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1 March 2014 Edition Restricted & Confidential

Copyright 2014 Gordon T. Long All Rights Reserved [email protected]

The Taper Tantrum TenNew Acronym & Vehicles, Same Game

GLOBAL RISK - Risk & Tipping Points

GLOBAL MACRO TIPPING POINTS - MARCH 2014

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

The Taper Tantrum TenTHE FRAGILE FIVE AND FORGOTTEN TEN

GLOBAL MACRO TIPPING POINTS - MARCH 2013

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

GLOBALMACRO:RISKASSESSMENT .................................................................................................................................. 17POSITIONAL FRAMEWORK: "WE ARE HERE!".................................................................................................................................................... 17MACRO MONITORING INSTITUTIONS ................................................................................................................................................................. 24

WEF (WORLD ECONOMIC FORUM) - JANUARY 2014 ................................................................................................................................. 24 WEF GLOBAL RISKSThe Wor ld Economic Forum - Inequal i ty h as become a global ch al lenge.................................................... 24WEF GLOBAL RISKSThe Wor ld Economic Forum - 10 Global Risks of Highest Concern.............................................................. 28WEF GLOBAL RISKSGlobal Competitive RankingsFragile 5 & Forgotten 4........................................................................................ 30WEF GLOBAL RISKSThe 17 Biggest Risks to Our Hyper-Connected World .......................................................................................... 32WEF GLOBAL RISKSGlobal Economic, Geo-Political & Societal Risks .................................................................................................. 40

IMF, WORLD ECONOMIC OUTLOOK - JANUARY 2014 ................................................................................................................................ 47IMF, FINANCIAL STABILITY REPORTOCTOBER 2013.......................................................................................................................... 53

OECD, WORLD ECONOMIC OUTLOOKNOVEMBER 2013 ....................................................................................................................... 56G-20 SUMMITFEBRUARY 2014 ......................................................................................................................................................................... 59

RESEARCH WE FOLLOWED ........................................................................................................................................................................... 59Group of Twenty IMF Note-- Meetings of G-20 Finance Ministers and Central Bank Governors ................................................................ 60

OUR ASSESSEMENT ....................................................................................................................................................................................... 62SITUATIONAL ANALYSIS ....................................................................................................................................................................................... 65

RESEARCH WE FOLLOWED ........................................................................................................................................................................... 65RESEARCH OF NOTE ...................................................................................................................................................................................... 66

THE RISK CONTINUUM ............................................................................................................................................................................... 66GLOBAL TRENDSTHE SIX FRAMING MEGATRENDS.......................................................................................................................... 68GLOBAL THEMESTEN STRUCTURALTHEMES FOR STRATEGY....................................................................................................... 70DEBT SATURATION - A COLLAPSING PONZI SCHEME........................................................................................................................... 72

WINTER 2014EVENT RISK DOMINATES ................................................................................................................................................. 74

RISKSIGNALS .......................................................................................................................................................................... 81GEO-POLITICAL RISK - Social, Economic & Financial .......................................................................................................................................... 81

THE TAPER TANTRUM TEN (EMERGING MARKETS) .................................................................................................................................. 81 TAPER TANTRUM - Here's What The "Hint" Of A Fed Taper Did To Global Growth Hope .................................................................... 83

TAPER TANTRUM - "TAPER" Shock Waves across Asia.................................................................................................................... 84TAPER TANTRUM - Why Asian Markets A re Collapsing..................................................................................................................... 92TAPER TANTRUM - The Capital-Flow Conundrum .................................................................................................................................. 95TAPER TANTRUM - The "Or ig inal Sin" inEM International Finance Has Been Consu mm ated................................... ................... 98

CHARTS OF NOTE ..................................................................................................................................................................................... 104CHARTSIts a Different World than Most Westerners Yet Fully Appreciate....................................................................................... 104CHARTSAnalysts Have Been Slashing Forecasts for Asian Growth .................................... ........................................ ...................... 104CHARTSGreater External & Domestic Vulnerabilities ....................................... ........................................ ....................................... ... 105CHARTSFalling Financial Conditions in External Deficit EMEs .......................................................................................................... 105CHARTSNet International Investment v Negative Current Account Balances.................................................................................... 106CHARTSEmerging Markets Share of Corporate Debt........................................................................................................................ 106CHARTSAsia (Ex-Japan) Corporate Leverage ................................................................................................................................... 107

THE FRAGILE FIVE..................................................................................................................................................................................... 108Brazil ......................................................................................................................................................................................................... 108India .......................................................................................................................................................................................................... 111South Africa .............................................................................................................................................................................................. 113Indonesia .................................................................................................................................................................................................. 116Turkey ....................................................................................................................................................................................................... 117

THE FORGOTTEN FIVE ............................................................................................................................................................................. 118

Venezuela................................................................................................................................................................................................. 118Argentina ........................................................................ ........................................ ........................................ ........................................ .. 119Mexico ...................................................................................................................................................................................................... 120Malaysia & Philippines ............................................................................................................................................................................. 121

GEO-ECONOMIC RISKFinancial ...................................................................................................................................................................... 125RESERVE CURRENCY & GLOBAL IMBALANCE ......................................................................................................................................... 125

RESERVE CURRENCY - Japan May Eclips e China Again, as Largest Holder of US Treasuries..................................... ................. 125PETRODOLLAR COLLAPSE .......................................................................................................................................................................... 127

UKRAINE ..................................................................................................................................................................................................... 128UKRAINE - Pulled between EU v Russia ................................................................................................................................................ 128UKRAINE - Pulled between An Ethnic Eastern and Western Ukraine .................................................................................................... 128UKRAINE - Pulled between Economic Inequality Factors ..................................... ........................................ ....................................... ... 129UKRAINE - Pulled between the Global Military Balance ......................................................................................................................... 130

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UKRAINE - Pulled by Global Financial Markets ...................................................................................................................................... 131UKRAINE - A Deep State Analysis .......................................................................................................................................................... 133

PETRODOLLARCollapsing PetroDollar Foundation ............................................................................................................................... 137INTERNATIONAL BANKING & SHADOW BANKING .................................................................................................................................... 140

DEBTREITS & CMBS Growth ................................................................................................................................................................. 142DEBT - GLOBAL DEBT 313% of GDP........................................................................................................................................................ 143

DEBT - 202M GLOBALLY UNEMPLOYED DEBTORS .............................................................................................................................. 145MIDDLE EAST ................................................................................................................................................................................................. 146SYRIA ........................................................................................................................................................................................................... 147

SYRIA - This has the Earmarks of the Kennedy Ear "Cuban Missi le" Cr is is.................................................................................. 147SYRIA - Syr ian War You Are Not Being Told About ........................................................................................................................... 148SYRIA - 25 Quotes .................................................................................................................................................................................. 149SYRIA - What Coalit ion? ........................................................................................................................................................................ 152SYRIA - US Supporting Fully an "Al Qaeda Operation"..................................................................................................................... 154SYRIA - Decision Already Taken to Bom b Syr ia................................................................................................................................. 155SYRIA - Market Patterns Before and Immediately After Conflict Begins ................................................................................................ 165

CYBER SPYING .............................................................................................................................................................................................. 167GLOBL GOVERNANCE RISKFailure of Political Leadership & Public Policies ............................................................................................... 168

LEADERSHIP -'Value Transform er' Polit icians are avoidi ng polit ic s OR the voters are rejecting.................................... .......... 168LEADERSHIP -The Consequences Of A Dysfunct ional Pol i t ica l System....................................................................................... 169LEADERSHIP - Mapping th e Collapse of European Democ racy ...................................................................................................... 173

GLOBALMACRO:RISKLEVELS ........................................................................................................................................... 174AGGREGATED GLOBAL FINANCIAL RISK INDEX ........................................ ....................................... ........................................ ...................... 174

BANKING RISK - LIBOR-OIS SPREAD (Updated) ........................................................................................................................................ 175BANKING RISK - TED SPREAD (Updated).................................................................................................................................................... 175CREDIT RISK - GLOBAL CREDIT DEFAULT SWAPS (Updated) .................................... ......................................... ................................... 176CREDIT RISK - EU CREDIT DEFAULT SWAPS (Updated) .......................................................................................................................... 176 CONSUMER RISK - HOUSING - RATE OF CHANGE (Updated) ................................................................................................................. 177ECONOMIC RISK - ECRI LEADING INDEX (Updated) ................................................................................................................................. 179INFLATION RISK - MONEY SUPPLY GROWTH - M3 (Updated) ...................................... ......................................... ................................... 180INFLATION RISK - MONEY VELOCITY (Updated) ................................... ....................................... ........................................ ...................... 180MONETARY RISK - BANK LIABILITIES (Updated)........................................................................................................................................ 181COST OF MONEY RISK - INTEREST RATES (Updated) ................................... ........................................ ....................................... .......... 181

AGGREGATED RISK LEVEL ......................................... ........................................ ........................................ ....................................... ................ 183TIPPING POINT MAPPING: 2014 YEAR BEGINNING UPDATE ....................................... ........................................ ....................................... ... 184

TIPPINGPOINTS:TOP5FOCUS-MARCH2014................................................................................................................... 194I - RISK REVERSAL .............................................................................................................................................................................................. 194II - JAPAN DEBT DEFLATION .............................................................................................................................................................................. 196III-BOND BUBBLE ................................................................................................................................................................................................. 198

IV - EU BANKING CRISIS ..................................................................................................................................................................................... 199V - SOVEREIGN DEBT ...................................... ........................................ ....................................... ........................................ ............................. 200VI - CHINA HARD LANDING ................................................................................................................................................................................. 202

GLOBAL MACRO ................................................................................................................................. 206

GLOBALMACRO:ECONOMICOUTLOOK ............................................................................................................................ 208GLOBAL OUTLOOK Research We Followed ................................................................................................................................................... 208GLOBA L OUTLOOK - Research of Particular Note ............................................................................................................................................. 211GLOBA L OUTLOOK -An Extremely Fragile Stability ..................................... ....................................... ........................................ ...................... 211GLOBA L OUTLOOK - EM Crisis will make the 1997 Asian Crisis Seem like an Early Warning ...................................... ................................... 212GLOBA L OUTLOOK - Global Deleveraging Accelerating and Developing Nations Feeling the Pain ............................................................ 215GLOBA L OUTLOOK - Problems Erupting Everywhere (Signs of Implosion) ...................................................................................................... 217GLOBA L OUTLOOK - Credit Fueled Globalization in Retreat ............................................................................................................................. 220GLOBA L OUTLOOK - Rogoff's Sovereign Debt Default Levels .......................................................................................................................... 223

GLOBA L OUTLOOK - Fiscal Adjustments Required ........................................................................................................................................... 226GLOBA L OUTLOOK - Imbalances Continue to Increase Along With Financial Fragility .................................................................................... 226GLOBA L OUTLOOK -A 67 Million Jobs Gap .......................................... ....................................... ........................................ ............................. 229GLOBA L OUTLOOK - Center of Global Manufacturing Confirmed to be Shifting Away from developed Countries .......................................... 232GLOBA L OUTLOOK - Mercantil ist China the Clear Winner Globally, Mercantilist Germany Regionally .......................................................... 233ECONOMIC CUTS ................................................................................................................................................................................................. 235

IMF To Slash Economic Growth Forecast... Again - Still Full of Hockey sticks ..................................... ....................................... ................. 235OECD CUTS ECONOMIC OUTLOOK ............................................................................................................................................................ 240IMF CUTS ECONOMIC OUTLOOK ................................................................................................................................................................ 243

ECONOMIC WARNINGS....................................................................................................................................................................................... 254IMF WARNS - May 2013 ................................................................................................................................................................................. 254

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Japanese & Spanish Debt Unsustainable ................................................................................................................................................... 256Global Recovery Faltering, Reduces Global Growth to Just Above 3% Global Recession Level ....................................... ....................... 258

BIS WARNS - June 2013................................................................................................................................................................................. 260Monetary Policy At Its Limits ........................................................................................................................................................................ 266

WORLD BANK WARNS - June 2013 ............................................................................................................................................................ 267Social Unrest Stems from Shrinking Disposable Income. Jobs are the central issue. .................................... ....................................... ... 269

GLOBALMACRO:INDICATORS(CHARTS) .......................................................................................................................... 271GLOBAL GROWTH ............................................................................................................................................................................................... 271

GLOBAL GROWTH - GDP Forecasts Continue to Be Taken Down .............................................................................................................. 271GLOBAL GROWTH - Uneconomic Energy Problematic ................................................................................................................................. 271GLOBAL GROWTH - Clearly Slowing ................................... ........................................ ........................................ ....................................... ... 274GLOBAL GROWTH - Trend is clearly Down ................................................................................................................................................... 275GLOBAL GROWTH - Global Growth Cycle .................................................................................................................................................... 276GLOBAL GROWTH - Global GDP Contribution .............................................................................................................................................. 277GLOBAL GROWTH - Clear Signs of Degree of Slowing Since January ........................................................................................................ 278 GLOBAL GROWTH - Clearly Slowing and near Contraction without BRICS ................................................................................................. 279 GLOBAL GROWTH - PMI Barely Above Stagnation ...................................................................................................................................... 281GLOBAL GROWTH - Chinese Slowing moves to CONTRACTION .............................................................................................................. 284GLOBAL GROWTH - Slowing Global Economies .......................................................................................................................................... 285GLOBAL GROWTH - Global GDP Growth Trending Down by Region and Cumulatively ............................................................................. 286GLOBAL GROWTH - Global PMI .................................................................................................................................................................... 286GLOBAL GROWTH - Global Recession ......................................................................................................................................................... 289GLOBAL GROWTH - Slowing Global Growth - Air Cargo Shipments ...................................... ........................................ ............................. 290

GOBAL UNEMPLOYMENT ................................................................................................................................................................................... 291GLOBAL UNEMPLOYMENT - A Problem .................................... ....................................... ......................................... ................................... 291GLOBAL UNEMPLOYMENT - The Beginnings of the Welfare Myth Unwind ................................................................................................ 292 GLOBAL UNEMPLOYMENT - The Unsustainable Welfare Myth ....................................... ......................................... ................................... 294GLOBAL UNEMPLOYMENT - Global Financial Sector Job Cuts................................................................................................................... 296GLOBAL UNEMPLOYMENT - Global Unemployment Rising -Now 202 Million ............................................................................................ 298

GLOBAL TRENDS ................................................................................................................................................................................................. 300GLOBAL TRENDS - Profound Changes in Global Youth As Japan Leads the Way...................................................................................... 300 GLOBAL TRENDSBrands & Commodities Tell the Global Story ............................................................................................................... 303

Cooper - Rio Tinto ........................................................................................................................................................................................ 303Aluminum - Alcoa, Rio Tinto ................................. ........................................ ........................................ ........................................ ............... 305Iron Ore and Thermal Coal - Rio Tinto ........................................................................................................................................................ 307Consumable Brands - P&G.......................................................................................................................................................................... 309Parcel Volumes - FEDEX ...................................... ........................................ ........................................ ........................................ ............... 310Shipping - Baltic Dry Index .................................... ........................................ ........................................ ........................................ ............... 311

GLOBAL SENTIMENT ........................................................................................................................................................................................... 315GLOBAL SENTIMENT - Global Business Confidence Sliding Rapidly .......................................................................................................... 315

Must be a Buy Sign al... .............................................................................................................................................................................. 315GLOBAL SENTIMENT - Complacent ............................................................................................................................................................. 318GLOBAL SENTIMENT - Nielsen's Global Consumer Confidence, Concerns & Spending Intentions ................................................ .......... 319

GLOBAL INFLATION ............................................................................................................................................................................................. 330GLOBAL INFLATION - Food Prices, Driver of Social Unrest ......................................................................................................................... 330GLOBAL INFLATION - Food Price Manipulation in Thailand ......................................................................................................................... 332

GLOBAL CREDIT .................................................................................................................................................................................................. 333CREDIT CYCLE - HY Leading the Way .......................................................................................................................................................... 333 CREDIT CYCLE - Reversal Ahead ................................................................................................................................................................. 336

GLOBALMACRO:MONETARYPOLICY&CENTRALBANKING .......................................................................................... 339TROUBLING DEVELOPMENTS ........................................................................................................................................................................... 339

TROUBLING DEVELOPMENTSVenezuela: Shortages & Hyperinflation .................................................................................................. 339TROUBLING DEVELOPMENTS2007 Redux: Total public and private debt levels are 30pc higher in the advanced economies ........... 340TROUBLING DEVELOPMENTSPolish Pension Confiscation: Coming to a Theater near You ................................................................. 343TROUBLING DEVELOPMENTSGlobal Tax Overhaul................................................................................................................................ 345

GLOBAL ABE-NOMICSThe Road Ahead ......................................................................................................................................................... 346GLOBAL ABE-NOMICSMonetary Expansion Extremely Difficult to Stop Once Started ............................................................................ 346 GLOBAL ABE-NOMICSMonetary Policy Below the Event Horizon ....................................... ........................................ ............................. 348

The "OMF" Trial Balloon Raised ...................................... ........................................ ....................................... ........................................ ......... 350OPMF - A Reversing Wealth Effect May Force OPMF & Global Abenomics ................................................................................................. 351 OPMF - Financial Times: Martin Wolf - "The Case For Helicopter Money" .................................................................................................... 352 OPMF - Financial Times: Martin Wolf - "The Case To Reset Basis of Monetary Policy" ............................................................................... 355 OPMF - Financial Times: Gavyn Davies On Why Helicopters Are Dangerous .............................................................................................. 356 OPMF - A Conundrum for the World's Central Bankers ................................................................................................................................. 359

GLOBAL CENTRAL BANKING .............................................................................................................................................................................. 361RESEARCH WE FOLLOWEDGlobal Banking Risk .................................................................................................................................... 361RESEARCH OF PARTICULAR INTEREST .................................................................................................................................................... 362CENTRAL BANKS - Drop Tightening Talk as Easy Money Goes On ............................................................................................................ 362CENTRAL BANKS - Balance Sheet Growth .................................................................................................................................................. 365CENTRAL BANKS - Austerity Now Officially Dead Public Policy ................................................................................................................... 366 CENTRAL BANKS - They are the Market ....................................................................................................................................................... 366CENTRAL BANKS - The longer QE persists, the greater the magnitude of the left-tail event & a Minsky Trap....................................... ... 369

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CENTRAL BANKS - We May Have Reached a Risk-Off Leverage Pivot .................................. ........................................ ............................. 370CENTRAL BANKS - The Macro Landscape ................................................................................................................................................ 372CENTRAL BANKS - A Serious Shortage of Quality Collateral - A $10T US Problem Over 10 Years .......................................................... 373CENTRAL BANKS - Global Balance Sheet Expansion ................................................................................................................................. 375CENTRAL BANKS - Where Do these Deflators Come From? ...................................................................................................................... 379CENTRAL BANKS - First Remove Gold Standard, Now Remove Debt ........................................................................................................ 380

BOE - UK ................................................................................................................................................................................................................ 384UK - Mark Carney and "Flexible Inflation Targeting" ........................................ ........................................ ........................................ ............... 384

FED - US ................................................................................................................................................................................................................ 385US MONETARY - The Fed is Stuck in a QE Trap .......................................................................................................................................... 385 US MONETARY - 2nd Worst Decade In US Growth in Over 220 Years (And Getting Worse) ..................................................................... 387 US MONETARY - Mathematically, The Fed Can Only Fail ............................................................................................................................ 389 US MONETARY - QE Standing Between Inflated Equity Markets and A Recession..................................................................................... 395US MONETARY - QE Programs versus S&P 500 Movements ...................................................................................................................... 396US MONETARY - BAML Warns If The US Economy Does Not Significantly Accelerate Now, It Never Will ................................................ 398 US MONETARY - Debt Increases $1 Trillion in One Year ............................................................................................................................ 400US MONETARY - Congress Asks Bernanke for Full Risk Analysis On Fed's Soaring Balance Sheet ......................................................... 402

BOJ - JAPAN .......................................................................................................................................................................................................... 407JAPAN - No Way Out But to Expand the Monetary Base ............................................................................................................................... 407 JAPAN - BOJ to "Own" 100% Of GDP In 5 Years .......................................................................................................................................... 408 JAPAN - Adjusted trade deficit the worst in Bloomberg's 20 year history....................................................................................................... 411JAPAN - Some Policies Have Clearly Hit the Limit ......................................................................................................................................... 413 JAPAN - Foreshadows Next Global Crisis ...................................................................................................................................................... 414JAPAN - Japan's Prime Minister Shinzo Abe prepares to print money for the whole world ........................................ ................................... 419JAPAN - Shinzo Abes Monetary-Policy Delusions ......................................................................................................................................... 420JAPAN - BOJ Governor Job Suddenly Available in Historical "Abenomics U-Turn" ...................................................................................... 423 JAPAN - Japanese Economic Policy Goes The Full Ponzi .................................... ........................................ ....................................... .......... 424

ECB - EU ................................................................................................................................................................................................................ 426EU MONETARY - EU Equities Responding to Current Account Differential .................................................................................................. 426EU MONETARY - Patterns: While Everyone Was Worrying About the US and Washington .... ................................................................... 427 EU MONETARY - ECB Monetary transmission mechanisms in Europe are completely broken ................................................................... 429EU MONETARY - EU Lending Volumes Collapse .......................................................................................................................................... 431EU MONETARY - Eurozone Funding Shortfall Rises To Over $4 Trillion ...................................................................................................... 432EU MONETARY - DRIVER$ ........................................................................................................................................................................... 433EU MONETARY - Japan Will Effectively Monetize European Debt ............................................................................................................... 434 EU MONETARY - TARGET-2 Imbalances - "The Debt Crisis Is Eating Its Way Ever Further Into Europe's Core" ................................... ... 434EU MONETARY - Draghi Wil l Soon Be Forced to Start Printing - Again! .................................. ........................................ ............................. 436

GEO-ECONOMICCONCERNS&TENSIONS ......................................................................................................................... 441EMERGING MARKETS - Unfolding 2014 Crisis ..................................... ....................................... ........................................ ............................. 441

RESEARCH WE FOLLOWED ......................................................................................................................................................................... 441RESEARCH OF PARTICULAR INTEREST .................................................................................................................................................... 444

EMERGING MARKETS - Crisis Only Temporarily Averted ............................................................................................................................ 444EMERGING MARKETS - Fragile Five: The new focus of currency wars ....................................................................................................... 444EMERGING MARKETS - Crisis Redux? ......................................................................................................................................................... 445EMERGING MARKETS -Losing Their Punch ................................................................................................................................................ 450EMERGING MARKETS - Risk-On! ................................................................................................................................................................. 452EMERGING MARKETS - Asia, BRIC, Emerging Markets Crater IBM Earnings ............................................................................................ 453EMERGING MARKETS - Crisis Temporarily Halted ........................................ ........................................ ........................................ ............... 455EMERGING MARKETS -Increasing Liquidity Problems In Selected Markets .............................................................................................. 456EMERGING MARKETS - The plight of four Asian countries - China, India, Indonesia and Japan. ................................. .............................. 462EMERGING MARKETS - The Impact of "TAPER".......................................................................................................................................... 467

PETRODOLLARUS-Saudi Oil Alliance Strained ............................................................................................................................................... 471RESEARCH OF PARTICULAR INTEREST .................................................................................................................................................... 471GEO-POLITICAL - The Growing Rift With Saudi Arabia Threatens To Severely Damage The Petrodollar .................................................. 471

GLOBAL BOND SCAREUn-Taper Reverses Fear ....................................... ....................................... ........................................ ...................... 475BOND SCARE - Volatility and Instability Increase Risk .................................................................................................................................. 475 BOND SCARE - Inflation Expectations Contributing to Volatility .................................................................................................................... 477 BOND SCARE - The Financial Times Headlines Tell An Interesting Story .................................................................................................... 478BOND SCARE - A LONG Supply and Demand Problem BUT Heavy SHORT Demand ............................................................................... 479 BOND SCARE - Long Term Support Trendline Achieved .............................................................................................................................. 480 BOND SCARE - Retail Investors Running for the Exit .................................................................................................................................... 481

CHINA LIQUIDITY - Global Tightening Scare ....................................................................................................................................................... 483RESEARCH OF PARTICULAR INTEREST .................................................................................................................................................... 483CHINA LIQUIDITY - Housing Bubble Restricting PBOC Actions.................................................................................................................... 483CHINA LIQUIDITY - PBOC Squeezing Banks towards Reducing Speculative Risk ...................................................................................... 487 CHINA LIQUIDITY - Overnight Repo at 25% .................................................................................................................................................. 488CHINA LIQUIDITY - Red Flags ....................................................................................................................................................................... 489CHINA LIQUIDITY - Credit Fueled Growth ..................................................................................................................................................... 491CHINA LIQUIDITY - Shadow Banking System Showing Signs of Implosion.................................................................................................. 496 CHINA LIQUIDITY - PBOC Wants to Hold the Line on Explosive Credit Expansion through A Liquidity Squeeze....................................... 499 CHINA LIQUIDITY - Potentially De-Stabilizing Cash Crunch ......................................................................................................................... 501CHINA LIQUIDITY - Chinese Liquidity Pump Unplugged ............................................................................................................................... 502

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CURRENCY WARS BACK ONRate Wars Reversed With Un-Taper ............................................................................................................... 504CURRENCY WARS - A Major Shift................................................................................................................................................................. 504BATTLEFIELD - Combatants & Belligerents............................................................................................................................................... 508BATTLEFIIELD - The Race to Debase .......................................................................................................................................................... 509JAPAN - The Destabilizing Agent .................................................................................................................................................................... 512EUROPE - Euro Exposed ................................................................................................................................................................................ 512

ARGENTINA - Here we Go Again! ............................................................. ....................................... ........................................ ...................... 514VENEZUELLA - Bad Situation ......................................................................................................................................................................... 515BRAZIL - No One Wants to Listen................................................................................................................................................................... 515SWITZERLAND - No Choice ........................................................................................................................................................................... 515SINGAPORE - Hot Money ................................. ......................................... ....................................... ........................................ ...................... 516UK- Pound Joins War .................................................................................................................................................................................... 517

CYBER WARSGrowing Threat & the Security-Surveillance Complex .................................. ......................................... ................................... 518RESEARCH WE FOLLOWED ......................................................................................................................................................................... 518SECURITY-SURVEILLANCE COMPLEX - NSA Whistleblower Example: Booz Hamilton ......................................... ................................... 521SECURITY SURVEILLANCE COMPLEX - Growing Without Public Control or Supervision! ........................................................................ 523

SYRIA & IRANComplete Middle East Domination ............................................................................................................................................ 524RESEARCH WE FOLLOWED ......................................................................................................................................................................... 524SYRIA - This has the Earmarks of the Kennedy Ear "Cuban Missile" Crisis .................................... ........................................ ...................... 526SYRIA - Syrian War You Are Not Being Told About ....................................................................................................................................... 527 SYRIA - 25 Quotes .......................................................................................................................................................................................... 528SYRIA -What Coalition? ................................................................................................................................................................................. 531SYRIA - US Supporting Fully an "Al Qaeda Operation" .................................. ........................................ ......................................... ............... 534

A War 20 Years In the Making ..................................... ....................................... ........................................ ........................................ ......... 534

The Last Humanitarian War....................................................................................................................................................................... 534The Bottom Line ........................................................................................................................................................................................... 535SYRIA - Decision Already Taken to Bomb Syria ........................................ ....................................... ........................................ ...................... 536SYRIA - Market Patterns Before and Immediately After Conflict Begins ........................................................................................................ 545 MIDDLE EAST - Watch Out for a "False Flag" or "Covert" Activity Event ...................................................................................................... 547MIDDLE EAST - Who Is Threatening Who Here? .......................................................................................................................................... 548

REGIONAL ............................................................................................................................................. 550

EUROSIS -A Terminal Disease ..................................................................... ....................................... ........................................ ...................... 550RESEARCH WE FOLLOWED THIS MONTH ................................................................................................................................................. 550RESEARCH OF PARTICULAR IMPORTANCE ............................................................................................................................................. 551RESEARCH - EFSF Downgraded to AA+ .................................... ....................................... ......................................... ................................... 551RESEARCH - EU Stabilization Programs Are Presently Very Fragile ....................................... ........................................ ............................. 552RESEARCH - Spreads Widened in Peripherals and Significantly in Portugal and Greece ........................................................................... 555 PROGNOSIS: Why the European Situation Will Get Worse .......................................................................................................................... 557PROGNOSIS: Increasing Structural Imbalances ............................................................................................................................................ 560PROGNOSIS: $22T Unaccounted -A Hidden World of Contingent Liabilities, Government Backing & Guarantees. .............................. 562PROGNOSIS: Monetary Malpractice - ECB's LTRO Not a Solution but ........................................................................................................ 567

PROGNOSIS: Monetary Malpractice - ECB's SMP Effort Futile..................................................................................................................... 571 PROGNOSIS: Monetary Malpractice - ECB Accepts BBB Collateral ............................................................................................................. 573PROGNOSIS: EU Banking Overbanked, Undercapitalized and Now Insolvent ............................................................................................. 574PROGNOSIS: Monetary Malpractice - TARGET2 "Contingent Liabilities".............................................................................................. 576PROGNOSIS: Bailouts - Unsustainable & Unfundable ................................... ........................................ ......................................... ............... 583

MEDICAL CHARTS - Situation Critical .................................................................................................................................................................. 585CHARTS - EU Area Weakness ....................................................................................................................................................................... 585CHARTS - EU Area GDP ................................................................................................................................................................................ 586CHARTS - EU Area PMI .................................................................................................................................................................................. 587CHARTS - EU Area PMI .................................................................................................................................................................................. 588CHARTS - EU Real Rates ............................................................................................................................................................................... 589CHARTS - EU -NON Euro Members GDP RELIANCE ................................... ........................................ ......................................... ............... 590CHARTS - EU GLOBAL GDP GROWTH CONTRIBUTION ........................................................................................................................... 591CHARTS - EU PMI .......................................................................................................................................................................................... 591CHARTS - EU CPI ........................................................................................................................................................................................... 593CHARTS - Regional Risk-Reward ................................................................................................................................................................... 594CHARTS - Europe's "Core" Problem is France ................................... ....................................... ........................................ ............................. 595CHARTS - Germany's Preoccupation with Inflation is More Than It Would Seem ........................................ ....................................... .......... 598CHARTS - Evidence OF Global Slowing Now Indisputable ................................... ........................................ ....................................... .......... 599CHARTS - EU Credit Downgrades, France and UK On Tap ....................................... ........................................ ....................................... ... 601CHARTS - Perceived Reduction in Risk, A Temporary Aberration................................................................................................................. 603CHARTS - Dangerous Delusional Divergences.......................................................................................................................................... 605CHARTS - IMF Projections for Euro Area and GIIPS ..................................................................................................................................... 606CHARTS - Air Cargo Shipments Confirm Slowing Global Growth.................................................................................................................. 607CHARTS - Eurozone Misery Indices Never Been Higher ............................................................................................................................... 608CHARTS - Euro Currency................................................................................................................................................................................ 610

ITALYLongest Recession on Record ....................................... ........................................ ........................................ ........................................ .. 615RESEARCH WE FOLLOWED THIS MONTH ................................................................................................................................................. 615RESEARCH OF PARTICULAR IMPORTANCE ............................................................................................................................................. 616RESEARCH - Italys Budget Failures, Weak Growth Outlook Call Debt Sustainability Into Question ........................................................... 616CHARTS OF PARTICULAR IMPORTANCE ................................................................................................................................................... 620CHARTS - ITALY - Forced Rate Cuts ............................................................................................................................................................. 620

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SITUATIONAL ASSESSEMENT ..................................................................................................................................................................... 621ITALIAN ELECTION - What You Need to Know ............................................................................................................................................. 621ITALIAN ELECTION - Europe Capitulates On Austerity- Never Had The Stomach For It ............................................................................. 622 ITALIAN ELECTION - Message Given By the People .................................................................................................................................... 624ITALIAN ELECTION - Bad Debt Continue to Soar ......................................................................................................................................... 628ITALIAN ELECTION - Italians React Badly to Austerity, Elections Hardly a Surprise!................................................................................... 630

ITALIAN ELECTION - EUROPEAN FEEDBACK- #1 ................................................................................................................................... 631ITALIAN ELECTION - EUROPEAN FEEDBACK- #2 ................................................................................................................................... 633ITALIAN ELECTION - Regional Financial Cracks in Sicily ............................................................................................................................ 636

FRANCE - Hollande Losing Political Capital Fast Hapless President .................................... ......................................... ................................... 639RESEARCH WE FOLLOWED THIS MONTH ................................................................................................................................................. 639RESEARCH OF PARTICULAR IMPORTANCE ............................................................................................................................................. 639RESEARCH - Steady Breakdown Underway .................................................................................................................................................. 640RESEARCH - France Loses its Coveted and NEEDED AAA Rating ............................................................................................................. 644 CHARTS OF PARTICULAR IMPORTANCE ................................................................................................................................................... 646CHARTS - FRANCE - GDP ............................................................................................................................................................................. 646CHARTS - FRANCE - UNEMPLOYMENT ...................................................................................................................................................... 647CHARTS - FRANCE - BUDGET DEFICIT ...................................................................................................................................................... 648CHARTS - FRANCE - TAX v GDP .................................................................................................................................................................. 649 CHARTS - FRANCE - BUSINESS CONFIDENCE ......................................................................................................................................... 650 SITUATIONAL ASSESSMENT ....................................................................................................................................................................... 651FRANCE - What You Need to Know ............................................................................................................................................................... 651FRANCE - Key Indicators ................................................................................................................................................................................ 652FRANCE: Sharpest Drop in Private Sector Output in Four Years .................................................................................................................. 655FRANCE - Quits on Austerity - Never a Doubt This Would Happen............................................................................................................... 658 FRANCE - Socialism is Expensive .................................................................................................................................................................. 659FRANCE - Has Turned back to Socialism .................................... ....................................... ......................................... ................................... 661FRANCE - Losing Its Way through Political Illusions and Lies ....................................................................................................................... 662FRANCE - Uncompetitive ................................................................................................................................................................................ 663FRANCE - Titan Tire Calls Out French Labor ................................................................................................................................................. 665 FRANCE - France Responds to Titan Tire ...................................................................................................................................................... 667 FRANCE - What Happens In France When Companies Fire People ............................................................................................................. 670 FRANCE - Hollande's Economically Insane campaign Promise .................................................................................................................... 671

GERMANYMerkel Short of Majority but Maintains Power................................................................................................................................. 672RESEARCH WE FOLLOWED THIS MONTH ................................................................................................................................................. 672RESEARCH OF PARTICULAR IMPORTANCE ............................................................................................................................................. 673RESEARCH - German Election - Merkel Begins Hunt for Coalition Partners ................................................................................................ 673RESEARCH - Europe's Shadow Economy: As Big As Germany ................................................................................................................... 675CHARTS OF PARTICULAR IMPORTANCE ................................................................................................................................................... 678CHARTS - GERMANY - Inflation ..................................... ....................................... ........................................ ........................................ ......... 678CHARTS - GERMANY - IFO Investor Confidence .......................................................................................................................................... 678 CHARTS - GERMANY - ZEW Expectations ................................................................................................................................................... 679SITUATIONAL ASSESSEMENT ..................................................................................................................................................................... 681

GERMANY - Anti Euro AfD Party May Cost Merkel in Critical September Election ....................................................................................... 682 GERMANY - The Euro Crisis Escalation over Cyprus May Politically Cripple Merkel ................................................................................... 683GERMANY - Call for End of "Coercive Euro Association" .............................................................................................................................. 685

IBERIAN PENINSULANon-Performing Loans Everywhere .............................................................................................................................. 687RESEARCH WE FOLLOWED THIS MONTH ................................................................................................................................................. 687RESEARCH OF PARTICULAR IMPORTANCE ............................................................................................................................................. 688RESEARCH - Presidential Warning Spikes Yields To 8 Months Highs ..................................... ........................................ ............................. 688RESEARCH - Clear Signs of Desperation In Spain from a Growing Collateral Contagion ............................................................................ 690 RESEARCH - The Spanish Government's 'Bad Bank' Scam ......................................................................................................................... 691CHARTS OF PARTICULAR IMPORTANCE ................................................................................................................................................... 693CHARTS - PORTUGAL - Deficit Problem ....................................................................................................................................................... 693SITUATIONAL ASSESSEMENT ..................................................................................................................................................................... 694IBERIA - Credit Downgrades - At Precipice of "Non Investment Grade" ........................................................................................................ 694 IBERIA - Regional Bailout Bailouts a Massive Problem.................................................................................................................................. 695 IBERIA - NPL Going Ballistic ........................................................................................................................................................................... 696IBERIA - Spanish Funding Problem ................................................................................................................................................................ 698IBERIA - The Giant Spanish Housing Bubble, Now Beginning to Implode..................................................................................................... 703 IBERIA - Mal-Investment Coming Home to Roost .......................................................................................................................................... 705IBERIA - Bank Deposits Were Leaving, Now they Are Fleeing ...................................................................................................................... 706IBERIA - Now a Capital Investment Problem .................................................................................................................................................. 707IBERIA - Banks on Artificial "Ponzi Bond" Life Support .................................................................................................................................. 708

UKCarney Tales the Helm of BOE with Forward Guidance& Stern Warnings ................................................................................................. 717RESEARCH WE FOLLOWED THIS MONTH ................................................................................................................................................. 717RESEARCH OF PARTICULAR IMPORTANCE ............................................................................................................................................. 718RESEARCH - UK workers' wage squeeze is longest since the 1870s ........................................................................................................... 718CHARTS OF PARTICULAR IMPORTANCE ................................................................................................................................................... 719CHARTS - UKPopulation Growth ................................................................................................................................................................ 719CHARTS - UK - Crushed Disposable Income ................................................................................................................................................. 719 CHARTS - UK - BOE Balance Sheet Growth.................................................................................................................................................. 720CHARTS - UK - Lending .................................................................................................................................................................................. 720CHARTS - UK - Unemployment ...................................................................................................................................................................... 721CHARTS - UK - GDP - Pre and Post Recession Levels ................................................................................................................................. 722

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CHARTS - UK - GDP ....................................................................................................................................................................................... 722CHARTS - UK - BOE Rates............................................................................................................................................................................. 723SITUATIONAL ASSESSEMENT ..................................................................................................................................................................... 724UK - What you need to Know .......................................................................................................................................................................... 724UK - Joins Currency War - Down 8% YTD ................................................................................................................................................... 725UK - Specter of Stagflation Haunts UK ........................................................................................................................................................... 726

UK - Public Policy turns Against Austerity and PM Cameron ......................................................................................................................... 727UK - Doomsday Debt Machine ........................................................................................................................................................................ 728UK - QE Extension Coming ............................................................................................................................................................................. 731UK - Small Business Credit Squeeze Now Acute - Loan Rejections Rising ................................................................................................. 733UK - Technically in a Depression .................................................................................................................................................................... 734

CYRPUS - Latest EU Banking Crisis ..................................................................................................................................................................... 737SITUATIONAL ASSESSEMENT ..................................................................................................................................................................... 737CYRPUS - What you Need To Know .............................................................................................................................................................. 737CYRPUS - Basic Situational Charts ................................................................................................................................................................ 739CYPRUS - Crumbling Property Rights ............................................................................................................................................................ 741CYPRUS - Plan D Supersedes Plan C and B as Time running Out ............................................................................................................... 745 CYPRUS - Forgetting About Contract Law, Private Property Rights and Due Process ................................................................................. 748 CYPRUS - Russian Tax Haven ....................................................................................................................................................................... 749CYPRUS - Plan B as Bad As Plan A ..................................... ........................................ ........................................ ....................................... ... 750CYPRUS - Breaks Public Trust and Incites the Politics of Germany Dictating Terms ................................................................................... 751CYPRUS - Does Anyone Care How a Capitalist System (versus a Crony Capitalist System) is Supposed to Work? .................................. 757CYPRUS - Criminal "Confidence Game" Payouts to Everyone at the Tax Payers Expense ......................................................................... 758CYPRUS - Cyprus Pushes EU Banking Crisis Back Near the Edge ........................................................................................................... 760

ASIA-SERIOUS CRACKS BELOW THE SURFACE......................................................................................................................... 761CHINA - Credit Tightening Panic A verted - Temporarily?............................................................................................................................... 761

RESEARCH WE FOLLOWED THIS QUARTER ............................................................................................................................................ 761CHARTS OF PARTICULAR IMPORTANCE ................................................................................................................................................... 766CHARTS - CHINA - Chinese Credit Market ....................................... ....................................... ........................................ ............................. 766CHARTS - CHINA - PMI .................................................................................................................................................................................. 767CHARTS - CHINA - PMI-2 ....................................... ........................................ ........................................ ........................................ ............... 768CHARTS - CHINA - GDP ................................... ......................................... ....................................... ........................................ ...................... 769CHARTS - CHINA - INDUSTRIAL OUTPUT ................................................................................................................................................... 770 CHARTS - CHINA - Urban Fixed Asset Investment ................................... ....................................... ........................................ ...................... 771CHARTS - CHINA - RETAIL SALES ............................................................................................................................................................... 772RESEARCH OF PARTICULAR IMPORTANCE ............................................................................................................................................. 773RESEARCH - China's Stunning $15 Trillion In New Liquidity ....................................... ........................................ ....................................... ... 773RESEARCH - Dr. Copper Ready to Top and Head Lower ............................................................................................................................. 776RESEARCH - China's $1 Trillion GDP Lie ...................................................................................................................................................... 777RESEARCH - What the Deceleration Could Portend ..................................................................................................................................... 779RESEARCH - Credit Bubble: 240% Of GDP And Soaring ............................................................................................................................. 782RESEARCH - Forget Taper risk: China is a bigger threat............................................................................................................................. 785RESEARCH - Sustainability Requires a Slowdown in Investment ................................................................................................................. 787

RESEARCH - China Likely to Continue Interest Rate Liberalization .............................................................................................................. 789RESEARCH - China #1 in Broad Array of Key Areas ..................................................................................................................................... 792RESEARCH - Global Business Confidence Sliding Rapidly ........................................................................................................................... 793

Must be a Buy Sign al... .............................................................................................................................................................................. 793RESEARCH - Investors Worried and Losing Confidence ............................................................................................................................... 796RESEARCH - China Stampeding into Gold .................................................................................................................................................... 797RESEARCH - China "Will introduce some measures to arrest the slowdown of growth in the next couple of quarters" .............................. 799RESEARCH - Slower Growth In the Cards & Endorsed by New Chinese Leadership .................................................................................. 800 RESEARCH - Is a PBOC Controlled Speculation Bust Possible or Will It Get Out of Control ....................................................................... 801 RESEARCH - PBOC Liquidity Squeeze ....................................... ....................................... ......................................... ................................... 802RESEARCH - Chinese Housing Bubble Restricting PBOC Actions ............................................................................................................... 804RESEARCH - PBOC Squeezing Banks towards Reducing Speculative Risk ................................................................................................ 806 RESEARCH - Chinese Overnight Repo at 25% ............................................................................................................................................. 808RESEARCH - Red Flags ................................................................................................................................................................................. 809RESEARCH - Credit Fueled Growth in China ..................................... ....................................... ........................................ ............................. 811RESEARCH - PBOC Wants to Hold the Line on Explosive Credit Expansion through A Liquidity Squeeze ................................................ 816 RESEARCH - A Potentially De-Stabilizing Cash Crunch ....................................... ........................................ ....................................... .......... 818SITUATIONAL ANALYSISPositioning Reference ....................................................................................................................................... 819CHINA SHADOW BANKING - Shadow Banking System Showing Signs of Implosion.................................................................................. 821

CHINA SHADOW BANKING - Shadow Banking and Credit Growth .............................................................................................................. 82

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