headline is one which is very bullish on the surface. The firm believes that volatility in 2012 should rise (with the VIX currently 20% below its post mid-2007 average) as operational leverage is abnormally high due to excess leverage in developed markets being higher than at the time of the Lehman crisis and political/geo-political risks clearly elevated.
The firm notes tail risks, and these outcome or surprise scenarios are not mutually exclusive…
S&P 500 hits 1,500… Credit Suisse noted, “Our model of US macro momentum is consistent with 3.3% GDP growth (1.2% above consensus) and it is still rising; excess liquidity supports a re-rating; equities are 20% cheap against (expensive) bonds and are an inflation hedge if/when there is synchronized QE; risk appetite is still at ‘panic’ levels and positioning is cautious (e.g. money market fund inflows are at their highest level since 2009). The firm’s year-end S&P 500 target, based on a weighted probability, is 1,340.
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