I was mad at myself for not exiting my long Eurostoxx position into Barron’s bullish cover article (Too Busy Patting Myself on the Back).

At that point, we had hit maximum European enthusiasm, and the next move was bound to disappoint. And although it has barely been two weeks since I wrote that piece, I am now returning to the long side of the Eurostoxx market. Let me tell you why.

Since then, the German Bund market has broken down. Yields have risen from 25 basis points to 55 bps in the past couple of weeks.

The good news is that yields are rising for the right reasons. The economy is doing better, the quantitative easing program is being slowly reduced, credit is being demanded and capital is flowing out of safe assets into riskier ones. We are hopefully in the stage where European stocks and yields both rise as the economy benefits.

As many of you are aware, I am a huge German bund bear. The idea of German 10 year paper yielding only 55 basis points while US equivalent paper yields 180 basis points more, is preposterous. I think the spread between the two countries’ yields will continue to narrow. To top it off, I am also negative on global bond prices, so it wouldn’t take much for German yields to double, or even triple over the next six months.

But more importantly, what is the most likely outcome of a rip-roaring bund bear market? Eurostoxx outperformance.

Take a gander at this chart:

That is the ratio of the Eurostoxx in US dollars to the S&P versus the German bund yield. Given the recent move in the bund, the Eurostoxx is already behind, and the ratio has some catching up to do.

Imagine if 10-year bund yields go to 1.5%, or even higher? That would mean the ratio should rally from 1.60 to 2.50!

I am re-establishing my long Eurostoxx position. However, I will do it on a spread basis versus S&P 500. I don’t feel comfortable owning risk assets up here, and the only way I can bring myself to write some blue tickets is to have some pinks on the other side.