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2February 2014Edition Restricted & ConfidentialCopyright 2014 Gordon T. Long All Rights Reserved [email protected]

SHADOW BANKING RE-EMERGES

NEW ACRONYMS & VEHICLES, SAME GAME

GLOBAL MACRO TIPPING POINTS - FEBRUARY 2013

TIPPING POINTS .................................................................................................................................... 17

GLOBALMACRO:RISKASSESSMENT .................................................................................................................................. 17SITUATIONAL ANALYSIS ....................................................................................................................................................................................... 17

POSITIONAL FRAMEWORK: "WE ARE HERE!" ............................................................................................................................................. 17Mapping the Collapse of European Democracy........................................................................................................................................... 23GLOBAL TRENDSTHE SIX FRAMING MEGATRENDS .............................................................................................................................. 24GLOBAL THEMESTEN STRUCTURALTHEMES FOR STRATEGY ........................................................................................................... 26DEBT SATURATION - A COLLAPSING PONZI SCHEME .................................. ........................................ ....................................... ............ 28THE RISK CONTINUUM ................................................................................................................................................................................... 30FALL 2013EVENT RISK DOMINATES....................................................................................................................................................... 32

MACRO MONITORING INSTITUTIONS ................................................................................................................................................................. 39IMF, WORLD ECONOMIC OUTLOOK - JULY 2013 ........................................................................................................................................ 39

IMF, FINANCIAL STABILITY REPORT - APRIL 2013 .................................... ........................................ ......................................... ................. 45WEF (WORLD ECONOMIC FORUM -JANUARY 2013) .................................................................................................................................. 50WEF GLOBAL RISKS - Chronic Fiscal Imbalances Ranks First .................................................................................................................. 50

The 17 Biggest Risks To Our Hyper-Connected World .................................................................................................................................... 50 GLOBAL ECONOMIC, GEO-POLITICAL & SOCIETAL RISKS ................................................................................................................... 58

RISKSIGNALS .......................................................................................................................................................................... 65GEO-POLITICAL RISK ............................................................................................................................................................................................ 65

SYRIA ................................................................................................................................................................................................................ 65SYRIA - This has the Earmarks of the Kennedy Ear "Cuban Missile" Crisis .................................... ........................................ ........................ 65SYRIA - Syrian War You Are Not Being Told About ......................................................................................................................................... 66 SYRIA - 25 Quotes ............................................................................................................................................................................................ 67SYRIA -What Coalition? ................................................................................................................................................................................... 70SYRIA - US Supporting Fully an "Al Qaeda Operation" .................................. ........................................ ......................................... ................. 72

A War 20 Years In the Making ..................................... ....................................... ........................................ ........................................ ........... 72The Last Humanitarian War......................................................................................................................................................................... 73The Bottom Line ............................................................................................................................................................................................. 73

SYRIA - Decision Already Taken to Bomb Syria ........................................ ....................................... ........................................ ........................ 75SYRIA - Market Patterns Before and Immediately After Conflict Begins .......................................................................................................... 84

FINANCIAL & ECONOMIC RISK .................................... ........................................ ........................................ ........................................ ................. 86EMERGING MARKETS ..................................................................................................................................................................................... 86EMERGING MARKETS - Crisis Temporarily Halted ........................................ ........................................ ........................................ ................. 86EMERGING MARKETS - The Plight of four Asian countries - China, India, Indonesia and Japan. ................................................................ 87 EMERGING MARKETS -Increasing Liquidity Problem In Selected Markets .................................................................................................. 91EMERGING MARKETS - EU Major Contributor to EM Current Account Deficit Growth ............................................................................... 102 EMERGING MARKETS - Insufficient BRICS Reserve Levels Prompt Russian-Chinese Support ................................................................ 104EMERGING MARKETS - Global Bond Yields React To Taper Together.................................................................................................... 105EMERGING MARKETS - Negative Current Accounts + Weak(ening) International Investment Positioning ................................................ 106 EMERGING MARKETS - BRAZIL ................................................................................................................................................................... 107EMERGING MARKETS - INDIA ...................................................................................................................................................................... 109EMERGING MARKETS - SOUTH AFRICA .................................................................................................................................................... 111EMERGING MARKETS - TURKEY ................................................................................................................................................................. 113EMERGING MARKETS - "TAPER" Shock Waves Across Asia ..................................................................................................................... 114EMERGING MARKETS - India Rupee Collapse Showing Signs of Exhaustion ............................................................................................ 122EMERGING MARKETS - Asian Credit Contraction Problems ...................................... ........................................ ....................................... ... 123EMERGING MARKETS - Why Asian Markets Are Collapsing ....................................................................................................................... 125EMERGING MARKETS - Surging Interest Rates ........................................................................................................................................... 129EMERGING MARKETS - Currencies Getting Clobbered ............................................................................................................................... 130EMERGING MARKETS - Crisis Worsens ....................................................................................................................................................... 131EMERGING MARKETS - Korean Peninsula a Black Swan Possibility .......................................................................................................... 133GLOBAL TAX GRAB - G20 Focusing on Finding Much Needed Tax Revenue ............................................................................................. 136RISK - COLLAPSING PETRODOLLAR FOUNDATION ................................................................................................................................. 140RISK - GLOBAL DEBT 313% of GDP ............................................................................................................................................................. 143RISK - 202M GLOBALLY UNEMPLOYED ...................................................................................................................................................... 144RISK - SIGNS APLENTY, BUT NO ONE PANICKING - YET! ....................................................................................................................... 145 RISK - CANARIES SINGING AGAIN .............................................................................................................................................................. 147RISK - COMPLACENCY & REPRESSED FEAR ....................................... ....................................... ........................................ ...................... 148RISK - TIED TO EU IN 2012 ........................................................................................................................................................................... 149RISK - GLOBAL DERIVATIVE COLLATERAL................................................................................................................................................ 150RISK -GLOBAL RISK MATRIX ...................................................................................................................................................................... 152RISK - GLOBAL MACRO HEADWINDS / TAILWINDS .................................................................................................................................. 152

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RISK - FOOD A GROWING GLOBAL INFLATION & SOCIAL UNREST RISK ............................................................................................. 154RISK - INCREASINGLY DYSFUNCTIONAL CAPITALS MARKETS ............................................................................................................. 159RISK - RISING GEO-POLITICAL EVENT RISK ............................................................................................................................................. 162

GLOBALMACRO:RISKLEVELS ........................................................................................................................................... 165AGGREGATED GLOBAL FINANCIAL RISK INDEX ........................................ ....................................... ........................................ ...................... 165

BANKING RISK - LIBOR-OIS SPREAD (Updated) ........................................................................................................................................ 166BANKING RISK - TED SPREAD (Updated).................................................................................................................................................... 166CREDIT RISK - GLOBAL CREDIT DEFAULT SWAPS (Updated) .................................... ......................................... ................................... 167CREDIT RISK - EU CREDIT DEFAULT SWAPS (Updated) .......................................................................................................................... 167 CONSUMER RISK - HOUSING - RATE OF CHANGE (Updated) ................................................................................................................. 168ECONOMIC RISK - ECRI LEADING INDEX (Updated) ................................................................................................................................. 169INFLATION RISK - MONEY SUPPLY GROWTH - M3 (Updated) ...................................... ......................................... ................................... 170INFLATION RISK - MONEY VELOCITY (Updated) ................................... ....................................... ........................................ ...................... 170MONETARY RISK - BANK LIABILITIES (Updated)........................................................................................................................................ 171COST OF MONEY RISK - INTEREST RATES (Updated) ................................... ........................................ ....................................... .......... 171

AGGREGATED RISK LEVEL ......................................... ........................................ ........................................ ....................................... ................ 173

TIPPINGPOINTS:CHANGES ................................................................................................................................................. 174TIPPING POINT MAPPING: 2013 YEAR BEGINNING UPDATE ....................................... ........................................ ....................................... ... 174

TIPPINGPOINTS:TOP5FOCUS-SEPTEMBER2013.......................................................................................................... 183I - RISK REVERSAL .............................................................................................................................................................................................. 183II - JAPAN DEBT DEFLATION .............................................................................................................................................................................. 185III-BOND BUBBLE ................................................................................................................................................................................................. 187IV - EU BANKING CRISIS ..................................................................................................................................................................................... 188V - SOVEREIGN DEBT ...................................... ........................................ ....................................... ........................................ ............................. 189VI - CHINA HARD LANDING ................................................................................................................................................................................. 191

GLOBAL MACRO ................................................................................................................................. 195

GLOBALMACRO:ECONOMICOUTLOOK ............................................................................................................................ 197GLOBAL OUTLOOK Research We Followed ................................................................................................................................................... 197GLOBA L OUTLOOK - Research of Particular Note ............................................................................................................................................. 200GLOBA L OUTLOOK -An Extremely Fragile Stability ..................................... ....................................... ........................................ ...................... 200GLOBA L OUTLOOK - EM Crisis will make the 1997 Asian Crisis Seem like an Early Warning ...................................... ................................... 201GLOBA L OUTLOOK - Global Deleveraging Accelerating and Developing Nations Feeling the Pain ............................................................ 204GLOBA L OUTLOOK - Problems Erupting Everywhere (Signs of Implosion) ...................................................................................................... 206

GLOBA L OUTLOOK - Credit Fueled Globalization in Retreat ............................................................................................................................. 209GLOBA L OUTLOOK - Rogoff's Sovereign Debt Default Levels .......................................................................................................................... 212GLOBA L OUTLOOK - Fiscal Adjustments Required ........................................................................................................................................... 215GLOBA L OUTLOOK - Imbalances Continue to Increase Along With Financial Fragility .................................................................................... 215GLOBA L OUTLOOK -A 67 Million Jobs Gap .......................................... ....................................... ........................................ ............................. 218GLOBA L OUTLOOK - Center of Global Manufacturing Confirmed to be Shifting Away from developed Countries .......................................... 221GLOBA L OUTLOOK - Mercantil ist China the Clear Winner Globally, Mercantilist Germany Regionally .......................................................... 222ECONOMIC CUTS ................................................................................................................................................................................................. 224

IMF To Slash Economic Growth Forecast... Again - Still Full of Hockey sticks ..................................... ....................................... ................. 224OECD CUTS ECONOMIC OUTLOOK ............................................................................................................................................................ 229IMF CUTS ECONOMIC OUTLOOK ................................................................................................................................................................ 232

ECONOMIC WARNINGS....................................................................................................................................................................................... 243IMF WARNS - May 2013 ................................................................................................................................................................................. 243

Japanese & Spanish Debt Unsustainable ................................................................................................................................................... 245Global Recovery Faltering, Reduces Global Growth to Just Above 3% Global Recession Level ....................................... ....................... 247

BIS WARNS - June 2013................................................................................................................................................................................. 249

Monetary Policy At Its Limits ........................................................................................................................................................................ 255WORLD BANK WARNS - June 2013 ............................................................................................................................................................ 256Social Unrest Stems from Shrinking Disposable Income. Jobs are the central issue. .................................... ....................................... ... 258

GLOBALMACRO:INDICATORS(CHARTS) .......................................................................................................................... 260GLOBAL GROWTH ............................................................................................................................................................................................... 260

GLOBAL GROWTH - GDP Forecasts Continue to Be Taken Down .............................................................................................................. 260GLOBAL GROWTH - Uneconomic Energy Problematic ................................................................................................................................. 260GLOBAL GROWTH - Clearly Slowing ................................... ........................................ ........................................ ....................................... ... 263GLOBAL GROWTH - Trend is clearly Down ................................................................................................................................................... 264GLOBAL GROWTH - Global Growth Cycle .................................................................................................................................................... 265GLOBAL GROWTH - Global GDP Contribution .............................................................................................................................................. 266GLOBAL GROWTH - Clear Signs of Degree of Slowing Since January ........................................................................................................ 267 GLOBAL GROWTH - Clearly Slowing and near Contraction without BRICS ................................................................................................. 268

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GLOBAL GROWTH - PMI Barely Above Stagnation ...................................................................................................................................... 270GLOBAL GROWTH - Chinese Slowing moves to CONTRACTION .............................................................................................................. 273GLOBAL GROWTH - Slowing Global Economies .......................................................................................................................................... 274GLOBAL GROWTH - Global GDP Growth Trending Down by Region and Cumulatively ............................................................................. 275GLOBAL GROWTH - Global PMI .................................................................................................................................................................... 275GLOBAL GROWTH - Global Recession ......................................................................................................................................................... 278

GLOBAL GROWTH - Slowing Global Growth - Air Cargo Shipments ...................................... ........................................ ............................. 279GOBAL UNEMPLOYMENT ................................................................................................................................................................................... 280

GLOBAL UNEMPLOYMENT - A Problem .................................... ....................................... ......................................... ................................... 280GLOBAL UNEMPLOYMENT - The Beginnings of the Welfare Myth Unwind ................................................................................................ 281 GLOBAL UNEMPLOYMENT - The Unsustainable Welfare Myth ....................................... ......................................... ................................... 283GLOBAL UNEMPLOYMENT - Global Financial Sector Job Cuts................................................................................................................... 285GLOBAL UNEMPLOYMENT - Global Unemployment Rising -Now 202 Million ............................................................................................ 287

GLOBAL TRENDS ................................................................................................................................................................................................. 289GLOBAL TRENDS - Profound Changes in Global Youth As Japan Leads the Way...................................................................................... 289 GLOBAL TRENDSBrands & Commodities Tell the Global Story ............................................................................................................... 292

Cooper - Rio Tinto ........................................................................................................................................................................................ 292Aluminum - Alcoa, Rio Tinto ................................. ........................................ ........................................ ........................................ ............... 294Iron Ore and Thermal Coal - Rio Tinto ........................................................................................................................................................ 296Consumable Brands - P&G.......................................................................................................................................................................... 298Parcel Volumes - FEDEX ...................................... ........................................ ........................................ ........................................ ............... 299Shipping - Baltic Dry Index .................................... ........................................ ........................................ ........................................ ............... 300

GLOBAL SENTIMENT ........................................................................................................................................................................................... 304GLOBAL SENTIMENT - Global Business Confidence Sliding Rapidly .......................................................................................................... 304

Must be a Buy Sign al... .............................................................................................................................................................................. 304GLOBAL SENTIMENT - Complacent ............................................................................................................................................................. 307GLOBAL SENTIMENT - Nielsen's Global Consumer Confidence, Concerns & Spending Intentions ................................................ .......... 308

GLOBAL INFLATION ............................................................................................................................................................................................. 319GLOBAL INFLATION - Food Prices, Driver of Social Unrest ......................................................................................................................... 319GLOBAL INFLATION - Food Price Manipulation in Thailand ......................................................................................................................... 321

GLOBAL CREDIT .................................................................................................................................................................................................. 322CREDIT CYCLE - HY Leading the Way .......................................................................................................................................................... 322 CREDIT CYCLE - Reversal Ahead ................................................................................................................................................................. 325

GLOBALMACRO:MONETARYPOLICY&CENTRALBANKING .......................................................................................... 328TROUBLING DEVELOPMENTS ........................................................................................................................................................................... 328

TROUBLING DEVELOPMENTSVenezuela: Shortages & Hyperinflation .................................................................................................. 328TROUBLING DEVELOPMENTS2007 Redux: Total public and private debt levels are 30pc higher in the advanced economies ........... 329TROUBLING DEVELOPMENTSPolish Pension Confiscation: Coming to a Theater near You ................................................................. 332TROUBLING DEVELOPMENTSGlobal Tax Overhaul................................................................................................................................ 334

GLOBAL ABE-NOMICSThe Road Ahead ......................................................................................................................................................... 335GLOBAL ABE-NOMICSMonetary Expansion Extremely Difficult to Stop Once Started ............................................................................ 335 GLOBAL ABE-NOMICSMonetary Policy Below the Event Horizon ....................................... ........................................ ............................. 337The "OMF" Trial Balloon Raised ...................................... ........................................ ....................................... ........................................ ......... 339OPMF - A Reversing Wealth Effect May Force OPMF & Global Abenomics ................................................................................................. 340 OPMF - Financial Times: Martin Wolf - "The Case For Helicopter Money" .................................................................................................... 341 OPMF - Financial Times: Martin Wolf - "The Case To Reset Basis of Monetary Policy" ............................................................................... 344 OPMF - Financial Times: Gavyn Davies On Why Helicopters Are Dangerous .............................................................................................. 345 OPMF - A Conundrum for the World's Central Bankers ................................................................................................................................. 348

GLOBAL CENTRAL BANKING .............................................................................................................................................................................. 350RESEARCH WE FOLLOWEDGlobal Banking Risk .................................................................................................................................... 350RESEARCH OF PARTICULAR INTEREST .................................................................................................................................................... 351CENTRAL BANKS - Drop Tightening Talk as Easy Money Goes On ............................................................................................................ 351CENTRAL BANKS - Balance Sheet Growth .................................................................................................................................................. 354CENTRAL BANKS - Austerity Now Officially Dead Public Policy ................................................................................................................... 355 CENTRAL BANKS - They are the Market ....................................................................................................................................................... 355CENTRAL BANKS - The longer QE persists, the greater the magnitude of the left-tail event & a Minsky Trap....................................... ... 358CENTRAL BANKS - We May Have Reached a Risk-Off Leverage Pivot .................................. ........................................ ............................. 359CENTRAL BANKS - The Macro Landscape ................................................................................................................................................ 361CENTRAL BANKS - A Serious Shortage of Quality Collateral - A $10T US Problem Over 10 Years .......................................................... 362

CENTRAL BANKS - Global Balance Sheet Expansion ................................................................................................................................. 364CENTRAL BANKS - Where Do these Deflators Come From? ...................................................................................................................... 368CENTRAL BANKS - First Remove Gold Standard, Now Remove Debt ........................................................................................................ 369

BOE - UK ................................................................................................................................................................................................................ 373UK - Mark Carney and "Flexible Inflation Targeting" ........................................ ........................................ ........................................ ............... 373

FED - US ................................................................................................................................................................................................................ 374US MONETARY - The Fed is Stuck in a QE Trap .......................................................................................................................................... 374 US MONETARY - 2nd Worst Decade In US Growth in Over 220 Years (And Getting Worse) ..................................................................... 376 US MONETARY - Mathematically, The Fed Can Only Fail ............................................................................................................................ 378 US MONETARY - QE Standing Between Inflated Equity Markets and A Recession..................................................................................... 384US MONETARY - QE Programs versus S&P 500 Movements ...................................................................................................................... 385US MONETARY - BAML Warns If The US Economy Does Not Significantly Accelerate Now, It Never Will ................................................ 387 US MONETARY - Debt Increases $1 Trillion in One Year ............................................................................................................................ 389

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US MONETARY - Congress Asks Bernanke for Full Risk Analysis On Fed's Soaring Balance Sheet ......................................................... 391 BOJ - JAPAN .......................................................................................................................................................................................................... 396

JAPAN - No Way Out But to Expand the Monetary Base ............................................................................................................................... 396 JAPAN - BOJ to "Own" 100% Of GDP In 5 Years .......................................................................................................................................... 397 JAPAN - Adjusted trade deficit the worst in Bloomberg's 20 year history....................................................................................................... 400JAPAN - Some Policies Have Clearly Hit the Limit ......................................................................................................................................... 402 JAPAN - Foreshadows Next Global Crisis ...................................................................................................................................................... 403JAPAN - Japan's Prime Minister Shinzo Abe prepares to print money for the whole world ........................................ ................................... 408JAPAN - Shinzo Abes Monetary-Policy Delusions ......................................................................................................................................... 409JAPAN - BOJ Governor Job Suddenly Available in Historical "Abenomics U-Turn" ...................................................................................... 412 JAPAN - Japanese Economic Policy Goes The Full Ponzi .................................... ........................................ ....................................... .......... 413

ECB - EU ................................................................................................................................................................................................................ 415EU MONETARY - EU Equities Responding to Current Account Differential .................................................................................................. 415EU MONETARY - Patterns: While Everyone Was Worrying About the US and Washington .... ................................................................... 416 EU MONETARY - ECB Monetary transmission mechanisms in Europe are completely broken ................................................................... 418EU MONETARY - EU Lending Volumes Collapse .......................................................................................................................................... 420EU MONETARY - Eurozone Funding Shortfall Rises To Over $4 Trillion ...................................................................................................... 421EU MONETARY - DRIVER$ ........................................................................................................................................................................... 422EU MONETARY - Japan Will Effectively Monetize European Debt ............................................................................................................... 423 EU MONETARY - TARGET-2 Imbalances - "The Debt Crisis Is Eating Its Way Ever Further Into Europe's Core" ................................... ... 423EU MONETARY - Draghi Wil l Soon Be Forced to Start Printing - Again! .................................. ........................................ ............................. 425

GEO-ECONOMICCONCERNS&TENSIONS ......................................................................................................................... 430EMERGING MARKETS - Unfolding 2014 Crisis ..................................... ....................................... ........................................ ............................. 430

RESEARCH WE FOLLOWED ......................................................................................................................................................................... 430RESEARCH OF PARTICULAR INTEREST .................................................................................................................................................... 433EMERGING MARKETS - Crisis Only Temporarily Averted ............................................................................................................................ 433EMERGING MARKETS - Fragile Five: The new focus of currency wars ....................................................................................................... 433EMERGING MARKETS - Crisis Redux? ......................................................................................................................................................... 434EMERGING MARKETS -Losing Their Punch ................................................................................................................................................ 439EMERGING MARKETS - Risk-On! ................................................................................................................................................................. 441EMERGING MARKETS - Asia, BRIC, Emerging Markets Crater IBM Earnings ............................................................................................ 442EMERGING MARKETS - Crisis Temporarily Halted ........................................ ........................................ ........................................ ............... 444EMERGING MARKETS -Increasing Liquidity Problems In Selected Markets .............................................................................................. 445EMERGING MARKETS - The plight of four Asian countries - China, India, Indonesia and Japan. ................................. .............................. 451EMERGING MARKETS - The Impact of "TAPER".......................................................................................................................................... 456

PETRODOLLARUS-Saudi Oil Alliance Strained ............................................................................................................................................... 460RESEARCH OF PARTICULAR INTEREST .................................................................................................................................................... 460GEO-POLITICAL - The Growing Rift With Saudi Arabia Threatens To Severely Damage The Petrodollar .................................................. 460

GLOBAL BOND SCAREUn-Taper Reverses Fear ....................................... ....................................... ........................................ ...................... 464BOND SCARE - Volatility and Instability Increase Risk .................................................................................................................................. 464 BOND SCARE - Inflation Expectations Contributing to Volatility .................................................................................................................... 466

BOND SCARE - The Financial Times Headlines Tell An Interesting Story .................................................................................................... 467BOND SCARE - A LONG Supply and Demand Problem BUT Heavy SHORT Demand ............................................................................... 468 BOND SCARE - Long Term Support Trendline Achieved .............................................................................................................................. 469 BOND SCARE - Retail Investors Running for the Exit .................................................................................................................................... 470

CHINA LIQUIDITY - Global Tightening Scare ....................................................................................................................................................... 472RESEARCH OF PARTICULAR INTEREST .................................................................................................................................................... 472CHINA LIQUIDITY - Housing Bubble Restricting PBOC Actions.................................................................................................................... 472CHINA LIQUIDITY - PBOC Squeezing Banks towards Reducing Speculative Risk ...................................................................................... 476 CHINA LIQUIDITY - Overnight Repo at 25% .................................................................................................................................................. 477CHINA LIQUIDITY - Red Flags ....................................................................................................................................................................... 478CHINA LIQUIDITY - Credit Fueled Growth ..................................................................................................................................................... 480CHINA LIQUIDITY - Shadow Banking System Showing Signs of Implosion.................................................................................................. 485 CHINA LIQUIDITY - PBOC Wants to Hold the Line on Explosive Credit Expansion through A Liquidity Squeeze....................................... 488 CHINA LIQUIDITY - Potentially De-Stabilizing Cash Crunch ......................................................................................................................... 490CHINA LIQUIDITY - Chinese Liquidity Pump Unplugged ............................................................................................................................... 491

CURRENCY WARS BACK ONRate Wars Reversed With Un-Taper ............................................................................................................... 493CURRENCY WARS - A Major Shift................................................................................................................................................................. 493BATTLEFIELD - Combatants & Belligerents............................................................................................................................................... 497BATTLEFIIELD - The Race to Debase .......................................................................................................................................................... 498JAPAN - The Destabilizing Agent .................................................................................................................................................................... 501EUROPE - Euro Exposed ................................................................................................................................................................................ 501ARGENTINA - Here we Go Again! ............................................................. ....................................... ........................................ ...................... 503VENEZUELLA - Bad Situation ......................................................................................................................................................................... 504BRAZIL - No One Wants to Listen................................................................................................................................................................... 504SWITZERLAND - No Choice ........................................................................................................................................................................... 504SINGAPORE - Hot Money ................................. ......................................... ....................................... ........................................ ...................... 505UK- Pound Joins War .................................................................................................................................................................................... 506

CYBER WARSGrowing Threat & the Security-Surveillance Complex .................................. ......................................... ................................... 507RESEARCH WE FOLLOWED ......................................................................................................................................................................... 507SECURITY-SURVEILLANCE COMPLEX - NSA Whistleblower Example: Booz Hamilton ......................................... ................................... 510SECURITY SURVEILLANCE COMPLEX - Growing Without Public Control or Supervision! ........................................................................ 512

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SYRIA & IRANComplete Middle East Domination ............................................................................................................................................ 513RESEARCH WE FOLLOWED ......................................................................................................................................................................... 513SYRIA - This has the Earmarks of the Kennedy Ear "Cuban Missile" Crisis .................................... ........................................ ...................... 515SYRIA - Syrian War You Are Not Being Told About ....................................................................................................................................... 516 SYRIA - 25 Quotes .......................................................................................................................................................................................... 517SYRIA -What Coalition? ................................................................................................................................................................................. 520

SYRIA - US Supporting Fully an "Al Qaeda Operation" .................................. ........................................ ......................................... ............... 523A War 20 Years In the Making ..................................... ....................................... ........................................ ........................................ ......... 523The Last Humanitarian War....................................................................................................................................................................... 523The Bottom Line ........................................................................................................................................................................................... 524

SYRIA - Decision Already Taken to Bomb Syria ........................................ ....................................... ........................................ ...................... 525SYRIA - Market Patterns Before and Immediately After Conflict Begins ........................................................................................................ 534 MIDDLE EAST - Watch Out for a "False Flag" or "Covert" Activity Event ...................................................................................................... 536MIDDLE EAST - Who Is Threatening Who Here? .......................................................................................................................................... 537

REGIONAL ............................................................................................................................................. 539

EUROSIS -A Terminal Disease ..................................................................... ....................................... ........................................ ...................... 539RESEARCH WE FOLLOWED THIS MONTH ................................................................................................................................................. 539RESEARCH OF PARTICULAR IMPORTANCE ............................................................................................................................................. 540RESEARCH - EFSF Downgraded to AA+ .................................... ....................................... ......................................... ................................... 540RESEARCH - EU Stabilization Programs Are Presently Very Fragile ....................................... ........................................ ............................. 541RESEARCH - Spreads Widened in Peripherals and Significantly in Portugal and Greece ........................................................................... 544 PROGNOSIS: Why the European Situation Will Get Worse .......................................................................................................................... 546PROGNOSIS: Increasing Structural Imbalances ............................................................................................................................................ 549

PROGNOSIS: $22T Unaccounted -A Hidden World of Contingent Liabilities, Government Backing & Guarantees. .............................. 551PROGNOSIS: Monetary Malpractice - ECB's LTRO Not a Solution but ........................................................................................................ 556 PROGNOSIS: Monetary Malpractice - ECB's SMP Effort Futile..................................................................................................................... 560 PROGNOSIS: Monetary Malpractice - ECB Accepts BBB Collateral ............................................................................................................. 562PROGNOSIS: EU Banking Overbanked, Undercapitalized and Now Insolvent ............................................................................................. 563PROGNOSIS: Monetary Malpractice - TARGET2 "Contingent Liabilities".............................................................................................. 565PROGNOSIS: Bailouts - Unsustainable & Unfundable ................................... ........................................ ......................................... ............... 572

MEDICAL CHARTS - Situation Critical .................................................................................................................................................................. 574CHARTS - EU Area Weakness ....................................................................................................................................................................... 574CHARTS - EU Area GDP ................................................................................................................................................................................ 575CHARTS - EU Area PMI .................................................................................................................................................................................. 576CHARTS - EU Area PMI .................................................................................................................................................................................. 577CHARTS - EU Real Rates ............................................................................................................................................................................... 578CHARTS - EU -NON Euro Members GDP RELIANCE ................................... ........................................ ......................................... ............... 579CHARTS - EU GLOBAL GDP GROWTH CONTRIBUTION ........................................................................................................................... 580CHARTS - EU PMI .......................................................................................................................................................................................... 580CHARTS - EU CPI ........................................................................................................................................................................................... 582CHARTS - Regional Risk-Reward ................................................................................................................................................................... 583CHARTS - Europe's "Core" Problem is France ................................... ....................................... ........................................ ............................. 584CHARTS - Germany's Preoccupation with Inflation is More Than It Would Seem ........................................ ....................................... .......... 587CHARTS - Evidence OF Global Slowing Now Indisputable ................................... ........................................ ....................................... .......... 588CHARTS - EU Credit Downgrades, France and UK On Tap ....................................... ........................................ ....................................... ... 590CHARTS - Perceived Reduction in Risk, A Temporary Aberration................................................................................................................. 592CHARTS - Dangerous Delusional Divergences.......................................................................................................................................... 594CHARTS - IMF Projections for Euro Area and GIIPS ..................................................................................................................................... 595CHARTS - Air Cargo Shipments Confirm Slowing Global Growth.................................................................................................................. 596CHARTS - Eurozone Misery Indices Never Been Higher ............................................................................................................................... 597CHARTS - Euro Currency................................................................................................................................................................................ 599

ITALYLongest Recession on Record ....................................... ........................................ ........................................ ........................................ .. 604RESEARCH WE FOLLOWED THIS MONTH ................................................................................................................................................. 604RESEARCH OF PARTICULAR IMPORTANCE ............................................................................................................................................. 605RESEARCH - Italys Budget Failures, Weak Growth Outlook Call Debt Sustainability Into Question ........................................................... 605CHARTS OF PARTICULAR IMPORTANCE ................................................................................................................................................... 609CHARTS - ITALY - Forced Rate Cuts ............................................................................................................................................................. 609SITUATIONAL ASSESSEMENT ..................................................................................................................................................................... 610ITALIAN ELECTION - What You Need to Know ............................................................................................................................................. 610ITALIAN ELECTION - Europe Capitulates On Austerity- Never Had The Stomach For It ............................................................................. 611

ITALIAN ELECTION - Message Given By the People .................................................................................................................................... 613ITALIAN ELECTION - Bad Debt Continue to Soar ......................................................................................................................................... 617ITALIAN ELECTION - Italians React Badly to Austerity, Elections Hardly a Surprise!................................................................................... 619 ITALIAN ELECTION - EUROPEAN FEEDBACK- #1 ................................................................................................................................... 620ITALIAN ELECTION - EUROPEAN FEEDBACK- #2 ................................................................................................................................... 622ITALIAN ELECTION - Regional Financial Cracks in Sicily ............................................................................................................................ 625

FRANCE - Hollande Losing Political Capital Fast Hapless President .................................... ......................................... ................................... 628RESEARCH WE FOLLOWED THIS MONTH ................................................................................................................................................. 628RESEARCH OF PARTICULAR IMPORTANCE ............................................................................................................................................. 628RESEARCH - Steady Breakdown Underway .................................................................................................................................................. 629RESEARCH - France Loses its Coveted and NEEDED AAA Rating ............................................................................................................. 633 CHARTS OF PARTICULAR IMPORTANCE ................................................................................................................................................... 635CHARTS - FRANCE - GDP ............................................................................................................................................................................. 635

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CYPRUS - Plan D Supersedes Plan C and B as Time running Out ............................................................................................................... 734 CYPRUS - Forgetting About Contract Law, Private Property Rights and Due Process ................................................................................. 737 CYPRUS - Russian Tax Haven ....................................................................................................................................................................... 738CYPRUS - Plan B as Bad As Plan A ..................................... ........................................ ........................................ ....................................... ... 739CYPRUS - Breaks Public Trust and Incites the Politics of Germany Dictating Terms ................................................................................... 740CYPRUS - Does Anyone Care How a Capitalist System (versus a Crony Capitalist System) is Supposed to Work? .................................. 746

CYPRUS - Criminal "Confidence Game" Payouts to Everyone at the Tax Payers Expense ......................................................................... 747CYPRUS - Cyprus Pushes EU Banking Crisis Back Near the Edge ........................................................................................................... 749

ASIA-SERIOUS CRACKS BELOW THE SURFACE......................................................................................................................... 750CHINA - Credit Tightening Panic A verted - Temporarily?............................................................................................................................... 750

RESEARCH WE FOLLOWED THIS QUARTER ............................................................................................................................................ 750CHARTS OF PARTICULAR IMPORTANCE ................................................................................................................................................... 755CHARTS - CHINA - Chinese Credit Market ....................................... ....................................... ........................................ ............................. 755CHARTS - CHINA - PMI .................................................................................................................................................................................. 756CHARTS - CHINA - PMI-2 ....................................... ........................................ ........................................ ........................................ ............... 757CHARTS - CHINA - GDP ................................... ......................................... ....................................... ........................................ ...................... 758CHARTS - CHINA - INDUSTRIAL OUTPUT ................................................................................................................................................... 759 CHARTS - CHINA - Urban Fixed Asset Investment ................................... ....................................... ........................................ ...................... 760CHARTS - CHINA - RETAIL SALES ............................................................................................................................................................... 761RESEARCH OF PARTICULAR IMPORTANCE ............................................................................................................................................. 762RESEARCH - China's Stunning $15 Trillion In New Liquidity ....................................... ........................................ ....................................... ... 762RESEARCH - Dr. Copper Ready to Top and Head Lower ............................................................................................................................. 765RESEARCH - China's $1 Trillion GDP Lie ...................................................................................................................................................... 766RESEARCH - What the Deceleration Could Portend ..................................................................................................................................... 768RESEARCH - Credit Bubble: 240% Of GDP And Soaring ............................................................................................................................. 771RESEARCH - Forget Taper risk: China is a bigger threat............................................................................................................................. 774RESEARCH - Sustainability Requires a Slowdown in Investment ................................................................................................................. 776 RESEARCH - China Likely to Continue Interest Rate Liberalization .............................................................................................................. 778RESEARCH - China #1 in Broad Array of Key Areas ..................................................................................................................................... 781RESEARCH - Global Business Confidence Sliding Rapidly ........................................................................................................................... 782

Must be a Buy Sign al... .............................................................................................................................................................................. 782RESEARCH - Investors Worried and Losing Confidence ............................................................................................................................... 785RESEARCH - China Stampeding into Gold .................................................................................................................................................... 786RESEARCH - China "Will introduce some measures to arrest the slowdown of growth in the next couple of quarters" .............................. 788RESEARCH - Slower Growth In the Cards & Endorsed by New Chinese Leadership .................................................................................. 789 RESEARCH - Is a PBOC Controlled Speculation Bust Possible or Will It Get Out of Control ....................................................................... 790 RESEARCH - PBOC Liquidity Squeeze ....................................... ....................................... ......................................... ................................... 791RESEARCH - Chinese Housing Bubble Restricting PBOC Actions ............................................................................................................... 793RESEARCH - PBOC Squeezing Banks towards Reducing Speculative Risk ................................................................................................ 795 RESEARCH - Chinese Overnight Repo at 25% ............................................................................................................................................. 797RESEARCH - Red Flags ................................................................................................................................................................................. 798RESEARCH - Credit Fueled Growth in China ..................................... ....................................... ........................................ ............................. 800RESEARCH - PBOC Wants to Hold the Line on Explosive Credit Expansion through A Liquidity Squeeze ................................................ 805 RESEARCH - A Potentially De-Stabilizing Cash Crunch ....................................... ........................................ ....................................... .......... 807SITUATIONAL ANALYSISPositioning Reference ....................................................................................................................................... 808CHINA SHADOW BANKING - Shadow Banking System Showing Signs of Implosion.................................................................................. 810 CHINA SHADOW BANKING - Shadow Banking and Credit Growth .............................................................................................................. 813CHINA SHADOW BANKING - The US Sub-Prime / CDO All Over Again ................................. ........................................ ............................. 816CHINA SHADOW BANKING - Report ............................................................................................................................................................. 820CHINA SHADOW BANKING - Situation ....................................... ....................................... ......................................... ................................... 821CHINA RESERVES - Distorted Foreign Reserve Levels ....................................... ........................................ ....................................... .......... 823CHINA RESERVES - Declining Reserve Accumulation ................................................................................................................................. 825 CHINA RESERVES - Has Caught the Gold Bug big time! ............................................................................................................................. 827CHINA CURRENCY WARS - Hot Money into China ....................................... ....................................... ......................................... ............... 829CHINA - Withdraws Liquidity ........................................................................................................................................................................... 830CHINA - Socit General Sees a Likely Soft Landing! .............................................................................................................................. 832CHINA - True Debt is Orders of Magnitude More than Officially Being Reported .......................................................................................... 840CHINA - Evidence OF Slowing Now Indisputable ...................................... ....................................... ........................................ ...................... 843CHINA - PMI Improvement .............................................................................................................................................................................. 844CHINA - Political Transition & Ongoing Emergence as a Super Power ......................................................................................................... 847CHINA - An Implicit Social Contract ................................................................................................................................................................ 850CHINA - Manipulated Statistics due to Upcoming Decade Long Regime Change ........................................................................................ 852 CHINA - Increasing Leverage is China's Way of Monetary Easing ................................................................................................................ 853 CHINA - Possible Interest-Rate Liberalization ................................................................................................................................................ 854CHINA - Global Impact of China's Slowdown ................................................................................................................................................. 855 CHINA - Shanghai Composite at 2008 Low Levels ........................................................................................................................................ 857 CHINA - Shanghai Composite Warnings Signs .............................................................................................................................................. 858CHINA - Credit to GDP .................................................................................................................................................................................... 860CHINA - A Slow Recovery Through 2013 ....................................................................................................................................................... 861CHINA - Manufacturing PMI in Contraction Territory ...................................................................................................................................... 863

JAPAN: The New Currency War Front .................................................................................................................................................................. 866RESEARCH WE FOLLOWED THIS QUARTER ............................................................................................................................................ 866RESEARCH OF PARTICULAR IMPORTANCE ............................................................................................................................................. 868RESEARCH - No Way Out But to Expand the Monetary Base ...................................................................................................................... 868RESEARCH - BOJ to "Own" 100% Of GDP In 5 Years .................................. ........................................ ......................................... ............... 869

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RESEARCH - Adjusted trade deficit the worst in Bloomberg's 20 year history .............................................................................................. 872 RESEARCH - How Japan's National Debt Grew ............................................................................................................................................ 873RESEARCH - ABE-nomics About Lowering Real Interest Rates ................................................................................................................... 874 RESEARCH - Japanese Bonds Have Lost Their Ability to Price Risk ....................................... ........................................ ............................. 875RESEARCH - Q2 GDP Misses By A Huge Margin ......................................................................................................................................... 878 RESEARCH - Japanese Structural Problems a "Canary" for Western Developed Economies ..................................................................... 879

Bank weakness ............................................................................................................................................................................................ 880Age pressures ................................... ........................................ ....................................... ......................................... ................................... 881RESEARCH - Shinzo Abe Hasn't the Stomach for the Heavy Lifting Needed to Accompany ABE-nomics. ................................................. 882RESEARCH - A Credit Squeeze Leads Deflationary Leg Down .................................................................................................................... 884 RESEARCH - Some Japanese Policies Have Clearly Hit the Limit .................................... ......................................... ................................... 885RESEARCH - The ABE (Asset Bubble Evaluator) Index ................................................................................................................................ 887CHARTS OF PARTICULAR IMPORTANCE ................................................................................................................................................... 888CHARTS - JAPAN - GDP, IP and Exports ...................................................................................................................................................... 888CHARTS - JAPAN - GDP Resurgence ........................................................................................................................................................... 889CHARTS - JAPAN - BOJ Balance Sheet ........................................................................................................................................................ 891 SITUATIONAL ASSESSEMENT ..................................................................................................................................................................... 892JAPAN - What You Need to Know .................................................................................................................................................................. 894 JAPAN - Regional Risk-Reward ...................................................................................................................................................................... 896JAPAN - Now the Frontrunner of Outright Monetization. ................................................................................................................................ 897 JAPAN - Yen Devaluation................................................................................................................................................................................ 898JAPAN - New Bank of Japan Policy - 2% Inflation in 2 Years ........................................................................................................................ 899JAPAN - Appoints BOJ Governor Firmly Committed to Printing Money ...................................................................... ................................... 901JAPAN - Third Straight Quarter of Recession ................................................................................................................................................. 902 JAPAN - Full Out War on Deflation ................................................................................................................................................................. 902

JAPAN - First Test of the new found dominance of the Central Banks........................................................................................................ 904JAPAN - BOJ Was Next Up. No Surprise ....................................................................................................................................................... 906 JAPAN -Negative Current Account Balance and -3.5% Recession .............................................................................................................. 908 JAPAN - A 50% Over-Valued Yen Has Undermined Self Confidence & Drive .............................................................................................. 911JAPAN - Proves QE's Low Cost of Capital Does Structural Damage to Economy ........................................................................................ 913 JAPAN - BOJ Being Pressured to "Rip-Up Government Debt"1 .................................................................................................................... 915 JAPAN -Easy Money Has Hurt Corporate Profitability in the Longer Term .................................................................................................. 921JAPAN - The Biggest Debtor with the Biggest Problem!................................................................................................................................. 924JAPAN - A Magnitude Larger Problem than Europe ....................................................................................................................................... 928JAPAN - QE 9 A Complete Failure - Actually "Tightens" versus It's Intended Easing.................................................................................... 934JAPAN - Japanese Yen Continuously Under Attack ....................................... ....................................... ......................................... ............... 938JAPAN - Vast foreign US$ Coming Home for "Claim" .................................................................................................................................... 939 JAPAN - PMI Breakdown.................................................................... ....................................... ........................................ ............................. 940JAPAN - Exports Continue To Tumble ............................................................................................................................................................ 942JAPAN - Intervention Fails Again -It's a Whole new Ball Game.................................................................................................................. 943JAPAN - First Signs of Massive Debt Monetization After Next Election ......................................................................................................... 946JAPAN - Japan to the ESM's Rescue ............................................................................................................................................................ 946

EMERGINGMARKETSECHO BOOM AHEAD.......................................................................................................................... 948

RESEARCH WE FOLLOWED THIS QUARTER ............................................................................................................................................ 948RESEARCH OF PARTICULAR IMPORTANCE ............................................................................................................................................. 953EMERGING MARKETS - Forced Changes & Advancements in the Normal "Plundering" Strategy ....................................... ....................... 953EMERGING MARKETS - Crisis Temporarily Halted ........................................ ........................................ ........................................ ............... 954EMERGING MARKETS - The plight of four Asian countries - China, India, Indonesia and Japan. ................................. .............................. 955EMERGING MARKETS - Negative Current Accounts + Weak(ening) International Investment Positioning ................................................ 960 EMERGING MARKETS - "TAPER" Shock Waves Across Asia ..................................................................................................................... 960EMERGING MARKETS - Global Bond Yields React Together ...................................................................................................................... 962EMERGING MARKETS - A Bumpy Ride for Emerging Markets .................................................................................................................... 963EMERGING MARKETS - Stunning Withdrawals ............................................................................................................................................ 969EMERGING MARKETS - Bond Outflows Accelerating ................................................................................................................................... 970 EMERGING MARKETS - This will make the 1997 Asian Crisis Seem Like an Early Warning ...................................................................... 972 EMERGING MARKETS - Developing Nations Feeling the Painof Global Deleveraging Acceleration..................................................... 974EMERGING MARKETS - The Impact of "TAPER".......................................................................................................................................... 976 CHARTS OF PARTICULAR IMPORTANCE ................................................................................................................................................... 980CHARTS - Reserves versus World ................................................................................................................................................................. 980CHARTS - Current Account Balances versus GDP ........................................................................................................................................ 981 CHARTS - Emerging Markets Index versus MSCI World Index ..................................................................................................................... 982CHARTS - SINGAPORE - Inflation ................................................................................................................................................................. 983CHARTS - SINGAPORE - Exports .................................................................................................................................................................. 984CHARTS - SOUTH KOREA............................................................................................................................................................................. 985CHARTS - TURKEY - Spreads ....................................................................................................................................................................... 986SITUATIONAL ASSESSEMENT ...............................................................................................................................

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