rpt-GMTP-2013-04-Peek.pdf

1 April 2013 Edition Restricted & Confidential Copyright 2012 © Gordon T. Long All Rights Reserved [email protected]

GLOBAL GOVERNANACE FAILURE Failing Monetary, Fiscal and Public Policy

GLOBAL MACRO TIPPING POINTS - APRIL 2013

3/25/2013


GLOBAL GOVERNANACE FAILURE

Failing Monetary, Fiscal & Public Policy

GLOBAL MACRO TIPPING POINTS - APRIL 2013

TIPPING POINTS ...................................................................................................................... 11

GLOBAL MACRO: RISK ASSESSMENT .................................................................................................................................................... 11 SITUATIONAL ANALYSIS .................................................................................................................................................... 11

POSITIONAL FRAMEWORK: "WE ARE HERE!" ....................................................................................................................................................... 11 Q1 2013 DEVELOPMENTS TO WATCH ..................................................................................................................................................................... 12 GLOBAL TRENDS - NATIONAL INTELLIGENCE COUNCIL ................................................................................................................................... 21 A BROKEN PONZI SCHEME - BOSTON CONSULTING GROUP .......................................................................................................................... 23 RISK CONTINUUM ......................................................................................................................................................................................................... 25

MACRO MONITORING INSTITUTIONS ............................................................................................................................... 26

WEF (WORLD ECONOMIC FORUM) .......................................................................................................................................................................... 26 IMF (INTERNATIONAL MONETARY FUND) .............................................................................................................................................................. 41 OECD (ORGANIZATION FOR ECONOMIC COOPERATION & DEVELOPMENT) .............................................................................................. 56 MAPLECROFT (SCANNING THE GLOBE) ................................................................................................................................................................ 58

GLOBAL RISK SIGNALS ...................................................................................................................................................... 60

RISK - SIGNS APLENTY, BUT NO ONE PANICKING - YET! .................................................................................................................................. 62 RISK - CANARIES SINGING AGAIN ........................................................................................................................................................................... 64 RISK - COMPLACENCY & REPRESSED FEAR ........................................................................................................................................................ 65 RISK - TIED TO EU IN 2012 ......................................................................................................................................................................................... 66 RISK - GLOBAL DERIVATIVE COLLATERAL ............................................................................................................................................................ 67 RISK - GLOBAL RISK MATRIX..................................................................................................................................................................................... 69 RISK - GLOBAL MACRO HEADWINDS / TAILWINDS .............................................................................................................................................. 69 RISK - FOOD A GROWING GLOBAL INFLATION & SOCIAL UNREST RISK ...................................................................................................... 71 RISK - INCREASINGLY DYSFUNCTIONAL CAPITALS MARKETS ....................................................................................................................... 76

RISK - GLOBAL RISK REWARD .......................................................................................................................................... 78

RISK - RISING GEO-POLITICAL EVENT RISK.......................................................................................................................................................... 79

GLOBAL MACRO: RISK LEVELS ................................................................................................................................................................ 83 AGGREGATED GLOBAL FINANCIAL RISK INDEX .............................................................................................................. 83

BANKING RISK - LIBOR-OIS SPREAD (Updated) .................................................................................................................................................... 84 BANKING RISK - TED SPREAD (Updated) ................................................................................................................................................................ 84 CREDIT RISK - GLOBAL CREDIT DEFAULT SWAPS (Updated) .......................................................................................................................... 85 CREDIT RISK - EU CREDIT DEFAULT SWAPS (Updated) ..................................................................................................................................... 86 CONSUMER RISK - HOUSING - RATE OF CHANGE (Reference) ........................................................................................................................ 87 ECONOMIC RISK - ECRI LEADING INDEX (Updated) ............................................................................................................................................. 88 INFLATION RISK - MONEY SUPPLY GROWTH - M3 (Updated) ............................................................................................................................ 89 INFLATION RISK - MONEY VELOCITY (Updated) .................................................................................................................................................... 90 MONETARY RISK - BANK LIABILITIES (Updated) ................................................................................................................................................... 90 COST OF MONEY RISK - INTEREST RATES (Updated)........................................................................................................................................ 92

AGGREGATED RISK LEVEL ................................................................................................................................................ 94

TIPPING POINTS: CHANGES ...................................................................................................................................................................... 95 TIPPING POINT MAPPING: 2013 UPDATE .......................................................................................................................... 95

TIPPING POINTS: TOP 5 FOCUS - FEBRUARY 2013 .......................................................................................................................... 104 I - RISK REVERSAL............................................................................................................................................................ 104 II - JAPAN DEBT DEFLATION ............................................................................................................................................ 107 III-BOND BUBBLE .............................................................................................................................................................. 110 IV - EU BANKING CRISIS ................................................................................................................................................... 110 V - SOVEREIGN DEBT ....................................................................................................................................................... 111 VI - CHINA HARD LANDING ............................................................................................................................................... 113


DRIVER$: RISK-ON - RISK-OFF ANALYTICS ......................................................................................................................................... 117 1- G10 MACRO SURPRISE INDEX .................................................................................................................................... 120 2- CUMULATIVE GLOBAL PMI ........................................................................................................................................... 123 3- SLOWING GLOBAL EXPORTS ...................................................................................................................................... 129 4- US NON-REVOLVING CONSUMER CREDIT ................................................................................................................. 132 5- IBES' RELATIVE GLOBAL PE RATIOS .......................................................................................................................... 135 6- CONSENSUS EARNINGS ESTIMATES - Sell Side Analysts .......................................................................................... 141 7- INFLATION PRESSURES - Global Food Prices.............................................................................................................. 143

GLOBAL MACRO ................................................................................................................... 147

GLOBAL MACRO: ECONOMIC OUTLOOK ............................................................................................................................................. 149 GLOBAL - Credit Fueled Globalization in Retreat ................................................................................................................ 149 GLOBAL - Rogoff's Sovereign Debt Default Levels ............................................................................................................. 151 GLOBAL - Fiscal Adjustments Required .............................................................................................................................. 154 GLOBAL - Imbalances Continue to Increase Along With Financial Fragility ......................................................................... 154 GLOBAL - A 67 Million Jobs Gap ........................................................................................................................................ 157 GLOBAL - Center of Global Manufacturing Confirmed to be Shifting Away from developed Countries ................................ 160 GLOBAL - Mercantilist China the Clear Winner Globally, Mercantilist Germany Regionally ................................................. 161 IMF CUTS ECONOMIC OUTLOOK ..................................................................................................................................... 163

IMF Cuts Advanced Economies Growth by 25% from 2.0% to 1.5% ..................................................................................................................... 163 IMF Cuts Growth from 3.9% to 3.6% and Increases Deficit Multiplier by 100 to 200% ........................................................................................ 170

WARNINGS ........................................................................................................................................................................ 172

IMF WARNS .................................................................................................................................................................................................................. 172 BIS WARNS ................................................................................................................................................................................................................... 176 WORLD BANK WARNS ............................................................................................................................................................................................... 177

GLOBAL MACRO: INDICATORS ............................................................................................................................................................... 179 GROWTH............................................................................................................................................................................ 179

Slowing Global Economies .......................................................................................................................................................................................... 179 Global GDP Growth Trending Down by Region and Cumulatively ......................................................................................................................... 180 Global PMI ..................................................................................................................................................................................................................... 181 Global Recession .......................................................................................................................................................................................................... 183 Slowing Global Growth - Air Cargo Shipments ......................................................................................................................................................... 184

GOBAL UNEMPLOYMENT ................................................................................................................................................. 185

Global Unemployment Rising - 202 Million ................................................................................................................................................................ 185 TRENDS ............................................................................................................................................................................. 187

BRANDS & COMMODITIES: Tell the Global Story .................................................................................................................................................. 187 SENTIMENT ....................................................................................................................................................................... 199

NIELSEN (Global Consumer Confidence, Concerns & Spending Intentions) ....................................................................................................... 199 INFLATION ......................................................................................................................................................................... 210

Food Prices, Driver of Social Unrest ........................................................................................................................................................................... 210 Food Price Manipulation in Thailand .......................................................................................................................................................................... 211

GLOBAL MACRO: MONETARY POLICY & CENTRAL BANKING ........................................................................................................ 212 The "OMF" Trial Balloon Raised .......................................................................................................................................... 213

Financial Times: Martin Wolf - "The Case For Helicopter Money" .......................................................................................................................... 214 Financial Times: Martin Wolf - "The Case To Reset Basis of Monetary Policy" .................................................................................................... 217 Financial Times: Gavyn Davies On Why Helicopters Are Dangerous .................................................................................................................... 218 A Conundrum for the World's Central Bankers.......................................................................................................................................................... 221

PBOC - China ..................................................................................................................................................................... 223 Chinese Liquidity Pump Unplugged ............................................................................................................................................................................ 223

BOE - UK ............................................................................................................................................................................ 225 Mark Carney and "Flexible Inflation Targeting" ......................................................................................................................................................... 225

FED - US............................................................................................................................................................................. 226 FOMC January Minutes Un-Nerve Markets ............................................................................................................................................................... 226 Congress Asks Bernanke For Full Risk Analysis On Fed's Soaring Balance Sheet ............................................................................................. 227


BOJ - JAPAN ...................................................................................................................................................................... 231 Japan's Prime Minister Shinzo Abe prepares to print money for the whole world................................................................................................. 231 Shinzo Abe’s Monetary-Policy Delusions ................................................................................................................................................................... 232 BOJ Governor Job Suddenly Available in Historical "Abenomics U-Turn" ............................................................................................................. 235 Japanese Economic Policy Goes The Full Ponzi ...................................................................................................................................................... 236

ECB - EU ............................................................................................................................................................................ 238 Japan Will Effectively Monetize European Debt ........................................................................................................................................................ 238 TARGET-2 Imbalances - "The Debt Crisis Is Eating Its Way Ever Further Into Europe's Core" ......................................................................... 238 Draghi Will Soon Be Forced to Start Printing - Again! .............................................................................................................................................. 240

COMBINED ......................................................................................................................................................................... 244 Global Balance Sheet Expansion ................................................................................................................................................................................ 244 Where Do these Deflators Come From? .................................................................................................................................................................... 248 First Remove Gold Standard, Now Remove Debt .................................................................................................................................................... 249

GEO-POLITICAL TENSIONS ..................................................................................................................................................................... 253 CURRENCY WARS ............................................................................................................................................................ 253

BATTLEFIELD - Combatants & Belligerents ............................................................................................................................................................. 255 BATTLEFIIELD - The Race to Debase ....................................................................................................................................................................... 256 JAPAN - The Destabilizing Agent ............................................................................................................................................................................... 258 EUROPE - Euro Exposed ............................................................................................................................................................................................ 258 ARGENTINA - Here we Go Again!.............................................................................................................................................................................. 260 VENEZUELLA - Bad Situation ..................................................................................................................................................................................... 261 BRAZIL - No One Wants to Listen .............................................................................................................................................................................. 261 SWITZERLAND - No Choice ....................................................................................................................................................................................... 261 SINGAPORE - Hot Money ........................................................................................................................................................................................... 262 UK- Pound Joins War ................................................................................................................................................................................................... 263

CYBER WARS .................................................................................................................................................................... 264

A Potential Destabilizing Catalyst ............................................................................................................................................................................... 264 Rules of Engagement ................................................................................................................................................................................................... 264 Brushfire Battle: ............................................................................................................................................................................................................. 264 Brushfire Battle: ............................................................................................................................................................................................................. 264

IRAN ................................................................................................................................................................................... 265

Watch Out for a "False Flag" or "Covert" Activity Event ........................................................................................................................................... 265 Who Is Threatening Who Here? .................................................................................................................................................................................. 265

REGIONAL ............................................................................................................................... 268

EUROSIS - A Terminal Disease ........................................................................................................................................ 268 PROGNOSIS: Why the European Situation Will Get Worse ................................................................................................................................... 268 PROGNOSIS: Increasing Structural Imbalances ...................................................................................................................................................... 271 PROGNOSIS: $22T Unaccounted - A Hidden World of Contingent Liabilities, Government Backing & Guarantees. ................................... 273 PROGNOSIS: Monetary Malpractice - ECB's LTRO Not a Solution but ................................................................................................................ 277 PROGNOSIS: Monetary Malpractice - ECB's SMP Effort Futile ............................................................................................................................. 280 PROGNOSIS: Monetary Malpractice - ECB Accepts BBB Collateral ..................................................................................................................... 282 PROGNOSIS: EU Banking Overbanked, Undercapitalized and Now Insolvent .................................................................................................... 283 PROGNOSIS: Monetary Malpractice - TARGET2 "Contingent Liabilities"............................................................................................................. 284 PROGNOSIS: Bailouts - Unsustainable & Unfundable ............................................................................................................................................ 290

MEDICAL CHARTS - Situation Critical ............................................................................................................................... 292

CHARTS - Regional Risk-Reward .............................................................................................................................................................................. 292 CHARTS - Europe's "Core" Problem is France ......................................................................................................................................................... 293 CHARTS - Germany's Preoccupation with Inflation is More Than It Would Seem ............................................................................................... 296 CHARTS - Evidence OF Global Slowing Now Indisputable ..................................................................................................................................... 297 CHARTS - EU Credit Downgrades, France and UK On Tap .................................................................................................................................. 299 CHARTS - Perceived Reduction in Risk, A Temporary Aberration ......................................................................................................................... 301 CHARTS - Dangerous Delusional Divergences ........................................................................................................................................................ 303 CHARTS - IMF Projections for Euro Area and GIIPS ............................................................................................................................................... 304 CHARTS - Air Cargo Shipments Confirm Slowing Global Growth .......................................................................................................................... 305 CHARTS - Eurozone Misery Indices Never Been Higher ........................................................................................................................................ 306 CHARTS - Euro Currency ............................................................................................................................................................................................ 308

CYRPUS - Latest EU Banking Crisis ................................................................................................................................... 313

CYRPUS - What you Need To Know .......................................................................................................................................................................... 313 CYRPUS - Basic Situational Charts ............................................................................................................................................................................ 314


CYPRUS - Crumbling Property Rights ....................................................................................................................................................................... 316 CYPRUS - Plan D Supersedes Plan C and B as Time running Out ....................................................................................................................... 320 CYPRUS - Forgetting About Contract Law, Private Property Rights and Due Process ....................................................................................... 323 CYPRUS - Russian Tax Haven ................................................................................................................................................................................... 324 CYPRUS - Plan B as Bad As Plan A .......................................................................................................................................................................... 325 CYPRUS - Breaks Public Trust and Incites the Politics of Germany Dictating Terms .......................................................................................... 326 CYPRUS - Does Anyone Care How a Capitalist System (versus a Crony Capitalist System) is Supposed to Work? ..................................... 332 CYPRUS - Criminal "Confidence Game" Payouts to Everyone at the Tax Payers Expense ............................................................................... 333 CYPRUS - Cyprus Pushes EU Banking Crisis Back Near the Edge ..................................................................................................................... 335

ITALY - Election Sends A Clear Message ........................................................................................................................... 336

ITALIAN ELECTION - What You Need to Know ....................................................................................................................................................... 336 ITALIAN ELECTION - Europe Capitulates On Austerity- Never Had The Stomach For It ................................................................................... 338 ITALIAN ELECTION - Message Given By the People.............................................................................................................................................. 340 ITALIAN ELECTION - Bad Debt Continue to Soar ................................................................................................................................................... 344 ITALIAN ELECTION - Italians React Badly to Austerity, Elections Hardly a Surprise! ......................................................................................... 346 ITALIAN ELECTION - EUROPEAN FEEDBACK - #1 .............................................................................................................................................. 347 ITALIAN ELECTION - EUROPEAN FEEDBACK - #2 .............................................................................................................................................. 349 ITALIAN ELECTION - Regional Financial Cracks in Sicily ...................................................................................................................................... 352

FRANCE - Core Fractures As France Quits On Austerity .................................................................................................... 354

FRANCE - What You Need to Know .......................................................................................................................................................................... 354 FRANCE - Key Indicators ............................................................................................................................................................................................ 355 FRANCE: Sharpest Drop in Private Sector Output in Four Years........................................................................................................................... 358 FRANCE - Quits on Austerity - Never a Doubt This Would Happen ....................................................................................................................... 361 FRANCE - Socialism is Expensive.............................................................................................................................................................................. 362 FRANCE - Has Turned back to Socialism ................................................................................................................................................................. 364 FRANCE - Losing Its Way through Political Illusions and Lies ................................................................................................................................ 365 FRANCE - Uncompetitive ............................................................................................................................................................................................ 366 FRANCE - Titan Tire Calls Out French Labor ........................................................................................................................................................... 368 FRANCE - France Responds to Titan Tire................................................................................................................................................................. 370 FRANCE - What Happens In France When Companies Fire People ..................................................................................................................... 372 FRANCE - Hollande's Economically Insane campaign Promise ............................................................................................................................. 373

GERMANY - Growing Anti-EU Sentiment ............................................................................................................................ 374

GERMANY - Anti Euro AfD Party May Cost Merkel in Critical September Election ............................................................................................. 375 GERMANY - The Euro Crisis Escalation over Cyprus May Politically Cripple Merkel .......................................................................................... 376 GERMANY - Call for End of "Coercive Euro Association" ....................................................................................................................................... 378

IBERIAN PENINSULA - Spain & Portugal Imploding ........................................................................................................... 380 IBERIA - Credit Downgrades - At Precipice of "Non Investment Grade"................................................................................................................ 380 IBERIA - Regional Bailout Bailouts a Massive Problem ........................................................................................................................................... 381 IBERIA - NPL Going Ballistic ....................................................................................................................................................................................... 382 IBERIA - Spanish Funding Problem ............................................................................................................................................................................ 383 IBERIA - The Giant Spanish Housing Bubble, Now Beginning to Implode ............................................................................................................ 387 IBERIA - Mal-Investment Coming Home to Roost .................................................................................................................................................... 389 IBERIA - Bank Deposits Were Leaving, Now they Are Fleeing ............................................................................................................................... 390 IBERIA - Now a Capital Investment Problem ............................................................................................................................................................ 391 IBERIA - Banks on Artificial "Ponzi Bond" Life Support ............................................................................................................................................ 392

UK - Yet Another Recession and 5 More Years of Austerity ................................................................................................ 399

UK - What you need to Know ...................................................................................................................................................................................... 399 UK - Joins Currency War - £ Down 8% YTD ............................................................................................................................................................. 400 UK - Specter of Stagflation Haunts UK ....................................................................................................................................................................... 401 UK - Public Policy turns Against Austerity and PM Cameron .................................................................................................................................. 402 UK - Doomsday Debt Machine .................................................................................................................................................................................... 403 UK - QE Extension Coming ......................................................................................................................................................................................... 406 UK - Small Business Credit Squeeze Now Acute - Loan Rejections Rising ......................................................................................................... 408 UK - Technically in a Depression ................................................................................................................................................................................ 409

ASIA - SERIOUS CRACKS BELOW THE SURFACE .......................................................................................................................................... 412 CHINA - Shadow Banking Dangerously Unstable ................................................................................................................ 415

CHINA SHADOW BANKING - Shadow Banking and Credit Growth ...................................................................................................................... 417 CHINA SHADOW BANKING - The US Sub-Prime / CDO All Over Again ............................................................................................................. 420 CHINA SHADOW BANKING - Report ........................................................................................................................................................................ 424 CHINA SHADOW BANKING - Situation ..................................................................................................................................................................... 425


CHINA RESERVES - Distorted Foreign Reserve Levels ......................................................................................................................................... 426 CHINA RESERVES - Declining Reserve Accumulation ........................................................................................................................................... 428 CHINA RESERVES - Has Caught the Gold Bug big time! ....................................................................................................................................... 430 CHINA CURRENCY WARS - Hot Money into China ................................................................................................................................................ 432 CHINA - Withdraws Liquidity ....................................................................................................................................................................................... 433 CHINA - Société General Sees a Likely Soft Landing! ............................................................................................................................................. 435 CHINA - True Debt is Orders of Magnitude More than Officially Being Reported ................................................................................................. 443 CHINA - Evidence OF Slowing Now Indisputable ..................................................................................................................................................... 446 CHINA - PMI Improvement .......................................................................................................................................................................................... 447 CHINA - Political Transition & Ongoing Emergence as a Super Power ................................................................................................................. 450 CHINA - An Implicit Social Contract ............................................................................................................................................................................ 452 CHINA - Manipulated Statistics due to Upcoming Decade Long Regime Change ............................................................................................... 454 CHINA - Increasing Leverage is China's Way of Monetary Easing ........................................................................................................................ 455 CHINA - Possible Interest-Rate Liberalization ........................................................................................................................................................... 456 CHINA - Global Impact of China's Slowdown ............................................................................................................................................................ 457 CHINA - Shanghai Composite at 2008 Low Levels .................................................................................................................................................. 459 CHINA - Shanghai Composite Warnings Signs ......................................................................................................................................................... 460 CHINA - Credit to GDP ................................................................................................................................................................................................. 462 CHINA - A Slow Recovery Through 2013 .................................................................................................................................................................. 463 CHINA - Manufacturing PMI in Contraction Territory ................................................................................................................................................ 465

JAPAN: The New Currency War Front ................................................................................................................................ 466

JAPAN - What You Need to Know .............................................................................................................................................................................. 468 JAPAN - Regional Risk-Reward .................................................................................................................................................................................. 470 JAPAN - Now the Frontrunner of Outright Monetization. ......................................................................................................................................... 471 JAPAN - Yen Devaluation ............................................................................................................................................................................................ 472 JAPAN - New Bank of Japan Policy - 2% Inflation in 2 Years ................................................................................................................................. 473 JAPAN - Appoints BOJ Governor Firmly Committed to Printing Money................................................................................................................. 475 JAPAN - Third Straight Quarter of Recession ........................................................................................................................................................... 476 JAPAN - Full Out War on Deflation ............................................................................................................................................................................. 476 JAPAN - First Test of the new found “dominance” of the Central Banks ............................................................................................................... 478 JAPAN - BOJ Was Next Up. No Surprise .................................................................................................................................................................. 480 JAPAN - Negative Current Account Balance and -3.5% Recession ....................................................................................................................... 482 JAPAN - A 50% Over-Valued Yen Has Undermined Self Confidence & Drive...................................................................................................... 485 JAPAN - Proves QE's Low Cost of Capital Does Structural Damage to Economy ............................................................................................... 487 JAPAN - BOJ Being Pressured to "Rip-Up Government Debt"1 ............................................................................................................................. 489 JAPAN - Easy Money Has Hurt Corporate Profitability in the Longer Term .......................................................................................................... 495 JAPAN - The Biggest Debtor with the Biggest Problem! .......................................................................................................................................... 498 JAPAN - A Magnitude Larger Problem than Europe................................................................................................................................................. 502 JAPAN - QE 9 A Complete Failure - Actually "Tightens" versus It's Intended Easing .......................................................................................... 508 JAPAN - Japanese Yen Continuously Under Attack ............................................................................................................................................... 512 JAPAN - Vast foreign US$ Coming Home for "Claim" .............................................................................................................................................. 513 JAPAN - PMI Breakdown ............................................................................................................................................................................................ 514 JAPAN - Exports Continue To Tumble ....................................................................................................................................................................... 516 JAPAN - Intervention Fails Again - It's a Whole new Ball Game ............................................................................................................................. 517 JAPAN - First Signs of Massive Debt Monetization After Next Election ................................................................................................................. 520 JAPAN - Japan to the ESM's Rescue ........................................................................................................................................................................ 520

EMERGING MARKETS - SYNCHRONIZED MARKETS ................................................................................................................................. 522 EMERGING MARKETS - What you Need to Know .................................................................................................................................................. 522 EMERGING MARKETS - Comparative Ease of Doing Business ............................................................................................................................ 524 EMERGING MARKETS - Importance of Employment, Equality and Per Capital Income .................................................................................... 525 ASIA ................................................................................................................................................................................................................................ 528 ASIA - Regional Risk-Reward...................................................................................................................................................................................... 528 ASIA - Corporate Debt Levels Reflect Unintended Consequences of Mispricing & Malinvestment ................................................................... 529 ASIA - Synchronized Markets ...................................................................................................................................................................................... 534 ASIA - Caution Advised Regarding Positive South Korea Export Turnaround ...................................................................................................... 536 ASIA - Export Growth Looks Similar to Pre-2008...................................................................................................................................................... 537 ASIA - Global Slowing Quickly a Worsening Situation Across Asia ........................................................................................................................ 538 ASIA - Risks All on the Downside for Asia ................................................................................................................................................................. 539 ASIA - Demographic Headwinds ................................................................................................................................................................................. 541 ASIA - Pronounced Flight to Singapore Safety ......................................................................................................................................................... 542 BRICS ............................................................................................................................................................................................................................. 544 BRICS - A Development Bank-Forex Reserve Pool-African Integration ................................................................................................................ 544 BRICS - 40% of World Population and 25% of World GDP ..................................................................................................................................... 545


BRICS - $3 to $13B GDP in Ten Years ...................................................................................................................................................................... 548 BRAZIL - Inflation will remain high thanks to a "growth mismatch". ...................................................................................................................... 550 RUSSIA - Central bank will hike rates if inflation and oil prices continue to rise. .................................................................................................. 551 INDIA - Will be fine as long as it continues to reduce its deficit............................................................................................................................... 552 INDIA - Watch Out For RE-Emergence of Food Price Inflation ............................................................................................................................... 553 BRICS- A World Wide Distrust of Financial Markets Building ................................................................................................................................. 554

US ECONOMY ......................................................................................................................... 556

THE GLOBAL MACRO OVERLAY ............................................................................................................................................................. 557 MACRO POSITIONING: A Serious Global Slowdown Underway ........................................................................................ 557 MACRO POSITIONING: Credit Fueled Globalization in Retreat .......................................................................................... 561 MACRO POSITIONING: Notion of Eurozone "Decoupling" Has Ended. .............................................................................. 563 MACRO POSITIONING: Nielsen's Global Survey - "Consumers Cutting Back & Worrying about a Recession" ................... 566 MACRO POSITIONING: Executives Report Deteriorating Economic Environment .............................................................. 569 PROSPERITY AT RISK: Harvard Strategy Study Spells Out US Problem ........................................................................... 572

US INVESTMENT CYCLE ........................................................................................................................................................................... 576 GORD'S BIG PICTURE ECONOMIC CYCLE ...................................................................................................................... 576 ECONOMIC INDICATORS .................................................................................................................................................. 577

MONTHLY INDICATORS OF NOTE .......................................................................................................................................................................... 577 THE CURRENT BUSINESS CYCLE - SITUATIONAL ANALYSIS ....................................................................................... 583

ECONOMIC CYCLE, INVESTMENT CYCLE, SECTOR ROTATION .................................................................................................................... 583 JOBS - CONFIDENCE - CONSUMPTION - GROWTH CYCLE ............................................................................................................................. 587 JOBS .............................................................................................................................................................................................................................. 588 CONSUMER & BUSINESS SENTIMENT .................................................................................................................................................................. 597 CONSUMPTION ........................................................................................................................................................................................................... 614 GROWTH ....................................................................................................................................................................................................................... 628

US INVESTMENT CYCLE ........................................................................................................................................................................... 640 GORD'S BIG PICTURE ECONOMIC CYCLE ...................................................................................................................... 640 ECONOMIC INDICATORS .................................................................................................................................................. 641

MONTHLY INDICATORS OF NOTE .......................................................................................................................................................................... 641 THE CURRENT BUSINESS CYCLE - SITUATIONAL ANALYSIS ....................................................................................... 647

ECONOMIC CYCLE, INVESTMENT CYCLE, SECTOR ROTATION .................................................................................................................... 647 JOBS - CONFIDENCE - CONSUMPTION - GROWTH CYCLE ............................................................................................................................. 651 JOBS .............................................................................................................................................................................................................................. 652 CONSUMER & BUSINESS SENTIMENT .................................................................................................................................................................. 661 CONSUMPTION ........................................................................................................................................................................................................... 678 GROWTH ....................................................................................................................................................................................................................... 692

US GOVERNMENT SURRENDERS 'RISK FREE" .................................................................................................................................. 704 Exorbitant Privilege ............................................................................................................................................................. 704 US Firmly in Stage 5 of the "Sovereign Life Cycle" .............................................................................................................. 709 The Price of Political Chicanery ........................................................................................................................................... 712

"Kick the Can" Politics .................................................................................................................................................................................................. 712

US PUBLIC POLICY - SOME NOTABLE POLICY PROBLEMS ............................................................................................................. 713 POLICY: Congressman Ron Paul's Farewell Speech to Congress ...................................................................................... 715 POLICY: Credit Growth Solely Government Funded ........................................................................................................... 720 POLICY: Government's Consumption Spending versus Investment Spending .................................................................... 722 POLICY: FHA is a Case Study in Failed Public Policy ......................................................................................................... 724 POLICY: What Was Intentionally Avoided During the Election Promises By Both Parties .................................................... 728

What about the $84T in Unfunded Federal Entitlements? ....................................................................................................................................... 728 What about the $5T in Unfunded State & Local Government Pension Obligations? ............................................................................................ 729 What about the $1T in Student Loan Bubble? ........................................................................................................................................................... 732 What about the ...... ? ................................................................................................................................................................................................... 733

POLICY: Failure to Recognize & Alter Policy When it is Clearly Not Working ...................................................................... 733 Stimulus Hasn't Worked. It is Camouflaging Something Deeper ..................................................................................................................... 738

POLICY: A Capitalist System No Longer Realistically Operate When the State Borrows at a Negative Cost ....................... 740

MONETARY POLICY - ELECTILE DYSFUNCTIONAL .................................................................................................................................... 743 HIGHLIGHTS ...................................................................................................................................................................... 743 QE III POST MORTEM - BROKEN FED MODEL ................................................................................................................ 745

POST MORTEM: Market Reacts Badly...................................................................................................................................................................... 745 POST MORTEM: Currency War Salvos & The $67T Shadow Banking Currency Cartel ..................................................................................... 747


POST MORTEM: Fed's Broken Model ....................................................................................................................................................................... 756 POST MORTEM: QEfinity Working Psychologically the same as 1987 Pre-Crash Portfolio Insurance ............................................................ 758

FED'S NEXT STEP ............................................................................................................................................................. 760

NEXT STEP: Current Fed Thinking ............................................................................................................................................................................ 760 NEXT STEP: Fed Lays Foundation for Further Policy Changes ............................................................................................................................. 761 NEXT STEP: High Probability Direction ..................................................................................................................................................................... 767 NEXT STEP: Communications to Ensure "Duration" Understood .......................................................................................................................... 769

FED INDICATORS .............................................................................................................................................................. 770

PATTERNS: Velocity of Money ................................................................................................................................................................................... 770 PATTERNS: Real Negative Rates .............................................................................................................................................................................. 772 PATTERNS: Short Interest Rates a Fed Problem .................................................................................................................................................... 774 CHARTS: Fed Deliberately ignoring data on both growth and inflation .................................................................................................................. 775

PREVIOUS QUARTERLY SUMMARY - REFERENCE ............................................................................................................................... 777

FISCAL POLICY - FROM POLITICAL POLLING TO POLITICAL BRINKSMANSHIP ......................................................................... 778 HIGHLIGHTS ...................................................................................................................................................................... 778 TIMELINE: Calendar of Events Ahead ................................................................................................................................ 782 PREDICTIONS.................................................................................................................................................................... 783

PREDICTION: The High Probability Outcome .......................................................................................................................................................... 783 PREDICTION: Political Brinksmanship & Vigilantes ................................................................................................................................................. 784 PREDICTION: US Unwittingly Surrenders "Risk Fee" Status.................................................................................................................................. 792

PERSPECTIVES ................................................................................................................................................................. 793

PERSPECTIVE: One Non-Mainstream Analyst's Views .......................................................................................................................................... 793 PERSPECTIVE: One Mainstream Analyst's Views .................................................................................................................................................. 796 PERSPECTIVE: A Collection of Wall Street Views................................................................................................................................................... 801 PERSPECTIVE: Barron's Weigh In ............................................................................................................................................................................ 803 PERSPECTIVE: Goldman's Fiscal Cliff Scenarios ................................................................................................................................................... 806

CHARTS ............................................................................................................................................................................. 810

KEY CHARTS: Growth & Jobs .................................................................................................................................................................................... 810 KEY CHARTS: Taxes & Spending .............................................................................................................................................................................. 813 KEY CHARTS: Politics & Policy .................................................................................................................................................................................. 816 KEY CHARTS: The Stakes .......................................................................................................................................................................................... 817 KEY CHARTS: Payroll Tax Holiday ............................................................................................................................................................................ 820 CHARTS: Tax Rate Comparisons ............................................................................................................................................................................... 821 CHARTS: Risk Perceptions ......................................................................................................................................................................................... 822 CHARTS: 2013 Quarterly Impact ................................................................................................................................................................................ 823 CHARTS: Budget Deficit .............................................................................................................................................................................................. 824 CHARTS: Sovereign Debt ............................................................................................................................................................................................ 826 CHARTS: State & Local Government Drag ............................................................................................................................................................... 827 CHARTS: Government Dependence .......................................................................................................................................................................... 830 CHARTS: Coming Demographic Shock ..................................................................................................................................................................... 830

TREASURY FUNDING ....................................................................................................................................................... 833

TREASURY DEBT: Latest TIC Table ......................................................................................................................................................................... 833 TREASURY DEBT: Who is Buying? ........................................................................................................................................................................... 834

BUDGET ............................................................................................................................................................................. 836

STATEMENTS: As A Corporation it is Both Insolvent & Exhibits Fraudulent GAAP Accounting Practices ....................................................... 836 QUARTERLY US BUDGET UPDATE ........................................................................................................................................................................ 843

PREVIOUS QUARTERLY SUMMARY - Reference ............................................................................................................. 847

KEY DRIVERS - CATALYSTS OF CHANGE ............................................................................................................................................ 848 EMPLOYMENT ................................................................................................................................................................... 852

1- CAPITAL SPENDING .............................................................................................................................................................................................. 852 2- SMALL BUSINESS OPTIMISM .............................................................................................................................................................................. 855 3- DEMOGRAPHIC SHIFT .......................................................................................................................................................................................... 859 RESEARCH OF NOTE................................................................................................................................................................................................. 864


REAL DISPOSABLE INCOME ............................................................................................................................................ 869 RESEARCH OF NOTE................................................................................................................................................................................................. 873

US RESIDENTIAL REAL ESTATE ...................................................................................................................................... 878

OVERVIEW .................................................................................................................................................................................................................... 878 CURRENT SITUATIONAL ANALYSIS ....................................................................................................................................................................... 882 CURRENT HOME OWNERSHIP TRENDS ............................................................................................................................................................... 882 NEW HOME SALES - Not as Strong as Headlines & Excitement Suggests ......................................................................................................... 886 HOUSING - Potentially Increasing Supply v Demand Problem ............................................................................................................................... 890 NATIONAL STATISTICS: PRICE ............................................................................................................................................................................... 892 NATIONAL STATISTICS: EXISITNG HOME SALES ............................................................................................................................................... 894 NATIONAL STATISTICS: NEW HOME SALES ........................................................................................................................................................ 896 RESEARCH OF NOTE................................................................................................................................................................................................. 897

US COMMERCIAL REAL ESTATE ..................................................................................................................................... 903

OVERVIEW .................................................................................................................................................................................................................... 903 NATIONAL STATISTICS: COMMERCIAL REAL ESTATE...................................................................................................................................... 904 RESEARCH OF NOTE................................................................................................................................................................................................. 905

CAPITAL SHRUGGED ................................................................................................................................................................................ 909


MONTHLY PROCESS OF ABSTRACTION

The Global Macro Tipping Points (GMTP) Service is an integral part of our monthly Process of Abstraction research

methodology. The process starts monthly with the Tipping Points and completes with a final Synthesis. The

sequence is optimized to align with the established Macro Economic Data releases.

Plan Release

Date

Service Focus Coverage

III. Monday following

3rd Saturday

of the Month

Global Macro Tipping Points

(GMTP)

Tipping Points

Abstraction

Abstraction

Tipping Points

Global Macro

US Economy

IV. 1st Day of the

Month

Market Analytics & Technical

Analysis (MTA)

Technical Analysis

Market Analytics

Market Analytics

Technical Analysis

Fundamental Analysis

Risk Analysis

II. Day Following

Monthly Labor

Report

(~ 1st Saturday)

Monthly Market Commentary

(MMC)

Synthesis Commentary

Synthesis

Thesis

Commentary

Conclusions

Documents

rpt-GMTP-2013-04-Peek.pdf