rpt-MTA-2015-03-Peek

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

Monthly Market Analytics & Technical Analysis

MARCH 2015 Edition

MARCH SECTIONAL

MATA- MARCH 2015

3/15/2015


Monthly Market Analytics & Technical Analysis MARCH 2015

HIGHLIGHTS - WHAT YOU NEED TO KNOW ................................................................................................................................... 9 SUMMARY ANALYSIS ............................................................................................................................................................................................ 10

Valuation Summary ........................................................................................................................................................................................... 18 Era of Delusional Distortions & the Super Cycle Pivot b .................................................................................................................................... 21

Defining Chart #1 - "Delusional Distortion" Expectations & the Log-Periodic Cycle ......................................................................................... 23 Defining Chart #2 - Finding the Longer Term Super Cycle Pivot b ................................................................................................................ 24 Defining Chart #3 - The Big M and Super Cycle b ....................................................................................................................................... 26 Defining Chart #4 Intermediate Term Topping Process ................................................................................................................................. 27

OUR APPROACH - MACRO ANALYTICS ...................................................................................................................................... 32

.............................................................................................................................................................................................. 33 MARCH 2015: Global Macro Drivers ....................................................................................................................................................................... 34

WEALTH ............................................................................................................................................................................................................ 37 HARD ASSETS - Gold ................................................................................................................................................................................... 37 HARD ASSETS Silver ................................................................................................................................................................................. 40 HARD ASSETS - Commodities ..................................................................................................................................................................... 41

EXCHANGE ....................................................................................................................................................................................................... 42 CURRENCIES - USD .................................................................................................................................................................................... 42 CURRENCIES - EURO .................................................................................................................................................................................. 43 CURRENCIES - YEN ..................................................................................................................................................................................... 45 CARRY TRADE - The : Cross .................................................................................................................................................................. 47 CARRY TRADE - The $: Cross .................................................................................................................................................................. 50

YIELD, CREDIT & SPREAD .............................................................................................................................................................................. 52 EQUITIES - Global ............................................................................................................................................................................................ 54 CHARTS OF NOTE ........................................................................................................................................................................................... 55

NEW-CURRENCIES Recent (more than 10% QoQ) slide in the euro is a two-standard deviation event ................................................ 55 NEW-CURRENCIES EM Dollar Victims ..................................................................................................................................................... 55 NEW-CURRENCIES Dollar Bull May Have A Lot Longer To Run ............................................................................................................. 56 NEW-CURRENCIES EM Currencies Just Fell to 15 Year Low ................................................................................................................. 56 CURRENCIES Yen Breaks 25 Year Trend Support .................................................................................................................................. 57 CURRENCIES Euro Falls to Lowest Level since August 2012 .................................................................................................................. 57 CURRENCIES A Rout in Emerging Market Currencies Going On with a US Short Dollar Squeeze ........................................................ 58 CURRENCIES Traded Weighted Euro versus $%/Euro ............................................................................................................................ 59 YIELD First Time Ever, Central Banks Will Monetize More Than 100% Of Global Sovereign Debt ......................................................... 59 NEW-YIELD 10 Year UST versus German Bund Once in a Quarter Century Phenomenom ................................................................. 61 YIELD 10 Year Global Sovereign Yield Approaches 1% ............................................................................................................................ 61 YIELD Likely Bounce in 10Y UST Yield Near Term .................................................................................................................................... 62 YIELD Take Away the Flows and Bad Things Begin to Happen to Yield ................................................................................................... 63 YIELD Take Away the Flows and Bad Things Begin to Happen to Yield Eurozone 10Y Bond Yields .................................................... 64 YIELD 10Y UST versus 10Y BUND............................................................................................................................................................ 64 YIELD 1-2% YTD Drop in Global 10Y Bonds ............................................................................................................................................. 65 YIELD US stock market indices have become massively decoupled from the bond markets................................................................... 65 YIELD 10Y UST Disconnected from Fed Expectations Deutsche Bank ................................................................................................. 66 YIELD 10Y UST Disconnected from Fed Expectations Deutsche Bank ................................................................................................. 67 NEW-CREDIT Global EM 5 Yr CDS ........................................................................................................................................................... 68 NEW-CREDIT Nothing Left to Buy In EM ................................................................................................................................................... 69 NEW-CREDIT US Equities versus Credit ................................................................................................................................................... 70 CREDIT Its Only About Flows Liquidity to Credit to Debt ....................................................................................................................... 70 CREDIT Credit only becomes Debt through Collateral WHICH IS Created through Government Backing .............................................. 71 CREDIT US stock market indices have become massively decoupled from the Credit markets. ............................................................. 71 COMMODITIES Global Shipping Index has Crashed To Its Lowest Level Ever ....................................................................................... 72 COMMODITIES Baltic Dry, WTI Crude and 30Y Treasury All Say the Same Thing S&P Only Disenter? ............................................ 73 COMMODITIES Our Real Dr Taking Hold ............................................................................................................................................... 73 COMMODITIES Commodities in Technical Danger Zone as Global Growth Slows ................................................................................ 75 COMMODITIES Copper at Critical Support Level. ..................................................................................................................................... 75 PRECIOUS METALS Gold Tracked US Debt Until Recently Will Likely Re-Establish Long Term Pattern ........................................ 76 NEW-INFLATION US CPI 1958 2015 Annual Percentage Change .................................................................................................... 78 NEW-INFLATION The Rise of Deflation ..................................................................................................................................................... 78 INFLATION World Inflation Falls To 59-Month Low ................................................................................................................................... 79

RESEARCH OF NOTE ...................................................................................................................................................................................... 81 NEW-DRIVER$ - Charting The Winners And Losers Of The Latest Surge In The USD .............................................................................. 81

RISK: Risk-On versus Risk-Off ................................................................................................................................................................................ 85 CHARTS OF NOTE ........................................................................................................................................................................................... 86

NEW-CHARTS Net Worth / GDP May Be Signaling Asset Bubble............................................................................................................ 86 NEW-CHARTS Monthly Retail Sales v S&P 500 ....................................................................................................................................... 86


NEW-CHARTS Extreme divergence between retail-related stocks and what is actually happening at the retail sales level ................... 87 NEW-CHARTS Momentum versus the S&P 500 index through the end of February ............................................................................... 88 NEW-CHARTS Have the Central Bankers Lost Control? Japan & Swiss Actions Say, Yes! .................................................................... 88 NEW-CHARTS US Dollar as compared to the annual percentage change in exports on a quarterly basis .............................................. 89 NEW-CHARTS Bull Market In Stock Buybacks.......................................................................................................................................... 90 NEW-CHARTS "New" highs look much like the Old highs......................................................................................................................... 90 NEW-CHARTS Only for the 4th time since 1995 have margin debt levels fallen below their 12-month moving average ........................ 91 NEW-CHARTS Only for the 4th time since 1995 have margin debt levels fallen below their 12-month moving average ........................ 92 CHARTS Have the Central Bankers Lost Control? Japan & Swiss Actions Say, Yes! .............................................................................. 94 CHARTS A Global Deflationary Shock Which May Be De-Stabilizing ....................................................................................................... 95 CHARTS Even the Bogus CPI is Falling No Pricing Power! ................................................................................................................... 96 CHARTS UST 10Y, World Exports & Copper all Suggest Mounting Global Deflationary Pressures ........................................................ 97 CHARTS Rising US Trade Deficit Says US Exporters Are Feeling Pinch ................................................................................................. 98 CHARTS Global Slowing is Real ................................................................................................................................................................ 99 CHARTS European Markets Are More Dependent on Fed B/S than ECBs B/S .................................................................................... 100 CHARTS Net New US Firms Plummets How do Markets Continue to Advance Against this? ............................................................ 101 CHARTS China Suggests Economic Growth is Steadily Slowing............................................................................................................ 102 CHARTS The Fed is Allowing the Monetary Base To Fall ....................................................................................................................... 103 CHARTS Has Everyone Been Chasing Yield in the Equity Markets? ..................................................................................................... 103 CHARTS German CPI Sending an Unmistakable Signal ........................................................................................................................ 104 CHARTS Record Profits Yet Historically Low Capital Asset Growth? ..................................................................................................... 105 CHARTS Cascading Global Deflation Signals ......................................................................................................................................... 106 CHARTS World GDP Growth Does Not Support Stock Expectations ..................................................................................................... 107 CHARTS S&P 500 versus Q4 US GDP Expectations .............................................................................................................................. 107 CHARTS WTI at 2009 Levels and Marginally Above 2008 Crisis Levels ................................................................................................ 107 CHARTS Credit Has Been Signaling a Clear Problem Ahead Since Early 2013 .................................................................................... 108 CHARTS Current Economic Cycle is Getting Old in the Tooth ............................................................................................................. 109 CHARTS Signs That Something Is Broken Somewhere Bonds, Oil versus Stocks ............................................................................. 109 CHARTS Economic Activity and CRB YoY Rapidly Diverging ................................................................................................................. 110 CHARTS Federal Reserve Assets versus Stock Prices........................................................................................................................... 110 CHARTS 8

th Hindenburg Omen Within 9 Days First Occurrence in 25 Years ...................................................................................... 111

RESEARCH OF NOTE .................................................................................................................................................................................... 112 NEW-RISK 7 Signs That A Stock Market Peak Is Happening Right Now ............................................................................................... 112 NEW-RISK Global Economies are headed for Recession ....................................................................................................................... 115 NEW-RISK The Last 3 Times This Happened, Stocks Rolled Over ........................................................................................................ 117 NEW-RISK The Biggest Risks To Stocks In 2015: A 10-Point Analysis .................................................................................................. 119 NEW-RISK 2015 Roadmap to Crisis ........................................................................................................................................................ 123

TECHNO-FUNDAMENTALS ................................................................................................................................................................................. 127 PATTERNS OF NOTE ..................................................................................................................................................................................... 127

NEW- PATTERNS What Is The Best Performing Regional Sector YTD? ............................................................................................... 127 NEW- PATTERNS The Market Is Pricing In Two Rate Hikes In 2015 (And Four In 2016) ..................................................................... 130 NEW- PATTERNS Q: How Many Stocks Trade for Below Book Value? A: 12% .................................................................................... 131 NEW- PATTERNS Leadership Reversion in Europe ............................................................................................................................... 132 NEW- PATTERNS Beware the Ides of March? ........................................................................................................................................ 134 NEW- PATTERNS No Matter How You Slice It, Stocks Everywhere Are Just Downright Expensive, Especially in DM ........................ 136 NEW- PATTERNS The Strong USD Is Negatively Impacting US Trade ................................................................................................. 145 NEW- PATTERNS The Dollar Is Breaking Out Again And What That Means For Stocks ...................................................................... 148 NEW- PATTERNS Where in the World is the Growth? EM Asia, and That's It! ...................................................................................... 153 NEW- PATTERNS Don't Be Fooled: Counter-Cyclical Stocks Still Outperforming ................................................................................. 155 NEW- PATTERNS Changes in EPS Estimates Have Been the Driver of Stock Prices Recently ........................................................... 157 NEW- PATTERNS Import And Export Prices Are Tumbling Downward Worldwide ................................................................................ 159 NEW- PATTERNS Market Breadth Finally Confirms a New High in World Stocks ................................................................................. 165 NEW- PATTERNS Most Companies In Most Countries Are Underperforming ....................................................................................... 167

OUTLOOK - ANALYTICAL ANALYSIS .......................................................................................................................................... 169 STUDY: CONFIRMING DEGREE OF GLOBAL SLOWDOWN Worse Than Expected .................................................................................... 169

CHARTS OF NOTE ......................................................................................................................................................................................... 169 NEW-SLOWDOWN Does this Look Like a Recovery to You? ................................................................................................................. 169 NEW-SLOWDOWN Baltic Dry The Worst Since Mid 80s ....................................................................................................................... 169

RESEARCH OF NOTE .................................................................................................................................................................................... 170 NEW-SLOWDOWN Overwhelming Proof of the SEVERITY ................................................................................................................... 170 NEW-SLOWDOWN Show Me the Recover? ............................................................................................................................................ 175 NEW-SLOWDOWN Per capita energy consumption remains at recession levels. ................................................................................. 176

STUDY: ALPHA RISK Real Risk ........................................................................................................................................................................ 180 CHARTS OF NOTE ......................................................................................................................................................................................... 180

NEW-ALPHA US ABS Issuances ............................................................................................................................................................. 180 NEW-ALPHA How Credit Pricing React to Increased Liquidity ................................................................................................................ 180

RESEARCH OF NOTE .................................................................................................................................................................................... 181 NEW-ALPHA Keeping Investors in the Dark About the Real Risk ........................................................................................................... 181

DEFINITION OF 'ALPHA' ......................................................................................................................................................................... 182 SHARPE RATIO ...................................................................................................................................................................................... 183 SORTINO RATIO.................................................................................................................................................................................... 183

STUDY: POTENTIAL TO SPOOK THE MARKETS Excesses .......................................................................................................................... 188 RESEARCH OF NOTE .................................................................................................................................................................................... 188

NEW-SPOOK Excessive but Doesnt Mean Markets Are About to Fall ................................................................................................... 188


STUDY: DOES ANYONE BELIEVE THESE FORECASTS? Another Year, another Hockey Stick (That Never Happens) ............................ 192 RESEARCH OF NOTE .................................................................................................................................................................................... 192

NEW-EARNINGS Does Anyone Believe These Forecasts? .................................................................................................................... 192 NEW-EARNINGS Falling Earnings ........................................................................................................................................................... 197 NEW-EARNINGS Falling Crude Price Impact on Earnings ..................................................................................................................... 202

STUDY: REMINDS ME OF 1987 & 2000 Goes on Forever Until It Doesnt ...................................................................................................... 205 RESEARCH OF NOTE .................................................................................................................................................................................... 205

NEW-REMINDS Is the Six Year Bull Run Coming to an End in 2nd

Half 2015? ...................................................................................... 205

SHORT TERM TECHNICAL ANALYSIS ..................................................................................................................................... 207 SUPPORT & RESISTANCE .................................................................................................................................................................................. 207

Gann Analysis .................................................................................................................................................................................................. 207 Boundary Conditions ....................................................................................................................................................................................... 208 Channels & Regressions ................................................................................................................................................................................. 209 Fibonacci - Controlling Time Extensions ......................................................................................................................................................... 211 Fibonacci - Controlling Price Extensions ......................................................................................................................................................... 213 Elliott Wave ...................................................................................................................................................................................................... 214 The Bottom Line............................................................................................................................................................................................... 215

NEW-SENTIMENT - Consumer, Investor & Trader ............................................................................................................................................... 218 NEW-Consumer Confidence - Conference Board .......................................................................................................................................... 218 NEW-Consumer Sentiment - Michigan ........................................................................................................................................................... 223 NEW-Consumer Comfort - Bloomberg ............................................................................................................................................................ 223 NEW-American Association of Independent Investors ................................................................................................................................... 224 NEW-Investors Intelligence ............................................................................................................................................................................. 224 NEW-National Association of Active Investment Managers (NAAIM) ............................................................................................................ 225 NEW-Small Business Optimism ...................................................................................................................................................................... 226 NEW-Percentage Stocks above 50 & 200 DMA ............................................................................................................................................. 228 NEW-Margin Levels ......................................................................................................................................................................................... 229 NEW-Real Margin Debt as % of GDP ............................................................................................................................................................. 234 NEW-Margin Debt versus S&P 500................................................................................................................................................................. 234 NEW-Mutual Fund Cash Levels v S&P 500 .................................................................................................................................................... 235

NEW-OSCILLATORS & BREADTH: Indicators of Importance ............................................................................................................................ 237 NEW-NYSE Overbought / Oversold ................................................................................................................................................................ 237 NEW-OEX Open Interest (Puts/Calls) ............................................................................................................................................................. 238 NEW-TRIN ....................................................................................................................................................................................................... 239 NEW-McClellan Oscillator ............................................................................................................................................................................... 240

CHARTS OF NOTE ............................................................................................................................................................................................... 241 NEW-CHARTS Asset Allocation Global Equities ...................................................................................................................................... 241 NEW-CHARTS Asset Allocation Global Bonds ......................................................................................................................................... 241 NEW-CHARTS Active versus Passive Funds Allocation ............................................................................................................................. 242 NEW-CHARTS Investors Intelligence Survey of % Bears ........................................................................................................................... 242 NEW-CHARTS Sentiment at Post 2008 Crisis Highs .................................................................................................................................. 243 NEW-CHARTS CNBC Viewership Steadily Falling ...................................................................................................................................... 244 NEW-CHARTS Investor Allocation Trends for Stocks, Bonds and Cash .................................................................................................... 245 NEW-CHARTS Uptick in Feds Financial Stress Index Composite ............................................................................................................. 246 CHARTS Fear Barometer Diverges with VIX, CDS IG Index ...................................................................................................................... 247 CHARTS Complacency Seen In PE/VIX ....................................................................................................................................................... 248 CHARTS Smart Money Flows ...................................................................................................................................................................... 249 CHARTS Fed Assets versus Bullish Sentiment ........................................................................................................................................... 249 CHARTS Macro Support Has Technically Broken Down ............................................................................................................................. 250 CHARTS US Surprise Index Setting Up for Downturn ................................................................................................................................. 250 CHARTS The Public No Longer Trusts the Market Feel it is Manipulated and Ineffectively Regulated ............................................... 251

RESEARCH OF NOTE .......................................................................................................................................................................................... 252 NEW-SENTIMENT: "Everything Is Awesome" American Consumers Are The Happiest In 11 Years ........................................................... 252 NEW-SENTIMENT: For CNBC, 2014 Was The Worst Year. Ever. ................................................................................................................ 253 NEW-SENTIMENT: An Astounding Number Of Americans Aren't Investing A Cent...................................................................................... 254 NEW-SENTIMENT U Michigan Consumer Confidence Goes Euphoric - Highest Since Dec 2006 ........................................................... 259 NEW-SENTIMENT - Global Business Confidence Collapses To Post-Lehman Lows ................................................................................... 260 NEW-SENTIMENT - Extreme Levels of the Bull/Bear Ratio ........................................................................................................................... 263 NEW-SENTIMENT - Fear & Greed Index ....................................................................................................................................................... 264 NEW-SENTIMENT Fear Indicator at Extreme Levels .................................................................................................................................. 265 NEW-SENTIMENT "Risk Free" Baseline Manipulation Has Mispriced Risk & Leverage ............................................................................ 266 NEW-SENTIMENT Sentiment is Off the Charts Bullish ............................................................................................................................ 269 SENTIMENT: US Households to Withdraw $430 Billion From Stocks In 2014 .............................................................................................. 275 SENTIMENT: Elliott Wave's View from the Top .............................................................................................................................................. 278

INTERMEDIATE TERM RISK ANALYSIS ................................................................................................................................. 282 UPDATED-AGGREGATED GLOBAL FINANCIAL RISK INDEX .......................................................................................................................... 282

NEW-BANKING RISK - LIBOR-OIS SPREAD ................................................................................................................................................ 283 NEW-BANKING RISK - TED SPREAD ........................................................................................................................................................... 283 NEW-CREDIT RISK - GLOBAL CREDIT DEFAULT SWAPS ....................................................................................................................... 284 NEW-CREDIT RISK - EU CREDIT DEFAULT SWAPS .................................................................................................................................. 284 NEW-CONSUMER RISK - HOUSING - RATE OF CHANGE ......................................................................................................................... 284 NEW-ECONOMIC RISK - ECRI LEADING INDEX ......................................................................................................................................... 285


NEW-INFLATION RISK - MONEY SUPPLY GROWTH - M3 ......................................................................................................................... 286 NEW-INFLATION RISK - MONEY VELOCITY ............................................................................................................................................... 286 MONETARY RISK - BANK LIABILITIES ......................................................................................................................................................... 287 NEW-COST OF MONEY RISK - INTEREST RATES .................................................................................................................................... 287

AGGREGATED RISK LEVEL ................................................................................................................................................................................ 289 CHARTS OF NOTE ............................................................................................................................................................................................... 290

NEW-RISK: World Stocks versus World 2015 GDP Estimate ........................................................................................................................ 290 NEW-RISK: World Stocks versus World 2014 & 2015 GDP Estimates ......................................................................................................... 290 NEW-RISK: World Stocks versus 10Y UST Yield, WTI Crude 2015 GDP Estimates .................................................................................... 291 NEW-RISK: Fat Tails Have Disproportionately Large Impact on Returns ...................................................................................................... 292 NEW-RISK: Statistically We Are Due for a Drawdown ................................................................................................................................... 293 NEW-RISK: The Buffett Indicator .................................................................................................................................................................... 294 RISK: Speculation Has Taken Control of the Markets .................................................................................................................................... 295 RISK: MSCI versus World GDP Divergence - Unsustainable ........................................................................................................................ 295 RISK: High Yield Credit Risk At Elevated Levels ............................................................................................................................................ 295 RISK: Active Hindenburg Omen ...................................................................................................................................................................... 296 RISK: An Over-Levered Hedge Fund Index Ending ABC Consolidation Pattern ........................................................................................... 296

RESEARCH OF NOTE .......................................................................................................................................................................................... 298 NEW-RISK: Even the BIS Is Shocked At How Broken Markets Have Become ............................................................................................. 298 NEW-RISK: The Line between Rational Speculation and Market Collapse ................................................................................................... 302 NEW-RISK: Global Economy Will Shrink By $2.3 Trillion In 2015.................................................................................................................. 307 NEW-RISK: Market Action Suggests Abrupt Slowing in Global Economic Activity ........................................................................................ 315 RISK: Warnings Signs Are Everywhere .......................................................................................................................................................... 319 RISK: Hindenburg Signals a Warning ............................................................................................................................................................. 320 RISK: Americans say they're too broke to invest ............................................................................................................................................ 322 RISK: The Biology of Risk ............................................................................................................................................................................... 326 RISK: More Signs Of Bullish Excess ............................................................................................................................................................... 330 RISK: Markets Have Left the "Complacency" Phase, Have Entered Full Blown "Mania" .............................................................................. 332 RISK: VIX Sends Message of Complacency ................................................................................................................................................... 333 RISK: CS Warns Volume & DeMark Raise "Topping Threat" In Stocks ......................................................................................................... 334 RISK: No One Will Ring the Bell at the Top .................................................................................................................................................... 338

Cassandra's - New Additions to the List ................................................................................................................................................................ 345 NEW-CASSANDRA: Carl Icahn - One Day You'll See A Break Like A Few Weeks Ago But The Market Won't Come Back ....................... 346 CASSANDRA: Sam Zell Warns Of Stock Market Correction On CNBC ........................................................................................................ 346 CASSANDRA: Billionaire Carl Icahn warns on US stock prices ..................................................................................................................... 347 CASSANDRA: Soros Bets $2 Billion on Stock Market Collapse .................................................................................................................... 347 CASSANDRA: Dont Ignore Janet Yellens Stock Market Warnings 07-21-14 Fiscal Times ......................................................................... 349 CASSANDRA: Doug Kass: We're Heading for a Bear Market So Plan Accordingly ...................................................................................... 352 CASSANDRA: Comstock Funds Weighs In .................................................................................................................................................... 354 CASSANDRA: Michael Lombardi Weighs In ................................................................................................................................................... 356 CASSANDRA: Ron Paul Portfolio, 'Craziest' we've ever seen? ..................................................................................................................... 358 CASSANDRA: John Mauldin Goes Negative .................................................................................................................................................. 359 CASSANDRA: Hayman Capital Dramatically Reduces Risk .......................................................................................................................... 367 CASSANDRA: Byron Wien Warns "Oblivious Markets" Of 20% Correction ................................................................................................... 368 CASSANDRA: Harry Dent Warns Stocks to Sink More than 60% by End of 2014 ........................................................................................ 368 CASSANDRA: Stanley Druckenmiller: "When You Get This Kind Of Rigging, It Will End Badly".................................................................. 369 CASSANDRA: Mohamed El-Erian: "Prices Are Artificially High - Its Time to Take Profits" .......................................................................... 370 CASSANDRA: Felix Zulauf: World Headed Toward 1987 Style Market Collapse .......................................................................................... 371 CASSANDRA: Doug Kass: 'I'm Getting The Summer Of 1987 Feeling' In The Market Right Now ............................................................... 371

CORRELATION & COMPLACENCY A PROBLEM .............................................................................................................................................. 373 EVENT RISK A PROBLEM .................................................................................................................................................................................... 376

Q2 EARNINGS & THE R WORD .............................................................................................................................................................. 376 POLITICAL-ECONOMIC TENSIONS .......................................................................................................................................................... 376 CENTRAL BANK POLICY MISCUES.......................................................................................................................................................... 376 ASIAN ECONOMIC SLOWDOWN SPILLAGE ............................................................................................................................................ 376 PETRO$ CRISIS BREWING IN BRIICS...................................................................................................................................................... 376

LONGER TERM - FUNDAMENTAL ANALYSIS .............................................................................................................................. 378 HIGHLIGHTS ......................................................................................................................................................................................................... 378

NEW-ASSET & LIABILITY OWNERSHIP ....................................................................................................................................................... 378 NEW-PANIC TOTAL RETURN DISTRIBUTION SINCE 1974 ....................................................................................................................... 378 NEW-PANIC CHASE FOR YIELD ................................................................................................................................................................... 379 NEW-REAL S&P MARKET CAP / REAL GDP................................................................................................................................................ 379 NEW-UNSUSTAINABLE GAP BETWEEN PROFITS AND INCOME ............................................................................................................ 380 NEW-ADJUSTED CORPORATE PROFITS FROM DOMESTIC OPERATIONS .......................................................................................... 380 NEW-TRAILING 10Y 12 MONTH NET MARGINS ......................................................................................................................................... 381 NEW-INVESTMENT CLASS PERFORMANCE .............................................................................................................................................. 382 NEW-VALUATION SUMMARY ....................................................................................................................................................................... 383

VALUATION: Alternative Methodologies ............................................................................................................................................................... 387 NEW-FOUR SET CONSOLIDATED MARKET VALUATION INDICATORS .................................................................................................. 387 NEW-Crestmont from the Arithmetic ............................................................................................................................................................... 391 NEW-Cyclical PE 10 Ratio............................................................................................................................................................................... 394 NEW-Q Ratio ................................................................................................................................................................................................... 399 NEW-S&P Composite Regression-to-the-Trend ............................................................................................................................................. 405


NEW-Reference Methodologies Analysis ....................................................................................................................................................... 407 NEW-Valuation Based Equity Market Forecasts Update By Adam Butler, Mike Philbrick and ...................................................................... 412 An Overvalued Market by Any Measure .......................................................................................................................................................... 421 Dividend Contribution to Total Return ............................................................................................................................................................. 425 CHARTS OF NOTE ......................................................................................................................................................................................... 426

NEW-VALUATIONS Record Profits Yet Historically Low Capital Asset Growth ..................................................................................... 426 NEW-VALUATIONS Historical Ranking of PE Values ............................................................................................................................. 427 NEW-VALUATIONS Median Price/Cash Flow Multiple for US Stocks .................................................................................................... 428 NEW-VALUATIONS Median Price/Earnings Multiple for US Stocks ....................................................................................................... 429 NEW-VALUATIONS Median Price to Book Multiple for US Stocks ......................................................................................................... 430 NEW-VALUATIONS Price/Book; Price/Cash flow; Price/Sales ............................................................................................................... 431 NEW-VALUATIONS Global Equities Reported PE, PE before XO & Fwd PE ..................................................................................... 432

STUDY: EARNINGS 2015 Forecasts ................................................................................................................................................................. 433 CHARTS OF NOTE ......................................................................................................................................................................................... 433

NEW-2015 EARNINGS Consensus Long-Term Growth versus Forward PE .......................................................................................... 433 NEW-2015 EARNINGS Consensus Analysts Estimates 1979-1995 ................................................................................................... 434 NEW-2015 EARNINGS Consensus Analysts Estimates 1995-2014 ................................................................................................... 434 NEW-2015 EARNINGS CY 2015 Earnings Growth ................................................................................................................................. 435 NEW-2015 EARNINGS CY 2015 Revenue Growth ................................................................................................................................. 436 NEW-2015 EARNINGS Q1 Forward 12 Mo EPS versus Change in Price ........................................................................................... 437 NEW-2015 EARNINGS Q1 Forward 12 PE Ratio ................................................................................................................................. 438

RESEARCH OF NOTE .................................................................................................................................................................................... 439 NEW-2015 EARNINGS Q1 Earnings Guidance: Negative Guidance (84%) Above Average ................................................................. 439

Q4 EARNINGS Reported Results....................................................................................................................................................................... 440 CHARTS OF NOTE ......................................................................................................................................................................................... 440

NEW-Q4 EARNINGS Change in Trailing 12M EPS versus Price ............................................................................................................ 440 NEW-Q4 EARNINGS CY 2014 Earnings Growth .................................................................................................................................... 441 NEW-Q4 EARNINGS CY 2014 Revenue Growth .................................................................................................................................... 442

RESEARCH OF NOTE .................................................................................................................................................................................... 443 NEW-Q4 EARNINGS Key Metrics ............................................................................................................................................................ 443 NEW-Q4 EARNINGS Q4 Summary - By The Numbers ........................................................................................................................... 444 NEW-Q4 EARNINGS US .......................................................................................................................................................................... 445 NEW-Q4 EARNINGS EUROPE ............................................................................................................................................................... 445 NEW-Q4 EARNINGS CHINA ................................................................................................................................................................... 446 NEW-Q4 EARNINGS Currency Theme: Stronger US Dollar ................................................................................................................... 447 NEW-Q4 EARNINGS Commodity Themes: Lower Oil & Gas Prices....................................................................................................... 448

Q3 EARNINGS Reported Results ................................................................................................................................................................... 450 CHARTS OF NOTE ......................................................................................................................................................................................... 450

Q3 EARNINGS Estimated Earnings Growth Rate cut nearly in half since June 30 ................................................................................ 450 Q3 EARNINGS S&P 500 Aggregate Global Revenues ........................................................................................................................... 451 Q3 EARNINGS Relentless Squeeze on the American Pocketbook ........................................................................................................ 452 Q3 EARNINGS Relentless Squeeze on the American Pocketbook ........................................................................................................ 453 Q3 EARNINGS Wal-Mart Cuts Guidance Again ................................................................................................................................... 454 Q3 EARNINGS Fattening Profit Margins Still Driver of Earnings Growth ................................................................................................ 455

RESEARCH OF NOTE .................................................................................................................................................................................... 456 Q3 EARNINGS - Q3 2014 Earnings Breakdown ...................................................................................................................................... 456 Q3 EARNINGS - Revenue Softness Worries Investors .............................................................................................................................. 462 Q3 EARNINGS - Analysts Taking Down Earnings Estimates for Q4 2014 ................................................................................................. 465 Q3 EARNINGS - Barclays Warns "King Dollar" Could Crush Earnings ...................................................................................................... 467 Q3 EARNINGS - Coming Shift in Expectations ........................................................................................................................................... 472 Q3 EARNINGS Estimated Earnings Growth Rate Cut Nearly in Half since June 30 .............................................................................. 475 Q3 EARNINGS Only 37% of Companies Are Seeing Rising Sales Estimates ........................................................................................ 477 Q3 EARNINGS EPS Estimates are Falling for Most Stocks in the World, Driven by Europe ................................................................. 481 Q3 EARNINGS Wal-Mart Cuts Guidance Again - Blames Obamacare ................................................................................................ 485 Q3 EARNINGS Cisco Beats Earnings, Announces Massive Layoffs ...................................................................................................... 487 Q3 EARNINGS Everything Cisco Is Saying About Emerging Markets Is Depressing ............................................................................. 488

Q2 EARNINGS Reported Results....................................................................................................................................................................... 490 Q2 RECAP FACTSET .................................................................................................................................................................................. 490

Key Metrics .................................................................................................................................................................................................. 490 Key Observations ......................................................................................................................................................................................... 491 Q2 2014 Earnings Season: Overview.......................................................................................................................................................... 493

RESEARCH OF NOTE .................................................................................................................................................................................... 494 Q2 EARNINGS Estimates Taken Down from 6.8% 03-31 to 4.9% .......................................................................................................... 494 Is the S&P 500 Overvalued?........................................................................................................................................................................ 495

CHARTS OF NOTE ............................................................................................................................................................................................... 496 NEW - CHARTS XXX ................................................................................................................................................................................... 496 CHARTS Finance the Biggest Source of Corporate Funds rising from 19% to 30% .................................................................................. 496 CHARTS Average Age of Private Fixed Assets ........................................................................................................................................... 497 CHARTS Percent of Families With Business Equity .................................................................................................................................... 497 CHARTS Percent of Families With Business Equity .................................................................................................................................... 498 CHARTS New England Patriots NFL Franchise Valuation ......................................................................................................................... 499 CHARTS US Equity Market is Not Outgrowing the Economy AS Measured by the Coincident Indicator .................................................. 500 CHARTS Deviation of Earnings Above / Below Long Term Growth Trend ................................................................................................. 501 CHARTS S&P 500, Moodys Baa Corporate & 30Y UST Yields ................................................................................................................. 501 CHARTS Corporations Carrying Higher Levels of Leverage than a Few Years Ago .................................................................................. 502


CHARTS US Corporate CFROI (Cash Flow ROI) ....................................................................................................................................... 503 CHARTS Weakening Sector Retunrs ........................................................................................................................................................... 503 CHARTS SPX, Corporate Profits versus Employed Population % .............................................................................................................. 504 CHARTS Executive Incentives Distort Earnings .......................................................................................................................................... 504 CAPITALIZATION Market Capitalization as a % of Nominal GDP .............................................................................................................. 505 CAPITALIZATION Market Capitalization Adjusted by Gold and CPI ........................................................................................................... 506 CAPITALIZATION Market Capitalization versus Total Federal Reserve Assets ......................................................................................... 507 CAPITALIZATION Total Market Capitalization versus M2 ........................................................................................................................... 508 CAPITALIZATION Total Market Capitalization versus Monetary Base ....................................................................................................... 509 CAPITALIZATION Total Market Capitalization versus Gross Federal Debt ................................................................................................ 510 CAPITALIZATION Market Capitalization Ratios .......................................................................................................................................... 511 CAPITALIZATION Regional Corporate Loss Comparisons Problems in Japan....................................................................................... 511 CHARTS 7 Year Total Return Cycle ............................................................................................................................................................ 512 CHARTS Profit Margins Shrink as Proportion of GDP ................................................................................................................................. 512 CHARTS Q1 Earnings Pre-Announcements ................................................................................................................................................ 513 CHARTS Q1 Earnings Taken Down Dramatically ....................................................................................................................................... 513 CHARTS Q1 Earnings Already Taken Down By 5% since January ............................................................................................................ 514 CHARTS Positive & Negative Q1 Pre-Announcements .............................................................................................................................. 514 CHARTS Q1 Revenue Slippage in Last 60 Days ........................................................................................................................................ 515 CHARTS Forward 12 Month EPS vs Price: 10-Year ................................................................................................................................... 516 CHARTS Forward 12 Month EPS vs Price: 10-Year ................................................................................................................................... 516

RESEARCH OF NOTE .......................................................................................................................................................................................... 518 NEW-FUNDAMENTALS The Great PE Multiple Expansion of 2011-2014 ................................................................................................. 518 NEW-FUNDAMENTALS Stocks Have Never Been More Expensive Based On Long-Term Growth Forecasts ........................................ 522 NEW-FUNDAMENTALS Long Term Return Trends .................................................................................................................................... 524 FUNDAMENTALS Long Term Return Trends ............................................................................................................................................. 525 FUNDAMENTALS Profit Margins Contract as a Percentage of GDP .......................................................................................................... 527 FUNDAMENTALS Stagnant Wages a Major Contributor to Profits ............................................................................................................. 529 FUNDAMENTALS Worsening risk/reward fundamentals in US corporate credit ........................................................................................ 531

BUYBACKS Situational Assessment .................................................................................................................................................................. 535 CHARTS OF NOTE ......................................................................................................................................................................................... 535

NEW-BUYBACKS Cash to Stockholders Exceeds 90% of Profits........................................................................................................... 535 NEW-BUYBACKS Stock Repurchases Surge 30% in Q3 ....................................................................................................................... 535 NEW-BUYBACKS Stock Repurchases 2

nd Highest on Record at $145B ................................................................................................ 535

NEW-BUYBACKS 2914 YTD Stock Repurchases By Corporation 20 Corporations Over $4B ........................................................... 536 NEW-BUYBACKS Operating EPS With / Without Buybacks ................................................................................................................... 536 NEW-BUYBACKS Sales & Revenue Doesnt Support Reported EPS Due to Buyback Distortion ......................................................... 537 NEW-BUYBACKS S&P 500 Buyback Index versus S&P 500 ................................................................................................................. 538 NEW-BUYBACKS The New S&P 500 Buyback Index TR ....................................................................................................................... 538 NEW-BUYBACKS The New S&P 500 Buyback Index Since Start of QE ................................................................................................ 539 NEW-BUYBACKS IBM Total Debt to Equity (to Fund Buybacks) ............................................................................................................ 539 NEW-BUYBACKS IBM Debt Issuance v Buybacks ................................................................................................................................. 540 NEW-BUYBACKS Global FDI into Finance versus Productive Assets .................................................................................................... 541 NEW-BUYBACKS Total Corporate Debt 35% Higher than 2008 Peak Used for Buybacks................................................................. 541 NEW-BUYBACKS Buyback Bonanza....................................................................................................................................................... 542 NEW-BUYBACKS Buybacks Have Made a 1% Earnings Growth Distortion to Median S&P 500 Company.......................................... 542 NEW-BUYBACKS Top 10 Buyback Companies ...................................................................................................................................... 543 NEW-BUYBACKS Intel Buybacks ............................................................................................................................................................ 543 BUYBACKS Shares Outstanding Back at 2000 Level ............................................................................................................................. 544 BUYBACKS Largest Volumes of Buybacks by US Listed Corporation in Last Year ............................................................................... 544 BUYBACKS Corporations Are No Longer Investing But Rather Financial Engineering Stock Prices ..................................................... 545 BUYBACKS Q2 Drop-Off Closer to Normal .......................................................................................................................................... 546 BUYBACKS Borrowing to Buy back Shares ............................................................................................................................................. 546 BUYBACKS Cyclical Nature of Buybacks Evident ................................................................................................................................... 546 BUYBACKS Major Q2 Repurchases ........................................................................................................................................................ 547 BUYBACKS Major Q1 Repurchases ........................................................................................................................................................ 547 BUYBACKS Quarterly Repurchase & Buyback Yield ............................................................................................................................... 548 BUYBACKS US Corporate Cash versus Buybacks .................................................................................................................................. 549 BUYBACKS Net Debt/EBITDA of American Non-Financial Corporations ............................................................................................... 549

RESEARCH OF NOTE .................................................................................................................................................................................... 550 NEW-BUYBACKS - Q3 Buybacks Surging, These Are The Top 20 Repurchasers Of Their Own Stock .................................................. 550 NEW-BUYBACKS - Accounting Magic ........................................................................................................................................................ 552 NEW-BUYBACKS - The largest source of overall US equity demand in recent years ............................................................................... 554 NEW-BUYBACKS - Has Boosted Median Earnings Growth by 100 bps for S&P 500 ............................................................................... 557 BUYBACKS - Companies Spend Almost All Profits On Buybacks ............................................................................................................. 562 BUYBACKS - Buyback At Biggest Pace Since 2007 .................................................................................................................................. 566 BUYBACKS - Buyback Party Slowing ......................................................................................................................................................... 568 BUYBACKS - Buyback Party Slowing ......................................................................................................................................................... 573

THE $2T TAX RUSE Its a Free Ride for US Corporations ......................................................................................................................... 578 UNPRECEDENTED BUYBACKS LEVELS ................................................................................................................................................. 578 A FREE TAX RIDE....................................................................................................................................................................................... 580 GENERIC TAX EXAMPLE ........................................................................................................................................................................... 580

TARGETS ................................................................................................................................................................................ 585

CONCLUSIONS ....................................................................................................................................................................... 587


MARKET MESSAGE ............................................................................................................................................................................................. 587 I- DEFINING CHARTS ........................................................................................................................................................................................... 593

Defining Chart #2 - Finding the Longer Term Super Cycle Pivot b .............................................................................................................. 593 Defining Chart #3 - The Big M and Super Cycle b ..................................................................................................................................... 595 Defining Chart #3 - The Big M and Super Cycle b ..................................................................................................................................... 595 Defining Chart #4 Intermediate Term Topping Process ............................................................................................................................... 596

II- TARGETS .......................................................................................................................................................................................................... 599 III QUARTERLY SENTIMENT RISK AND FUNDAMENTALS ........................................................................................................................... 601

SENTIMENT .................................................................................................................................................................................................... 601 RISK ................................................................................................................................................................................................................. 603 FUNDAMENTALS............................................................................................................................................................................................ 603 Valuation Summary ......................................................................................................................................................................................... 604

IV STUDIES ........................................................................................................................................................................................................ 605 STUDY: CONFIRMING DEGREE OF GLOBAL SLOWDOWN Worse Than Expected .................................................................................... 605

CHARTS OF NOTE ......................................................................................................................................................................................... 605 NEW-SLOWDOWN Does this Look Like a Recovery to You? ................................................................................................................. 605 NEW-SLOWDOWN Baltic Dry The Worst Since Mid 80s ....................................................................................................................... 605

STUDY: ALPHA RISK Real Risk ........................................................................................................................................................................ 606 CHARTS OF NOTE ......................................................................................................................................................................................... 606

NEW-ALPHA US ABS Issuances ............................................................................................................................................................. 606 NEW-ALPHA How Credit Pricing React to Increased Liquidity ................................................................................................................ 606

STUDY: POTENTIAL TO SPOOK THE MARKETS Excesses .......................................................................................................................... 607 RESEARCH OF NOTE .................................................................................................................................................................................... 607

NEW-SPOOK Excessive but Doesnt Mean Markets Are About to Fall ................................................................................................... 607 STUDY: DOES ANYONE BELIEVE THESE FORECASTS? Another Year, another Hockey Stick (That Never Happens) ............................ 611

RESEARCH OF NOTE .................................................................................................................................................................................... 611 NEW-EARNINGS Does Anyone Believe These Forecasts? .................................................................................................................... 611

V - TRIGGER$ ZONES .......................................................................................................................................................................................... 616 VI - DRIVER$ & BIA$ ............................................................................................................................................................................................. 617 VIII- GORD'S VIEWS & OPINIONS ....................................................................................................................................................................... 618

SENTIMENT & CONFIDENCE - NERVOUSNESS ........................................................................................................................................ 626 MARKET AT HISTORIC HIGHS ..................................................................................................................................................................... 631

The Intrinsic Enterprise Value ...................................................................................................................................................................... 636 Stock Valuations are based on a Discounted Free Cash flow. EBITDA is Cash flow. ............................................................................... 637 How Long Will Labor Tolerate this or Survive on Shrinking Disposable Income? ...................................................................................... 638 Have a Look at the Market Deflated by QE ................................................................................................................................................. 638


MONTHLY PROCESS OF ABSTRACTION

The Monthly Market Analytics & Technical Analysis Report is an integral part of our monthly Process of Abstraction

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

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

Plan Release

Date

Service Focus Coverage

III. 4th Week of the

Month Global Macro Tipping Points

(GMTP)

Tipping Points

Abstraction

Abstraction

Tipping Points

Global Macro

US Economy

IV. 2nd Week of the

month No later

than the 17th

Market Analytics & Technical

Analysis (MTA)

Technical Analysis

Market Analytics

Market Analytics

Technical Analysis

Fundamental Analysis

Risk Analysis

II. Third Tuesday of

the Month Monthly Market Commentary

(MMC)

Synthesis

Thesis

Commentary

Conclusions

RISK LEVELS: HIGHLY ELEVATED

HIGHLIGHTS - What You Need to Know

Documents

rpt-MTA-2015-03-Peek