Downloadable Individual .pdf Focus Available Pages Macro Analytics Driver$ 03/13/14 36 Analytical...

1 April 2014 Edition Restricted & Confidential Copyright 2014 © Gordon T. Long All Rights Reserved [email protected]

THE RUSSIAN PIVOT A Crimean Conflict and a Petrodollar Battle but Reserve Currency War

GLOBAL MACRO UPDATE

GLOBAL MACRO TIPPING POINTS - APRIL 2014

3/27/2014


THE RUSSIAN PIVOT

A Crimean Conflict and a Petrodollar Battle but Reserve Currency War

GLOBAL MACRO TIPPING POINTS - APRIL 2014

TIPPING POINTS .................................................................................................................................... 19

GLOBAL MACRO: RISK ASSESSMENT .................................................................................................................................. 19 POSITIONAL FRAMEWORK: "WE ARE HERE!".................................................................................................................................................... 19 MACRO MONITORING INSTITUTIONS ................................................................................................................................................................. 26

WEF (WORLD ECONOMIC FORUM) - JANUARY 2014 ................................................................................................................................. 26 WEF GLOBAL RISKS – The World Economic Forum - Inequality has become a global challenge .................................................... 26 WEF GLOBAL RISKS – The World Economic Forum - 10 Global Risks of Highest Concern .............................................................. 30 WEF GLOBAL RISKS – Global Competitive Rankings – Fragile 5 & Forgotten 4........................................................................................ 32 WEF GLOBAL RISKS – The 17 Biggest Risks to Our Hyper-Connected World .......................................................................................... 34 WEF GLOBAL RISKS – Global Economic, Geo-Political & Societal Risks .................................................................................................. 42

IMF, WORLD ECONOMIC OUTLOOK - JANUARY 2014 ................................................................................................................................ 49 IMF, FINANCIAL STABILITY REPORT – OCTOBER 2013.......................................................................................................................... 55

OECD, WORLD ECONOMIC OUTLOOK – NOVEMBER 2013 ....................................................................................................................... 58 G-20 SUMMIT – FEBRUARY 2014 ......................................................................................................................................................................... 61

RESEARCH WE FOLLOWED ........................................................................................................................................................................... 61 Group of Twenty IMF Note-- Meetings of G-20 Finance Ministers and Central Bank Governors ................................................................ 62

OUR ASSESSEMENT ....................................................................................................................................................................................... 64 SITUATIONAL ANALYSIS ....................................................................................................................................................................................... 67

RESEARCH WE FOLLOWED ........................................................................................................................................................................... 67 RESEARCH OF NOTE ...................................................................................................................................................................................... 68

THE RISK CONTINUUM ............................................................................................................................................................................... 68 GLOBAL TRENDS – THE SIX FRAMING MEGATRENDS .......................................................................................................................... 70 GLOBAL THEMES – TEN STRUCTURALTHEMES FOR STRATEGY ....................................................................................................... 72 DEBT SATURATION - A COLLAPSING PONZI SCHEME........................................................................................................................... 74

WINTER 2014 – “EVENT RISK” DOMINATES ................................................................................................................................................. 76

RISK SIGNALS .......................................................................................................................................................................... 83 GEO-POLITICAL RISK - Social, Economic & Financial .......................................................................................................................................... 83

THE TAPER TANTRUM TEN (EMERGING MARKETS) .................................................................................................................................. 83 TAPER TANTRUM - Here's What The "Hint" Of A Fed Taper Did To Global Growth Hope .................................................................... 85 TAPER TANTRUM - "TAPER" Shock Waves across Asia .................................................................................................................... 86 TAPER TANTRUM - Why Asian Markets Are Collapsing ..................................................................................................................... 94 TAPER TANTRUM - The Capital-Flow Conundrum .................................................................................................................................. 97 TAPER TANTRUM - The "Original Sin" in EM International Finance Has Been Consummated .................................................... 100

CHARTS OF NOTE ..................................................................................................................................................................................... 106 CHARTS – It’s a Different World than Most Westerners Yet Fully Appreciate ....................................................................................... 106 CHARTS – Analysts Have Been Slashing Forecasts for Asian Growth .................................................................................................. 106 CHARTS – Greater External & Domestic Vulnerabilities ......................................................................................................................... 107 CHARTS – Falling Financial Conditions in External Deficit EMEs .......................................................................................................... 107 CHARTS – Net International Investment v Negative Current Account Balances.................................................................................... 108 CHARTS – Emerging Markets’ Share of Corporate Debt ........................................................................................................................ 108 CHARTS – Asia (Ex-Japan) Corporate Leverage ................................................................................................................................... 109

THE FRAGILE FIVE..................................................................................................................................................................................... 110 Brazil ......................................................................................................................................................................................................... 110 India .......................................................................................................................................................................................................... 113 South Africa .............................................................................................................................................................................................. 115 Indonesia .................................................................................................................................................................................................. 118 Turkey ....................................................................................................................................................................................................... 119

THE FORGOTTEN FIVE ............................................................................................................................................................................. 120 Venezuela................................................................................................................................................................................................. 120 Argentina .................................................................................................................................................................................................. 121 Mexico ...................................................................................................................................................................................................... 122 Malaysia & Philippines ............................................................................................................................................................................. 123

GEO-ECONOMIC RISK – Financial ...................................................................................................................................................................... 127 RESERVE CURRENCY & GLOBAL IMBALANCE ......................................................................................................................................... 127

RESERVE CURRENCY - Japan May Eclipse China Again, as Largest Holder of US Treasuries ...................................................... 127 PETRODOLLAR COLLAPSE .......................................................................................................................................................................... 129

UKRAINE ..................................................................................................................................................................................................... 130 UKRAINE - Pulled between EU v Russia ................................................................................................................................................ 130 UKRAINE - Pulled between An Ethnic Eastern and Western Ukraine .................................................................................................... 130 UKRAINE - Pulled between Economic Inequality Factors ....................................................................................................................... 131 UKRAINE - Pulled between the Global Military Balance ......................................................................................................................... 132


UKRAINE - Pulled by Global Financial Markets ...................................................................................................................................... 133 UKRAINE - A Deep State Analysis .......................................................................................................................................................... 135

PETRODOLLAR – Collapsing PetroDollar Foundation ............................................................................................................................... 139 INTERNATIONAL BANKING & SHADOW BANKING .................................................................................................................................... 142

DEBT – REITS & CMBS Growth ................................................................................................................................................................. 144 DEBT - GLOBAL DEBT 313% of GDP........................................................................................................................................................ 145 DEBT - 202M GLOBALLY UNEMPLOYED DEBTORS .............................................................................................................................. 147

MIDDLE EAST ................................................................................................................................................................................................. 148 SYRIA ........................................................................................................................................................................................................... 149

SYRIA - This has the Earmarks of the Kennedy Ear "Cuban Missile" Crisis .................................................................................. 149 SYRIA - Syrian War You Are Not Being Told About ........................................................................................................................... 150 SYRIA - 25 Quotes .................................................................................................................................................................................. 151 SYRIA - What Coalition? ........................................................................................................................................................................ 154 SYRIA - US Supporting Fully an "Al Qaeda Operation" ..................................................................................................................... 156 SYRIA - Decision Already Taken to Bomb Syria ................................................................................................................................. 157 SYRIA - Market Patterns Before and Immediately After Conflict Begins ................................................................................................ 167

CYBER SPYING .............................................................................................................................................................................................. 169 GLOBL GOVERNANCE RISK – Failure of Political Leadership & Public Policies ............................................................................................... 170

LEADERSHIP - 'Value Transformer' Politicians are avoiding politics OR the voters are rejecting .............................................. 170 LEADERSHIP - The Consequences Of A Dysfunctional Political System ....................................................................................... 171 LEADERSHIP - Mapping the Collapse of European Democracy ...................................................................................................... 175

GLOBAL MACRO: RISK LEVELS ........................................................................................................................................... 176 AGGREGATED GLOBAL FINANCIAL RISK INDEX ............................................................................................................................................. 176

BANKING RISK - LIBOR-OIS SPREAD (Updated) ........................................................................................................................................ 177 BANKING RISK - TED SPREAD (Updated).................................................................................................................................................... 177 CREDIT RISK - GLOBAL CREDIT DEFAULT SWAPS (Updated) ................................................................................................................ 178 CREDIT RISK - EU CREDIT DEFAULT SWAPS (Updated) .......................................................................................................................... 178 CONSUMER RISK - HOUSING - RATE OF CHANGE (Updated) ................................................................................................................. 179 ECONOMIC RISK - ECRI LEADING INDEX (Updated) ................................................................................................................................. 181 INFLATION RISK - MONEY SUPPLY GROWTH - M3 (Updated) .................................................................................................................. 182 INFLATION RISK - MONEY VELOCITY (Updated) ........................................................................................................................................ 182 MONETARY RISK - BANK LIABILITIES (Updated) ........................................................................................................................................ 183 COST OF MONEY RISK - INTEREST RATES (Updated) ............................................................................................................................ 183

AGGREGATED RISK LEVEL ................................................................................................................................................................................ 185 TIPPING POINT MAPPING: 2014 YEAR BEGINNING UPDATE ......................................................................................................................... 186

TIPPING POINTS: TOP 5 FOCUS - MARCH 2014 ................................................................................................................... 196 I - RISK REVERSAL .............................................................................................................................................................................................. 196 II - JAPAN DEBT DEFLATION .............................................................................................................................................................................. 198 III-BOND BUBBLE ................................................................................................................................................................................................. 200 IV - EU BANKING CRISIS ..................................................................................................................................................................................... 201 V - SOVEREIGN DEBT .......................................................................................................................................................................................... 202 VI - CHINA HARD LANDING ................................................................................................................................................................................. 204

GLOBAL MACRO ................................................................................................................................. 208

GLOBAL MACRO: ECONOMIC OUTLOOK ............................................................................................................................ 210 RESEARCH WE FOLLOWED ............................................................................................................................................................................... 210 CHARTS OF NOTE ............................................................................................................................................................................................... 213

CHART: World GDP Economic Forecast 2014 ............................................................................................................................................... 213 CHART: World GDP Economic Expectations versus MSCI Equity Index ...................................................................................................... 213 CHART: Fiscal Adjustments Required – Deficit Reductions for Fiscal Sustainability..................................................................................... 214 CHART: Shifting Global GDP Share ............................................................................................................................................................... 215 CHART: Over $10 Trillion Pumped Into Global Economy by Developed Economies .................................................................................... 216 CHART: Eventually All this Debt Must be Rolled Over or Paid Out ................................................................................................................ 216 CHART: Future Economic Growth a Sub 2% Trend ....................................................................................................................................... 217 CHART: Debt and Fiscal Drag Are Significant Factors Affecting Global Growth ........................................................................................... 217 CHART: Slowing Global Aggregate Demand Shows in Shrinking FDI ........................................................................................................... 218 CHART: Liquidity Drain in US in 2H 2014 ....................................................................................................................................................... 219

RESEARCH OF NOTE .......................................................................................................................................................................................... 220 GLOBAL OUTLOOK - 20 Signs That the Global Economic Crisis Is Starting To Catch Fire ......................................................................... 220 GLOBAL OUTLOOK - Problems Erupting Everywhere (Signs of Implosion) ................................................................................................. 222 GLOBAL OUTLOOK - Global Debt Crosses $100 Trillion, Rises By $30 Trillion Since 2007 ........................................................................ 225 GLOBAL OUTLOOK – The US as the Global Consumption Engine to See Sub 2% Trend Growth ............................................................ 228 GLOBAL OUTLOOK - Credit Fueled Globalization in Retreat ........................................................................................................................ 231 GLOBAL OUTLOOK - Rogoff's Sovereign Debt Default Levels ..................................................................................................................... 233 GLOBAL OUTLOOK - Imbalances Continue to Increase Along With Financial Fragility ............................................................................... 236 GLOBAL OUTLOOK - A 67 Million Jobs Gap ................................................................................................................................................. 238

ECONOMIC CUTS ................................................................................................................................................................................................. 242 CHARTS OF NOTE ......................................................................................................................................................................................... 242


CHART – IMF’s Delusional Forecasting Record ......................................................................................................................................... 242 IMF To Slash Economic Growth Forecast... AGAIN - Still Full of Hockey sticks ............................................................................................ 242

IMF CUTS ECONOMIC OUTLOOK ............................................................................................................................................................ 247 OECD CUTS ECONOMIC OUTLOOK – AGAIN!............................................................................................................................................ 258

OECD CUTS ECONOMIC OUTLOOK ........................................................................................................................................................ 260 ECONOMIC WARNINGS....................................................................................................................................................................................... 263

G20 WARNS – Need to Add $2T in Economic Activity & Tens of Millions of Jobs ........................................................................................ 263 IMF WARNS - May 2013 ................................................................................................................................................................................. 264

Japanese & Spanish Debt Unsustainable ................................................................................................................................................... 266 Global Recovery Faltering, Reduces Global Growth to Just Above 3% Global Recession Level .............................................................. 268

BIS WARNS - June 2013................................................................................................................................................................................. 270 Monetary Policy At Its Limits ........................................................................................................................................................................ 276

WORLD BANK WARNS - June 2013 .............................................................................................................................................................. 277 Social Unrest Stems from Shrinking Disposable Income. Jobs are the central issue. ............................................................................... 279

GLOBAL MACRO: INDICATORS ............................................................................................................................................ 281 GLOBAL GROWTH ............................................................................................................................................................................................... 281

CHARTS OF NOTE ......................................................................................................................................................................................... 281 GLOBAL GROWTH – Global Leading Indicator Has Now Rolled Over ...................................................................................................... 281 GLOBAL GROWTH – Global PMI Business Surveys Fall .......................................................................................................................... 281 GLOBAL GROWTH – Baltic Dry Index Collapses 50% .............................................................................................................................. 282 GLOBAL GROWTH – Global Slowdown on Verge of Contraction.............................................................................................................. 283 GLOBAL GROWTH - GDP Forecasts Continue to Be Taken Down........................................................................................................... 283 GLOBAL GROWTH – Global Leading Indicator – Goldman’s ‘Swirlogram’ Getting “More Serious” ......................................................... 283 GLOBAL GROWTH – Global Industrial Production “Rolling Over” ............................................................................................................. 284 GLOBAL GROWTH – Consensus 2014 GDP Forecast - Differential ......................................................................................................... 285 GLOBAL GROWTH – G10 Macro Change ................................................................................................................................................. 285

RESEARCH OF NOTE .................................................................................................................................................................................... 286 GLOBAL GROWTH - The Wal-Mart Measure or How the US Consumer Is the Global Engine ................................................................ 286 GLOBAL GROWTH – Potential of a Global Recession Mounting .............................................................................................................. 287 GLOBAL GROWTH – What the ‘hint’ of a Fed Taper Did to Global Growth Estimates ............................................................................. 291 GLOBAL GROWTH - Uneconomic Energy Problematic ............................................................................................................................. 293 GLOBAL GROWTH - Global Growth Cycle ................................................................................................................................................. 295 GLOBAL GROWTH - Global GDP Contribution .......................................................................................................................................... 296 GLOBAL GROWTH - Slowing Global Growth - Air Cargo Shipments ........................................................................................................ 297

GOBAL UNEMPLOYMENT ................................................................................................................................................................................... 298 CHARTS OF NOTE ......................................................................................................................................................................................... 298

CHART – Global Unemployment ................................................................................................................................................................. 298 CHART – Global Unemployment – EU Comparison ................................................................................................................................... 298 CHART – Unemployment in Advanced Countries ....................................................................................................................................... 299 CHART – Global Labor Participation Rates ................................................................................................................................................ 299 CHART – Global Youth Unemployment – By Country ................................................................................................................................ 300 CHART – Global Chance of Finding a Job Within Year .............................................................................................................................. 300

RESEARCH OF NOTE .................................................................................................................................................................................... 301 GLOBAL UNEMPLOYMENT - The Beginnings of the Welfare Myth Unwind ............................................................................................. 301 GLOBAL UNEMPLOYMENT - The Unsustainable Welfare Myth ............................................................................................................... 303 GLOBAL UNEMPLOYMENT - Global Financial Sector Job Cuts ............................................................................................................... 305

GLOBAL TRENDS ................................................................................................................................................................................................. 307 11-02-13-STANDARD OF LIVING - The Facts are Clear. The US Standard of Living is Falling ................................................................... 307 GLOBAL TRENDS - Profound Changes in Global Youth As Japan Leads the Way...................................................................................... 308 GLOBAL TRENDS – Brands & Commodities Tell the Global Story ............................................................................................................... 311

Cooper - Rio Tinto ........................................................................................................................................................................................ 311 Aluminum - Alcoa, Rio Tinto ........................................................................................................................................................................ 313 Iron Ore and Thermal Coal - Rio Tinto ........................................................................................................................................................ 315 Consumable Brands - P&G.......................................................................................................................................................................... 317 Parcel Volumes - FEDEX ............................................................................................................................................................................. 318 Shipping - Baltic Dry Index ........................................................................................................................................................................... 319

GLOBAL SENTIMENT ........................................................................................................................................................................................... 323 GLOBAL SENTIMENT - Global Business Confidence Sliding Rapidly .......................................................................................................... 323

Must be a Buy Signal... ................................................................................................................................................................................ 323 GLOBAL SENTIMENT - Complacent .............................................................................................................................................................. 326 GLOBAL SENTIMENT - Nielsen's Global Consumer Confidence, Concerns & Spending Intentions .......................................................... 327

GLOBAL CREDIT .................................................................................................................................................................................................. 338 CREDIT CYCLE - HY Leading the Way .......................................................................................................................................................... 338 CREDIT CYCLE - Reversal Ahead ................................................................................................................................................................. 341

GLOBAL MACRO: MONETARY POLICY & CENTRAL BANKING .......................................................................................... 344 GLOBAL CENTRAL BANKING .............................................................................................................................................................................. 344

RESEARCH WE FOLLOWED – Global Banking Risk .................................................................................................................................... 344 CHARTS OF NOTE ......................................................................................................................................................................................... 347

CHARTS – Major Central Bank Assets versus GDP Forecast ................................................................................................................... 347 CHARTS – Major Central Bank Y-o-Y Balance Sheet Growth ................................................................................................................... 347 CHARTS – Cumulative Change in Central Bank Balance Sheets – Since 2008 ........................................................................................ 348 CHARTS – Global Central Bank Assets versus World Equity Prices ......................................................................................................... 348


CHARTS – Cumulative Change in Central Bank Balance Sheets – Since 2000 ........................................................................................ 349 RESEARCH OF NOTE .................................................................................................................................................................................... 350

CENTRAL BANKS – Axel Merk’s 2014 Outlook.......................................................................................................................................... 350 CENTRAL BANKS - Japan May Eclipse China Again, as Largest Holder of US Treasuries ..................................................................... 354 CENTRAL BANKS - $3 Trillion "Created" In First 9 Months of 2013 .......................................................................................................... 356 CENTRAL BANKS - Drop Tightening Talk as Easy Money Goes On......................................................................................................... 359 CENTRAL BANKS - Austerity Now Officially Dead Public Policy ............................................................................................................... 362 CENTRAL BANKS - They are the Market ................................................................................................................................................... 362 CENTRAL BANKS - The longer QE persists, the greater the magnitude of the ‘left-tail’ event & a Minsky Trap ...................................... 365 CENTRAL BANKS - We May Have Reached a Risk-Off Leverage Pivot ................................................................................................... 366 CENTRAL BANKS - The Macro Landscape ................................................................................................................................................ 368 CENTRAL BANKS - A Serious Shortage of Quality Collateral - A $10T US Problem Over 10 Years ....................................................... 369 CENTRAL BANKS - Global Balance Sheet Expansion ............................................................................................................................... 371 CENTRAL BANKS - Where Do these Deflators Come From? .................................................................................................................... 375 CENTRAL BANKS - First Remove Gold Standard, Now Remove Debt ..................................................................................................... 376

TROUBLING DEVELOPMENTS ........................................................................................................................................................................... 380 TROUBLING DEVELOPMENTS – Insider Says Central Banks Making it Up as They Go! ........................................................................... 380 TROUBLING DEVELOPMENTS – Venezuela: Shortages & Hyperinflation .................................................................................................. 381 TROUBLING DEVELOPMENTS – 2007 Redux: Total public and private debt levels are 30pc higher in the advanced economies ........... 382 TROUBLING DEVELOPMENTS – Polish Pension Confiscation: Coming to a Theater near You ................................................................. 385 TROUBLING DEVELOPMENTS – Global Tax Overhaul................................................................................................................................ 387

BOE - UK ................................................................................................................................................................................................................ 388 UK - Mark Carney and "Flexible Inflation Targeting" ....................................................................................................................................... 388

FED - US ................................................................................................................................................................................................................ 389 10-28-13-CAPITAL DISTORTION - Global Acceptance of the Bernankean Theory ...................................................................................... 389 10-28-13-FINANCIAL REPRESSION - The Suspension of Price Discovery.................................................................................................. 392 US MONETARY - The Fed is Stuck in a QE Trap .......................................................................................................................................... 395 US MONETARY - 2nd Worst Decade In US Growth in Over 220 Years (And Getting Worse) ...................................................................... 397 US MONETARY - Mathematically, The Fed Can Only Fail ............................................................................................................................ 399 US MONETARY - QE Standing Between Inflated Equity Markets and A Recession ..................................................................................... 405 US MONETARY - QE Programs versus S&P 500 Movements ...................................................................................................................... 406 US MONETARY - BAML Warns If The US Economy Does Not Significantly Accelerate Now, It Never Will ................................................ 408 US MONETARY - Debt Increases $1 Trillion in One Year ............................................................................................................................. 410 US MONETARY - Congress Asks Bernanke for Full Risk Analysis On Fed's Soaring Balance Sheet ......................................................... 412

GLOBAL ABE-NOMICS – The Road Ahead ......................................................................................................................................................... 417 GLOBAL ABE-NOMICS – Monetary Expansion Extremely Difficult to Stop Once Started ............................................................................ 417 GLOBAL ABE-NOMICS – Monetary Policy Below the Event Horizon ............................................................................................................ 419 The "OMF" Trial Balloon Raised ...................................................................................................................................................................... 421 OPMF - A Reversing Wealth Effect May Force OPMF & Global Abenomics ................................................................................................. 422 OPMF - Financial Times: Martin Wolf - "The Case For Helicopter Money" .................................................................................................... 423 OPMF - Financial Times: Martin Wolf - "The Case To Reset Basis of Monetary Policy" ............................................................................... 426 OPMF - Financial Times: Gavyn Davies On Why Helicopters Are Dangerous .............................................................................................. 427 OPMF - A Conundrum for the World's Central Bankers ................................................................................................................................. 430

BOJ - JAPAN .......................................................................................................................................................................................................... 432 JAPAN - No Way Out But to Expand the Monetary Base ............................................................................................................................... 432 JAPAN - BOJ to "Own" 100% Of GDP In 5 Years .......................................................................................................................................... 433 JAPAN - Adjusted trade deficit the worst in Bloomberg's 20 year history....................................................................................................... 436 JAPAN - Some Policies Have Clearly Hit the Limit ......................................................................................................................................... 438 JAPAN - Foreshadows Next Global Crisis ...................................................................................................................................................... 439 JAPAN - Japan's Prime Minister Shinzo Abe prepares to print money for the whole world ........................................................................... 444 JAPAN - Shinzo Abe’s Monetary-Policy Delusions ......................................................................................................................................... 445 JAPAN - BOJ Governor Job Suddenly Available in Historical "Abenomics U-Turn" ...................................................................................... 448 JAPAN - Japanese Economic Policy Goes The Full Ponzi ............................................................................................................................. 449

ECB - EU ................................................................................................................................................................................................................ 451 CHARTS OF NOTE ......................................................................................................................................................................................... 451

CHARTS – ECB’s Turn to Expand Its Balance Sheet ................................................................................................................................. 451 CHARTS – ECB’s Balance Sheet Contracted Y-o-Y .................................................................................................................................. 451 CHARTS – Expect Major ECB Policy Announcement in Q2 2014 .............................................................................................................. 452 CHARTS – ECB Set to Stay on Hold as Inflation Seen Lower ................................................................................................................... 453

RESEARCH OF NOTE .................................................................................................................................................................................... 453 EU MONETARY - EU Version of QE Coming -> UST Purchases To Drive Euro Down ............................................................................ 453 EU MONETARY - Goodbye To Europe's Sterilized Monetization - Hello EU Version of QE ..................................................................... 456 EU MONETARY - Bond Markets Weigh Risks of Eurozone QE ................................................................................................................. 458 EU MONETARY - ECB Version of QE Likely .............................................................................................................................................. 461 EU MONETARY - There Is Just No Escape from Mario Draghi's Monetary Zombie Nightmare ................................................................ 464 EU MONETARY - ECB - Hints at QE for EU ............................................................................................................................................... 468 EU MONETARY - EU Equities Responding to Current Account Differential .............................................................................................. 470 EU MONETARY - Patterns: While Everyone Was Worrying About the US and Washington.... ................................................................ 471 EU MONETARY - ECB Monetary transmission mechanisms in Europe are completely broken ............................................................... 473 EU MONETARY - EU Lending Volumes Collapse ...................................................................................................................................... 475 EU MONETARY - Eurozone Funding Shortfall Rises To Over $4 Trillion .................................................................................................. 476 EU MONETARY - DRIVER$ ........................................................................................................................................................................ 477 EU MONETARY - Japan Will Effectively Monetize European Debt ............................................................................................................ 478 EU MONETARY - TARGET-2 Imbalances - "The Debt Crisis Is Eating Its Way Ever Further Into Europe's Core" .................................. 478


EU MONETARY - Draghi Will Soon Be Forced to Start Printing - Again! ................................................................................................... 481 MACRO MONETARY – INFLATION ..................................................................................................................................................................... 485

CHARTS OF NOTE ......................................................................................................................................................................................... 485 CHARTS – Global Country Inflation Rates .................................................................................................................................................. 485 CHARTS – Two Worlds if Inflation – EM and DM ....................................................................................................................................... 485 CHARTS – Developed Country Inflation Rates ........................................................................................................................................... 486

RESEARCH OF NOTE .................................................................................................................................................................................... 487 INFLATION - Asset & Property inflation means shops have to pay higher rents with higher product prices ............................................. 487

GEO-ECONOMIC CONCERNS & TENSIONS ......................................................................................................................... 488 FOOD PRICES & SHORTAGES – Potential Disruption........................................................................................................................................ 488

CHARTS OF NOTE ......................................................................................................................................................................................... 488 CHARTS – CRB US Spot Foodstuff Index – One Year .............................................................................................................................. 488 CHARTS – CRB Food Index – One Year .................................................................................................................................................... 489 CHARTS – Global Food Price Change 2007-2013 ..................................................................................................................................... 490 CHARTS – Food Prices Spiking Up ............................................................................................................................................................ 491 CHARTS – Food Prices Spiking Up ............................................................................................................................................................ 492 CHARTS – Retail Food Services and Drinking Place Sales ....................................................................................................................... 492 CHARTS – Retail CRE Price/ Cost Pressures ............................................................................................................................................ 493 CHARTS – Retail CRE Price/ Cost Pressures - 2 ....................................................................................................................................... 494 CHARTS – Spiking Beef Prices ................................................................................................................................................................... 495 CHARTS – Coffee Futures .......................................................................................................................................................................... 495 CHARTS – Lean Hog Futures ..................................................................................................................................................................... 496 CHARTS – Ukraine Corn and Wheat – Prices Up 15% Since YB .............................................................................................................. 496 CHARTS – Global Food Imports versus % Y-o-Y US$ Change ................................................................................................................. 497 CHARTS – UK Food Retailers v Commodity Food Price Index .................................................................................................................. 497

RESEARCH OF NOTE .................................................................................................................................................................................... 498 FOOD INFLATION - Food Prices Surge as Drought Exacts a High Toll on Crops .................................................................................... 498 FOOD INFLATION - Food Prices, Driver of Social Unrest .......................................................................................................................... 501 FOOD INFLATION - Food Price Manipulation in Thailand.......................................................................................................................... 501

EMERGING MARKETS - Unfolding 2014 Crisis ................................................................................................................................................. 503 RESEARCH WE FOLLOWED ......................................................................................................................................................................... 503 CHARTS OF NOTE ......................................................................................................................................................................................... 506

CHARTS – BRIC Countries Responsible for 43% of Global Growth .......................................................................................................... 506 CHARTS – BRIC & Emerging Market Inflation Rates ................................................................................................................................. 506 CHARTS – Emerging Market Default Probability ........................................................................................................................................ 507 CHARTS – Emerging Market versus Developed Market Public Debt and External Borrowing Positions .................................................. 507 CHARTS – Emerging Market Outflows........................................................................................................................................................ 508 CHARTS – Emerging Market Outflows -2 ................................................................................................................................................... 508 CHARTS – Developed versus Emerging Equity Markets – 1990-2014 ...................................................................................................... 509 CHARTS – Total GEM Flows....................................................................................................................................................................... 509 CHARTS – The Emerging Markets Have Been Weakening Since 2011 .................................................................................................... 510

RESEARCH OF NOTE .................................................................................................................................................................................... 511 EMERGING MARKETS - Fragile Five: The new focus of currency wars ................................................................................................... 511 EMERGING MARKETS - Crisis Redux? ..................................................................................................................................................... 512 EMERGING MARKETS - Losing Their Punch ............................................................................................................................................ 517 EMERGING MARKETS - Risk-On! .............................................................................................................................................................. 519 EMERGING MARKETS - Asia, BRIC, Emerging Markets Crater IBM Earnings ........................................................................................ 520 EMERGING MARKETS - Crisis Temporarily Halted ................................................................................................................................... 522 EMERGING MARKETS - Increasing Liquidity Problems In Selected Markets ........................................................................................... 523 EMERGING MARKETS - The plight of four Asian countries - China, India, Indonesia and Japan. ........................................................... 529 EMERGING MARKETS - The Impact of "TAPER" ...................................................................................................................................... 534 EMERGING MARKETS - EM Crisis will make the 1997 Asian Crisis Seem like an Early Warning ........................................................... 538 EMERGING MARKETS - Global Deleveraging Accelerating and Developing Nations Feeling the Pain ................................................... 540

ENERGY – PRICING PRESSURES...................................................................................................................................................................... 543 RESEARCH OF NOTE .................................................................................................................................................................................... 543

ENERGY - Major Inflection Point Coming Near-Term In Energy Prices ..................................................................................................... 543 ENERGY - Russia Prepares Mega-Deal with India After Locking Up China With "Holy Grail" Gas Deal .................................................. 546 ENERGY - Putin Prepares To Announce "Holy Grail" Gas Deal With China ............................................................................................. 549 ENERGY - The Growing Rift with Saudi Arabia Threatens To Severely Damage the Petrodollar ............................................................. 552

PRIOR REPORT – Reference ............................................................................................................................................................................... 556 GLOBAL BOND SCARE – Un-Taper Reverses Fear ............................................................................................................................................ 556

BOND SCARE - Volatility and Instability Increase Risk .................................................................................................................................. 556 BOND SCARE - Inflation Expectations Contributing to Volatility .................................................................................................................... 558 BOND SCARE - The Financial Times Headlines Tell An Interesting Story .................................................................................................... 559 BOND SCARE - A LONG Supply and Demand Problem BUT Heavy SHORT Demand ............................................................................... 560 BOND SCARE - Long Term Support Trendline Achieved .............................................................................................................................. 561 BOND SCARE - Retail Investors Running for the Exit .................................................................................................................................... 562

CHINA LIQUIDITY - Global Tightening Scare ....................................................................................................................................................... 564 RESEARCH OF PARTICULAR INTEREST .................................................................................................................................................... 564 CHINA LIQUIDITY - Housing Bubble Restricting PBOC Actions .................................................................................................................... 564 CHINA LIQUIDITY - PBOC Squeezing Banks towards Reducing Speculative Risk ...................................................................................... 568 CHINA LIQUIDITY - Overnight Repo at 25% .................................................................................................................................................. 569 CHINA LIQUIDITY - Red Flags ....................................................................................................................................................................... 570


CHINA LIQUIDITY - Credit Fueled Growth ..................................................................................................................................................... 572 CHINA LIQUIDITY - Shadow Banking System Showing Signs of Implosion.................................................................................................. 577 CHINA LIQUIDITY - PBOC Wants to Hold the Line on Explosive Credit Expansion through A Liquidity Squeeze....................................... 580 CHINA LIQUIDITY - Potentially De-Stabilizing Cash Crunch ......................................................................................................................... 582 CHINA LIQUIDITY - Chinese Liquidity Pump Unplugged ............................................................................................................................... 583

CURRENCY WARS BACK ON – Rate Wars Reversed With Un-Taper ............................................................................................................... 585 CURRENCY WARS - A Major Shift................................................................................................................................................................. 585 BATTLEFIELD - Combatants & Belligerents ................................................................................................................................................... 589 BATTLEFIIELD - The Race to Debase ........................................................................................................................................................... 590 JAPAN - The Destabilizing Agent .................................................................................................................................................................... 593 EUROPE - Euro Exposed ................................................................................................................................................................................ 593 ARGENTINA - Here we Go Again! .................................................................................................................................................................. 595 VENEZUELLA - Bad Situation ......................................................................................................................................................................... 596 BRAZIL - No One Wants to Listen ................................................................................................................................................................... 596 SWITZERLAND - No Choice ........................................................................................................................................................................... 596 SINGAPORE - Hot Money ............................................................................................................................................................................... 597 UK- Pound Joins War ...................................................................................................................................................................................... 598

CYBER WARS – Growing Threat & the Security-Surveillance Complex .............................................................................................................. 599 RESEARCH WE FOLLOWED ......................................................................................................................................................................... 599 SECURITY-SURVEILLANCE COMPLEX - NSA Whistleblower Example: Booz Hamilton ............................................................................ 602 SECURITY SURVEILLANCE COMPLEX - Growing Without Public Control or Supervision! ........................................................................ 604

SYRIA & IRAN – Complete Middle East Domination ............................................................................................................................................ 605 RESEARCH WE FOLLOWED ......................................................................................................................................................................... 605 SYRIA - This has the Earmarks of the Kennedy Ear "Cuban Missile" Crisis .................................................................................................. 607 SYRIA - Syrian War You Are Not Being Told About ....................................................................................................................................... 608 SYRIA - 25 Quotes .......................................................................................................................................................................................... 609 SYRIA - What Coalition? ................................................................................................................................................................................. 612 SYRIA - US Supporting Fully an "Al Qaeda Operation" .................................................................................................................................. 615

A War 20 Years In the Making ..................................................................................................................................................................... 615 The Last “Humanitarian War”....................................................................................................................................................................... 615 The Bottom Line ........................................................................................................................................................................................... 616

SYRIA - Decision Already Taken to Bomb Syria ............................................................................................................................................. 617 SYRIA - Market Patterns Before and Immediately After Conflict Begins ........................................................................................................ 626 MIDDLE EAST - Watch Out for a "False Flag" or "Covert" Activity Event ...................................................................................................... 628 MIDDLE EAST - Who Is Threatening Who Here? .......................................................................................................................................... 629

REGIONAL ............................................................................................................................................. 631

EUROSIS - A Terminal Disease .......................................................................................................................................................................... 631 RESEARCH WE FOLLOWED THIS MONTH ................................................................................................................................................. 631 RESEARCH OF PARTICULAR IMPORTANCE ............................................................................................................................................. 632 RESEARCH - EFSF Downgraded to AA+ ....................................................................................................................................................... 632 RESEARCH - EU Stabilization Programs Are Presently Very Fragile ............................................................................................................ 633 RESEARCH - Spreads Widened in Peripherals and Significantly in Portugal and Greece ........................................................................... 636 PROGNOSIS: Why the European Situation Will Get Worse .......................................................................................................................... 638 PROGNOSIS: Increasing Structural Imbalances ............................................................................................................................................ 641 PROGNOSIS: $22T Unaccounted - A Hidden World of Contingent Liabilities, Government Backing & Guarantees. .............................. 643 PROGNOSIS: Monetary Malpractice - ECB's LTRO Not a Solution but ........................................................................................................ 648 PROGNOSIS: Monetary Malpractice - ECB's SMP Effort Futile..................................................................................................................... 652 PROGNOSIS: Monetary Malpractice - ECB Accepts BBB Collateral ............................................................................................................. 654 PROGNOSIS: EU Banking Overbanked, Undercapitalized and Now Insolvent ............................................................................................. 655 PROGNOSIS: Monetary Malpractice - TARGET2 "Contingent Liabilities" .............................................................................................. 657 PROGNOSIS: Bailouts - Unsustainable & Unfundable ................................................................................................................................... 664

MEDICAL CHARTS - Situation Critical .................................................................................................................................................................. 666 CHARTS - EU Area Weakness ....................................................................................................................................................................... 666 CHARTS - EU Area GDP ................................................................................................................................................................................ 667 CHARTS - EU Area PMI .................................................................................................................................................................................. 668 CHARTS - EU Area PMI .................................................................................................................................................................................. 669 CHARTS - EU Real Rates ............................................................................................................................................................................... 670 CHARTS - EU -NON Euro Members GDP RELIANCE ................................................................................................................................... 671 CHARTS - EU GLOBAL GDP GROWTH CONTRIBUTION ........................................................................................................................... 672 CHARTS - EU PMI .......................................................................................................................................................................................... 672 CHARTS - EU CPI ........................................................................................................................................................................................... 674 CHARTS - Regional Risk-Reward ................................................................................................................................................................... 675 CHARTS - Europe's "Core" Problem is France ............................................................................................................................................... 676 CHARTS - Germany's Preoccupation with Inflation is More Than It Would Seem ......................................................................................... 679 CHARTS - Evidence OF Global Slowing Now Indisputable ............................................................................................................................ 680 CHARTS - EU Credit Downgrades, France and UK On Tap ......................................................................................................................... 682 CHARTS - Perceived Reduction in Risk, A Temporary Aberration................................................................................................................. 684 CHARTS - Dangerous Delusional Divergences .......................................................................................................................................... 686 CHARTS - IMF Projections for Euro Area and GIIPS ..................................................................................................................................... 687 CHARTS - Air Cargo Shipments Confirm Slowing Global Growth.................................................................................................................. 688 CHARTS - Eurozone Misery Indices Never Been Higher ............................................................................................................................... 689 CHARTS - Euro Currency................................................................................................................................................................................ 691

ITALY – Longest Recession on Record ................................................................................................................................................................. 696


RESEARCH WE FOLLOWED THIS MONTH ................................................................................................................................................. 696 RESEARCH OF PARTICULAR IMPORTANCE ............................................................................................................................................. 697 RESEARCH - Italy’s Budget Failures, Weak Growth Outlook Call Debt Sustainability Into Question ........................................................... 697 CHARTS OF PARTICULAR IMPORTANCE ................................................................................................................................................... 701 CHARTS - ITALY - Forced Rate Cuts ............................................................................................................................................................. 701 SITUATIONAL ASSESSEMENT ..................................................................................................................................................................... 702 ITALIAN ELECTION - What You Need to Know ............................................................................................................................................. 702 ITALIAN ELECTION - Europe Capitulates On Austerity- Never Had The Stomach For It ............................................................................. 703 ITALIAN ELECTION - Message Given By the People .................................................................................................................................... 705 ITALIAN ELECTION - Bad Debt Continue to Soar ......................................................................................................................................... 709 ITALIAN ELECTION - Italians React Badly to Austerity, Elections Hardly a Surprise!................................................................................... 711 ITALIAN ELECTION - EUROPEAN FEEDBACK - #1 ................................................................................................................................... 712 ITALIAN ELECTION - EUROPEAN FEEDBACK - #2 ................................................................................................................................... 714 ITALIAN ELECTION - Regional Financial Cracks in Sicily ............................................................................................................................ 717

FRANCE - Hollande Losing Political Capital Fast – Hapless President ................................................................................................................ 720 RESEARCH WE FOLLOWED THIS MONTH ................................................................................................................................................. 720 RESEARCH OF PARTICULAR IMPORTANCE ............................................................................................................................................. 720 RESEARCH - Steady Breakdown Underway .................................................................................................................................................. 721 RESEARCH - France Loses its Coveted and NEEDED AAA Rating ............................................................................................................. 725 CHARTS OF PARTICULAR IMPORTANCE ................................................................................................................................................... 727 CHARTS - FRANCE - GDP ............................................................................................................................................................................. 727 CHARTS - FRANCE - UNEMPLOYMENT ...................................................................................................................................................... 728 CHARTS - FRANCE - BUDGET DEFICIT ...................................................................................................................................................... 729 CHARTS - FRANCE - TAX v GDP .................................................................................................................................................................. 730 CHARTS - FRANCE - BUSINESS CONFIDENCE ......................................................................................................................................... 731 SITUATIONAL ASSESSMENT ....................................................................................................................................................................... 732 FRANCE - What You Need to Know ............................................................................................................................................................... 732 FRANCE - Key Indicators ................................................................................................................................................................................ 733 FRANCE: Sharpest Drop in Private Sector Output in Four Years .................................................................................................................. 736 FRANCE - Quits on Austerity - Never a Doubt This Would Happen............................................................................................................... 739 FRANCE - Socialism is Expensive .................................................................................................................................................................. 740 FRANCE - Has Turned back to Socialism ....................................................................................................................................................... 742 FRANCE - Losing Its Way through Political Illusions and Lies ....................................................................................................................... 743 FRANCE - Uncompetitive ................................................................................................................................................................................ 744 FRANCE - Titan Tire Calls Out French Labor ................................................................................................................................................. 746 FRANCE - France Responds to Titan Tire ...................................................................................................................................................... 748 FRANCE - What Happens In France When Companies Fire People ............................................................................................................. 751 FRANCE - Hollande's Economically Insane campaign Promise .................................................................................................................... 752

GERMANY – Merkel Short of Majority but Maintains Power ................................................................................................................................. 753 RESEARCH WE FOLLOWED THIS MONTH ................................................................................................................................................. 753 RESEARCH OF PARTICULAR IMPORTANCE ............................................................................................................................................. 754 RESEARCH - German Election - Merkel Begins Hunt for Coalition Partners ................................................................................................ 754 RESEARCH - Europe's Shadow Economy: As Big As Germany ................................................................................................................... 756 CHARTS OF PARTICULAR IMPORTANCE ................................................................................................................................................... 759 CHARTS - GERMANY - Inflation ..................................................................................................................................................................... 759 CHARTS - GERMANY - IFO Investor Confidence .......................................................................................................................................... 759 CHARTS - GERMANY - ZEW Expectations ................................................................................................................................................... 760 SITUATIONAL ASSESSEMENT ..................................................................................................................................................................... 762 GERMANY - Anti Euro AfD Party May Cost Merkel in Critical September Election ....................................................................................... 763 GERMANY - The Euro Crisis Escalation over Cyprus May Politically Cripple Merkel ................................................................................... 764 GERMANY - Call for End of "Coercive Euro Association" .............................................................................................................................. 766

IBERIAN PENINSULA – Non-Performing Loans Everywhere .............................................................................................................................. 768 RESEARCH WE FOLLOWED THIS MONTH ................................................................................................................................................. 768 RESEARCH OF PARTICULAR IMPORTANCE ............................................................................................................................................. 769 RESEARCH - Presidential Warning Spikes Yields To 8 Months Highs .......................................................................................................... 769 RESEARCH - Clear Signs of Desperation In Spain from a Growing Collateral Contagion ............................................................................ 771 RESEARCH - The Spanish Government's 'Bad Bank' Scam ......................................................................................................................... 772 CHARTS OF PARTICULAR IMPORTANCE ................................................................................................................................................... 774 CHARTS - PORTUGAL - Deficit Problem ....................................................................................................................................................... 774 SITUATIONAL ASSESSEMENT ..................................................................................................................................................................... 775 IBERIA - Credit Downgrades - At Precipice of "Non Investment Grade" ........................................................................................................ 775 IBERIA - Regional Bailout Bailouts a Massive Problem.................................................................................................................................. 776 IBERIA - NPL Going Ballistic ........................................................................................................................................................................... 777 IBERIA - Spanish Funding Problem ................................................................................................................................................................ 779 IBERIA - The Giant Spanish Housing Bubble, Now Beginning to Implode..................................................................................................... 784 IBERIA - Mal-Investment Coming Home to Roost .......................................................................................................................................... 786 IBERIA - Bank Deposits Were Leaving, Now they Are Fleeing ...................................................................................................................... 787 IBERIA - Now a Capital Investment Problem .................................................................................................................................................. 788 IBERIA - Banks on Artificial "Ponzi Bond" Life Support .................................................................................................................................. 789

UK – Carney Tales the Helm of BOE with Forward Guidance& Stern Warnings ................................................................................................. 798 RESEARCH WE FOLLOWED THIS MONTH ................................................................................................................................................. 798 RESEARCH OF PARTICULAR IMPORTANCE ............................................................................................................................................. 799 RESEARCH - UK workers' wage squeeze is longest since the 1870s ........................................................................................................... 799 CHARTS OF PARTICULAR IMPORTANCE ................................................................................................................................................... 800 CHARTS - UK – Population Growth ................................................................................................................................................................ 800


CHARTS - UK - Crushed Disposable Income ................................................................................................................................................. 800 CHARTS - UK - BOE Balance Sheet Growth.................................................................................................................................................. 801 CHARTS - UK - Lending .................................................................................................................................................................................. 801 CHARTS - UK - Unemployment ...................................................................................................................................................................... 802 CHARTS - UK - GDP - Pre and Post Recession Levels ................................................................................................................................. 803 CHARTS - UK - GDP ....................................................................................................................................................................................... 803 CHARTS - UK - BOE Rates............................................................................................................................................................................. 804 SITUATIONAL ASSESSEMENT ..................................................................................................................................................................... 805 UK - What you need to Know .......................................................................................................................................................................... 805 UK - Joins Currency War - £ Down 8% YTD ................................................................................................................................................... 806 UK - Specter of Stagflation Haunts UK ........................................................................................................................................................... 807 UK - Public Policy turns Against Austerity and PM Cameron ......................................................................................................................... 808 UK - Doomsday Debt Machine ........................................................................................................................................................................ 809 UK - QE Extension Coming ............................................................................................................................................................................. 812 UK - Small Business Credit Squeeze Now Acute - Loan Rejections Rising ................................................................................................. 814 UK - Technically in a Depression .................................................................................................................................................................... 815

CYRPUS - Latest EU Banking Crisis ..................................................................................................................................................................... 818 SITUATIONAL ASSESSEMENT ..................................................................................................................................................................... 818 CYRPUS - What you Need To Know .............................................................................................................................................................. 818 CYRPUS - Basic Situational Charts ................................................................................................................................................................ 820 CYPRUS - Crumbling Property Rights ............................................................................................................................................................ 822 CYPRUS - Plan D Supersedes Plan C and B as Time running Out ............................................................................................................... 826 CYPRUS - Forgetting About Contract Law, Private Property Rights and Due Process ................................................................................. 829 CYPRUS - Russian Tax Haven ....................................................................................................................................................................... 830 CYPRUS - Plan B as Bad As Plan A ............................................................................................................................................................... 831 CYPRUS - Breaks Public Trust and Incites the Politics of Germany Dictating Terms ................................................................................... 832 CYPRUS - Does Anyone Care How a Capitalist System (versus a Crony Capitalist System) is Supposed to Work? .................................. 838 CYPRUS - Criminal "Confidence Game" Payouts to Everyone at the Tax Payers Expense ......................................................................... 839 CYPRUS - Cyprus Pushes EU Banking Crisis Back Near the Edge ........................................................................................................... 841

ASIA - SERIOUS CRACKS BELOW THE SURFACE ......................................................................................................................... 842 CHINA - Credit Tightening Panic Averted - Temporarily? ............................................................................................................................... 842

RESEARCH WE FOLLOWED THIS QUARTER ............................................................................................................................................ 842 CHARTS OF PARTICULAR IMPORTANCE ................................................................................................................................................... 847 CHARTS - CHINA - Chinese Credit Market ................................................................................................................................................... 847 CHARTS - CHINA - PMI .................................................................................................................................................................................. 848 CHARTS - CHINA - PMI-2 .............................................................................................................................................................................. 849 CHARTS - CHINA - GDP ................................................................................................................................................................................. 850 CHARTS - CHINA - INDUSTRIAL OUTPUT ................................................................................................................................................... 851 CHARTS - CHINA - Urban Fixed Asset Investment ........................................................................................................................................ 852 CHARTS - CHINA - RETAIL SALES ............................................................................................................................................................... 853 RESEARCH OF PARTICULAR IMPORTANCE ............................................................................................................................................. 854 RESEARCH - China's Stunning $15 Trillion In New Liquidity ......................................................................................................................... 854 RESEARCH - Dr. Copper Ready to Top and Head Lower ............................................................................................................................. 857 RESEARCH - China's $1 Trillion GDP Lie ...................................................................................................................................................... 858 RESEARCH - What the Deceleration Could Portend ..................................................................................................................................... 860 RESEARCH - Credit Bubble: 240% Of GDP And Soaring ............................................................................................................................. 863 RESEARCH - Forget ‘Taper’ risk: China is a bigger threat ............................................................................................................................. 866 RESEARCH - Sustainability Requires a Slowdown in Investment ................................................................................................................. 868 RESEARCH - China Likely to Continue Interest Rate Liberalization .............................................................................................................. 870 RESEARCH - China #1 in Broad Array of Key Areas ..................................................................................................................................... 873 RESEARCH - Global Business Confidence Sliding Rapidly ........................................................................................................................... 874

Must be a Buy Signal... .............................................................................................................................................................................. 874 RESEARCH - Investors Worried and Losing Confidence ............................................................................................................................... 877 RESEARCH - China Stampeding into Gold .................................................................................................................................................... 878 RESEARCH - China "Will introduce some measures to arrest the slowdown of growth in the next couple of quarters" .............................. 880 RESEARCH - Slower Growth In the Cards & Endorsed by New Chinese Leadership .................................................................................. 881 RESEARCH - Is a PBOC Controlled Speculation Bust Possible or Will It Get Out of Control ....................................................................... 882 RESEARCH - PBOC Liquidity Squeeze .......................................................................................................................................................... 883 RESEARCH - Chinese Housing Bubble Restricting PBOC Actions ............................................................................................................... 885 RESEARCH - PBOC Squeezing Banks towards Reducing Speculative Risk ................................................................................................ 887 RESEARCH - Chinese Overnight Repo at 25% ............................................................................................................................................. 889 RESEARCH - Red Flags ................................................................................................................................................................................. 890 RESEARCH - Credit Fueled Growth in China ................................................................................................................................................. 892 RESEARCH - PBOC Wants to Hold the Line on Explosive Credit Expansion through A Liquidity Squeeze ................................................ 897 RESEARCH - A Potentially De-Stabilizing Cash Crunch ................................................................................................................................ 899 SITUATIONAL ANALYSIS – Positioning Reference ....................................................................................................................................... 900 CHINA SHADOW BANKING - Shadow Banking System Showing Signs of Implosion.................................................................................. 902 CHINA SHADOW BANKING - Shadow Banking and Credit Growth .............................................................................................................. 905 CHINA SHADOW BANKING - The US Sub-Prime / CDO All Over Again ...................................................................................................... 908 CHINA SHADOW BANKING - Report ............................................................................................................................................................. 912 CHINA SHADOW BANKING - Situation .......................................................................................................................................................... 913 CHINA RESERVES - Distorted Foreign Reserve Levels ................................................................................................................................ 915 CHINA RESERVES - Declining Reserve Accumulation ................................................................................................................................. 917 CHINA RESERVES - Has Caught the Gold Bug big time! ............................................................................................................................. 919 CHINA CURRENCY WARS - Hot Money into China ...................................................................................................................................... 921


CHINA - Withdraws Liquidity ........................................................................................................................................................................... 922 CHINA - Société General Sees a Likely Soft Landing! .............................................................................................................................. 924 CHINA - True Debt is Orders of Magnitude More than Officially Being Reported .......................................................................................... 932 CHINA - Evidence OF Slowing Now Indisputable ........................................................................................................................................... 935 CHINA - PMI Improvement .............................................................................................................................................................................. 936 CHINA - Political Transition & Ongoing Emergence as a Super Power ......................................................................................................... 939 CHINA - An Implicit Social Contract ................................................................................................................................................................ 942 CHINA - Manipulated Statistics due to Upcoming Decade Long Regime Change ........................................................................................ 944 CHINA - Increasing Leverage is China's Way of Monetary Easing ................................................................................................................ 945 CHINA - Possible Interest-Rate Liberalization ................................................................................................................................................ 946 CHINA - Global Impact of China's Slowdown ................................................................................................................................................. 947 CHINA - Shanghai Composite at 2008 Low Levels ........................................................................................................................................ 949 CHINA - Shanghai Composite Warnings Signs .............................................................................................................................................. 950 CHINA - Credit to GDP .................................................................................................................................................................................... 952 CHINA - A Slow Recovery Through 2013 ....................................................................................................................................................... 953 CHINA - Manufacturing PMI in Contraction Territory ...................................................................................................................................... 955

JAPAN: The New Currency War Front .................................................................................................................................................................. 958 RESEARCH WE FOLLOWED THIS QUARTER ............................................................................................................................................ 958 RESEARCH OF PARTICULAR IMPORTANCE ............................................................................................................................................. 960 RESEARCH - No Way Out But to Expand the Monetary Base ...................................................................................................................... 960 RESEARCH - BOJ to "Own" 100% Of GDP In 5 Years .................................................................................................................................. 961 RESEARCH - Adjusted trade deficit the worst in Bloomberg's 20 year history .............................................................................................. 964 RESEARCH - How Japan's National Debt Grew ............................................................................................................................................ 965 RESEARCH - ABE-nomics About Lowering Real Interest Rates ................................................................................................................... 966 RESEARCH - Japanese Bonds Have Lost Their Ability to Price Risk ............................................................................................................ 967 RESEARCH - Q2 GDP Misses By A Huge Margin ......................................................................................................................................... 970 RESEARCH - Japanese Structural Problems a "Canary" for Western Developed Economies ..................................................................... 971

Bank weakness ............................................................................................................................................................................................ 972 Age pressures .............................................................................................................................................................................................. 973

RESEARCH - Shinzo Abe Hasn't the Stomach for the Heavy Lifting Needed to Accompany ABE-nomics. ................................................. 974 RESEARCH - A Credit Squeeze Leads Deflationary Leg Down .................................................................................................................... 976 RESEARCH - Some Japanese Policies Have Clearly Hit the Limit ................................................................................................................ 977 RESEARCH - The ABE (Asset Bubble Evaluator) Index ................................................................................................................................ 979 CHARTS OF PARTICULAR IMPORTANCE ................................................................................................................................................... 980 CHARTS - JAPAN - GDP, IP and Exports ...................................................................................................................................................... 980 CHARTS - JAPAN - GDP Resurgence ........................................................................................................................................................... 981 CHARTS - JAPAN - BOJ Balance Sheet ........................................................................................................................................................ 983 SITUATIONAL ASSESSEMENT ..................................................................................................................................................................... 984 JAPAN - What You Need to Know .................................................................................................................................................................. 986 JAPAN - Regional Risk-Reward ...................................................................................................................................................................... 988 JAPAN - Now the Frontrunner of Outright Monetization. ................................................................................................................................ 989 JAPAN - Yen Devaluation................................................................................................................................................................................ 990 JAPAN - New Bank of Japan Policy - 2% Inflation in 2 Years ........................................................................................................................ 991 JAPAN - Appoints BOJ Governor Firmly Committed to Printing Money ......................................................................................................... 993 JAPAN - Third Straight Quarter of Recession ................................................................................................................................................. 994 JAPAN - Full Out War on Deflation ................................................................................................................................................................. 994 JAPAN - First Test of the new found “dominance” of the Central Banks ........................................................................................................ 996 JAPAN - BOJ Was Next Up. No Surprise ....................................................................................................................................................... 998 JAPAN - Negative Current Account Balance and -3.5% Recession ............................................................................................................ 1000 JAPAN - A 50% Over-Valued Yen Has Undermined Self Confidence & Drive ............................................................................................ 1003 JAPAN - Proves QE's Low Cost of Capital Does Structural Damage to Economy ...................................................................................... 1005 JAPAN - BOJ Being Pressured to "Rip-Up Government Debt"1 .................................................................................................................. 1007 JAPAN - Easy Money Has Hurt Corporate Profitability in the Longer Term ................................................................................................ 1013 JAPAN - The Biggest Debtor with the Biggest Problem!............................................................................................................................... 1016 JAPAN - A Magnitude Larger Problem than Europe ..................................................................................................................................... 1020 JAPAN - QE 9 A Complete Failure - Actually "Tightens" versus It's Intended Easing.................................................................................. 1026 JAPAN - Japanese Yen Continuously Under Attack .................................................................................................................................... 1031 JAPAN - Vast foreign US$ Coming Home for "Claim" .................................................................................................................................. 1032 JAPAN - PMI Breakdown.............................................................................................................................................................................. 1034 JAPAN - Exports Continue To Tumble .......................................................................................................................................................... 1036 JAPAN - Intervention Fails Again - It's a Whole new Ball Game ................................................................................................................ 1037 JAPAN - First Signs of Massive Debt Monetization After Next Election ....................................................................................................... 1040 JAPAN - Japan to the ESM's Rescue .......................................................................................................................................................... 1040

EMERGING MARKETS – ECHO BOOM AHEAD ........................................................................................................................ 1042 RESEARCH WE FOLLOWED THIS QUARTER .......................................................................................................................................... 1042 RESEARCH OF PARTICULAR IMPORTANCE ........................................................................................................................................... 1047 EMERGING MARKETS - Forced Changes & Advancements in the Normal "Plundering" Strategy ............................................................ 1047 EMERGING MARKETS - Crisis Temporarily Halted ..................................................................................................................................... 1048 EMERGING MARKETS - The plight of four Asian countries - China, India, Indonesia and Japan. ............................................................. 1049 EMERGING MARKETS - Negative Current Accounts + Weak(ening) International Investment Positioning .............................................. 1054 EMERGING MARKETS - "TAPER" Shock Waves Across Asia ................................................................................................................... 1054 EMERGING MARKETS - Global Bond Yields React Together .................................................................................................................... 1056 EMERGING MARKETS - A Bumpy Ride for Emerging Markets .................................................................................................................. 1058 EMERGING MARKETS - Stunning Withdrawals .......................................................................................................................................... 1064 EMERGING MARKETS - Bond Outflows Accelerating ................................................................................................................................. 1065


EMERGING MARKETS - This will make the 1997 Asian Crisis Seem Like an Early Warning .................................................................... 1067 EMERGING MARKETS - Developing Nations Feeling the Pain of Global Deleveraging Acceleration................................................... 1069 EMERGING MARKETS - The Impact of "TAPER"........................................................................................................................................ 1072 CHARTS OF PARTICULAR IMPORTANCE ................................................................................................................................................. 1076 CHARTS - Reserves versus World ............................................................................................................................................................... 1076 CHARTS - Current Account Balances versus GDP ...................................................................................................................................... 1077 CHARTS - Emerging Markets Index versus MSCI World Index ................................................................................................................... 1078 CHARTS - SINGAPORE - Inflation ............................................................................................................................................................... 1079 CHARTS - SINGAPORE - Exports ................................................................................................................................................................ 1080 CHARTS - SOUTH KOREA........................................................................................................................................................................... 1081 CHARTS - TURKEY - Spreads ..................................................................................................................................................................... 1082 SITUATIONAL ASSESSEMENT ................................................................................................................................................................... 1083 EMERGING MARKETS - What you Need to Know ...................................................................................................................................... 1083 EMERGING MARKETS - Comparative Ease of Doing Business ................................................................................................................. 1085 EMERGING MARKETS - Importance of Employment, Equality and Per Capital Income ............................................................................ 1086 ASIA ............................................................................................................................................................................................................... 1089 ASIA: CHARTS - SINGAPORE ..................................................................................................................................................................... 1089 ASIA: CHARTS - INDONESIA ....................................................................................................................................................................... 1090 ASIA: CHARTS - AUSTRALIA ...................................................................................................................................................................... 1091 ASIA - Regional Risk-Reward ....................................................................................................................................................................... 1092 ASIA - Credit Contraction Problems .............................................................................................................................................................. 1093 ASIA - Corporate Debt Levels Reflect Unintended Consequences of Mispricing & Mal-Investment ........................................................... 1095 ASIA - Synchronized Markets ........................................................................................................................................................................ 1097 ASIA - Caution Advised Regarding Positive South Korea Export Turnaround ............................................................................................. 1099 ASIA - Export Growth Looks Similar to Pre-2008 ......................................................................................................................................... 1100 ASIA - Global Slowing Quickly a Worsening Situation Across Asia ........................................................................................................... 1104 ASIA - Risks All on the Downside for Asia .................................................................................................................................................... 1105 ASIA - Demographic Headwinds ................................................................................................................................................................... 1108 ASIA - Pronounced Flight to Singapore Safety ............................................................................................................................................. 1109 BRICS ............................................................................................................................................................................................................ 1111 BRICS - EU Major Contributor to EM Current Account Deficit Growth ......................................................................................................... 1111 BRICS - Insufficient Levels Prompt Russian-Chinese Support ..................................................................................................................... 1112 BRICS - A Development Bank-Forex Reserve Pool-African Integration ...................................................................................................... 1114 BRICS - 40% of World Population and 25% of World GDP .......................................................................................................................... 1115 BRICS - $3 to $13B GDP in Ten Years ......................................................................................................................................................... 1118 BRICS- A World Wide Distrust of Financial Markets Building ....................................................................................................................... 1121 BRAZIL........................................................................................................................................................................................................... 1123 BRAZIL - Inflation will remain high thanks to a "growth mismatch". ............................................................................................................. 1123 BRAZIL - Sharpest Decline in 2013 Growth Forecast ................................................................................................................................... 1125 RUSSIA - Central bank will hike rates if inflation and oil prices continue to rise. ......................................................................................... 1128 INDIA - Inflation.............................................................................................................................................................................................. 1129 INDIA - WPI ................................................................................................................................................................................................... 1130 INDIA - Will be fine as long as it continues to reduce its deficit. ................................................................................................................... 1131 INDIA - Panic in India .................................................................................................................................................................................... 1132 INDIA - India Rupee Collapse Showing Signs of Exhaustion ....................................................................................................................... 1134 INDIA - Watch Out For RE-Emergence of Food Price Inflation .................................................................................................................... 1135 SOUTH AFRICA ............................................................................................................................................................................................ 1136 LATIN AMERICA ........................................................................................................................................................................................... 1138 VENEZUELA – Signs of a Crack-up Boom and Dictatorship ........................................................................................................................ 1139 VENEZUELA - Shortages & Hyperinflation ................................................................................................................................................... 1139 MIDDLE EAST ............................................................................................................................................................................................... 1141 TURKEY ........................................................................................................................................................................................................ 1141

US ECONOMY ..................................................................................................................................... 1142

THE GLOBAL MACRO OVERLAY ........................................................................................................................................ 1144 MACRO - US Macro Data Divergence .......................................................................................................................................................... 1144 MACRO - US Macro Surprise Index .............................................................................................................................................................. 1146 MACRO - Serious Structural US Problems Impeding Global Competitive ................................................................................................... 1149 MACRO – Output Gap ................................................................................................................................................................................... 1151

US INVESTMENT CYCLE ...................................................................................................................................................... 1160 GORD'S BIG PICTURE ECONOMIC CYCLE ..................................................................................................................................................... 1160 ECONOMIC INDICATORS .................................................................................................................................................................................. 1161

MONTHLY INDICATORS OF NOTE ............................................................................................................................................................. 1161 RESEARCH - The US Economy Continues to Tank under Obama.......................................................................................................... 1161 REFERENCE CHARTS ............................................................................................................................................................................. 1163

THE CURRENT BUSINESS CYCLE - SITUATIONAL ANALYSIS ..................................................................................................................... 1168 BUSINESS CYCLE - JOBS > CONFIDENCE > CONSUMPTION > GROWTH CYCLE.................................................................................... 1168 BUSINESS CYCLE - JOBS ................................................................................................................................................................................. 1170

SOME GRAPHIC HIGHLIGHTS .................................................................................................................................................................... 1170 CHARTS & TABLES OF NOTE ..................................................................................................................................................................... 1173

CHARTS - Corporate Profits versus Wages .............................................................................................................................................. 1173 CHARTS - Standard of Living Decline and Bear Market in Real Terms Reflect Labor Participation ....................................................... 1173


CHARTS - Underemployment Gap ............................................................................................................................................................ 1174 CHARTS - Participation Rate..................................................................................................................................................................... 1175 CHARTS - Part Time Employment ............................................................................................................................................................ 1175 CHARTS - U3 & U6.................................................................................................................................................................................... 1176 CHARTS - Employment Situation Summary ............................................................................................................................................. 1177

RESEARCH OF NOTE .................................................................................................................................................................................. 1182 RESEARCH - Labor Force Participation Rates ......................................................................................................................................... 1182 RESEARCH - Bridging Jobs to Confidence & Sentiment.......................................................................................................................... 1185 RESEARCH - Participation Rate at 1979 Carter Levels ........................................................................................................................... 1188

SITUATIONAL SUMMARY & ANALYSIS ..................................................................................................................................................... 1189 BUSINESS CYCLE - CONSUMER & BUSINESS SENTIMENT ......................................................................................................................... 1195

A GRAPHIC HIGHLIGHT .............................................................................................................................................................................. 1195 CHARTS & TABLES ...................................................................................................................................................................................... 1196

CHARTS - NFIB Small Business Sentiment .............................................................................................................................................. 1196 CHARTS - Orange Book ............................................................................................................................................................................ 1197

RESEARCH OF NOTE .................................................................................................................................................................................. 1197 RESEARCH - Consumer Confidence & Investor Sentiment ..................................................................................................................... 1197 RESEARCH - Financial Stress Index Sends Market Clue ........................................................................................................................ 1202 RESEARCH - Consumer Confidence and the Mortgage Spike "Peak Signal" ......................................................................................... 1203 RESEARCH - Contrarian Breadth Rule ..................................................................................................................................................... 1204

SENTIMENT: Consumer, Investor & Trader ................................................................................................................................................ 1207 Consumer Confidence - Conference Board ........................................................................................................................................... 1207 Consumer Sentiment - Michigan ............................................................................................................................................................ 1211 Consumer Comfort ................................................................................................................................................................................. 1212 Investors Intelligence.............................................................................................................................................................................. 1214 American Association of Independent Investors .................................................................................................................................... 1214 National Association of Active Investment Managers (NAAIM) ............................................................................................................. 1215 Small Business Optimism ...................................................................................................................................................................... 1216 Percentage Stocks above 50 & 200 DMA ............................................................................................................................................. 1217 Margin Levels ......................................................................................................................................................................................... 1218 Mutual Fund Cash Levels v S&P 500 .............................................................................................................................................. 1222

SITUATIONAL SUMMARY & ANALYSIS ..................................................................................................................................................... 1225 BUSINESS CYCLE – CONSUMPTION ............................................................................................................................................................... 1229

RESEARCH WE FOLLOWED ....................................................................................................................................................................... 1229 CHARTS & TABLES OF NOTE ..................................................................................................................................................................... 1232

CHARTS - Real Disposable Personal Income .......................................................................................................................................... 1232 CHARTS - Real Consumption Expenditure ............................................................................................................................................... 1234 CHARTS - Consumer Credit Deleveraging ............................................................................................................................................... 1235 CHARTS - Core Retail Growth .................................................................................................................................................................. 1236

RESEARCH OF NOTE .................................................................................................................................................................................. 1237 RESEARCH - 95% of Consumer Credit Lending Going towards Student & Car Loans ........................................................................... 1237 RESEARCH - Gallup Survey Shows -10% Reduction in Christmas Buying Plans ................................................................................... 1239 RESEARCH - The Wal-Mart Measure or How the US Consumer Is the Global Engine .......................................................................... 1240 RESEARCH - A Sequential Decline in Wages .......................................................................................................................................... 1241 RESEARCH - Final Sales Signals Pending Potential Recession on the Horizon ..................................................................................... 1242 RESEARCH - Consumers Using Savings to Maintain Life Style .............................................................................................................. 1242 RESEARCH - The Destruction of America's Middle Class ....................................................................................................................... 1245 RESEARCH - Dramatic Slowing in Restaurant Business ......................................................................................................................... 1245 RESEARCH - Signs of Serious Troubles .................................................................................................................................................. 1246 RESEARCH - Falling Real Disposable Income means Falling Consumption ........................................................................................... 1249

SITUATIONAL SUMMARY & ANALYSIS ..................................................................................................................................................... 1251 BUSINESS CYCLE - GROWTH .......................................................................................................................................................................... 1254

RESEARCH WE FOLLOWED ....................................................................................................................................................................... 1254 CHARTS & TABLES OF NOTE ..................................................................................................................................................................... 1256

CHARTS - Manufacturing .......................................................................................................................................................................... 1256 CHARTS - Exports ..................................................................................................................................................................................... 1256 CHARTS - Durable Goods ......................................................................................................................................................................... 1257 CHARTS - NFIB Small Business CAPEX .................................................................................................................................................. 1257 CHARTS - US Manufacturing Conditions Deteriorating ............................................................................................................................ 1258

RESEARCH OF NOTE .................................................................................................................................................................................. 1259 RESEARCH - US GDP Growth Forecasts ................................................................................................................................................ 1259 RESEARCH - Economic Recoveries Don't Look Like This! ...................................................................................................................... 1259 RESEARCH - 2nd Worst Decade in Over 220 Years (And Getting Worse) ............................................................................................. 1260 RESEARCH - US Economy is being fundamentally transformed ............................................................................................................. 1262 RESEARCH - Shrinking CAPEX, Expanding Buybacks and Dividends ................................................................................................... 1265

REFERENCE - Prior Posts ............................................................................................................................................................................ 1269 RESEARCH - US Economic Recovery Has Peaked ................................................................................................................................ 1269

SITUATIONAL SUMMARY & ANALYSIS ..................................................................................................................................................... 1274 ECONOMIC CYCLE, INVESTMENT CYCLE, SECTOR ROTATION ................................................................................................................. 1278

US PUBLIC POLICY – GROWING LIST OF POLICY PROBLEMS ........................................................................................ 1285 RESEARCH WE FOLLOWED ....................................................................................................................................................................... 1285

NSA-SECURITY-SURVEILLANCE COMPLEX......................................................................................................................................... 1285 OBAMACARE ............................................................................................................................................................................................ 1286 GENERAL PUBLIC POLICY...................................................................................................................................................................... 1288


CHARTS & TABLES OF NOTE ..................................................................................................................................................................... 1290 CHARTS - US Incarceration Rate Out of Control ...................................................................................................................................... 1290

RESEARCH OF NOTE .................................................................................................................................................................................. 1292 POLICY - A self-destructive path toward oblivion...................................................................................................................................... 1292 POLICY - Indictment of US Public, Fiscal & Monetary Policy ................................................................................................................... 1297 POLICY - The Crisis of Trust Continues to Worsen .................................................................................................................................. 1310 POLICY - The Stunning Truth about Inequality In America....................................................................................................................... 1311 POLICY - Pointing US towards Government Dependence ....................................................................................................................... 1312 POLICY - Yet another Game of Deception ................................................................................................................................................ 1316 POLICY - Obamacare A Flawed Public Policy Implementation ................................................................................................................ 1320 POLICY - Financial Repression and Manipulated Illusions ....................................................................................................................... 1323

Manipulating Bad Financial Data ........................................................................................................................................................... 1323 Manipulating Bad Nuclear Facts ............................................................................................................................................................ 1324 Manipulating Oil Spill Info ....................................................................................................................................................................... 1325 Manipulating Data on Other Environmental Issues ............................................................................................................................... 1325 Manipulating Food Safety Data .............................................................................................................................................................. 1326 Manipulating Health Safety Data ........................................................................................................................................................... 1326 Manipulating Metrics for War ................................................................................................................................................................. 1326 The Core Problem .................................................................................................................................................................................. 1326

POLICY - US Economic Decline is Obvious to Anyone Caring to Look ................................................................................................... 1327 POLICY - Policy Uncertainty and Confidence in Monetary Policy Direction is exposed........................................................................... 1330 POLICY - "What is good for GM is good for America" is no longer correct .............................................................................................. 1332 POLICY - Where is the Logic In US Public Policy ..................................................................................................................................... 1333 POLICY - What is the Real Driving Force Behind the New Immigration Law? ......................................................................................... 1336 POLICY - Crony Capitalism and How America Lost its Way! ................................................................................................................... 1339

SITUATIONAL SUMMARY & ANALYSIS ..................................................................................................................................................... 1343

MONETARY POLICY – THE TAPER RATE & THE NEW FED CHAIR ............................................................................................ 1345 RESEARCH WE FOLLOWED ....................................................................................................................................................................... 1345

TAPER ....................................................................................................................................................................................................... 1349 TAPER - Fed December 2013 FOMC "TAPER" .................................................................................................................................... 1351 TAPER - The Last Time a Major Central Bank "Tapered" QE .............................................................................................................. 1352 TAPER - FOMC QE Meeting ................................................................................................................................................................. 1354 TAPER - The Fed Cannot Possibly "Exit" Without The Market Crumbling ........................................................................................... 1356 TAPER - It Matters and the Fed Has Few Options As Quality Collateral Disappears. ......................................................................... 1358 TAPER - Look for QE to ‘Morph’ Into Quantitative Education ............................................................................................................... 1360 TAPER - Why Fed Bond Buying Can't Go on Indefinitely and Why TAPER ......................................................................................... 1364 TAPER - Political "Push-Back" by the Fed ............................................................................................................................................ 1365 TAPER - Ending QE Will Pressure Fiscal Policy ................................................................................................................................... 1367 TAPER - Delay Risks Bond Market Volatility as Private Availability Steadily Shrinks .......................................................................... 1371 TAPER - Clearly a Bluff or Muddled Policy ............................................................................................................................................ 1374 TAPER - Why is the Fed Talking TAPER? ............................................................................................................................................ 1376 TAPER - The Fed is Unlikely to Taper ................................................................................................................................................... 1379 TAPER - Fed Trapped in a Box ............................................................................................................................................................. 1381 TAPER - The Fed Taper Playbook ........................................................................................................................................................ 1383 TAPER - TAPER Put On Hold ............................................................................................................................................................... 1384

QUEEN YELLEN ........................................................................................................................................................................................... 1387 YELLEN - QEeen YELLEN TESTIMONY - Dampens Taper Bet .......................................................................................................... 1388

VOLKER RULE .............................................................................................................................................................................................. 1391 VOLKER - Dodd- Frank Never Had a Chance .......................................................................................................................................... 1392

CHARTS & TABLES OF NOTE ........................................................................................................................................................................... 1394 CHARTS: US Trade Balance Has Been Shrinking Since 2008 .................................................................................................................... 1394 CHARTS: Inflation Arrived with the Removal of a Gold Standard Discipline and Creditism ........................................................................ 1394 CHARTS: Economic Growth Based Significantly on Credit Growth ............................................................................................................. 1395 CHARTS: Fed deliberately ignoring data on both growth and inflation ........................................................................................................ 1397 CHARTS: US Economic Activity .................................................................................................................................................................... 1398 CHARTS: Effects of QE on S&P 500 ............................................................................................................................................................ 1399 CHARTS: Monetary Velocity versus Monetary Base .................................................................................................................................... 1400 CHARTS: Days Between 'Unsterilized' Actions ............................................................................................................................................ 1401 CHARTS: FOMC Economic Projections ....................................................................................................................................................... 1401 CHARTS: Taylor Rule & Evans Rule Estimates of Fed Funds Rates .......................................................................................................... 1402 CHARTS: Market Pricing In A Longer On-Hold Fed ..................................................................................................................................... 1402 CHARTS: Fed Balance Sheet Assets & Liabilities ........................................................................................................................................ 1403 CHARTS: Fed Policy Turns 180 Degrees ..................................................................................................................................................... 1403 CHARTS: US Banking Industry Concentration ............................................................................................................................................. 1404 CHARTS: Total Credit Market Debt as % GDP............................................................................................................................................. 1405 CHARTS: Debt-to-GDP Ratio Above What Caused Great Depression ........................................................................................................ 1406 CHARTS: Yield Chase Completely Distorted ................................................................................................................................................ 1406 CHARTS: Velocity of Money ......................................................................................................................................................................... 1409 CHARTS: Real Negative Rates ..................................................................................................................................................................... 1412 CHARTS: Short Interest Rates a Fed Problem ............................................................................................................................................. 1415

RESEARCH OF NOTE ........................................................................................................................................................................................ 1417 MONETARY - Dollar, Currency & Gold Outlook ........................................................................................................................................... 1417 MONETARY - Federal Reserve’s False Media Reporting ............................................................................................................................ 1422 MONETARY - The Unintended Consequences of it all................................................................................................................................. 1424 MONETARY - QE Proves to be the "Sham" We All Knew it was! ................................................................................................................ 1433


MONETARY - Owns 32.47% of all 10 Year equivalents and monetizing 70% of all net equivalent issuance ............................................. 1435 MONETARY - The Policy Options Available to the Fed................................................................................................................................ 1436 MONETARY - Capital Distortion & Global Acceptance of the Bernankean Theory ..................................................................................... 1437 MONETARY - The Suspension of Price Discovery (Marriage of Financial Repression & Crony Capitalism) ............................................. 1441 MONETARY - The Fed is stuck in a QE Trap ............................................................................................................................................... 1444 MONETARY - Mathematically, the Fed Can Only Fail .................................................................................................................................. 1447 MONETARY - QE versus S&P 500 Movements ........................................................................................................................................... 1452 MONETARY - QE is standing Between Inflated Equity Markets and A Recession ...................................................................................... 1454 MONETARY - Mounting Policy Failures ........................................................................................................................................................ 1456 MONETARY - QE Doesn't Help the Economy .............................................................................................................................................. 1460 MONETARY - The US Reserve Currency and the steady erosion of trust ................................................................................................... 1462 MONETARY - The FAC is to the FED as the TBAC is to the TREASURY (Same Banks) .......................................................................... 1465 MONETARY - $2.3 Trillion of Leveraged Derivative Collateral ..................................................................................................................... 1466 MONETARY - Leverage, Funding and Profit Pressures as Money Is No Longer Quite as Free ................................................................. 1471 MONETARY - The Fed's Double-Bind .......................................................................................................................................................... 1477 MONETARY - The Federal Reserve is at the very heart of our economic problems ................................................................................... 1478 MONETARY - FED Inflation & Deflator ......................................................................................................................................................... 1480

REFERENCE - Prior Posts .................................................................................................................................................................................. 1482 RESEARCH - Reduction at the Core of the Growth of the Federal Reserve Balance Sheet ....................................................................... 1482 RESEARCH - Fed's Excess Reserves are 51% Foreign Banks, 49% Domestic ......................................................................................... 1485 RESEARCH - A Game of Calculated Deception is Evolving to Something Worse ...................................................................................... 1487 RESEARCH - A Loan Distribution Credit Bubble .......................................................................................................................................... 1488 RESEARCH - QE to be replaced with Guidance, Thresholds and Promises ............................................................................................... 1489 RESEARCH - Bernanke in a Box and Talking Out of Both Sides of Your Mouth ......................................................................................... 1491 RESEARCH - Duration Extraction: The Hidden Fed Game .......................................................................................................................... 1492 RESEARCH - The Fed's Stated Guidance Sign-Posts ................................................................................................................................. 1494 RESEARCH - An Artificial Market ................................................................................................................................................................. 1496 RESEARCH - Bank Reserves A Ticking Bomb, But Who Will Be Caught in the Blast? .............................................................................. 1496 RESEARCH - QE An Intentionally Broken Mechanism Due to 2008 Policy Payable Interest on Bank Reserves...................................... 1500 RESEARCH - QE Ineffective In Increasing GDP .......................................................................................................................................... 1501 MONETARY: Helicopter Money of Central Bank Bond Purchases are Forever .......................................................................................... 1502 MONETARY: Central Bank Balance Sheet Expansion and the Theoretical Path to SPX of 1950 .............................................................. 1504 MONETARY: Central Bank Balance Sheet Expansion versus CPI .............................................................................................................. 1506 MONETARY: The Fed Model No Longer Prices Risk ................................................................................................................................... 1506

SITUATIONAL SUMMARY & ANALYSIS ............................................................................................................................................................ 1514

FISCAL POLICY – GOVERNMENT CAPITULATES ON SEQUESTRATION & AUSTERITY THINKING ............................... 1517 RESEARCH WE FOLLOWED ............................................................................................................................................................................. 1517

BUDGET AGREEMENT ................................................................................................................................................................................ 1518 GOVERNMENT SHUTDOWN ....................................................................................................................................................................... 1519 GOVERNMENT WASTE - CORRUPTION ................................................................................................................................................... 1519 FISCAL MATTERS ........................................................................................................................................................................................ 1520

CHARTS & TABLES OF NOTE ........................................................................................................................................................................... 1521 CHARTS - Government Receipts & Outlay Growth Improves Significantly .................................................................................................. 1522 CHARTS - Federal Budget Surplus / Deficit .................................................................................................................................................. 1522 CHARTS - Real Federal Government Purchases ......................................................................................................................................... 1523 CHARTS - US Trade Balance Improvement ................................................................................................................................................. 1523 CHARTS - Growth & Jobs ............................................................................................................................................................................. 1524 CHARTS - Taxes & Spending ....................................................................................................................................................................... 1528 CHARTS - Politics & Policy ........................................................................................................................................................................... 1531 CHARTS - The Stakes ................................................................................................................................................................................... 1532 CHARTS - Official Fiscal Deficit & Debt ........................................................................................................................................................ 1534 CHARTS - Payroll Tax Holiday ...................................................................................................................................................................... 1535 CHARTS - Tax Rate Comparisons ................................................................................................................................................................ 1536 CHARTS - Risk Perceptions .......................................................................................................................................................................... 1537 CHARTS - 2013 Quarterly Impact ................................................................................................................................................................. 1538 CHARTS - Budget Deficit .............................................................................................................................................................................. 1539 CHARTS - Sovereign Debt ............................................................................................................................................................................ 1542 CHARTS - State & Local Government Drag ................................................................................................................................................. 1543 CHARTS - Government Dependence ........................................................................................................................................................... 1546 CHARTS - Coming Demographic Shock ....................................................................................................................................................... 1547 CHARTS - Fiscal Cliff Outcome .................................................................................................................................................................... 1551

BUDGET - What You Need to Know ................................................................................................................................................................... 1553 BUDGET - Political Budget Cowardice and Capitulation .............................................................................................................................. 1554 BUDGET - Political Budget Cowardice and Capitulation - 2 ......................................................................................................................... 1556 BUDGET - The Ultimate in Political Can-Kicking! ......................................................................................................................................... 1558 BUDGET - The Next Step in the Collapse Of The Dollar .............................................................................................................................. 1561 BUDGET - As Represented and Spun for the Public .................................................................................................................................... 1564 BUDGET - Implications .................................................................................................................................................................................. 1565 BUDGET - A Budget That Institutionalizes Big Government ........................................................................................................................ 1567 BUDGET - The Secrets in The Budget ......................................................................................................................................................... 1571

RESEARCH OF NOTE ........................................................................................................................................................................................ 1574 RESEARCH - Budget Deficit Shrinking ......................................................................................................................................................... 1574 RESEARCH - Avoiding Taxes ....................................................................................................................................................................... 1576 RESEARCH - A Confluence Of Risky Economic Events .............................................................................................................................. 1577


RESEARCH - Everyone Hates Sequestration, But Few Can Agree On What to Cut .................................................................................. 1578 RESEARCH - $70T Off-Balance Sheet Federal Liabilities ........................................................................................................................... 1580

SITUATIONAL SUMMARY & ANALYSIS ............................................................................................................................................................ 1583 BUDGET SELLOUT ............................................................................................................................................................................................. 1583

KEY DRIVERS - CATALYSTS OF CHANGE.......................................................................................................................... 1586 EMPLOYMENT .................................................................................................................................................................................................... 1591

RESEARCH WE FOLLOWED ....................................................................................................................................................................... 1591 CHARTS & TABLES ...................................................................................................................................................................................... 1591

CHARTS - Wages & Salary Accruals / GDP ............................................................................................................................................. 1592 CHARTS – US Employment/Population Ratio Total in Labor Force ......................................................................................................... 1592 CHARTS – US Industrial Production v Manufacturing Jobs...................................................................................................................... 1593 CHARTS - Part-Time Employment ............................................................................................................................................................ 1593 CHARTS - Nonfarm Payrolls Y-O-Y DECLINE ......................................................................................................................................... 1593 CHARTS - Hiring Stalled at 200K Per Month (Approximates ONLY the New People Entering Workforce)............................................ 1594 CHARTS - The Under-Employment Gap ................................................................................................................................................... 1594 CHARTS – Staycations A Sign of the FEAR of Job Loss & Competition for Jobs ................................................................................... 1595

RESEARCH OF NOTE .................................................................................................................................................................................. 1596 EMPLOYMENT - With and Without Obama's Recovery Plan ................................................................................................................... 1596 EMPLOYMENT - Millennials Devastated As American Dream Becomes Nightmare for Most ................................................................ 1598 EMPLOYMENT - 30 Mind-blowing Statistics about Americans Under The Age Of 30............................................................................. 1600 EMPLOYMENT - Going Nowhere Even With All Jobs Becoming Temporary Jobs and the Participation Rate Plummeting .................. 1603 EMPLOYMENT - Low-Wage Jobs Bias Continues to Hamper U.S. Recovery......................................................................................... 1604 EMPLOYMENT - A REAL Family Wage versus Part Time & HES ........................................................................................................... 1605 EMPLOYMENT - It is as much About the Quality, as the Quantity of Jobs .............................................................................................. 1612

REFERENCE - Prior Posts ............................................................................................................................................................................ 1615 1- CAPITAL SPENDING ............................................................................................................................................................................ 1615 2- SMALL BUSINESS OPTIMISM ............................................................................................................................................................. 1618 3- DEMOGRAPHIC SHIFT ........................................................................................................................................................................ 1622

REAL DISPOSABLE INCOME ............................................................................................................................................................................ 1633 RESEARCH WE FOLLOWED ....................................................................................................................................................................... 1633 CHARTS & TABLES ...................................................................................................................................................................................... 1634

CHARTS – This is a Structural .................................................................................................................................................................. 1634 CHARTS – Real Disposable Income per Capita ....................................................................................................................................... 1634 CHARTS - Household Incomes a Sign of a Collapsing Middle Class ....................................................................................................... 1635 CHARTS - Food Stamps Now 14% of US Grocery Store Sales ............................................................................................................... 1635

RESEARCH OF NOTE .................................................................................................................................................................................. 1637 RESEARCH – How Can a 70% Consumption Have a Recovery When Real DI/Capital Falls ................................................................. 1637 RESEARCH - The Facts are clear. The US Standard of Living is Falling ................................................................................................ 1638 RESEARCH - The Facts are clear. The US Standard of Living is falling .................................................................................................. 1639 RESEARCH - Standards of Living and Artificial Expectations .................................................................................................................. 1642 RESEARCH - A Lack of Demand in US Economy .................................................................................................................................... 1644 RESEARCH - Full Time Jobs or Food Stamps & Disability? .................................................................................................................... 1645

REFERENCE - Prior Posts ............................................................................................................................................................................ 1647 STANDARD OF LIVING - Salary Compression ........................................................................................................................................ 1647 DISPOSABLE INCOME - 66M (20%) Below $28.8/Year Subsistence Level ........................................................................................... 1648 FOOD STAMPS - 46,405,204 Individuals, 22,257,647 Households below Poverty Line ......................................................................... 1649 DISPOSABLE INCOME - Bad Even in Nominal Terms ............................................................................................................................ 1651 INFLATION - It's There but the Government Doesn't Account for it. ........................................................................................................ 1651

US RESIDENTIAL REAL ESTATE ...................................................................................................................................................................... 1653 RESEARCH WE FOLLOWED ....................................................................................................................................................................... 1653 CHARTS & TABLES ...................................................................................................................................................................................... 1655

CHARTS - The Real Cost of Buying a Home 6.7 X Average Salary......................................................................................................... 1655 CHARTS - Household Formations ............................................................................................................................................................. 1655 CHARTS - Housing Starts ......................................................................................................................................................................... 1656 CHARTS - Composition of Housing Sales ................................................................................................................................................ 1656 CHARTS - New Home Sales ..................................................................................................................................................................... 1657 CHARTS - Existing Residential Supply ..................................................................................................................................................... 1657 CHARTS - Housing Starts ......................................................................................................................................................................... 1658

RESEARCH OF NOTE .................................................................................................................................................................................. 1660 RESEARCH - Insight: A new wave of U.S. mortgage trouble threatens ................................................................................................... 1660 RESEARCH - Household Formation Drives Residential Real Estate ....................................................................................................... 1662

SITUATIONAL SUMMARY & ANALYSIS ..................................................................................................................................................... 1665 OVERVIEW ................................................................................................................................................................................................ 1665 CURRENT HOME OWNERSHIP TRENDS .............................................................................................................................................. 1670 $6.5 TRILLION IN MIDDLE CLASS NET WORTH EVAPORATES .......................................................................................................... 1673 NATIONAL STATISTICS: PRICE .............................................................................................................................................................. 1674 NATIONAL STATISTICS: EXISITNG HOME SALES ............................................................................................................................... 1676 NATIONAL STATISTICS: NEW HOME SALES ........................................................................................................................................ 1678 HOUSING: Even a Never Seen Before 30 Year Mortgage Rate can't Help Housing ............................................................................... 1679 HOUSING: Soaring FHA Delinquencies .................................................................................................................................................... 1681

US COMMERCIAL REAL ESTATE ..................................................................................................................................................................... 1686 RESEARCH WE FOLLOWED ....................................................................................................................................................................... 1686 CHARTS & TABLES OF NOTE ..................................................................................................................................................................... 1686 SITUATIONAL SUMMARY & ANALYSIS ..................................................................................................................................................... 1688


OVERVIEW ................................................................................................................................................................................................ 1688 NATIONAL STATISTICS: COMMERCIAL REAL ESTATE ....................................................................................................................... 1689

FOCUS GROUPS .................................................................................................................................................................. 1695 US COMMERCIAL RETAIL REAL ESTATE ....................................................................................................................................................... 1695

RESEARCH WE FOLLOWED ....................................................................................................................................................................... 1695 CHARTS & TABLES OF NOTE ..................................................................................................................................................................... 1695 RESEARCH OF NOTE .................................................................................................................................................................................. 1697

COMMERCIAL REAL ESTATE - Indoor Mall Retail in Trouble ................................................................................................................ 1697 COMMERCIAL REAL ESTATE - Mortgage bonds reflect diverging fortunes of US malls ....................................................................... 1700 COMMERCIAL REAL ESTATE - Dead Mall Syndrome: The Self-Reinforcing Death Spiral of Retail ..................................................... 1702 COMMERCIAL REAL ESTATE - The First Domino to fall: Retail-CRE (Commercial Real Estate) ......................................................... 1704 COMMERCIAL REAL ESTATE - After Seven Lean Years: US Commercial Real Estate: The Present Position and Future Prospects 1708 COMMERCIAL REAL ESTATE - Retail Sales Cannibalization ................................................................................................................ 1714 COMMERCIAL REAL ESTATE - Tsunami of Retail Store Closings and Downsizings Coming ............................................................... 1715

US RECESSION – A Looming US Recession .................................................................................................................................................... 1718 RESEARCH OF NOTE .................................................................................................................................................................................. 1718

RECESSION - Sequential Decline in Wages ............................................................................................................................................ 1718 RECESSION - Final Sales Signals Pending Recession ........................................................................................................................... 1719 RECESSION - Consumers Using Savings to Maintain Life Style ............................................................................................................. 1719 RECESSION - 1987 Yields ........................................................................................................................................................................ 1723 RECESSION - Why a Looming Recession May Be Near ......................................................................................................................... 1724 RECESSION - Minimally in the Back Stretch of the Recovery ................................................................................................................. 1729 RECESSION - Reduced Household Income at the Core of the Growth of the Federal Reserve Balance Sheet ................................... 1735 RECESSION - Household Income and Signs of A Collapsing Middle Class ............................................................................................ 1737 RECESSION - More Cyclical Signs of a US Recession ............................................................................................................................ 1737 RECESSION - A Lack of Demand ............................................................................................................................................................. 1738 RECESSION - Money Going to Cash But Equity Inflows Still Suggest Corrective Correlation ................................................................ 1740 RECESSION - More and More Signals Flashing ...................................................................................................................................... 1743 RECESSION - Term Structures Suggest Signs of a US Recession Ahead ............................................................................................. 1745

THE MUNI MONSTER- A Failure of Public Policy to Respond to Structural Change ........................................................................................ 1747 RESEARCH WE FOLLOWED ....................................................................................................................................................................... 1748

PEURTO RICO .......................................................................................................................................................................................... 1748 US MUNI LAND ......................................................................................................................................................................................... 1748 DETROIT - Simply the Canary................................................................................................................................................................... 1748

DETROIT - By the Numbers ................................................................................................................................................................. 1750 DETROIT - The News Reporting ........................................................................................................................................................... 1751 DETROIT - A Structural Problem that Failed to be politically addressed .............................................................................................. 1753

RETIREMENT CRISIS – Now Beginning to Take Hold....................................................................................................................................... 1754 RESEARCH WE FOLLOWED ....................................................................................................................................................................... 1754 RESEARCH OF NOTE .................................................................................................................................................................................. 1755

RETIREMENT - Underfunded and Unsustainable .................................................................................................................................... 1755 RETIREMENT - 35 Facts to Scare a Baby Boomer .................................................................................................................................. 1758 RETIREMENT - $205K Account Limits ..................................................................................................................................................... 1760 RETIREMENT - $3M Retirement Cap Unanswered ................................................................................................................................. 1762 RETIREMENT - What Does Heart Surgery Really Cost, And Why Is It 70 Times More Expensive In The US? ..................................... 1763 RETIREMENT - UPS Drops 15,000 Spouses From Health Plan, Blames Obamacare ........................................................................... 1765

CAPITAL & INTEREST RATES ........................................................................................................................................................................... 1767 SOCIAL CHANGE - What America Will Look like When The Next Great Economic Crisis Strikes ................................................................... 1769

SPECIAL SUPPLEMENT ....................................................................................................................................................... 1774 US SHADOW BANKING ...................................................................................................................................................................................... 1774

RESEARCH WE FOLLOWED ....................................................................................................................................................................... 1774 COLLATERAL TRANSFORMATIONS ...................................................................................................................................................... 1774 COV-LITE--PIK .......................................................................................................................................................................................... 1774 TruPS CDOs .............................................................................................................................................................................................. 1774 SHADOW BANKING DOCUMENTATION ................................................................................................................................................ 1774

STEALTH SHADOW BANKING FLOWS ............................................................................................................................................................ 1776 FLOWS: LIQUIDITY, CREDIT & DEBT ......................................................................................................................................................... 1776 SHADOW BANKING CREDIT INTERMEDIATION PROCESS .................................................................................................................... 1777 THE FED’S $2.3 TRILLION “EXCESS RESERVES” .................................................................................................................................... 1779 SAME GAME, NEW ACRONYMS – The Acronyms in the Next Crisis ........................................................................................................ 1779 HOW IT NOW WORKS ................................................................................................................................................................................. 1780

ARCHILLES HEEL: DURATION & COLLATERAL RISK .................................................................................................................................... 1798 DURATION .................................................................................................................................................................................................... 1798 INSTRUMENTS OF TRANSFORMATION .................................................................................................................................................... 1800

SELF SECURITIZATION ........................................................................................................................................................................... 1800 COLLATERAL ................................................................................................................................................................................................ 1803

REHYPOTHECATION ............................................................................................................................................................................... 1803 REPOS & REVERSE REPOS ................................................................................................................................................................... 1805 HQC - HIGH QUALITY COLLATERAL ..................................................................................................................................................... 1807 COLLATERAL TRANSFORMATIONS ...................................................................................................................................................... 1824

LEVERAGED LOANS ............................................................................................................................................................................ 1829 SECURED & UNSECURED ...................................................................................................................................................................... 1843


CONTINGENT LIABILITIES .......................................................................................................................................................................... 1844

Date post:	26-May-2017
Category:	Documents
Upload:	lcmgroupe
View:	218 times
Download:	1 times

Downloadable Individual .pdf Focus Available Pages Macro Analytics Driver$ 03/13/14 36 Analytical...

Documents