rpt-MTA-2015-07-Peek

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

Monthly Market Analytics & Technical Analysis

JULY 2015 Edition

SECTIONAL

MATA- JULY 2015

7/13/2015


Monthly Market Analytics & Technical Analysis JULY 2015

HIGHLIGHTS - WHAT YOU NEED TO KNOW ................................................................................................................................. 11 SUMMARY ANALYSIS ............................................................................................................................................................................................ 12

Valuation Summary ........................................................................................................................................................................................... 20 Era of Delusional Distortions & the Super Cycle Pivot b .................................................................................................................................... 23

Defining Chart #1 - "Delusional Distortion" Expectations & the Log-Periodic Cycle ......................................................................................... 25 Defining Chart #2 - Finding the Longer Term Super Cycle Pivot b ................................................................................................................ 26 Defining Chart #3 - The Big M and Super Cycle b ....................................................................................................................................... 28 Defining Chart #4 Intermediate Term Topping Process ................................................................................................................................. 29 The Bottom Line................................................................................................................................................................................................. 32

OUR APPROACH - MACRO ANALYTICS ...................................................................................................................................... 35 JUNE 2015: Global Macro Drivers .......................................................................................................................................................................... 37

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

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

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

YIELD ............................................................................................................................................................................................................. 56 NEW-YIELD Federal Reserve is Running Out of Runway Unless Negative Nominal Rates are Ahead? ............................................. 56 YIELD Bond Route Reduced Negative Nominal Eurozone Sovereign Debt by 1T .............................................................................. 56 YIELD Total Debt Securities Growth ....................................................................................................................................................... 58 YIELD - Bond Market: Sprechen Sie Deutsch? ......................................................................................................................................... 58 YIELD - Are Stocks & Bonds Due For A "Generational" 75% Crash? ...................................................................................................... 60 YIELD - Smart Money Most Committed to Falling Rates Since The Last Peak in Long Bond Yields ...................................................... 62 YIELD Violent bond moves signal tectonic shifts in global markets ....................................................................................................... 63 YIELD The great German government bond sell-off mystery ................................................................................................................ 66 YIELD Deja Vu All Over Again for the Long Bond? ................................................................................................................................ 68 YIELD The Smart Money Is Getting Long Treasury Bonds Again ......................................................................................................... 70 YIELD How Much Lower Can The 30-Year Treasury Yield Go? ............................................................................................................ 71 YIELD High Yield Bonds and Equities Still Haven't Converged and Corporate Yields At Historic Lows ............................................... 73 YIELD Fed versus ECB Rate Hike Expectations ..................................................................................................................................... 77 YIELD 10 Year UST versus German Bund Once in a Quarter Century Phenomenom ....................................................................... 78 YIELD First Time Ever, Central Banks Will Monetize More Than 100% Of Global Sovereign Debt ..................................................... 79 YIELD 10 Year Global Sovereign Yield Approaches 1%......................................................................................................................... 80 YIELD Likely Bounce in 10Y UST Yield Near Term ................................................................................................................................ 80 YIELD Take Away the Flows and Bad Things Begin to Happen to Yield ................................................................................................ 81 YIELD Take Away the Flows and Bad Things Begin to Happen to Yield Eurozone 10Y Bond Yields ................................................ 82 YIELD 10Y UST versus 10Y BUND ........................................................................................................................................................ 82 YIELD 1-2% YTD Drop in Global 10Y Bonds ......................................................................................................................................... 83 YIELD US stock market indices have become massively decoupled from the bond markets. .............................................................. 83 YIELD 10Y UST Disconnected from Fed Expectations Deutsche Bank ............................................................................................. 84 YIELD 10Y UST Disconnected from Fed Expectations Deutsche Bank ............................................................................................. 85

CREDIT .......................................................................................................................................................................................................... 86 NEW-CREDIT Margin Debt Has It Peaked? ........................................................................................................................................ 86 NEW-CREDIT Why the Chinese Economic Model is not Long-term Sustainable ................................................................................. 86 CREDIT Financial Conditions Tighter Now Than At Any Point Since 2009 According To Chicago Fed ................................................ 88 CREDIT Global EM 5 Yr CDS ................................................................................................................................................................. 90 CREDIT Nothing Left to Buy In EM ......................................................................................................................................................... 92 CREDIT US Equities versus Credit ......................................................................................................................................................... 93 CREDIT Its Only About Flows Liquidity to Credit to Debt .................................................................................................................... 93 CREDIT Credit only becomes Debt through Collateral WHICH IS Created through Government Backing .......................................... 94 CREDIT US stock market indices have become massively decoupled from the Credit markets. ......................................................... 94

CURRENCIES ............................................................................................................................................................................................... 95 NEW-CURRENCIES Is The Decline in the Euro Over? ......................................................................................................................... 95 NEW-CURRENCIES Japan Much Less Risky Than Europe From a Currency Perspective ................................................................. 96 CURRENCIES First Break of Overhead Resistance on USDYEN Monthly in 17 Years ....................................................................... 97 CURRENCIES The Yen Is At The Most Undervalued Level In Nearly 30 Years ................................................................................... 98 CURRENCIES Long-End Of US Yield Curve Suggests A Stronger Yen ............................................................................................. 100 CURRENCIES The Rate of Change of the US$ is Disruptive .............................................................................................................. 100


CURRENCIES US$ Parabolic Surge the 2nd

Biggest & Fastest Rally Ever - Extreme 11.9 Year High, ........................................... 101 CURRENCIES Inverse Pattern of USDX versus Gold ......................................................................................................................... 101 CURRENCIES Recent (more than 10% QoQ) slide in the euro is a two-standard deviation event .................................................... 103 CURRENCIES EM Dollar Victims ......................................................................................................................................................... 103 CURRENCIES Dollar Bull May Have A Lot Longer To Run ................................................................................................................. 104 CURRENCIES EM Currencies Just Fell to 15 Year Low ..................................................................................................................... 104 CURRENCIES Yen Breaks 25 Year Trend Support ............................................................................................................................. 105 CURRENCIES Euro Falls to Lowest Level since August 2012 ............................................................................................................ 105 CURRENCIES A Rout in Emerging Market Currencies Going On with a US Short Dollar Squeeze .................................................. 106 CURRENCIES Traded Weighted Euro versus $%/Euro ...................................................................................................................... 107

COMMODITIES ........................................................................................................................................................................................... 107 NEW-COMMODITIES The Weak Trend In EM currencies and Commodities Isnt Abating ................................................................ 107 COMMODITIES How Saudi Arabia Sets the Global (Currency) Markets ............................................................................................ 108 COMMODITIES Dr. Copper Is Down, Not Out ..................................................................................................................................... 111 COMMODITIES Are Commodities And EM Stocks Becoming Less Sensitive To The Dollar? ........................................................... 113 COMMODITIES Don't Waste Your Time On Commodity ETFs ........................................................................................................... 114 COMMODITIES Iron Ore Prices Tell the Real Story of Global Deflation ............................................................................................. 122 COMMODITIES Global Shipping Index has Crashed To Its Lowest Level Ever ................................................................................. 123 COMMODITIES Baltic Dry, WTI Crude and 30Y Treasury All Say the Same Thing S&P Only Disenter? ....................................... 124 COMMODITIES Our Real Dr Taking Hold .......................................................................................................................................... 125 COMMODITIES Commodities in Technical Danger Zone as Global Growth Slows .......................................................................... 127 COMMODITIES Copper at Critical Support Level. ............................................................................................................................... 127

INFLATION .................................................................................................................................................................................................. 129 INFLATION Inflation Expectations & Relative Performance................................................................................................................. 129 INFLATION US CPI 1958 2015 Annual Percentage Change ........................................................................................................ 130 INFLATION The Rise of Deflation ......................................................................................................................................................... 131 INFLATION World Inflation Falls To 59-Month Low ............................................................................................................................. 131

PRECIOUS METALS ................................................................................................................................................................................... 133 PRECIOUS METALS Gold demand in Asia hit by weak local currencies; Indian prices at discount .................................................. 133 PRECIOUS METALS Gold Tracked US Debt Until Recently Will Likely Re-Establish Long Term Pattern .................................. 134

RESEARCH OF NOTE .................................................................................................................................................................................... 135 DRIVER$ - Stocks And Bonds Remain At A Historically High Correlation ................................................................................................. 135 DRIVER$ - The unseen downside of strength in the dollar - The speed of the move is disruptive ............................................................ 135 DRIVER$ - Trading the Parabolic Dollar ..................................................................................................................................................... 137 DRIVER$ - Charting The Winners And Losers Of The Latest Surge In The USD ...................................................................................... 141

RISK: Risk-On versus Risk-Off .............................................................................................................................................................................. 146 CHARTS OF NOTE ......................................................................................................................................................................................... 147

NEW-RISK Broad Global Equity Index Sitting on the Precipice ............................................................................................................... 147 NEW-RISK Global DOW at Potential Key Support Levels ....................................................................................................................... 147 RISK The Correction Counter Rising Across Assets Classes ............................................................................................................... 148 RISK # of days Since a 2% Up or Down Move......................................................................................................................................... 148 RISK Margin Debt in Perspective ............................................................................................................................................................. 149 RISK PE/VIX Market Emotion Indicator .................................................................................................................................................. 149 RISK Margin Debt Breaks Out- Hits New Record 50% Higher Than Last Bubble Peak ......................................................................... 150 RISK DOW Industrial v Transports ........................................................................................................................................................... 150 RISK ISE Index and ETF Call/Put Hits a 6 Year High .............................................................................................................................. 151 RISK Value Line Composite Breaks Trend After a 26 Year Top ............................................................................................................. 152 RISK ADX Suggests Big Move (Lower) Coming ...................................................................................................................................... 153

RESEARCH OF NOTE .................................................................................................................................................................................... 154 NEW-RISK According To Bank of America, This Is "The Biggest Risk to Global Equities" .................................................................... 154 NEW-RISK The "Smartest Money" Liquidating At a Record Pace: "Selling Everything ......................................................................... 156 NEW-RISK Top CEO Warns Of Global Reset: "It's In The Cards For Sure... It Could Happen This Year" ............................................ 158 NEW-RISK $140 Billion Bond Fund Goes To Cash As It "Braces For Bond-Market Collapse" .............................................................. 160 NEW-RISK "It's Time To Hold Physical Cash", Fidelity Manager Warns Ahead Of "Systemic Event" ................................................... 162 NEW-RISK Sweden's Largest Fund Manager Is Quietly Dumping Stocks Before The "Herd" Is Caught In A Selling Vortex ................ 164 RISK When Paper Wealth Vanishes ........................................................................................................................................................ 166 RISK Countdown to the stock-market Crash of 2016 is ticking louder .................................................................................................... 172 RISK Total Assets At The Fed At Six Month Lows ................................................................................................................................... 175 RISK Economic Releases Are "Missing" In The Two Largest Countries In The World ........................................................................... 178 RISK NYSE Margin Debt Charged To New All-Time Highs In March ...................................................................................................... 183 RISK The Step Down In Long-Term US Growth Rates Breaks Lower .................................................................................................... 185 RISK Are Asset Prices In The Midst Of A Change In Trend Or Simply A Counter-Trend Rally? ............................................................ 188 RISK Equity Performance Trends Have Completely Flip-Flopped In April .............................................................................................. 193 RISK Chinese Companies Keeping the Dream Alive with Leverage and Channel Stuffing .................................................................... 195 RISK Divergent Trends in Market Breadth ............................................................................................................................................... 195 RISK The Plunge in Policy Uncertainty .................................................................................................................................................... 203 RISK Unbelievably, Chinese Companies Massively Increased Leverage Ratios in 2014 to Highest Ever ............................................. 207 RISK Where Positive Economic Surprises Are (And Aren't) Happening ................................................................................................. 208 RISK Where Positive Economic Surprises Are (And Aren't) Happening ................................................................................................. 212 RISK Surge in European Equity Valuations ............................................................................................................................................. 216 RISK US Bond Update: High Yield Bonds and Equities Still Haven't Converged and Corporate Yields At Historic Lows ..................... 221 RISK Leadership Trends Among Developed World Sectors .................................................................................................................... 224 RISK Is the Fall in the EUR Overdone? ................................................................................................................................................... 227 RISK $20 Billion Jump In Margin Debt In February .................................................................................................................................. 230 RISK 1/4 Of All MSCI World Stocks Are Trading Above 30x PE and 4x BV ........................................................................................... 232 RISK Look to Asia for the Strongest Under the Surface Market Trends .................................................................................................. 233


RISK Country Allocation Matters .............................................................................................................................................................. 238 RISK European QE is a Sideshow, Investors Should Focus on the Real Breakout in Japan ................................................................. 240 RISK The Market Is Pricing In Two Rate Hikes In 2015 (And Four In 2016) ........................................................................................... 243 RISK Q: How Many Stocks Trade for Below Book Value? A: 12% .......................................................................................................... 244 RISK Beware the Ides of March? ............................................................................................................................................................. 245 RISK No Matter How You Slice It, Stocks Everywhere Are Just Downright Expensive, Especially in DM ............................................. 247 RISK The Strong USD Is Negatively Impacting US Trade ....................................................................................................................... 256 RISK The Dollar Is Breaking Out Again And What That Means For Stocks ............................................................................................ 259 RISK Where in the World is the Growth? EM Asia, and That's It! ............................................................................................................ 264 RISK Changes in EPS Estimates Have Been the Driver of Stock Prices Recently ................................................................................. 266 RISK Import And Export Prices Are Tumbling Downward Worldwide ..................................................................................................... 268 RISK Market Breadth Finally Confirms a New High in World Stocks ....................................................................................................... 274 RISK Most Companies In Most Countries Are Underperforming ............................................................................................................. 276 RISK CAPE Suggests Stocks Are Potentially Poised to Lose 50%-90% in the Next Two Years............................................................ 277 RISK Just One Chart ................................................................................................................................................................................ 279 RISK Stockman: "The Bottom's Not In", Why This Market Is Dumber Than A Mule ............................................................................... 280 RISK China's Stock Bubble Leaves BNP Speechless: "What Happens Next Is An Unknown-Unknown" .............................................. 284 RISK Are We in A Biotech Bubble? You Decide ...................................................................................................................................... 287 RISK Margin and Record Stock Highs...................................................................................................................................................... 292

TECHNO-FUNDAMENTALS ................................................................................................................................................................................. 295 CHARTS OF NOTE ......................................................................................................................................................................................... 295

NEW-CHARTS Dotcom Bubble Burst 2 Year Process and a Year After the Long Trend Broken Was Broken ................................... 295 NEW-CHARTS 54% of All EM Stocks Are In A Bear Market Even As The MSCI EM Index Is Off Only 7% .......................................... 295 NEW-CHARTS A Spike in New Lows around the World.......................................................................................................................... 296 NEW-CHARTS A Spike in New Lows around the World MSCI Europe ................................................................................................ 296 NEW-CHARTS A Spike in New Lows around the World North America .............................................................................................. 296 NEW-CHARTS A Spike in New Lows around the World MSCI Pacific ................................................................................................. 297 NEW-CHARTS A Spike in New Lows around the World MSCI Emerging Markets .............................................................................. 297 NEW-CHARTS A Spike in New Lows around the World MSCI EM EMEA........................................................................................... 298 NEW-CHARTS A Spike in New Lows around the World MSCI EM Latin America ............................................................................... 298 NEW-CHARTS A Spike in New Lows around the World MSCI EM Asia .............................................................................................. 299 NEW-CHARTS Copper Prices Just Made a 6-Year Low ......................................................................................................................... 300 NEW-CHARTS Volatility is Stealthy Reemerging into the Equity Market ................................................................................................ 300 NEW-CHARTS S&P 500 Suffers First 2% Down Day Since End of 2014 ............................................................................................... 301 NEW-CHARTS More Stocks Than You Might Guess Are In A Correction - World ................................................................................. 302 NEW-CHARTS More Stocks Than You Might Guess Are In A Correction North America ................................................................... 302 NEW-CHARTS More Stocks Than You Might Guess Are In A Correction Europe .............................................................................. 302 NEW-CHARTS More Stocks Than You Might Guess Are In A Correction Pacific ............................................................................... 304 NEW-CHARTS Percentage of stocks that are fully in a bear market (down over 20%) is 15% of the MSCI World Index. .................... 304 NEW-CHARTS Percentage of stocks that are fully in a bear market (down over 20%) is 11% of the MSCI Europe Index. .................. 304 NEW-CHARTS Percentage of stocks that are fully in a bear market (down over 20%) is 14% of the MSCI Pacific Index. ................... 305 NEW-CHARTS Percentage of stocks that are fully in a bear market (down over 20%) is 20% stocks of the MSCI N. America Index. 305 CHARTS 12 Mo MACD Sends Longer Term Signal ................................................................................................................................ 307 CHARTS DOW Transports Diverge Significantly A DOW Theory Trigger Signal ................................................................................. 308 CHARTS NYSE AD Line Breaks at Previous Cyclical Stock Market Peaks ............................................................................................ 309 CHARTS Equal-Weight S&P 500 Losing Relative Strength v Weighted Index ....................................................................................... 310 CHARTS % of Unprofitable IPOs Surpass 2000 Dotcom Bubble ............................................................................................................ 311 CHARTS Declining Corporate Profits v The Stock Market at its Highs ................................................................................................... 312 CHARTS US Macro-v-SPX Divergence ................................................................................................................................................... 312 CHARTS The Short Squeeze Game ........................................................................................................................................................ 313 CHARTS The Short Squeeze Game-On No Volumes ............................................................................................................................. 313 CHARTS US Macro Surprise Index Falls at Fastest Rate Ever! ........................................................................................................... 314 CHARTS US Macro Surprise Index Drop Since Bullards Fall 2014 QE4 Quote .................................................................................. 314 CHARTS Longer Term View of US Macro Surprise Index ....................................................................................................................... 316 CHARTS Classic Ending Diagonal ........................................................................................................................................................... 316 CHARTS Technical Pattern in Sentiment Suggests Trend Turn Approaching ........................................................................................ 317 CHARTS Margin Debt & Credit Balances ................................................................................................................................................ 317 CHARTS Wedges And Triangles: Big Move Ahead? 1-SPX ................................................................................................................ 318 CHARTS Wedges And Triangles: Big Move Ahead? 2- VIX ................................................................................................................. 318 CHARTS Wedges And Triangles: Big Move Ahead? 3- GOLD ............................................................................................................ 319 CHARTS Wedges And Triangles: Big Move Ahead? 4- US$ ............................................................................................................... 319 CHARTS DOW Transports versus WTI Crude ......................................................................................................................................... 320 CHARTS CAPE is at its 3rd highest reading going back to 1890. ........................................................................................................... 320 CHARTS Investors Intelligence Bearish Percent ..................................................................................................................................... 320 CHARTS Biotech versus S&P 500 Performance Since 1999 .................................................................................................................. 321 CHARTS US Macro Data versus Q1 15 GDP Expectations versus S&P 500 ........................................................................................ 321 CHARTS Shanghai Composite At Record Highs as Chinas Slowdown Accelerates ............................................................................. 323 CHARTS Margin Debt At Historical Levels but Showing Signs of Weakening ........................................................................................ 323 CHARTS Net Worth / GDP May Be Signaling Asset Bubble ................................................................................................................... 324 CHARTS Monthly Retail Sales v S&P 500 ............................................................................................................................................... 324 CHARTS Extreme divergence between retail-related stocks and what is actually happening at the retail sales level ........................... 325 CHARTS Momentum versus the S&P 500 index through the end of February ....................................................................................... 326 CHARTS Have the Central Bankers Lost Control? Japan & Swiss Actions Say, Yes! ............................................................................ 326 CHARTS US Dollar as compared to the annual percentage change in exports on a quarterly basis ..................................................... 327 CHARTS Bull Market In Stock Buybacks ................................................................................................................................................. 328 CHARTS "New" highs look much like the Old highs ................................................................................................................................ 328


CHARTS Only for the 4th time since 1995 have margin debt levels fallen below their 12-month moving average ................................ 329 CHARTS Only for the 4th time since 1995 have margin debt levels fallen below their 12-month moving average ................................ 330 CHARTS Have the Central Bankers Lost Control? Japan & Swiss Actions Say, Yes! ............................................................................ 332 CHARTS A Global Deflationary Shock Which May Be De-Stabilizing ..................................................................................................... 333 CHARTS Even the Bogus CPI is Falling No Pricing Power! ................................................................................................................. 334 CHARTS UST 10Y, World Exports & Copper all Suggest Mounting Global Deflationary Pressures ...................................................... 335 CHARTS Rising US Trade Deficit Says US Exporters Are Feeling Pinch ............................................................................................... 336

OUTLOOK - ANALYTICAL ANALYSIS .......................................................................................................................................... 337 NEW-STUDY: HISTORIC CHINESE MARKET COLLAPSE ................................................................................................................................ 337

CHARTS OF NOTE ......................................................................................................................................................................................... 337 NEW- CHINA SHCOMP Comparison to DOW 1928-1931 ....................................................................................................................... 337 NEW- CHINA Shenzhen Composite Timeline ........................................................................................................................................... 337 NEW- CHINA Shanghai Composite versus China Macro ......................................................................................................................... 338 NEW- CHINA Shanghai Composite versus China Macro ......................................................................................................................... 338

RESEARCH OF NOTE .................................................................................................................................................................................... 339 NEW- CHINA Detailed News Chronology OF Unfolding Chinese Market Collapse & Government Interventions .................................. 339

NEW-STUDY: RISK-OFF....................................................................................................................................................................................... 349 CHARTS OF NOTE ......................................................................................................................................................................................... 349

NEW- RISK-OFF Cumulative Flows by Client Type - YTD ...................................................................................................................... 349 NEW- RISK-OFF Historical Risk versus Returns ..................................................................................................................................... 349 NEW- RISK-OFF Cumulative Flows by Client Type January 2008-Present ......................................................................................... 350 NEW- RISK-OFF Q Ratio Since 1900 ...................................................................................................................................................... 351

RESEARCH OF NOTE .................................................................................................................................................................................... 352 NEW- RISK-OFF Post Q2 Quadruple Witch - Institutional Money Changing Direction ............................................................................ 352 NEW- RISK-OFF The Worst Time In History To Be Invested In Stocks ................................................................................................... 356

NEW-STUDY: LEVEL OF WARNINGS ................................................................................................................................................................. 361 RESEARCH OF NOTE .................................................................................................................................................................................... 361

NEW- WARNINGS According To Bank of America, This Is "The Biggest Risk to Global Equities" ........................................................ 361 NEW- WARNINGS The "Smartest Money" Liquidating At a Record Pace: "Selling Everything ............................................................ 363 NEW- WARNINGS Top CEO Warns Of Global Reset: "It's In The Cards For Sure... It Could Happen This Year"................................ 365 NEW- WARNINGS $140 Billion Bond Fund Goes To Cash As It "Braces For Bond-Market Collapse" .................................................. 367 NEW- WARNINGS "It's Time To Hold Physical Cash", Fidelity Manager Warns Ahead Of "Systemic Event" ....................................... 369 NEW- WARNINGS Sweden's Largest Fund Manager Is Quietly Dumping Stocks Before The "Herd" Is Caught In A Selling Vortex ... 371

NEW-STUDY: EARNINGS WORRIES .................................................................................................................................................................. 373 CHARTS OF NOTE ............................................................................................................................................................................................... 373 NEW- WORRIES Estimated Earnings Decline for Q2 2015 is -4.7% ................................................................................................................ 373

NEW- WORRIES The evolution of BEA earnings and the S&P500 since 1980 ...................................................................................... 374 NEW- WORRIES S&P 500 Operating Earnings per Share Consensus Analyst Estimates ................................................................. 374 NEW- WORRIES Economic v Earnings Growth (Projections versus Reality) ......................................................................................... 375

RESEARCH OF NOTE .................................................................................................................................................................................... 376 NEW- WORRIES Getting Ridiculous: 70% Of Alcoa's LTM "Earnings" Are From Restructuring Charges ............................................. 376 NEW- WORRIES Earnings Growth To Collapse Most Since 2009 In Q2 ................................................................................................ 378 NEW- WORRIES The Corporate Earnings Cycle Has Just Turned Negative in The US ........................................................................ 381

STUDY: BUYBACKS ............................................................................................................................................................................................. 385 CHARTS OF NOTE ......................................................................................................................................................................................... 385

NEW-BUYBACKS 94% of total S&P in 2015 will go back to shareholders, as dividends and buybacks................................................ 385 NEW-BUYBACKS CEO Pay Boosted from Giving Shareholders Cash .................................................................................................. 386 NEW-BUYBACKS Investor-CEO Feedback Loop .................................................................................................................................... 387 BUYBACKS Buybacks Account for Substantial Share of Corporate Profits ............................................................................................ 388 BUYBACKS Quarterly History of Buyback Announcments ...................................................................................................................... 388 BUYBACKS Buybacks as a Percentage of Total Cash Use at the Highest Level Since 2007................................................................ 388 BUYBACKS Weekly Buybacks and Rolling 3 Month Sum ....................................................................................................................... 389 BUYBACKS What Sustained Buybacks Look Like To Rating Agencies IBM Example ........................................................................ 390 BUYBACKS Dollar Volume of Share Buybacks and Dividends at Record Levels ................................................................................... 390 BUYBACKS Buybacks & Dividends Hurdle $900B in 2014 ..................................................................................................................... 390 BUYBACKS The Growth of Stock Buybacks............................................................................................................................................ 391 BUYBACKS Buybacks & Dividends as a Percentage of Operating Earnings ......................................................................................... 391 BUYBACKS Executive Compensation Structure...................................................................................................................................... 392 BUYBACKS During 2014 virtually 100% of S&P 500s reported profits of $1T were disgorged as shareholder distributions ................ 393 BUYBACKS 2015 US Equity Flows Forecast ........................................................................................................................................... 393 BUYBACKS Announced Gross Share Buybacks ..................................................................................................................................... 394 BUYBACKS Global IPO /Secondary Offerings versus Announced Gross Share Buybacks ................................................................... 394 BUYBACKS Actual Net Share Buybacks ................................................................................................................................................. 395 BUYBACKS US IPOs-Actual Buybacks and LBO .................................................................................................................................... 395

RESEARCH OF NOTE .................................................................................................................................................................................... 396 NEW-BUYBACKS Stock Buybacks To Grind To A Halt Following Massive Credit Fund Outflows, "Bond Carnage" ............................. 396 NEW-BUYBACKS"The End Of The Road" - Debt-Funded Buyback Boosts Are Finite ........................................................................... 398 NEW-BUYBACKS Why There Is No Growth: The Entire S&P 500 Free Cash Flow Is Going Back To Shareholders ............................ 401 NEW-BUYBACKS Do Share Buybacks Create Value? (Spoiler Alert: No) .............................................................................................. 402 NEW-BUYBACKS Surprise! CEOs Are Getting Rich by Buying Back Stock............................................................................................ 404 BUYBACKSThe End of Buybacks? Goldman Warns Political Pressure On Share Repurchases Is Rising ............................................ 409 BUYBACKSCorporate Buybacks: Connecting the Dots to the F-Word .................................................................................................... 411 BUYBACKS Capex Recovery Is Worst In History, BoAML Says .............................................................................................................. 416


BUYBACKS Stock Buybacks Move to the "Terminal" Next Stage ............................................................................................................ 418 BUYBACKSOne Heckuva Bull Market ...................................................................................................................................................... 421 BUYBACKS - The US Equity Bubble Depends On Corporate Buybacks; Here's The Proof...................................................................... 422 BUYBACKS - Why Markets Are Manic - The Fed Is Addicted To the "Easy Button" ................................................................................. 426 BUYBACKS - When $140 Billion In Buybacks Isn't Enough... .................................................................................................................... 428 BUYBACKS - "Obsessive" Buybacks Could Be Big Mistake, "Serious" People Tell Unserious People .................................................... 428

SHORT TERM TECHNICAL ANALYSIS ..................................................................................................................................... 433 SUPPORT & RESISTANCE .................................................................................................................................................................................. 433

Gann Analysis .................................................................................................................................................................................................. 433 Boundary Conditions ....................................................................................................................................................................................... 433 Channels & Regressions ................................................................................................................................................................................. 435 Fibonacci - Controlling Time Extensions ......................................................................................................................................................... 438 Fibonacci - Controlling Price Extensions ......................................................................................................................................................... 441 Elliott Wave ...................................................................................................................................................................................................... 442 The Bottom Line............................................................................................................................................................................................... 444

BUSINESS CYCLE - CONSUMER & BUSINESS SENTIMENT ........................................................................................................................... 447 A GRAPHIC HIGHLIGHT ................................................................................................................................................................................ 447

NEW-SENTIMENT - Consumer, Investor & Trader ............................................................................................................................................... 449 NEW-Consumer Confidence - Conference Board .......................................................................................................................................... 449 NEW-Consumer Sentiment - Michigan ........................................................................................................................................................... 455 NEW-Consumer Comfort - Bloomberg ............................................................................................................................................................ 456 NEW-American Association of Independent Investors ................................................................................................................................... 457 NEW-Investors Intelligence ............................................................................................................................................................................. 457 NEW-National Association of Active Investment Managers (NAAIM) ............................................................................................................ 458 NEW-Small Business Optimism ...................................................................................................................................................................... 459 NEW-Percentage Stocks above 50 & 200 DMA ............................................................................................................................................. 461 NEW-Margin Levels ......................................................................................................................................................................................... 462 Real Margin Debt as % of GDP ....................................................................................................................................................................... 468 Margin Debt versus S&P 500 .......................................................................................................................................................................... 468 Mutual Fund Cash Levels v S&P 500 .............................................................................................................................................................. 469

NEW-OSCILLATORS & BREADTH: Indicators of Importance ............................................................................................................................ 471 NEW-NYSE Overbought / Oversold ................................................................................................................................................................ 471 NEW-OEX Open Interest (Puts/Calls) ............................................................................................................................................................. 472 NEW-TRIN ....................................................................................................................................................................................................... 473 NEW-McClellan Oscillator ............................................................................................................................................................................... 474

CHARTS OF NOTE ............................................................................................................................................................................................... 475 NEW-CHARTS Investors Intelligence Bulls & Bears ................................................................................................................................... 475 NEW-CHARTS A/D Line Diverging from Price, Suggesting Weakening Momentum .................................................................................. 475 NEW-CHARTS Smart Money OEX Open Interest Put/Call Ratio Now Off the Charts! ........................................................................... 476 NEW-CHARTS XXXXX ................................................................................................................................................................................ 476 CHARTS UMich Consumer Sentiment Tumbles Most In 16 Months ........................................................................................................... 476 CHARTS Consumer Comfort Plunges Most In 10 Months .......................................................................................................................... 477 CHARTS Only 16% Think Future Employment Opportunities Will Be Better .............................................................................................. 479 CHARTS Inequality Eventually Leads to Economic Adjustments Often Precipitously ............................................................................. 479 CHARTS - NFIB Small Business Sentiment ................................................................................................................................................... 480 CHARTS - Orange Book .................................................................................................................................................................................. 480 CHARTS Asset Allocation Global Equities ................................................................................................................................................ 481 CHARTS Asset Allocation Global Bonds .................................................................................................................................................. 481 CHARTS Active versus Passive Funds Allocation ....................................................................................................................................... 482 CHARTS Investors Intelligence Survey of % Bears ..................................................................................................................................... 482 CHARTS Sentiment at Post 2008 Crisis Highs ............................................................................................................................................ 483 CHARTS CNBC Viewership Steadily Falling ............................................................................................................................................... 484 CHARTS Investor Allocation Trends for Stocks, Bonds and Cash .............................................................................................................. 485 CHARTS Uptick in Feds Financial Stress Index Composite ....................................................................................................................... 486 CHARTS Fear Barometer Diverges with VIX, CDS IG Index ...................................................................................................................... 487 CHARTS Extreme Complacency Seen Near End of Cycles ........................................................................................................................ 487 CHARTS Complacency Seen In PE/VIX ....................................................................................................................................................... 488 CHARTS Post Crisis Sentiment Profile Shows a Clear Ending Pattern ...................................................................................................... 488 CHARTS Smart Money Flows ...................................................................................................................................................................... 489 CHARTS Fed Assets versus Bullish Sentiment ........................................................................................................................................... 489 CHARTS Macro Support Has Technically Broken Down ............................................................................................................................. 490 CHARTS US Surprise Index Setting Up for Downturn ................................................................................................................................. 490 CHARTS The Public No Longer Trusts the Market Feel it is Manipulated and Ineffectively Regulated ............................................... 491

RESEARCH OF NOTE .......................................................................................................................................................................................... 492 NEW-SENTIMENT: The "Smart Money" Has Never Been More Bearish ...................................................................................................... 492 NEW-SENTIMENT: US Economic Confidence Crashes Most Since July to Lowest Since December ......................................................... 494 NEW-SENTIMENT: We Are All Bulls Now ...................................................................................................................................................... 497 NEW-SENTIMENT: No More Greater Fools: Retail Traders Are "Pretty Fully Invested" In Stocks, TD CEO Says ...................................... 498 NEW-SENTIMENT: One Heckuva Bull Market but Momentum Weakening!.................................................................................................. 499 NEW-SENTIMENT: XXXX ............................................................................................................................................................................... 501 SENTIMENT: Small Business Confidence is a Major Problem in America .................................................................................................... 501 SENTIMENT: Americas Crisis of Trust ........................................................................................................................................................... 503 SENTIMENT: "Everything Is Awesome" American Consumers Are The Happiest In 11 Years ............................................................ 504 SENTIMENT: For CNBC, 2014 Was The Worst Year. Ever. ....................................................................................................................... 505


SENTIMENT: An Astounding Number Of Americans Aren't Investing A Cent ....................................................................................... 507 SENTIMENT: US Households to Withdraw $430 Billion From Stocks In 2014 ........................................................................................ 512 SENTIMENT: Elliott Wave's View from the Top .......................................................................................................................................... 515

SITUATIONAL SUMMARY & ANALYSIS .................................................................................................................................................... 519

INTERMEDIATE TERM RISK ANALYSIS ................................................................................................................................. 523 UPDATED-AGGREGATED GLOBAL FINANCIAL RISK INDEX .......................................................................................................................... 523

NEW-BANKING RISK - LIBOR-OIS SPREAD ................................................................................................................................................ 524 NEW-BANKING RISK - TED SPREAD ........................................................................................................................................................... 524 NEW-CREDIT RISK - GLOBAL CREDIT DEFAULT SWAPS ....................................................................................................................... 525 NEW-CREDIT RISK - EU CREDIT DEFAULT SWAPS .................................................................................................................................. 525 NEW-CONSUMER RISK - HOUSING - RATE OF CHANGE ......................................................................................................................... 525 NEW-ECONOMIC RISK - ECRI LEADING INDEX ......................................................................................................................................... 526 NEW-INFLATION RISK - MONEY SUPPLY GROWTH - M3 ......................................................................................................................... 527 NEW-INFLATION RISK - MONEY VELOCITY ............................................................................................................................................... 527 MONETARY RISK - BANK LIABILITIES ......................................................................................................................................................... 528 NEW-COST OF MONEY RISK - INTEREST RATES .................................................................................................................................... 528

AGGREGATED RISK LEVEL ................................................................................................................................................................................ 529 CHARTS OF NOTE ............................................................................................................................................................................................... 531

NEW-RISK: When these Two Charts Appear Simultaneously, Bad Things Normally Follow! ....................................................................... 531 NEW-RISK: Well That's Never Happened Before - Exhibit 1 US Macro versus S&P 500 .......................................................................... 531 NEW-RISK: Well That's Never Happened Before - Exhibit 2 Long- and Short-end of the Treasury yield curve so anti-correlated. .......... 532 NEW-RISK: Well That's Never Happened Before - Exhibit 3 Fed-Fueled, Mal-Investment Boom ............................................................. 533 NEW-RISK: Well That's Never Happened Before - Exhibit 4 Market breadth diverge from performance for such an extended period .... 534 NEW-RISK: Well That's Never Happened Before - Exhibit 5 More trades per second in stocks ................................................................ 536 NEW-RISK: Well That's Never Happened Before - Exhibit 6 The "Smart Money" Has Never Been More Bearish .................................... 537 NEW-RISK: Well That's Never Happened Before - Exhibit 7 Big decoupling in recent weeks between US equity flows and prices ......... 537 NEW-RISK: Well That's Never Happened Before - Exhibit 8 Cumulative 3 Mo net flows out of equities, is now the largest on record ..... 538 RISK: World Stocks versus World 2015 GDP Estimate.................................................................................................................................. 540 RISK: World Stocks versus World 2014 & 2015 GDP Estimates ................................................................................................................... 540 RISK: World Stocks versus 10Y UST Yield, WTI Crude 2015 GDP Estimates .............................................................................................. 541 RISK: Fat Tails Have Disproportionately Large Impact on Returns................................................................................................................ 542 RISK: Statistically We Are Due for a Drawdown ............................................................................................................................................. 543 RISK: The Buffett Indicator .............................................................................................................................................................................. 544 RISK: Speculation Has Taken Control of the Markets .................................................................................................................................... 545 RISK: MSCI versus World GDP Divergence - Unsustainable ........................................................................................................................ 545 RISK: High Yield Credit Risk At Elevated Levels ............................................................................................................................................ 545 RISK: Active Hindenburg Omen ...................................................................................................................................................................... 546 RISK: An Over-Levered Hedge Fund Index Ending ABC Consolidation Pattern ........................................................................................... 546

RESEARCH OF NOTE .......................................................................................................................................................................................... 548 NEW-RISK: Two Point Three Sigmas Above the Norm.................................................................................................................................. 548 NEW-RISK: No Really, Who is Buying? .......................................................................................................................................................... 555 NEW-RISK: Curious Sightings ........................................................................................................................................................................ 556 RISK: Even the BIS Is Shocked At How Broken Markets Have Become ....................................................................................................... 563 RISK: The Line between Rational Speculation and Market Collapse ............................................................................................................. 567 RISK: Global Economy Will Shrink By $2.3 Trillion In 2015 ........................................................................................................................... 572 RISK: Market Action Suggests Abrupt Slowing in Global Economic Activity.................................................................................................. 572 RISK: Warnings Signs Are Everywhere .......................................................................................................................................................... 576 RISK: Hindenburg Signals a Warning ............................................................................................................................................................. 577 RISK: Americans say they're too broke to invest ............................................................................................................................................ 579 RISK: The Biology of Risk ............................................................................................................................................................................... 583 RISK: More Signs Of Bullish Excess ............................................................................................................................................................... 587 RISK: Markets Have Left the "Complacency" Phase, Have Entered Full Blown "Mania" .............................................................................. 589 RISK: VIX Sends Message of Complacency ................................................................................................................................................... 590 RISK: CS Warns Volume & DeMark Raise "Topping Threat" In Stocks ......................................................................................................... 591 RISK: No One Will Ring the Bell at the Top .................................................................................................................................................... 595

Cassandra's - New Additions to the List ................................................................................................................................................................ 602 NEW-CASSANDRA: "Another Crisis Is Coming": Jamie Dimon Warns Of the Next Market Crash ............................................................... 603 NEW-CASSANDRA: Steen Jakobsen: Get Ready For The Biggest Margin Call In History .......................................................................... 604 NEW-CASSANDRA: Wynn Calls "Big" Recovery "Complete Dream" As Gaming Revenues Collapse ........................................................ 606 NEW-CASSANDRA: Stan Druckenmiller's "Horrific Sense" Of Deja Vu: "This Will End Very Badly" ............................................................ 608 NEW-CASSANDRA: Hedge Fund Legend Julian Robertson Warns Of A "Complete Explosion" Unless Fed Contains "Boiling, Bubble"... 613 NEW-CASSANDRA: Kyle Bass Warns "The Fed Is Backed Into A Corner... Equities Are My Biggest Liquidity Worry" .............................. 614 NEW-CASSANDRA: Paul Tudor Jones Warns "Disastrous Market Mania" Will End In "Revolution, Taxes, or War" ................................... 615 NEW-CASSANDRA: John Hussman - A Who's Who Of Awful Times To Invest ............................................................................................ 617 CASSANDRA: Carl Icahn - One Day You'll See A Break Like A Few Weeks Ago But The Market Won't Come Back ................................ 620 CASSANDRA: Sam Zell Warns Of Stock Market Correction On CNBC ........................................................................................................ 621 CASSANDRA: Billionaire Carl Icahn warns on US stock prices ..................................................................................................................... 621 CASSANDRA: Soros Bets $2 Billion on Stock Market Collapse .................................................................................................................... 622 CASSANDRA: Dont Ignore Janet Yellens Stock Market Warnings 07-21-14 Fiscal Times ......................................................................... 623 CASSANDRA: Doug Kass: We're Heading for a Bear Market So Plan Accordingly ...................................................................................... 626 CASSANDRA: Comstock Funds Weighs In .................................................................................................................................................... 628 CASSANDRA: Michael Lombardi Weighs In ................................................................................................................................................... 630 CASSANDRA: Ron Paul Portfolio, 'Craziest' we've ever seen? ..................................................................................................................... 632 CASSANDRA: John Mauldin Goes Negative .................................................................................................................................................. 633


CASSANDRA: Hayman Capital Dramatically Reduces Risk .......................................................................................................................... 641 CASSANDRA: Byron Wien Warns "Oblivious Markets" Of 20% Correction ................................................................................................... 642 CASSANDRA: Harry Dent Warns Stocks to Sink More than 60% by End of 2014 ........................................................................................ 642 CASSANDRA: Stanley Druckenmiller: "When You Get This Kind Of Rigging, It Will End Badly".................................................................. 643 CASSANDRA: Mohamed El-Erian: "Prices Are Artificially High - Its Time to Take Profits" .......................................................................... 644 CASSANDRA: Felix Zulauf: World Headed Toward 1987 Style Market Collapse .......................................................................................... 645 CASSANDRA: Doug Kass: 'I'm Getting The Summer Of 1987 Feeling' In The Market Right Now ............................................................... 645

CORRELATION & COMPLACENCY A PROBLEM .............................................................................................................................................. 647 EVENT RISK A PROBLEM .................................................................................................................................................................................... 650

Q2 EARNINGS & THE R WORD .............................................................................................................................................................. 650 POLITICAL-ECONOMIC TENSIONS .......................................................................................................................................................... 650 CENTRAL BANK POLICY MISCUES.......................................................................................................................................................... 650 ASIAN ECONOMIC SLOWDOWN SPILLAGE ............................................................................................................................................ 650 PETRO$ CRISIS BREWING IN BRIICS...................................................................................................................................................... 650

LONGER TERM - FUNDAMENTAL ANALYSIS .............................................................................................................................. 651 HIGHLIGHTS ......................................................................................................................................................................................................... 651

ASSET & LIABILITY OWNERSHIP ................................................................................................................................................................. 651 PANIC TOTAL RETURN DISTRIBUTION SINCE 1974 ................................................................................................................................. 651 PANIC CHASE FOR YIELD ............................................................................................................................................................................ 652 REAL S&P MARKET CAP / REAL GDP ......................................................................................................................................................... 652 UNSUSTAINABLE GAP BETWEEN PROFITS AND INCOME ...................................................................................................................... 653 ADJUSTED CORPORATE PROFITS FROM DOMESTIC OPERATIONS .................................................................................................... 653 TRAILING 10Y 12 MONTH NET MARGINS ................................................................................................................................................... 654 INVESTMENT CLASS PERFORMANCE ....................................................................................................................................................... 655 NEW-VALUATION SUMMARY ....................................................................................................................................................................... 656

VALUATION: Alternative Methodologies ............................................................................................................................................................... 661 NEW-FOUR SET CONSOLIDATED MARKET VALUATION INDICATORS .................................................................................................. 661 NEW-Crestmont from the Arithmetic ............................................................................................................................................................... 666 NEW-Cyclical PE 10 Ratio............................................................................................................................................................................... 668 NEW-Q Ratio ................................................................................................................................................................................................... 674 NEW-S&P Composite Regression-to-the-Trend ............................................................................................................................................. 679 NEW-Reference Methodologies Analysis ....................................................................................................................................................... 681 CHARTS OF NOTE ......................................................................................................................................................................................... 686

NEW-VALUATIONS Forward 12-Month P/E Ratio 10 Years ................................................................................................................ 686 NEW-VALUATIONS Forward 12-Month EPS versus Change in Price 10 Years ................................................................................. 686 NEW-VALUATIONS Net Margin Growth .................................................................................................................................................. 687 NEW-VALUATIONS 10 Year Trailing 12 Mo Net Margin Growth Historically High .............................................................................. 687 NEW-VALUATIONS XXXX ....................................................................................................................................................................... 688 VALUATIONS Record Profits Yet Historically Low Capital Asset Growth ............................................................................................... 689 VALUATIONS Historical Ranking of PE Values ....................................................................................................................................... 690 VALUATIONS Median Price/Cash Flow Multiple for US Stocks .............................................................................................................. 691 VALUATIONS Median Price/Earnings Multiple for US Stocks ................................................................................................................. 692 VALUATIONS Median Price to Book Multiple for US Stocks ................................................................................................................... 693 VALUATIONS Price/Book; Price/Cash flow; Price/Sales ......................................................................................................................... 694 VALUATIONS Global Equities Reported PE, PE before XO & Fwd PE ............................................................................................... 695

STUDY: EARNINGS 2015 Forecasts ................................................................................................................................................................. 696 CHARTS OF NOTE ......................................................................................................................................................................................... 696

NEW-2015 EARNINGS Consumer Staples and Discretionary are sending a Pretty Clear Message ..................................................... 696 2015 EARNINGS Consensus Long-Term Growth versus Forward PE ................................................................................................... 697 2015 EARNINGS Consensus Analysts Estimates 1979-1995 ............................................................................................................. 698 2015 EARNINGS Consensus Analysts Estimates 1995-2014 ............................................................................................................. 698 2015 EARNINGS CY 2015 Earnings Growth ........................................................................................................................................... 699 2015 EARNINGS CY 2015 Revenue Growth ........................................................................................................................................... 700 2015 EARNINGS Q1 Forward 12 Mo EPS versus Change in Price ..................................................................................................... 701 2015 EARNINGS Q1 Forward 12 PE Ratio ........................................................................................................................................... 702

RESEARCH OF NOTE .................................................................................................................................................................................... 703 2015 EARNINGS Q1 Earnings Guidance: Negative Guidance (84%) Above Average ........................................................................... 703

Q1 EARNINGS Reported Results...................................

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