Chart 1: This week, market cap of MSCI Greece fell below that of Bed, Bath & Beyond, CDS of Puerto Rico jumped toward Venezuela & Greece, & 10 day loss on Shanghai exchange exceeded entire market cap of German DAX. Secular macro backdrop of low growth & high debt means global rates "glued to zero" at 5000 year lows (Chart 1).

Black Sheep & Black Swans

Cyclical mix of extreme monetary ease & gradual economic recovery means Greece, Puerto Rico, China isolated "black sheep" events, not contagious "black swans." US rate shock and/or global PMI's dropping toward 45 needed for contagion.

What happens in China, stays in China

June disobedience of Chinese investors to government stimulus attempts notable; and China travails clearly impeding leadership of global cyclical stocks. But until unambiguous evidence of macro policy failure & RMB devaluation, "what happens in China, stays in China."

Q3 risk-on triggers

Absent a Greek "oxi" vote this weekend, and respecting current losses/outflows in bonds, we expect SPX 2054 to hold near-term: investors positioned for correction; global stocks just 2-3% away from BofAML Breadth Rule contrarian "buy" signal; China policy makers to act aggressively in July.

Chart 1: The lowest interest rates in 5000 years

Sources: Bank of England, Global Financial Data, Homer and Sylla "A History of Interest Rates"

Notes: the intervals on the x-axis change through time up to 1700 - see page 3for methodology.