Leveling the Playing Field April 29, 2013 _______________________________________________________________________ Pensford celebrates its 4 year anniversary today, thank

you to everyone that has helped us reach this milestone. One more year and the Bank That Shall Not Be Named may be forced to recognize us as a real business. A graph of Eagles stock immediately following the selection of a USC QB in the NFL draft. Notice the quick recovery after markets remembered that we still have Michael Vick as our starting QB.

That graph could also be the popularity of Congress once the sequester cuts caused flight delays, but no it is a graph of the DJIA after the scare caused by a Twitter hack that claimed the White House had been bombed. Rates continued their benign trade last week. The 10yr Treasury started the week at 1.70% and finished at 1.66%. As we have reiterated for several weeks, we feel rates are rangebound with a bias towards lower yields. Last weeks GDP report revealed some interesting details, coming in at 2.5% following Q4s incredibly week 0.4%. Personal Consumption jumped noticeably from 1.8% in Q4 2012 to 3.2%. This surge is even more surprising considering the stunning 5.3% drop in disposable income (thank you sequester!). But the dramatic cuts in government spending are definitely creating a large drag to the federal data and the GDP strength in Q1 is expected to reverse course over the remainder of the year. The sequester hadnt

really hit and the aftermath of Hurricane Sandy led to some inflated numbers, primarily in auto sales. FOMC Meeting The FOMC meets Tuesday and Wednesday and markets are primarily interested in any language regarding tapering of QE. For several weeks we have been directly contradicting the recent tapering rumors, which isnt always the smartest move (dont fight the Fed). But with last months weak employment data, as well as not yet having this Fridays data, should result in less tapering discussion at this weeks FOMC meeting. Throw in the fact that Core PCE, the Feds preferred measurement for inflation, declined from 1.5% in Q4 to 1.3% in Q1 2013 and there is absolutely no concern about inflation right now. As our favorite BNP economist noted succinctly, Underlying growth is still not strong enough to deliver inflationary pressures. Dont think weve become dependent upon QE for growth? Check out this graph from ZeroHedge:

The Fed is propping up the banks, but it is taking incrementally more credit to produce the same increase to GDP. Were hooked.

LIBOR Outlook Still at 0% and unlikely to move before mid-2015.

Fixed Rate Outlook The most boring trade around. We doubt the Fed will deliver any surprising news that will cause a breakout, but with two central bank meetings this week (ECB on Thursday), there is definitely potential for dramatic movements this week. This Week Very busy week ahead, highlighted by the aforementioned FOMC meeting and Fridays employment data. The consensus forecast is a gain of 145k jobs and the unemployment rate holding steady at 7.6%. The NFP forecast of 145k jobs is still well below the three month average of 212k and frankly, the bias is towards a weaker than expected gain, perhaps 120k or less. We also think theres a real chance the UR actually ticks up to 7.7%. The ECB meets on Thursday and markets are hoping for a rate cut as the Eurozone continues to struggle. Bernanke would certainly appreciate a little cover fire from his counterparts across the pond.

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Economic Calendar
Economic Data Day Monday Time 8:30AM 8:30AM 10:00AM 10:00AM 10:30AM Tuesday 8:30AM 9:00AM 9:45AM 10:00AM Wednesday 7:00AM 8:15AM 10:00AM 10:00AM 10:00AM 2:00PM Thursday 8:30AM 8:30AM 8:30AM 9:45AM Friday 8:30AM 8:30AM 8:30AM 8:30AM 8:30AM 10:00AM 10:00AM Personal Income Personal Spending Pending Home Sales (MoM) Pending Home Sales (YoY) Dallas Fed Manufacturing Activity Employment Cost Index Case-Shiller 20-city Index Chicago Purchasing Manager Consumer Confidence MBA Mortgage Applications ADP Employment Change Construction Spending (MoM) ISM Manufacturing ISM Prices Paid FOMC Rate Decision Initial Jobless Claims Continuing Claims Trade Balance ISM New York Change in Nonfarm Payrolls Change in Private Payrolls Unemployment Rate Underemployment Rate (U6) Avg Weekly Hours All Employees Factory Orders ISM Non-manufacturing Composite 34.6 -2.5% 54.0 145k 165k 7.6% 155k 0.6% 51.0 52.6 0.25% 348k 3026k -$42.2B 0.5% 9.00% 52.5 60.8 Report Forecast 0.4% 0.0% 1.0% 6.1% Previous 1.1% 0.7% -0.4% 5.0% 7.4 0.5% 8.10% 52.4 59.7 0.2% 158k 1.2% 51.3 54.5 0.25% 339k 3000k -$43.0B 51.2 88k 95k 7.6% 13.8% 34.6 3.0% 54.4

Speeches and Events Day Wednesday Friday Time 2:00PM 12:30PM 12:45PM FOMC Rate Decision Fed's Tarullo speaks on Financial Stability Fed's Lacker speaks on the Economy Washington, DC Richmond, VA Report Place

Treasury Auctions Day Time Report Size