rpt-Mrpt-MTA-2015-10-PEEK.pdfTA-2015-10-PEEK

1 OCTOBER 2015 Edition Restricted & Confidential Copyright 2015 © Gordon T. Long All Rights Reserved [email protected]

Monthly Market Analytics & Technical Analysis

OCTOBER 2015 Edition

FULL RESEARCH DATA FILE

MATA- OCTOBER 2015

10/12/2015


Monthly Market Analytics & Technical Analysis

OCTOBER 2015

HIGHLIGHTS - WHAT YOU NEED TO KNOW ................................................................................................................................. 13 SUMMARY ANALYSIS ............................................................................................................................................................................................ 13 Era of “Delusional Distortions” & the Super Cycle Pivot “b” .................................................................................................................................... 24

Defining Chart #1 - "Delusional Distortion" Expectations & the Log-Periodic Cycle ......................................................................................... 26 Defining Chart #2 - Finding the Longer Term Super Cycle Pivot “b” ................................................................................................................ 27 Defining Chart #3 - The Big “M” and Super Cycle “b” ....................................................................................................................................... 29 Defining Chart #4 – Intermediate Term Topping Process ................................................................................................................................. 30 The Bottom Line................................................................................................................................................................................................. 33

OUR APPROACH - MACRO ANALYTICS ...................................................................................................................................... 36 OCTOBER 2015: Global Macro Drivers .................................................................................................................................................................. 38

NEW-WEALTH .................................................................................................................................................................................................. 40 UPDATED-HARD ASSETS - Gold ................................................................................................................................................................ 40 UPDATED-HARD ASSETS – Silver .............................................................................................................................................................. 42 UPDATED-HARD ASSETS - Commodities .................................................................................................................................................. 43

UPDATED-NEW-EXCHANGE .......................................................................................................................................................................... 44 CURRENCIES - USD .................................................................................................................................................................................... 44 UPDATED-CURRENCIES - EURO ............................................................................................................................................................... 45 CURRENCIES - YEN ..................................................................................................................................................................................... 47 UPDATED-CARRY TRADE - The €: ¥ Cross ............................................................................................................................................... 49 UPDATED-CARRY TRADE - The $: ¥ Cross ............................................................................................................................................... 52

NEW-YIELD, CREDIT & SPREAD .................................................................................................................................................................... 53 NEW-EQUITIES - Global ................................................................................................................................................................................... 55 CHARTS & RESEARCH OF NOTE .................................................................................................................................................................. 56

YIELD ............................................................................................................................................................................................................. 56 NEW-YIELD – 10Y EU Country Government Bond Yields ........................................................................................................................ 56 NEW-YIELD – UST Note Yields Fall the Most Since 2009 after the Fed Goes On Hold .......................................................................... 56 NEW-YIELD – German & US 10Y Bonds Fall Dramatically In Yield – Trend is Now Down ..................................................................... 57 YIELD – 30Y Treasury Yield Bursts Above 3.00% - 6-Week Highs .......................................................................................................... 58 YIELD – Albert Edwards: "Prepare For Sub-1% Treasury Yields and another Financial Crisis" .............................................................. 58 YIELD – "This Will End Badly" High Yield Bonds Tumble To Worst Since 2011 ...................................................................................... 61 YIELD – Federal Reserve is Running Out of Runway Unless Negative Nominal Rates are Ahead?....................................................... 62 YIELD – Bond Route Reduced Negative Nominal Eurozone Sovereign Debt by €1T .............................................................................. 63 YIELD – Total Debt Securities Growth ....................................................................................................................................................... 65

CREDIT .......................................................................................................................................................................................................... 66 NEW-CREDIT – High Yield Spread the Largest Since June 2012 ............................................................................................................ 66 NEW-CREDIT – The spread between BAA and 10-year treasuries is the widest since July 2012 .......................................................... 66 NEW-CREDIT – The spread between BAA and Industrial Production...................................................................................................... 67 NEW-CREDIT – High Yield Spreads to 10Y UST & 10Y Breakeven Inflation .......................................................................................... 67 NEW-CREDIT – Credit Stress Intensifies – US Corporate HY.................................................................................................................. 68 NEW-CREDIT – Global HY ETF AUN Drawdowns ................................................................................................................................... 68 NEW-CREDIT – HY Spread Change versus HY Energy Spread Change ................................................................................................ 69 NEW-CREDIT – US Financial Stocks versus US Financial Credit ............................................................................................................ 69 CREDIT – Credit Risk Increasing .............................................................................................................................................................. 70 CREDIT – TED Spread Increasing ............................................................................................................................................................ 70 CREDIT – Credit Always Leads Markets –“It’s the Life Blood!”................................................................................................................. 71 CREDIT – Global Credit Markets Need QE to Survive .............................................................................................................................. 71 CREDIT – TSY 2s30s – 2003-2006 versus 2012-2015 ............................................................................................................................. 72 CREDIT – HYCDX, IGCDX versus S&P .................................................................................................................................................... 72 CREDIT – This Alarming Indicator Is Back At A Level Last Seen 10 Days Before The Bear Stearns Collapse ...................................... 72 CREDIT – Why Credit Market Moves Are Now "Hyperbolic," Citi Explains .............................................................................................. 75

CURRENCIES ............................................................................................................................................................................................... 77 CURRENCIES – It is Still About the Japanese Carry Trade –But Concerns Growing ............................................................................. 77 CURRENCIES – Everyone Is Probably Wrong About the US Dollar ........................................................................................................ 77 CURRENCIES – 3 charts that show the weak euro might be about to turn around ................................................................................. 80 CURRENCIES – Blood on the European Streets As EUR-Yuan Carry Unwinds Crush Stocks .............................................................. 84 CURRENCIES – Is the Decline in the Euro Over? .................................................................................................................................... 84 CURRENCIES – Japan Much Less Risky Than Europe From a Currency Perspective ........................................................................... 86 CURRENCIES – First Break of Overhead Resistance on USDYEN Monthly in 17 Years ....................................................................... 87 CURRENCIES – The Yen Is At The Most Undervalued Level In Nearly 30 Years ................................................................................... 87

COMMODITIES ............................................................................................................................................................................................. 90 COMMODITIES – Algos Locked into WTI Crude & Alternatively the USDJPY ........................................................................................ 90 COMMODITIES – Why commodities are dying the death of 1,000 cuts ................................................................................................... 90 COMMODITIES – The Weak Trend In EM currencies and Commodities Isn’t Abating ............................................................................ 91 COMMODITIES – How Saudi Arabia Sets the Global (Currency) Markets .............................................................................................. 92 COMMODITIES – Dr. Copper Is Down, Not Out ....................................................................................................................................... 96 COMMODITIES – Are Commodities And EM Stocks Becoming Less Sensitive To The Dollar? ............................................................. 97 COMMODITIES – Don't Waste Your Time On Commodity ETFs ............................................................................................................. 99 COMMODITIES – Iron Ore Prices Tell the Real Story of Global Deflation ............................................................................................. 107 COMMODITIES – Global Shipping Index has Crashed To Its Lowest Level Ever ................................................................................. 108


INFLATION .................................................................................................................................................................................................. 110 NEW-INFLATION – Expected Inflation- One Year and Three Years Ahead .......................................................................................... 110 INFLATION – Inflation Expectations & Relative Performance................................................................................................................. 110 INFLATION – US CPI – 1958 – 2015 Annual Percentage Change ........................................................................................................ 112 INFLATION – The Rise of Deflation ......................................................................................................................................................... 113 INFLATION – World Inflation Falls To 59-Month Low ..................................................................................................................... 113

PRECIOUS METALS ................................................................................................................................................................................... 114 PRECIOUS METALS – Gold demand in Asia hit by weak local currencies; Indian prices at discount .................................................. 114 PRECIOUS METALS – Gold Tracked US Debt – Until Recently – Will Likely Re-Establish Long Term Pattern .................................. 116

RISK: Risk-On versus Risk-Off .............................................................................................................................................................................. 117 CHARTS OF NOTE ......................................................................................................................................................................................... 118

NEW-RISK – Total NYSE Short Interest & Monthly Change ...................................................................................................................... 118 NEW-RISK – Contrasting Post October Market Drawdowns – 1973’s’ Slow Pain’ versus 1987 Crash ..................................................... 118 NEW-RISK – Historical Post-Crash Price Actions – 1950 to 2015 ............................................................................................................. 119 NEW-RISK – Historical Post-Crash Price Pattern Has Taken an Average of 27 days to Double Bottom .................................................. 119 NEW-RISK – Credit Fleeing IG,HY & EM .................................................................................................................................................... 120 NEW-RISK – Credit Fleeing IG,HY & EM .................................................................................................................................................... 120 NEW-RISK – Margin Debt in NYSE Accounts versus S&P 500 ................................................................................................................. 121 RISK – Credit Risk Increasing ..................................................................................................................................................................... 122 RISK – TED Spread Increasing ................................................................................................................................................................... 122 RISK – VIX Pricing in Credit Problems ........................................................................................................................................................ 123 RISK – Credit Always Leads Markets –“ It’s the Life Blood!” ...................................................................................................................... 123 RISK – The Pattern is Clear – QE the Market Driver .................................................................................................................................. 124 RISK – “Internal deterioration in the market is more consistent with the development of more major bull market peaks” ........................ 125 RISK – A huge gap has opened up between reality and perceptions ......................................................................................................... 126 RISK – Economic Surprise Index – lower highs, lower lows and a reluctant bounce ................................................................................. 127 RISK – Weekly Equity Outflows ................................................................................................................................................................... 127 RISK – Weekly EM Fund Outflows .............................................................................................................................................................. 128 RISK – Net Outflows as a % of AUM by Year ............................................................................................................................................. 129 RISK – HG Spread Per Point of Equity Volume .......................................................................................................................................... 130 RISK – Widening Gap between Debt & Equity ............................................................................................................................................ 130 RISK – HY Bond ETF (HYG) versus S&P 500 ............................................................................................................................................ 130 RISK – HY Credit versus 2007-2008 – “Credit Always Leads Equity” ........................................................................................................ 131 RISK – Leuthold’s High/Low Logic Index Sending a Clear Signal .............................................................................................................. 132 RISK – Just Too Many “One in a Million” Standard Deviation Events! ....................................................................................................... 133 RISK – Days with > 100 NYSE & NASDAQ New Highs AND New Lows ................................................................................................... 133 RISK – Correlated, Confirmed Hindenburg Omens .................................................................................................................................... 134 RISK – Broad Global Equity Index Sitting on the Precipice ........................................................................................................................ 135 RISK – Global DOW at Potential Key Support Levels ................................................................................................................................. 135 RISK – The “Correction Counter” Rising Across Assets Classes ............................................................................................................... 136 RISK – # of days Since a 2% Up or Down Move......................................................................................................................................... 136 RISK – Margin Debt in Perspective ............................................................................................................................................................. 137 RISK – PE/VIX –Market Emotion Indicator .................................................................................................................................................. 137 RISK – Margin Debt Breaks Out- Hits New Record 50% Higher Than Last Bubble Peak ......................................................................... 138 RISK – DOW Industrial v Transports ........................................................................................................................................................... 138 RISK – ISE Index and ETF Call/Put Hits a 6 Year High .............................................................................................................................. 139 RISK – Value Line Composite Breaks Trend After a 26 Year Top ............................................................................................................. 140 RISK – ADX Suggests Big Move (Lower) Coming ...................................................................................................................................... 141

RESEARCH OF NOTE .................................................................................................................................................................................... 142 NEW-RISK – 10 Signs That Stocks Are Way Overpriced ........................................................................................................................... 142 NEW-RISK – The Biggest Short Squeeze In Years" Says Bank of America .............................................................................................. 144 NEW-RISK – NYSE Margin Debt Declines Again In August ....................................................................................................................... 147 NEW-RISK – Economic Surprises Are Turning Back Over In The US ....................................................................................................... 149 RISK – Interbank Credit Risk Is Rising Ominously Again In America ......................................................................................................... 152 RISK – Doug Kass: “There is a Blizzard Ahead!” ........................................................................................................................................ 154 RISK – Oblivious To Risk - Complacency Still Reigns ................................................................................................................................ 155 RISK – Why Selling the Blips Makes Sense ................................................................................................................................................ 159 RISK – Biggest Outflow from Equity Funds In 2015 Offset By Longest Treasury Inflow Streak In 4 Years............................................... 160 RISK – The 17-year river [of reserve currency buildup and QE around the world] is no longer flowing .................................................... 164 RISK – New Strategies "Are Creating Volatility" .......................................................................................................................................... 164 RISK – Why SocGen Is Very Nervous About the Recent Loss Of $9 Trillion In Global Market Cap.......................................................... 166 RISK – Goldman Warns, VIX "Is Pricing In A Lot Of Economic Damage" .................................................................................................. 168 RISK – This Alarming Indicator Is Back At A Level Last Seen 10 Days before The Bear Stearns Collapse ............................................. 171 RISK – Beware 1200 On The Russell - Breadth Breakdown Is Big Risk To Small Caps, BofA Warns ..................................................... 174 RISK – When Hindenburg Omens Are Ominous......................................................................................................................................... 175 RISK – "One Would Be Bucking Pretty Stiff Odds To Ignore This Development" ...................................................................................... 177 RISK – One-In-A-Billion "Hiccups" Are Happening All The Time, Citi Warns Something Is Wrong ........................................................... 178 RISK – The Chart That No Stock Market Bull Wants To See ..................................................................................................................... 179 RISK – According To Bank of America, This Is "The Biggest Risk to Global Equities" .............................................................................. 182 RISK – The "Smartest Money" Liquidating At a Record Pace: "Selling Everything” ................................................................................... 184 RISK – Top CEO Warns Of Global Reset: "It's In The Cards For Sure... It Could Happen This Year" ...................................................... 186 RISK – $140 Billion Bond Fund Goes To Cash As It "Braces For Bond-Market Collapse" ........................................................................ 188

TECHNO-FUNDAMENTALS ................................................................................................................................................................................. 191 CHARTS OF NOTE ......................................................................................................................................................................................... 191

NEW-CHARTS – Real S&P 500 Index Cycles with Recessions ................................................................................................................. 191 NEW-CHARTS – Quarterly Overbought Cycles .......................................................................................................................................... 191


NEW-CHARTS – Monetary Velocity Declines as Excess Leverage Weights on Consumption ................................................................. 192 NEW-CHARTS – The Real Value of Cash .................................................................................................................................................. 192 NEW-CHARTS – Consumer Sentiment versus S&P 500 ........................................................................................................................... 193 NEW-CHARTS – Hedgers Net Long Record of S&P 500 Futures .............................................................................................................. 193 NEW-CHARTS – Fed Balance Sheet Changes versus S&P 500 ............................................................................................................... 194 NEW-CHARTS – S&P Futures versus Relative Volumes ........................................................................................................................... 194 NEW-CHARTS – Japanese Buying Foreign Stocks ................................................................................................................................... 195 NEW-CHARTS – Monetary Initiatives versus S&P 500 .............................................................................................................................. 196 NEW-CHARTS – Bull Trend Line Support .................................................................................................................................................. 196 CHARTS – DOW Industrial 200 WMA Boundary Condition & Trend Direction Change Indicator.............................................................. 197 CHARTS – DOW Industrial 200 WMA Boundary Condition & Trend Direction Change Trigger ................................................................ 197 CHARTS – Global 150 Equity Index Bounces off Lower Support Channel ................................................................................................ 198 CHARTS – Global 150 Equity Index – Potential Key Support Levels ......................................................................................................... 198 CHARTS – The Rout May Have Just Began According to Some ............................................................................................................... 199 CHARTS – The VIX Termination Algo ......................................................................................................................................................... 199 CHARTS – The VIX Termination Algo ......................................................................................................................................................... 200 CHARTS – Pick-Up In Buyback Activity ...................................................................................................................................................... 201 CHARTS – Buybacks Are Tied to Investment Grade Credit Spreads ........................................................................................................ 201 CHARTS – Coincident / Lagging Indicator Ratio ......................................................................................................................................... 202 CHARTS – Annual Change in Durable Goods Orders ................................................................................................................................ 202 CHARTS – Durable Goods v Core-Durable Goods (Ex Defense) .............................................................................................................. 203 CHARTS – Real Gross Domestic Investment ............................................................................................................................................. 203 CHARTS – Total Real Private Fixed Investment as % of Real GDP .......................................................................................................... 204 CHARTS – Businesses Operate Against Actual Demand ........................................................................................................................... 204 CHARTS – ISM Composite Index ................................................................................................................................................................ 205 CHARTS – Capacity Utilization versus Industrial Production ..................................................................................................................... 205 CHARTS – Retail Sales (NSA) Annual % Chg of 12 Month Average ......................................................................................................... 206 CHARTS – Monthly Retail “Control Purchases” – Y-o-Y % Chg ................................................................................................................. 207 CHARTS – Major Economic Trends ............................................................................................................................................................ 207 CHARTS – $9T Loss In Global Market Cap ................................................................................................................................................ 208 CHARTS – Median EV/EBITDA Ratio for MSCI World (ex Financials) ...................................................................................................... 208 CHARTS – 15 Developed Country Aggregate Bond PLUS Stock Valuations ............................................................................................ 209 CHARTS – 15 Developed Country Aggregate -83% are in their top 20% of valuations through history .................................................... 209 CHARTS – Death Cross .............................................................................................................................................................................. 209 CHARTS – Asian Dollar Index Flags Crisis Events ..................................................................................................................................... 211 CHARTS – TSY 2s30s Spread .................................................................................................................................................................... 211 CHARTS – S&P versus HY(High Yield) & IG (Investment Grade) .............................................................................................................. 212 CHARTS – Fed Balance Sheet versus HYG (HY Bond ETF) ..................................................................................................................... 212 CHARTS – Commodity Carnage ................................................................................................................................................................. 213 CHARTS – Market Expectations of Support & Resistance ......................................................................................................................... 214 CHARTS – Russell 2000 Head & Shoulders versus AD Line ..................................................................................................................... 214 CHARTS – NYSE - NYA Head & Shoulders versus AD Line ..................................................................................................................... 215 CHARTS – Dotcom Bubble Burst – 2 Year Process and a Year After the Long Trend Broken Was Broken ............................................ 216 CHARTS – 54% of All EM Stocks Are In A Bear Market Even As The MSCI EM Index Is Off Only 7% .................................................... 216 CHARTS – A Spike in New Lows around the World ................................................................................................................................... 217 CHARTS – A Spike in New Lows around the World – MSCI Europe ......................................................................................................... 217 CHARTS – A Spike in New Lows around the World – North America ........................................................................................................ 217 CHARTS – A Spike in New Lows around the World – MSCI Pacific .......................................................................................................... 218 CHARTS – A Spike in New Lows around the World – MSCI Emerging Markets ....................................................................................... 218 CHARTS – A Spike in New Lows around the World – MSCI EM EMEA .................................................................................................... 219 CHARTS – A Spike in New Lows around the World – MSCI EM Latin America ........................................................................................ 219 CHARTS – A Spike in New Lows around the World – MSCI EM Asia........................................................................................................ 220 CHARTS – Copper Prices Just Made a 6-Year Low ................................................................................................................................... 221 CHARTS – Volatility is Stealthy Reemerging into the Equity Market .......................................................................................................... 221 CHARTS – S&P 500 Suffers First 2% Down Day Since End of 2014......................................................................................................... 222 CHARTS – More Stocks Than You Might Guess Are In A Correction - World ........................................................................................... 223 CHARTS – More Stocks Than You Might Guess Are In A Correction – North America ............................................................................. 223 CHARTS – More Stocks Than You Might Guess Are In A Correction – Europe ........................................................................................ 223 CHARTS – More Stocks Than You Might Guess Are In A Correction – Pacific ......................................................................................... 225 CHARTS – Percentage of stocks that are fully in a bear market (down over 20%) is 15% of the MSCI World Index. .............................. 225 CHARTS – Percentage of stocks that are fully in a bear market (down over 20%) is 11% of the MSCI Europe Index. ............................ 226

OUTLOOK - ANALYTICAL ANALYSIS .......................................................................................................................................... 227 RECESSION RUMBLINGS – Revenue, Earnings & Economic ............................................................................................................................ 227 NEW-STUDY: RECESSION SIGNALS ................................................................................................................................................................. 227

NEW-CHARTS OF NOTE ............................................................................................................................................................................... 227 NEW-RECESSION – US Manufacturing Sector Recession........................................................................................................................ 227 NEW-RECESSION – Large Profit Margin Declines Coincides With Recessions ....................................................................................... 228 NEW-RECESSION – Buybacks Drop on Reduced Free Cash Flow – Drop Compared to Previous Recession ....................................... 228 NEW-RECESSION – Annual % Change in 12Mo Forward EPS Expectations Turn Negative .................................................................. 229 NEW-RECESSION – US Recession Estimates Pop ................................................................................................................................... 229 NEW-RECESSION – US Recession Indicator & Relative Performance of Stocks & Bonds ...................................................................... 230 NEW-RECESSION – Real S&P 500 Index with Historical Recessions ...................................................................................................... 230 NEW-RECESSION – September Survey Data versus Non Farm Payrolls ................................................................................................ 231 NEW-RECESSION – Regional Surveys for September versus ISM PMI (August) .................................................................................... 231 NEW-RECESSION – Regional Manufacturing Surveys versus Forward EPS Estimates .......................................................................... 232


NEW-RECESSION – Historical Regional Index Comparisons – Last Seen in 2008 .................................................................................. 232 NEW-RECESSION – Global Oil Consumption Leads Economic Growth – Trend is Down – Global Headwinds ...................................... 233 NEW-RECESSION – Gross Domestic Income versus Wilshire 5000 – Tells the Story ............................................................................. 234 RECESSION – CT 2015 Revenue Recession ............................................................................................................................................ 234 RECESSION – Q2 2015 Revenue Recession ............................................................................................................................................ 235 RECESSION – 4 Consecutive months of y/y Spending Declines ............................................................................................................... 235 RECESSION – BOA: “Retail sales ex-autos, plunged 0.8% mom seasonally adjusted”............................................................................ 236 RECESSION – Top 10 US Market Areas Signal Retail Problem Underway .............................................................................................. 236 RECESSION – Wholesale Inventories to Sales Spiking To Areas Seen During Recession Trends ......................................................... 237 RECESSION – Wholesale Inventories Less Wholesale Sales ................................................................................................................... 238 RECESSION – Wholesale Inventories vs GDP Trends .............................................................................................................................. 238 RECESSION – Auto Inventories to Sales ................................................................................................................................................... 239 RECESSION – Falling Collateral and “Residuals” Undermine Real Growth .............................................................................................. 239 RECESSION – Coincident / Lagging Indicator Ratio versus Recessions ................................................................................................... 240 RECESSION – Annual Change in Durable Goods Orders v Recessions ................................................................................................... 240 RECESSION – Durable Goods v Core-Durable Goods (Ex Defense) versus Recessions ........................................................................ 241 RECESSION – Real Gross Domestic Investment versus Recessions ....................................................................................................... 241 RECESSION – Total Real Private Fixed Investment as % of Real GDP versus Recessions .................................................................... 242 RECESSION – Businesses Operate Against Actual Demand versus Recessions .................................................................................... 242 RECESSION – ISM Composite Index versus Recessions.......................................................................................................................... 243 RECESSION – Capacity Utilization versus Industrial Production versus Recessions ............................................................................... 243 RECESSION – Retail Sales (NSA) Annual % Chg of 12 Month Average versus Recessions ................................................................... 244 RECESSION – Monthly Retail “Control Purchases” – Y-o-Y % Chg versus Recessions........................................................................... 244 RECESSION – Major Economic Trends...................................................................................................................................................... 245

NEW-RESEARCH OF NOTE .......................................................................................................................................................................... 246 NEW- RECESSION – Economists Finally Admit, Odds Of A US Recession Are On The Rise ................................................................. 246 RECESSION – Retail Sales Slump on Deck ............................................................................................................................................... 248 RECESSION – This Is another "Subprime" Waiting To Blow ..................................................................................................................... 250 RECESSION – Record Gap between US Inventories and Sales Screams Recession .............................................................................. 253 RECESSION – August spending was the weakest in nominal dollar terms since 2012 ............................................................................. 255 RECESSION – The Next Recession Will Definitely Not Happen In 2018 ................................................................................................... 260

Q3 EARNINGS – Reduced Expectations .............................................................................................................................................................. 262 STUDY: Q3 EARNINGS - ...................................................................................................................................................................................... 262

CHARTS OF NOTE ......................................................................................................................................................................................... 262 NEW-Q3 EARNINGS – Q3 EPS Expected to Fall -4.5% According to Factset .......................................................................................... 262 NEW-Q3 EARNINGS – S&P 500 Average Earnings Growth Y-o-Y – Not a Good Pattern ........................................................................ 262 NEW-Q3 EARNINGS – Revenue Recession and Flat EPS Consensus .................................................................................................... 263 NEW-Q3 EARNINGS – Forward EPS Consensus Matches Manufacturing Surveys’ Declines ................................................................. 263 NEW-Q3 EARNINGS – Q3 Earnings Growth (Decline): Ex-BAC ............................................................................................................... 264 NEW-Q3 EARNINGS – IT Sector Q3 Earnings Forecast to be Down -5.9% Without Apple (-0.4% With) ................................................. 264 NEW-Q3 EARNINGS – A Good Sign that Goldman Must Be Selling? ....................................................................................................... 265 NEW-Q3 EARNINGS – It Should Be Expected that Earnings Will Begin to fall ......................................................................................... 265

RESEARCH OF NOTE .................................................................................................................................................................................... 266 NEW-Q3 EARNINGS – Do You See What Happens, Alcoa, When Your "Restructuring" Non-GAAP Add-backs Tumble ....................... 266 NEW-Q3 EARNINGS – Q3 Earnings Bloodbath-Terrible Monsanto Results- Company Fires 2,600 - ...................................................... 268 NEW-Q3 EARNINGS – “Wall Street is preparing for the worst earnings season since 2009” ................................................................... 270 NEW-Q3 EARNINGS – The Truth About S&P 500 Earnings: No Growth For 7 Quarters, With A Revenue Recession On Top .............. 274

BUYBACKS – Update ............................................................................................................................................................................................ 276 STUDY: BUYBACKS ............................................................................................................................................................................................. 276

CHARTS OF NOTE ......................................................................................................................................................................................... 276 NEW-BUYBACKS – Falling Investment Grade Spreads Hurting Buybacks ............................................................................................... 276 NEW-BUYBACKS – Quarterly Share Repurchases & No. of Companies Repurchasing Shares Slows ................................................... 276 NEW-BUYBACKS – Dollar-Value Buybacks to Free Cash Flow – Trailing Twelve Month Basis ............................................................... 277 NEW-BUYBACKS – Nearly 25% of Annual Buybacks Occur in November & December .......................................................................... 277

RESEARCH OF NOTE .................................................................................................................................................................................... 279 NEW-BUYBACKS – Why Stocks Are Sliding: For The First Time Since 2009 Spending On Buybacks Surpasses Free Cash Flow ....... 279 NEW-BUYBACKS – When Buybacks Fail... ................................................................................................................................................ 283 NEW-BUYBACKS – "Risky Business": Companies Are Now Funding Share Buybacks By Selling Bonds To Other Companies ............ 284

SENTIMENT & CONFIDENCE – Shifting Trend ................................................................................................................................................... 288 STUDY: SENTIMENT ............................................................................................................................................................................................ 288 CHARTS OF NOTE ............................................................................................................................................................................................... 288

NEW-SENTIMENT – Goldman’s Short Term Sentiment Indicator Shows Low – Suggests Near Term Counter Rally Likely ................... 288 SENTIMENT – Global Consumer Confidence Begins Reversal from Trend Resistance ........................................................................... 289 SENTIMENT – US Economic Index Steadily Eroding ................................................................................................................................. 290 SENTIMENT – UMich Consumer Confidence with Biggest Miss on Record .............................................................................................. 290 SENTIMENT – Economic Surprise Index – lower highs, lower lows and a reluctant bounce .................................................................... 290

RESEARCH OF NOTE .................................................................................................................................................................................... 292 NEW-SENTIMENT – “It’s like someone just flipped the Switch to OFF?” .................................................................................................. 292 SENTIMENT – Oblivious To Risk - Complacency Still Reigns ................................................................................................................... 296 SENTIMENT – UMich Consumer Confidence Tumbles to 12-Month Lows with Biggest Miss on Record ................................................. 300 SENTIMENT – Elderly Americans' Confidence Collapses To 11-Month Lows (As Middle-Aged Hope Surges) ....................................... 301

STUDY: RISK-OFF ................................................................................................................................................................................................ 303 CHARTS OF NOTE ......................................................................................................................................................................................... 303

RISK-OFF – Cumulative Flows by Client Type - YTD ................................................................................................................................. 303


RISK-OFF – Historical Risk versus Returns ................................................................................................................................................ 303 RISK-OFF – Cumulative Flows by Client Type – January 2008-Present ................................................................................................... 304 RISK-OFF – Q Ratio Since 1900 ................................................................................................................................................................. 304

RESEARCH OF NOTE .................................................................................................................................................................................... 305 RISK-OFF – Post Q2 Quadruple Witch - Institutional Money Changing Direction ..................................................................................... 305 RISK-OFF – The Worst Time In History To Be Invested In Stocks............................................................................................................. 309

STUDY: LEVEL OF WARNINGS ........................................................................................................................................................................... 314 RESEARCH OF NOTE .................................................................................................................................................................................... 314

WARNINGS – According To Bank of America, This Is "The Biggest Risk to Global Equities" ................................................................... 314 WARNINGS – The "Smartest Money" Liquidating At a Record Pace: "Selling Everything” ....................................................................... 316 WARNINGS – Top CEO Warns Of Global Reset: "It's In The Cards For Sure... It Could Happen This Year" .......................................... 319 WARNINGS – $140 Billion Bond Fund Goes To Cash As It "Braces For Bond-Market Collapse" ............................................................ 320 WARNINGS – "It's Time To Hold Physical Cash", Fidelity Manager Warns Ahead Of "Systemic Event" .................................................. 323 WARNINGS – Sweden's Largest Fund Manager Is Quietly Dumping Stocks Before The "Herd" Is Caught In A Selling Vortex .............. 325

SHORT TERM – TECHNICAL ANALYSIS ..................................................................................................................................... 327 SUPPORT & RESISTANCE .................................................................................................................................................................................. 327

Gann Analysis .................................................................................................................................................................................................. 327 Boundary Conditions ....................................................................................................................................................................................... 328 Channels & Regressions ................................................................................................................................................................................. 329 Fibonacci - Controlling Time Extensions ......................................................................................................................................................... 332 Fibonacci - Controlling Price Extensions ......................................................................................................................................................... 334 Elliott Wave ...................................................................................................................................................................................................... 335 The Bottom Line............................................................................................................................................................................................... 337

BUSINESS CYCLE - CONSUMER & BUSINESS SENTIMENT ........................................................................................................................... 340 A GRAPHIC HIGHLIGHT ................................................................................................................................................................................ 340

NEW-SENTIMENT - Consumer, Investor & Trader ............................................................................................................................................... 342 NEW-Consumer Confidence - Conference Board .......................................................................................................................................... 342 NEW-Consumer Sentiment - Michigan ........................................................................................................................................................... 345 NEW-Consumer Comfort - Bloomberg ............................................................................................................................................................ 346 NEW-American Association of Independent Investors ................................................................................................................................... 347 NEW-Investors Intelligence ............................................................................................................................................................................. 347 NEW-National Association of Active Investment Managers (NAAIM) ............................................................................................................ 348 NEW-Small Business Optimism ...................................................................................................................................................................... 349 NEW-Percentage Stocks above 50 & 200 DMA ............................................................................................................................................. 351 NEW-Margin Levels ......................................................................................................................................................................................... 352 Real Margin Debt as % of GDP ....................................................................................................................................................................... 357 Margin Debt versus S&P 500 .......................................................................................................................................................................... 357 Mutual Fund Cash Levels v S&P 500 .............................................................................................................................................................. 358

NEW-OSCILLATORS & BREADTH: Indicators of Importance ............................................................................................................................ 360 NEW-NYSE Overbought / Oversold ................................................................................................................................................................ 360 NEW-OEX Open Interest (Puts/Calls) ............................................................................................................................................................. 361 NEW-TRIN ....................................................................................................................................................................................................... 362 NEW-McClellan Oscillator ............................................................................................................................................................................... 363

CHARTS OF NOTE ............................................................................................................................................................................................... 364 NEW-CHARTS – Nominal & Real Household Spending Expectations .......................................................................................................... 364 NEW-CHARTS – Household Spending Expectations by Income Bucket ....................................................................................................... 364 NEW-CHARTS – A Very Neutral (Highly Unusual) Bull Market ...................................................................................................................... 365 NEW-CHARTS – Historical Swings in Sentiment ........................................................................................................................................... 365 CHARTS – Investors Intelligence Bulls & Bears ............................................................................................................................................. 366 CHARTS – A/D Line Diverging from Price, Suggesting Weakening Momentum ........................................................................................... 367 CHARTS – ‘Smart Money’ OEX Open Interest Put/Call Ratio Now “Off the Charts”! .................................................................................... 367 CHARTS – UMich Consumer Sentiment Tumbles Most In 16 Months ........................................................................................................... 368 CHARTS – Consumer Comfort Plunges Most In 10 Months .......................................................................................................................... 369 CHARTS – Only 16% Think Future Employment Opportunities Will Be Better .............................................................................................. 370 CHARTS – Inequality Eventually Leads to Economic Adjustments – Often Precipitously ............................................................................. 370 CHARTS - NFIB Small Business Sentiment ................................................................................................................................................... 371 CHARTS - Orange Book .................................................................................................................................................................................. 371 CHARTS – Asset Allocation – Global Equities ................................................................................................................................................ 372 CHARTS – Asset Allocation – Global Bonds .................................................................................................................................................. 372 CHARTS – Active versus Passive Funds Allocation ....................................................................................................................................... 373 CHARTS – Investors Intelligence Survey of % Bears ..................................................................................................................................... 373 CHARTS – Sentiment at Post 2008 Crisis Highs ............................................................................................................................................ 374 CHARTS – CNBC Viewership Steadily Falling ............................................................................................................................................... 375 CHARTS – Investor Allocation Trends for Stocks, Bonds and Cash .............................................................................................................. 376 CHARTS – Uptick in Fed’s Financial Stress Index Composite ....................................................................................................................... 377 CHARTS – Fear Barometer Diverges with VIX, CDS IG Index ...................................................................................................................... 378 CHARTS – Extreme Complacency Seen Near End of Cycles ........................................................................................................................ 378 CHARTS –Complacency Seen In PE/VIX ....................................................................................................................................................... 379 CHARTS – Post Crisis Sentiment Profile Shows a Clear Ending Pattern ...................................................................................................... 379 CHARTS – Smart Money Flows ...................................................................................................................................................................... 380 CHARTS – Fed Assets versus Bullish Sentiment ........................................................................................................................................... 380 CHARTS – Macro Support Has Technically Broken Down ............................................................................................................................. 381 CHARTS – US Surprise Index Setting Up for Downturn ................................................................................................................................. 381 CHARTS – The Public No Longer “Trusts” the Market – Feel it is Manipulated and Ineffectively Regulated ............................................... 382


RESEARCH OF NOTE .......................................................................................................................................................................................... 383 NEW-SENTIMENT: This Wasn't Supposed To Happen: Household Spending Expectations Crash............................................................. 383 NEW-SENTIMENT: Something's Happened To Investor Sentiment Since The Financial Crisis ................................................................... 384 SENTIMENT: The "Smart Money" Has Never Been More Bearish ................................................................................................................ 386 SENTIMENT: US Economic Confidence Crashes Most Since July to Lowest Since December ................................................................... 389 SENTIMENT: We Are All Bulls Now ................................................................................................................................................................ 391 SENTIMENT: No More Greater Fools: Retail Traders Are "Pretty Fully Invested" In Stocks, TD CEO Says ................................................ 392 SENTIMENT: One Heckuva Bull Market but Momentum Weakening! ........................................................................................................... 393 SENTIMENT: Small Business Confidence is a Major Problem in America .................................................................................................... 395 SENTIMENT: America’s Crisis of Trust ........................................................................................................................................................... 397 SENTIMENT: "Everything Is Awesome" American Consumers Are The Happiest In 11 Years .................................................................... 398 SENTIMENT: For CNBC, 2014 Was The Worst Year. Ever. .......................................................................................................................... 399 SENTIMENT: An Astounding Number Of Americans Aren't Investing A Cent ............................................................................................... 401 SENTIMENT: US Households to Withdraw $430 Billion From Stocks In 2014 .............................................................................................. 406 SENTIMENT: Elliott Wave's View from the Top .............................................................................................................................................. 409

SITUATIONAL SUMMARY & ANALYSIS .................................................................................................................................................... 413

INTERMEDIATE TERM – RISK ANALYSIS ................................................................................................................................. 417 UPDATED-AGGREGATED GLOBAL FINANCIAL RISK INDEX .......................................................................................................................... 417

NEW-BANKING RISK - LIBOR-OIS SPREAD ................................................................................................................................................ 418 NEW-BANKING RISK - TED SPREAD ........................................................................................................................................................... 418 NEW-CREDIT RISK - GLOBAL CREDIT DEFAULT SWAPS ....................................................................................................................... 419 NEW-CREDIT RISK - EU CREDIT DEFAULT SWAPS .................................................................................................................................. 419 NEW-CONSUMER RISK - HOUSING - RATE OF CHANGE ......................................................................................................................... 420 NEW-ECONOMIC RISK - ECRI LEADING INDEX ......................................................................................................................................... 420 NEW-INFLATION RISK - MONEY SUPPLY GROWTH - M3 ......................................................................................................................... 422 NEW-INFLATION RISK - MONEY VELOCITY ............................................................................................................................................... 422 MONETARY RISK - BANK LIABILITIES ......................................................................................................................................................... 423 NEW-COST OF MONEY RISK - INTEREST RATES .................................................................................................................................... 423

AGGREGATED RISK LEVEL ................................................................................................................................................................................ 424 CHARTS OF NOTE ............................................................................................................................................................................................... 426

NEW-RISK: Leuthold’s High/Lpw Logic Index Warns ..................................................................................................................................... 426 NEW-RISK: Megaphone Top with Confirming Oscillator ................................................................................................................................ 426 NEW-RISK: We Have Confirmed and Unusual Hindenburg Omens .............................................................................................................. 427 NEW-RISK: It's been a while since we corrected! .......................................................................................................................................... 428 NEW-RISK: "Seven Signs" Flash Red ............................................................................................................................................................ 430 RISK: When these Two Charts Appear Simultaneously, Bad Things Normally Follow!................................................................................. 431 RISK: Well That's Never Happened Before - Exhibit 1 – US Macro versus S&P 500 .................................................................................... 431 RISK: Well That's Never Happened Before - Exhibit 2 – Long- and Short-end of the Treasury yield curve so anti-correlated. ................... 432 RISK: Well That's Never Happened Before - Exhibit 3 – Fed-Fueled, Mal-Investment Boom ....................................................................... 433 RISK: Well That's Never Happened Before - Exhibit 4 – Market breadth diverge from performance for such an extended period.............. 434 RISK: Well That's Never Happened Before - Exhibit 5 – More trades per second in stocks ......................................................................... 436 RISK: Well That's Never Happened Before - Exhibit 6– The "Smart Money" Has Never Been More Bearish .............................................. 437 RISK: Well That's Never Happened Before - Exhibit 7– Big decoupling in recent weeks between US equity flows and prices ................... 437 RISK: Well That's Never Happened Before - Exhibit 8– Cumulative 3 Mo net flows out of equities, is now the largest on record ............... 438 RISK: World Stocks versus World 2015 GDP Estimate.................................................................................................................................. 440 RISK: World Stocks versus World 2014 & 2015 GDP Estimates ................................................................................................................... 440 RISK: World Stocks versus 10Y UST Yield, WTI Crude 2015 GDP Estimates .............................................................................................. 441 RISK: Fat Tails Have Disproportionately Large Impact on Returns................................................................................................................ 442 RISK: Statistically We Are Due for a Drawdown ............................................................................................................................................. 443 RISK: The Buffett Indicator .............................................................................................................................................................................. 444 RISK: Speculation Has Taken Control of the Markets .................................................................................................................................... 445 RISK: MSCI versus World GDP Divergence - Unsustainable ........................................................................................................................ 445 RISK: High Yield Credit Risk At Elevated Levels ............................................................................................................................................ 445 RISK: Active Hindenburg Omen ...................................................................................................................................................................... 446 RISK: An Over-Levered Hedge Fund Index Ending ABC Consolidation Pattern ........................................................................................... 446

RESEARCH OF NOTE .......................................................................................................................................................................................... 448 NEW- RISK: 12 Signs That An Imminent Global Financial Crash Has Become Even More Likely ............................................................... 448 NEW- RISK: World's Largest Sovereign Wealth Fund Is About To Become A Seller .................................................................................... 449 NEW- RISK: When Hindenburg Omens Are Ominous ................................................................................................................................... 452 NEW- RISK: The Canaries Continue To Drop like Flies ................................................................................................................................. 454 NEW- RISK: Deutsche Suggests 'Caution' As "Seven Signs" Flash Red ...................................................................................................... 456 NEW- RISK: "The Top's In" David Stockman Warns Of "Epochal Deflation" ................................................................................................. 457 NEW- RISK: When Hindenburg Omens Are Ominous ................................................................................................................................... 458 RISK: Two Point Three Sigmas Above the Norm ........................................................................................................................................... 460 RISK: No Really, Who is Buying? ................................................................................................................................................................... 468 RISK: Curious Sightings .................................................................................................................................................................................. 469 RISK: Even the BIS Is Shocked At How Broken Markets Have Become ....................................................................................................... 476 RISK: The Line between Rational Speculation and Market Collapse ............................................................................................................. 480 RISK: Global Economy Will Shrink By $2.3 Trillion In 2015 ........................................................................................................................... 485 RISK: Market Action Suggests Abrupt Slowing in Global Economic Activity.................................................................................................. 485 RISK: Warnings Signs Are Everywhere .......................................................................................................................................................... 489 RISK: Hindenburg Signals a Warning ............................................................................................................................................................. 490 RISK: Americans say they're too broke to invest ............................................................................................................................................ 492 RISK: The Biology of Risk ............................................................................................................................................................................... 496


RISK: More Signs Of Bullish Excess ............................................................................................................................................................... 500 RISK: Markets Have Left the "Complacency" Phase, Have Entered Full Blown "Mania" .............................................................................. 502 RISK: VIX Sends Message of Complacency ................................................................................................................................................... 503 RISK: CS Warns Volume & DeMark Raise "Topping Threat" In Stocks ......................................................................................................... 504 RISK: No One Will Ring the Bell at the Top .................................................................................................................................................... 508

Cassandra's - New Additions to the List ................................................................................................................................................................ 515 NEW-CASSANDRA: "Severe Correction Or Cyclical Bear" Ahead: Leuthold Major Trend Index Turns Negative ........................................ 516 NEW-CASSANDRA: CANARIES - Warnings Everywhere! ............................................................................................................................ 517 NEW-CASSANDRA: Stephen Schork: The Commodity Crash Is "A Canary In The Coal Mine For The Global Economy" ......................... 519 NEW-CASSANDRA: Emerging Market Mayhem: Gross Warns Of "Debacle" As Currencies, Bonds Collapse............................................ 521 CASSANDRA: "Another Crisis Is Coming": Jamie Dimon Warns Of the Next Market Crash ........................................................................ 528 CASSANDRA: Steen Jakobsen: Get Ready For The Biggest Margin Call In History .................................................................................... 529 CASSANDRA: Wynn Calls "Big" Recovery "Complete Dream" As Gaming Revenues Collapse .................................................................. 531 CASSANDRA: Stan Druckenmiller's "Horrific Sense" Of Deja Vu: "This Will End Very Badly" ..................................................................... 533 CASSANDRA: Hedge Fund Legend Julian Robertson Warns Of A "Complete Explosion" Unless Fed Contains "Boiling, Bubble" ............ 538 CASSANDRA: Kyle Bass Warns "The Fed Is Backed Into A Corner... Equities Are My Biggest Liquidity Worry" ........................................ 539 CASSANDRA: Paul Tudor Jones Warns "Disastrous Market Mania" Will End In "Revolution, Taxes, or War" ............................................ 540 CASSANDRA: John Hussman - A Who's Who Of Awful Times To Invest ..................................................................................................... 542 CASSANDRA: Carl Icahn - One Day You'll See A Break Like A Few Weeks Ago But The Market Won't Come Back ................................ 545 CASSANDRA: Sam Zell Warns Of Stock Market Correction On CNBC ........................................................................................................ 546 CASSANDRA: Billionaire Carl Icahn warns on US stock prices ..................................................................................................................... 546 CASSANDRA: Soros Bets $2 Billion on Stock Market Collapse .................................................................................................................... 547 CASSANDRA: Don’t Ignore Janet Yellen’s Stock Market Warnings 07-21-14 Fiscal Times ......................................................................... 548 CASSANDRA: Doug Kass: We're Heading for a Bear Market So Plan Accordingly ...................................................................................... 551 CASSANDRA: Comstock Funds Weighs In .................................................................................................................................................... 553 CASSANDRA: Michael Lombardi Weighs In ................................................................................................................................................... 555 CASSANDRA: Ron Paul Portfolio, 'Craziest' we've ever seen? ..................................................................................................................... 557 CASSANDRA: John Mauldin Goes Negative .................................................................................................................................................. 558 CASSANDRA: Hayman Capital Dramatically Reduces Risk .......................................................................................................................... 566 CASSANDRA: Byron Wien Warns "Oblivious Markets" Of 20% Correction ................................................................................................... 567 CASSANDRA: Harry Dent Warns Stocks to Sink More than 60% by End of 2014 ........................................................................................ 567 CASSANDRA: Stanley Druckenmiller: "When You Get This Kind Of Rigging, It Will End Badly".................................................................. 568 CASSANDRA: Mohamed El-Erian: "Prices Are Artificially High - It’s Time to Take Profits" .......................................................................... 569 CASSANDRA: Felix Zulauf: World Headed Toward 1987 Style Market Collapse .......................................................................................... 570 CASSANDRA: Doug Kass: 'I'm Getting The Summer Of 1987 Feeling' In The Market Right Now ............................................................... 570

CORRELATION & COMPLACENCY A PROBLEM .............................................................................................................................................. 572 EVENT RISK A PROBLEM .................................................................................................................................................................................... 575

Q2 EARNINGS & THE “R” WORD .............................................................................................................................................................. 575 POLITICAL-ECONOMIC TENSIONS .......................................................................................................................................................... 575 CENTRAL BANK POLICY MISCUES.......................................................................................................................................................... 575 ASIAN ECONOMIC SLOWDOWN SPILLAGE ............................................................................................................................................ 575 PETRO$ CRISIS BREWING IN BRIICS...................................................................................................................................................... 575

LONGER TERM - FUNDAMENTAL ANALYSIS .............................................................................................................................. 576 HIGHLIGHTS ......................................................................................................................................................................................................... 576

ASSET & LIABILITY OWNERSHIP ................................................................................................................................................................. 576 PANIC TOTAL RETURN DISTRIBUTION SINCE 1974 ................................................................................................................................. 576 PANIC CHASE FOR YIELD ............................................................................................................................................................................ 577 REAL S&P MARKET CAP / REAL GDP ......................................................................................................................................................... 577 UNSUSTAINABLE GAP BETWEEN PROFITS AND INCOME ...................................................................................................................... 578 ADJUSTED CORPORATE PROFITS FROM DOMESTIC OPERATIONS .................................................................................................... 578 TRAILING 10Y 12 MONTH NET MARGINS ................................................................................................................................................... 579 INVESTMENT CLASS PERFORMANCE ....................................................................................................................................................... 580 NEW-VALUATION SUMMARY ....................................................................................................................................................................... 581

VALUATION: Alternative Methodologies ............................................................................................................................................................... 586 NEW-FOUR SET CONSOLIDATED MARKET VALUATION INDICATORS .................................................................................................. 586 NEW-Crestmont from the Arithmetic ............................................................................................................................................................... 590 NEW-Cyclical PE 10 Ratio............................................................................................................................................................................... 594 NEW-Q Ratio ................................................................................................................................................................................................... 601 NEW-S&P Composite Regression-to-the-Trend ............................................................................................................................................. 606 NEW-Reference Methodologies Analysis ....................................................................................................................................................... 608 CHARTS OF NOTE ......................................................................................................................................................................................... 614

NEW-VALUATIONS – XXXX ....................................................................................................................................................................... 614 VALUATIONS – Forward 12-Month P/E Ratio – 10 Years.......................................................................................................................... 615 VALUATIONS – Forward 12-Month EPS versus Change in Price – 10 Years ........................................................................................... 615 VALUATIONS – Net Margin Growth ............................................................................................................................................................ 616 VALUATIONS – 10 Year Trailing 12 Mo Net Margin Growth – Historically High ........................................................................................ 616 VALUATIONS – Record Profits Yet Historically Low Capital Asset Growth ............................................................................................... 617 VALUATIONS – Historical Ranking of PE Values ....................................................................................................................................... 618 VALUATIONS – Median Price/Cash Flow Multiple for US Stocks .............................................................................................................. 619 VALUATIONS – Median Price/Earnings Multiple for US Stocks ................................................................................................................. 620 VALUATIONS – Median Price to Book Multiple for US Stocks ................................................................................................................... 621 VALUATIONS – Price/Book; Price/Cash flow; Price/Sales ......................................................................................................................... 622 VALUATIONS – Global Equities – Reported PE, PE before XO & Fwd PE ............................................................................................... 623

YE EARNINGS – 2015 Forecasts.......................................................................................................................................................................... 624


CHARTS OF NOTE ......................................................................................................................................................................................... 624 NEW-2015 EARNINGS – 2015 & 2016 Annual Earnings EPS Estimate v Historical ................................................................................. 624 NEW-2015 EARNINGS – Q3 Earnings Estimate Revisions v Change in Price ......................................................................................... 625 NEW-2015 EARNINGS – Consumer Staples & Discretionary are sending a Pretty Clear ( Worsening Since Q1) Message ................... 626 2015 EARNINGS – Consensus Long-Term Growth versus Forward PE ................................................................................................... 627 2015 EARNINGS – Consensus Analysts’ Estimates – 1979-1995 ............................................................................................................. 628 2015 EARNINGS – Consensus Analysts’ Estimates – 1995-2014 ............................................................................................................. 628 NEW-2015 EARNINGS – CY 2015 Earnings Growth ................................................................................................................................. 629 NEW-2015 EARNINGS – CY 2015 Revenue Growth ................................................................................................................................. 629 NEW-2015 EARNINGS – Q2 – Forward 12 Mo EPS versus Change in Price ........................................................................................... 630 2015 EARNINGS – Q1 – Forward 12 PE Ratio ........................................................................................................................................... 631

RESEARCH OF NOTE .................................................................................................................................................................................... 632 2015 EARNINGS – Q1 Earnings Guidance: Negative Guidance (84%) Above Average ........................................................................... 632

NEW-Q2 EARNINGS – Reported Results ............................................................................................................................................................. 633 CHARTS OF NOTE ......................................................................................................................................................................................... 633

NEW-Q2 EARNINGS – Q2 Earnings Growth by Sector ............................................................................................................................. 633 NEW-Q2 EARNINGS – Q2 Revenue Growth by Sector ............................................................................................................................. 633 NEW-Q2 EARNINGS – Q2 Earnings Growth by Sector - Estimates .......................................................................................................... 634 NEW-Q2 EARNINGS – Q2 Revenue Growth by Sector – Estimates ......................................................................................................... 634

RESEARCH OF NOTE .................................................................................................................................................................................... 636 NEW-Q2 EARNINGS – Q2 Summary ......................................................................................................................................................... 636 NEW-Q2 EARNINGS – Percentage of Companies Beating Revenue Estimates (52%) is Below 5 Year Average ................................... 637 NEW-Q2 EARNINGS – Forward Earnings, Revenue and Margins ............................................................................................................ 638 NEW-Q2 EARNINGS – First Decline in Earnings (-1.3%) Since Q3 2012 (-1.06%) .................................................................................. 639 NEW-Q2 EARNINGS – First Back-to-Back Declines in Revenue Since Q2 2009 and Q3 2009 ............................................................... 640

Q1 EARNINGS – Reported Results....................................................................................................................................................................... 641 CHARTS OF NOTE ......................................................................................................................................................................................... 641

Q1 EARNINGS – Q1 Earnings Growth by Sector ....................................................................................................................................... 641 Q1 EARNINGS – Q1 Revenue Growth by Sector ....................................................................................................................................... 641 Q1 EARNINGS – Q1 Earnings Growth by Sector - Estimates .................................................................................................................... 642 Q1 EARNINGS – Q1 Reveue Growth by Sector - Estimates ...................................................................................................................... 642

RESEARCH OF NOTE .................................................................................................................................................................................... 643 Q1 EARNINGS – Q1 Summary ................................................................................................................................................................... 643 Q1 EARNINGS – Fewer Companies Beating Estimates and Sales Estimates Than Average .................................................................. 643 Q1 EARNINGS – Forward Earnings, Revenue and Margins ...................................................................................................................... 645 Q1 EARNINGS – First Decline in Earnings (-0.4%) Since Q3 2012 (-1.06%) ............................................................................................ 646 Q1 EARNINGS – First Decline in Revenues (-2.6%) Since Q3 2012 (-11.5%) .......................................................................................... 647

BUYBACKS – Situational Assessment .................................................................................................................................................................. 648 CHARTS OF NOTE ......................................................................................................................................................................................... 648

NEW-BUYBACKS – 94% of total S&P in 2015 will go back to shareholders, as dividends and buybacks................................................ 648 NEW-BUYBACKS – CEO Pay Boosted from Giving Shareholders Cash .................................................................................................. 649 NEW-BUYBACKS – Investor-CEO Feedback Loop .................................................................................................................................... 650 NEW-BUYBACKS – Buybacks Account for Substantial Share of Corporate Profits .................................................................................. 651 NEW-BUYBACKS – Quarterly History of Buyback Announcments ............................................................................................................ 651 NEW-BUYBACKS – Buybacks as a Percentage of Total Cash Use at the Highest Level Since 2007 ...................................................... 652 NEW-BUYBACKS – Weekly Buybacks and Rolling 3 Month Sum ............................................................................................................. 652 NEW-BUYBACKS – What Sustained Buybacks Look Like To Rating Agencies – IBM Example .............................................................. 653 NEW-BUYBACKS – Dollar Volume of Share Buybacks and Dividends at Record Levels ......................................................................... 653 NEW-BUYBACKS – Buybacks & Dividends Hurdle $900B in 2014 ........................................................................................................... 653 NEW-BUYBACKS – The Growth of Stock Buybacks .................................................................................................................................. 654 NEW-BUYBACKS – Buybacks & Dividends as a Percentage of Operating Earnings ................................................................................ 654 NEW-BUYBACKS – Executive Compensation Structure ............................................................................................................................ 655 BUYBACKS – During 2014 virtually 100% of S&P 500s reported profits of $1T were disgorged as shareholder distributions ................ 656 BUYBACKS – 2015 US Equity Flows Forecast ........................................................................................................................................... 656 BUYBACKS – Announced Gross Share Buybacks ..................................................................................................................................... 657 BUYBACKS – Global IPO /Secondary Offerings versus Announced Gross Share Buybacks ................................................................... 657 BUYBACKS – Actual Net Share Buybacks ................................................................................................................................................. 658 BUYBACKS – US IPOs-Actual Buybacks and LBO .................................................................................................................................... 658 BUYBACKS – Cash to Stockholders Exceeds 90% of Profits .................................................................................................................... 659 BUYBACKS – Stock Repurchases Surge 30% in Q3 ................................................................................................................................. 659 BUYBACKS – Stock Repurchases 2

nd Highest on Record at $145B.......................................................................................................... 659

BUYBACKS – 2914 YTD Stock Repurchases By Corporation – 20 Corporations Over $4B ..................................................................... 660 BUYBACKS – Operating EPS With / Without Buybacks ............................................................................................................................. 660 BUYBACKS – Sales & Revenue Doesn’t Support Reported EPS Due to Buyback Distortion ................................................................... 661 BUYBACKS – S&P 500 Buyback Index versus S&P 500 ........................................................................................................................... 662 BUYBACKS – The New S&P 500 Buyback Index TR ................................................................................................................................. 662 BUYBACKS – The New S&P 500 Buyback Index Since Start of QE ......................................................................................................... 663 BUYBACKS – IBM Total Debt to Equity (to Fund Buybacks) ..................................................................................................................... 663 BUYBACKS – IBM Debt Issuance v Buybacks ........................................................................................................................................... 664 BUYBACKS – Global FDI into Finance versus Productive Assets ............................................................................................................. 665 BUYBACKS – Total Corporate Debt 35% Higher than 2008 Peak – Used for Buybacks .......................................................................... 665 BUYBACKS – Buyback Bonanza ................................................................................................................................................................ 666 BUYBACKS – Buybacks Have Made a 1% Earnings Growth Distortion to Median S&P 500 Company ................................................... 666 BUYBACKS – Top 10 Buyback Companies ................................................................................................................................................ 667 BUYBACKS – Intel Buybacks ...................................................................................................................................................................... 667 BUYBACKS – Shares Outstanding Back at 2000 Level ............................................................................................................................. 668


BUYBACKS – Largest Volumes of Buybacks by US Listed Corporation in Last Year ............................................................................... 668 BUYBACKS – Corporations Are No Longer Investing But Rather Financial Engineering Stock Prices ..................................................... 669 BUYBACKS – Q2 Drop-Off – Closer to Normal .......................................................................................................................................... 670 BUYBACKS – Borrowing to Buy back Shares ............................................................................................................................................. 670 BUYBACKS – Cyclical Nature of Buybacks Evident ................................................................................................................................... 670 BUYBACKS – Major Q2 Repurchases ........................................................................................................................................................ 671 BUYBACKS – Major Q1 Repurchases ........................................................................................................................................................ 671 BUYBACKS –Quarterly Repurchase & Buyback Yield ............................................................................................................................... 672 BUYBACKS –US Corporate Cash versus Buybacks .................................................................................................................................. 673 BUYBACKS – Net Debt/EBITDA of American Non-Financial Corporations ............................................................................................... 673

RESEARCH OF NOTE .................................................................................................................................................................................... 674 NEW-BUYBACKS– Stock Buybacks To Grind To A Halt Following Massive Credit Fund Outflows, "Bond Carnage" ............................. 674 NEW-BUYBACKS–"The End Of The Road" - Debt-Funded Buyback Boosts Are Finite ........................................................................... 676 NEW-BUYBACKS– Why There Is No Growth: The Entire S&P 500 Free Cash Flow Is Going Back To Shareholders ............................ 679 NEW-BUYBACKS– Do Share Buybacks Create Value? (Spoiler Alert: No) .............................................................................................. 680 NEW-BUYBACKS– Surprise! CEOs Are Getting Rich by Buying Back Stock............................................................................................ 682 NEW-BUYBACKS–The End of Buybacks? Goldman Warns Political Pressure On Share Repurchases Is Rising................................... 687 NEW-BUYBACKS–Corporate Buybacks: Connecting the Dots to the F-Word........................................................................................... 689 NEW-BUYBACKS– Capex Recovery Is Worst In History, BoAML Says .................................................................................................... 694 NEW-BUYBACKS– Stock Buybacks Move to the "Terminal" Next Stage .................................................................................................. 697 NEW-BUYBACKS–One Heckuva Bull Market ............................................................................................................................................. 699 BUYBACKS - The US Equity Bubble Depends On Corporate Buybacks; Here's the Proof ....................................................................... 700 BUYBACKS - Why Markets Are Manic - The Fed Is Addicted To the "Easy Button" ................................................................................. 704 BUYBACKS - When $140 Billion In Buybacks Isn't Enough... .................................................................................................................... 706 BUYBACKS - "Obsessive" Buybacks Could Be Big Mistake, "Serious" People Tell Unserious People .................................................... 706 BUYBACKS - Q3 Buybacks Surging, These Are The Top 20 Repurchasers Of Their Own Stock ............................................................ 710 BUYBACKS - Accounting Magic .................................................................................................................................................................. 712 BUYBACKS - The largest source of overall US equity demand in recent years......................................................................................... 714 BUYBACKS - Has Boosted Median Earnings Growth by 100 bps for S&P 500 ......................................................................................... 717 BUYBACKS - Companies Spend Almost All Profits On Buybacks ............................................................................................................. 722 BUYBACKS - Buyback At Biggest Pace Since 2007 .................................................................................................................................. 727 BUYBACKS - Buyback Party Slowing ......................................................................................................................................................... 729 BUYBACKS - Buyback Party Slowing ......................................................................................................................................................... 734

THE $2T TAX RUSE – It’s a Free Ride for US Corporations ......................................................................................................................... 739 UNPRECEDENTED BUYBACKS LEVELS ................................................................................................................................................. 739 A FREE TAX RIDE....................................................................................................................................................................................... 741 GENERIC TAX EXAMPLE ........................................................................................................................................................................... 741

CHARTS OF NOTE ............................................................................................................................................................................................... 746 CHARTS – Finance the Biggest Source of Corporate Funds rising from 19% to 30% .................................................................................. 746 CHARTS – Average Age of Private Fixed Assets ........................................................................................................................................... 747 CHARTS – Percent of Families With Business Equity .................................................................................................................................... 747 CHARTS – Percent of Families With Business Equity .................................................................................................................................... 748 CHARTS – New England Patriot’s NFL Franchise Valuation ......................................................................................................................... 749 CHARTS – US Equity Market is Not Outgrowing the Economy AS Measured by the Coincident Indicator .................................................. 750 CHARTS – Deviation of Earnings Above / Below Long Term Growth Trend ................................................................................................. 751 CHARTS – S&P 500, Moody’s Baa Corporate & 30Y UST Yields ................................................................................................................. 751 CHARTS – Corporations Carrying Higher Levels of Leverage than a Few Years Ago .................................................................................. 752 CHARTS – US Corporate CFROI (Cash Flow ROI) ....................................................................................................................................... 753 CHARTS – Weakening Sector Retunrs ........................................................................................................................................................... 753 CHARTS – SPX, Corporate Profits versus Employed Population % .............................................................................................................. 754 CHARTS – Executive Incentives Distort Earnings .......................................................................................................................................... 754 CAPITALIZATION – Market Capitalization as a % of Nominal GDP .............................................................................................................. 755 CAPITALIZATION – Market Capitalization Adjusted by Gold and CPI ........................................................................................................... 756 CAPITALIZATION – Market Capitalization versus Total Federal Reserve Assets ......................................................................................... 757 CAPITALIZATION – Total Market Capitalization versus M2 ........................................................................................................................... 758 CAPITALIZATION – Total Market Capitalization versus Monetary Base ....................................................................................................... 759 CAPITALIZATION – Total Market Capitalization versus Gross Federal Debt ................................................................................................ 760 CAPITALIZATION – Market Capitalization Ratios .......................................................................................................................................... 761 CAPITALIZATION – Regional Corporate Loss Comparisons – Problems in Japan....................................................................................... 761 CHARTS – 7 Year Total Return Cycle ............................................................................................................................................................ 762 CHARTS – Profit Margins Shrink as Proportion of GDP ................................................................................................................................. 762 CHARTS – Q1 Earnings Pre-Announcements ................................................................................................................................................ 763 CHARTS – Q1 Earnings Taken Down Dramatically ....................................................................................................................................... 763 CHARTS – Q1 Earnings Already Taken Down By 5% since January ............................................................................................................ 764 CHARTS – Positive & Negative Q1 Pre-Announcements .............................................................................................................................. 764 CHARTS – Q1 Revenue Slippage in Last 60 Days ........................................................................................................................................ 765 CHARTS – Forward 12 Month EPS vs Price: 10-Year ................................................................................................................................... 766 CHARTS – Forward 12 Month EPS vs Price: 10-Year ................................................................................................................................... 766

RESEARCH OF NOTE .......................................................................................................................................................................................... 768 NEW-FUNDAMENTALS – A Bad Equilibrium & How Speculative Distortion Ends ....................................................................................... 768 NEW-FUNDAMENTALS – Valuations ............................................................................................................................................................. 776 FUNDAMENTALS – Corporate Profits Vaporizing .......................................................................................................................................... 781 FUNDAMENTALS – Fundamentals No Longer Currently Matter - Proof ....................................................................................................... 785 FUNDAMENTALS – Profit Margins - Is the Ladder Starting to Snap? ........................................................................................................... 786 FUNDAMENTALS – The Great PE Multiple Expansion of 2011-2014 ........................................................................................................... 793 FUNDAMENTALS – Stocks Have Never Been More Expensive Based On Long-Term Growth Forecasts .................................................. 797


FUNDAMENTALS – Long Term Return Trends ............................................................................................................................................. 799 FUNDAMENTALS – Profit Margins Contract as a Percentage of GDP .......................................................................................................... 801 FUNDAMENTALS – Stagnant Wages a Major Contributor to Profits ............................................................................................................. 803 FUNDAMENTALS – Worsening risk/reward fundamentals in US corporate credit ........................................................................................ 805

TARGETS ................................................................................................................................................................................ 809

CONCLUSIONS ....................................................................................................................................................................... 813 MARKET MESSAGE ............................................................................................................................................................................................. 813 I – DEFINING CHARTS ......................................................................................................................................................................................... 821

Defining Chart #3 - The Big “M” and Super Cycle “b” ..................................................................................................................................... 823 Defining Chart #4 – Intermediate Term Topping Process ............................................................................................................................... 824 The Bottom Line............................................................................................................................................................................................... 827

II – TARGETS ........................................................................................................................................................................................................ 830 III – QUARTERLY SENTIMENT RISK AND FUNDAMENTALS ........................................................................................................................... 834

SENTIMENT .................................................................................................................................................................................................... 834 NEW-FUNDAMENTAL ANALYSIS ................................................................................................................................................................. 837

IV – STUDIES ........................................................................................................................................................................................................ 839 RECESSION RUMBLINGS – Revenue, Earnings & Economic ............................................................................................................................ 839 NEW-STUDY: RECESSION SIGNALS ................................................................................................................................................................. 839

NEW-CHARTS OF NOTE ............................................................................................................................................................................... 839 NEW-RECESSION – US Manufacturing Sector Recession........................................................................................................................ 839 NEW-RECESSION – Large Profit Margin Declines Coincides With Recessions ....................................................................................... 840 NEW-RECESSION – Buybacks Drop on Reduced Free Cash Flow – Drop Compared to Previous Recession ....................................... 840 NEW-RECESSION – Annual % Change in 12Mo Forward EPS Expectations Turn Negative .................................................................. 841 NEW-RECESSION – US Recession Estimates Pop ................................................................................................................................... 841 NEW-RECESSION – US Recession Indicator & Relative Performance of Stocks & Bonds ...................................................................... 842 NEW-RECESSION – Real S&P 500 Index with Historical Recessions ...................................................................................................... 842 NEW-RECESSION – September Survey Data versus Non Farm Payrolls ................................................................................................ 843 NEW-RECESSION – Regional Surveys for September versus ISM PMI (August) .................................................................................... 843 NEW-RECESSION – Regional Manufacturing Surveys versus Forward EPS Estimates .......................................................................... 844 NEW-RECESSION – Historical Regional Index Comparisons – Last Seen in 2008 .................................................................................. 844 NEW-RECESSION – Global Oil Consumption Leads Economic Growth – Trend is Down – Global Headwinds ...................................... 845 NEW-RECESSION – Gross Domestic Income versus Wilshire 5000 – Tells the Story ............................................................................. 846

Q3 EARNINGS – Reduced Expectations .............................................................................................................................................................. 846 STUDY: Q3 EARNINGS - ...................................................................................................................................................................................... 846

CHARTS OF NOTE ......................................................................................................................................................................................... 846 NEW-Q3 EARNINGS – Q3 EPS Expected to Fall -4.5% According to Factset .......................................................................................... 846 NEW-Q3 EARNINGS – S&P 500 Average Earnings Growth Y-o-Y – Not a Good Pattern ........................................................................ 847 NEW-Q3 EARNINGS – Revenue Recession and Flat EPS Consensus .................................................................................................... 848 NEW-Q3 EARNINGS – Forward EPS Consensus Matches Manufacturing Surveys’ Declines ................................................................. 848 NEW-Q3 EARNINGS – Q3 Earnings Growth (Decline): Ex-BAC ............................................................................................................... 849 NEW-Q3 EARNINGS – IT Sector Q3 Earnings Forecast to be Down -5.9% Without Apple (-0.4% With) ................................................. 849 NEW-Q3 EARNINGS – A Good Sign that Goldman Must Be Selling? ....................................................................................................... 850 NEW-Q3 EARNINGS – It Should Be Expected that Earnings Will Begin to fall ......................................................................................... 850

V - TRIGGER$ ZONES .......................................................................................................................................................................................... 852 VI - DRIVER$ & BIA$ ............................................................................................................................................................................................. 853

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