Financial Repression Goes Global: Regional Update

FINANCIAL REPRESSION GOES GLOBAL
Accelerating Stealth Policy & Regulatory Responses
REGIONAL UPDATE
GLOBAL MACRO TIPPING POINTS - MAY 2014
4/27/2014
1 May 2014 Edition

Copyright 2014 Gordon T. Long All Rights Reserved
Restricted & Confidential

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FINANCIAL REPRESSION GOES GLOBAL

Accelerating Stealth Policy & Regulatory Responses
GLOBAL MACRO TIPPING POINTS - MAY 2014
TIPPING POINTS .................................................................................................................................... 19

GLOBAL MACRO: RISK ASSESSMENT .................................................................................................................................. 19
POSITIONAL FRAMEWORK: "WE ARE HERE!".................................................................................................................................................... 19
MACRO MONITORING INSTITUTIONS ................................................................................................................................................................. 26
WEF (WORLD ECONOMIC FORUM) - JANUARY 2014 ................................................................................................................................. 26
WEF GLOBAL RISKS The World Economic Forum - Inequality has become a global challenge .................................................... 26
WEF GLOBAL RISKS The World Economic Forum - 10 Global Risks of Highest Concern .............................................................. 30
WEF GLOBAL RISKS Global Competitive Rankings Fragile 5 & Forgotten 4........................................................................................ 32
WEF GLOBAL RISKS The 17 Biggest Risks to Our Hyper-Connected World .......................................................................................... 34
WEF GLOBAL RISKS Global Economic, Geo-Political & Societal Risks .................................................................................................. 42
IMF, WORLD ECONOMIC OUTLOOK - JANUARY 2014 ................................................................................................................................ 49
IMF, FINANCIAL STABILITY REPORT OCTOBER 2013.......................................................................................................................... 55
OECD, WORLD ECONOMIC OUTLOOK NOVEMBER 2013 ....................................................................................................................... 58
G-20 SUMMIT FEBRUARY 2014 ......................................................................................................................................................................... 61
RESEARCH WE FOLLOWED ........................................................................................................................................................................... 61
Group of Twenty IMF Note-- Meetings of G-20 Finance Ministers and Central Bank Governors ................................................................ 62
OUR ASSESSEMENT ....................................................................................................................................................................................... 64
SITUATIONAL ANALYSIS ....................................................................................................................................................................................... 67
RESEARCH WE FOLLOWED ........................................................................................................................................................................... 67
RESEARCH OF NOTE ...................................................................................................................................................................................... 68
THE RISK CONTINUUM ............................................................................................................................................................................... 68
GLOBAL TRENDS THE SIX FRAMING MEGATRENDS .......................................................................................................................... 70
GLOBAL THEMES TEN STRUCTURALTHEMES FOR STRATEGY ....................................................................................................... 72
DEBT SATURATION - A COLLAPSING PONZI SCHEME........................................................................................................................... 74
WINTER 2014 EVENT RISK DOMINATES ................................................................................................................................................. 76
RISK SIGNALS .......................................................................................................................................................................... 83

GEO-POLITICAL RISK - Social, Economic & Financial .......................................................................................................................................... 83
THE TAPER TANTRUM TEN (EMERGING MARKETS) .................................................................................................................................. 83
TAPER TANTRUM - Here's What The "Hint" Of A Fed Taper Did To Global Growth Hope .................................................................... 85
TAPER TANTRUM - "TAPER" Shock Waves across Asia .................................................................................................................... 86
TAPER TANTRUM - Why Asian Markets Are Collapsing ..................................................................................................................... 94
TAPER TANTRUM - The Capital-Flow Conundrum .................................................................................................................................. 97
TAPER TANTRUM - The "Original Sin" in EM International Finance Has Been Consummated .................................................... 100
CHARTS OF NOTE ..................................................................................................................................................................................... 106
CHARTS Its a Different World than Most Westerners Yet Fully Appreciate ....................................................................................... 106
CHARTS Analysts Have Been Slashing Forecasts for Asian Growth .................................................................................................. 106
CHARTS Greater External & Domestic Vulnerabilities ......................................................................................................................... 107
CHARTS Falling Financial Conditions in External Deficit EMEs .......................................................................................................... 107
CHARTS Net International Investment v Negative Current Account Balances.................................................................................... 108
CHARTS Emerging Markets Share of Corporate Debt ........................................................................................................................ 108
CHARTS Asia (Ex-Japan) Corporate Leverage ................................................................................................................................... 109
THE FRAGILE FIVE..................................................................................................................................................................................... 110
Brazil ......................................................................................................................................................................................................... 110
India .......................................................................................................................................................................................................... 113
South Africa .............................................................................................................................................................................................. 115
Indonesia .................................................................................................................................................................................................. 118
Turkey ....................................................................................................................................................................................................... 119
THE FORGOTTEN FIVE ............................................................................................................................................................................. 120
Venezuela................................................................................................................................................................................................. 120
Argentina .................................................................................................................................................................................................. 121
Mexico ...................................................................................................................................................................................................... 122
Malaysia & Philippines ............................................................................................................................................................................. 123
GEO-ECONOMIC RISK Financial ...................................................................................................................................................................... 127
RESERVE CURRENCY & GLOBAL IMBALANCE ......................................................................................................................................... 127
RESERVE CURRENCY - Japan May Eclipse China Again, as Largest Holder of US Treasuries ...................................................... 127
PETRODOLLAR COLLAPSE .......................................................................................................................................................................... 129
UKRAINE ..................................................................................................................................................................................................... 130
UKRAINE - Pulled between EU v Russia ................................................................................................................................................ 130
UKRAINE - Pulled between An Ethnic Eastern and Western Ukraine .................................................................................................... 130
UKRAINE - Pulled between Economic Inequality Factors ....................................................................................................................... 131
UKRAINE - Pulled between the Global Military Balance ......................................................................................................................... 132
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UKRAINE - Pulled by Global Financial Markets ...................................................................................................................................... 133

UKRAINE - A Deep State Analysis .......................................................................................................................................................... 135
PETRODOLLAR Collapsing PetroDollar Foundation ............................................................................................................................... 139
INTERNATIONAL BANKING & SHADOW BANKING .................................................................................................................................... 142
DEBT REITS & CMBS Growth ................................................................................................................................................................. 144
DEBT - GLOBAL DEBT 313% of GDP........................................................................................................................................................ 145
DEBT - 202M GLOBALLY UNEMPLOYED DEBTORS .............................................................................................................................. 147
MIDDLE EAST ................................................................................................................................................................................................. 148
SYRIA........................................................................................................................................................................................................... 149
SYRIA - This has the Earmarks of the Kennedy Ear "Cuban Missile" Crisis .................................................................................. 149
SYRIA - Syrian War You Are Not Being Told About ........................................................................................................................... 150
SYRIA - 25 Quotes .................................................................................................................................................................................. 151
SYRIA - What Coalition? ........................................................................................................................................................................ 154
SYRIA - US Supporting Fully an "Al Qaeda Operation" ..................................................................................................................... 156
SYRIA - Decision Already Taken to Bomb Syria ................................................................................................................................. 157
SYRIA - Market Patterns Before and Immediately After Conflict Begins ................................................................................................ 167
CYBER SPYING .............................................................................................................................................................................................. 169
GLOBL GOVERNANCE RISK Failure of Political Leadership & Public Policies ............................................................................................... 170
LEADERSHIP - 'Value Transformer' Politicians are avoiding politics OR the voters are rejecting .............................................. 170
LEADERSHIP - The Consequences Of A Dysfunctional Political System ....................................................................................... 171
LEADERSHIP - Mapping the Collapse of European Democracy ...................................................................................................... 175
GLOBAL MACRO: RISK LEVELS ........................................................................................................................................... 176

AGGREGATED GLOBAL FINANCIAL RISK INDEX ............................................................................................................................................. 176
BANKING RISK - LIBOR-OIS SPREAD (Updated) ........................................................................................................................................ 177
BANKING RISK - TED SPREAD (Updated).................................................................................................................................................... 177
CREDIT RISK - GLOBAL CREDIT DEFAULT SWAPS (Updated) ................................................................................................................ 178
CREDIT RISK - EU CREDIT DEFAULT SWAPS (Updated) .......................................................................................................................... 178
CONSUMER RISK - HOUSING - RATE OF CHANGE (Updated) ................................................................................................................. 179
ECONOMIC RISK - ECRI LEADING INDEX (Updated) ................................................................................................................................. 181
INFLATION RISK - MONEY SUPPLY GROWTH - M3 (Updated) .................................................................................................................. 182
INFLATION RISK - MONEY VELOCITY (Updated) ........................................................................................................................................ 182
MONETARY RISK - BANK LIABILITIES (Updated) ........................................................................................................................................ 183
COST OF MONEY RISK - INTEREST RATES (Updated) ............................................................................................................................ 183
AGGREGATED RISK LEVEL ................................................................................................................................................................................ 185
TIPPING POINT MAPPING: 2014 YEAR BEGINNING UPDATE ......................................................................................................................... 186
TIPPING POINTS: TOP 5 FOCUS - MARCH 2014 ................................................................................................................... 196

I - RISK REVERSAL .............................................................................................................................................................................................. 196
II - JAPAN DEBT DEFLATION .............................................................................................................................................................................. 198
III-BOND BUBBLE ................................................................................................................................................................................................. 200
IV - EU BANKING CRISIS ..................................................................................................................................................................................... 201
V - SOVEREIGN DEBT .......................................................................................................................................................................................... 202
VI - CHINA HARD LANDING ................................................................................................................................................................................. 204
GLOBAL MACRO ................................................................................................................................. 208

GLOBAL MACRO: ECONOMIC OUTLOOK ............................................................................................................................ 210
RESEARCH WE FOLLOWED ............................................................................................................................................................................... 210
CHARTS OF NOTE ............................................................................................................................................................................................... 213
CHART: World GDP Economic Forecast 2014 ............................................................................................................................................... 213
CHART: World GDP Economic Expectations versus MSCI Equity Index ...................................................................................................... 213
CHART: Fiscal Adjustments Required Deficit Reductions for Fiscal Sustainability..................................................................................... 214
CHART: Shifting Global GDP Share ............................................................................................................................................................... 215
CHART: Over $10 Trillion Pumped Into Global Economy by Developed Economies .................................................................................... 216
CHART: Eventually All this Debt Must be Rolled Over or Paid Out ................................................................................................................ 216
CHART: Future Economic Growth a Sub 2% Trend ....................................................................................................................................... 217
CHART: Debt and Fiscal Drag Are Significant Factors Affecting Global Growth ........................................................................................... 217
CHART: Slowing Global Aggregate Demand Shows in Shrinking FDI ........................................................................................................... 218
CHART: Liquidity Drain in US in 2H 2014 ....................................................................................................................................................... 219
RESEARCH OF NOTE .......................................................................................................................................................................................... 220
GLOBAL OUTLOOK - 20 Signs That the Global Economic Crisis Is Starting To Catch Fire ......................................................................... 220
GLOBAL OUTLOOK - Problems Erupting Everywhere (Signs of Implosion) ................................................................................................. 222
GLOBAL OUTLOOK - Global Debt Crosses $100 Trillion, Rises By $30 Trillion Since 2007 ........................................................................ 225
GLOBAL OUTLOOK The US as the Global Consumption Engine to See Sub 2% Trend Growth ............................................................ 228
GLOBAL OUTLOOK - Credit Fueled Globalization in Retreat ........................................................................................................................ 231
GLOBAL OUTLOOK - Rogoff's Sovereign Debt Default Levels ..................................................................................................................... 233
GLOBAL OUTLOOK - Imbalances Continue to Increase Along With Financial Fragility ............................................................................... 236
GLOBAL OUTLOOK - A 67 Million Jobs Gap ................................................................................................................................................. 238
ECONOMIC CUTS ................................................................................................................................................................................................. 242
CHARTS OF NOTE ......................................................................................................................................................................................... 242
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CHART IMFs Delusional Forecasting Record ......................................................................................................................................... 242

IMF To Slash Economic Growth Forecast... AGAIN - Still Full of Hockey sticks ............................................................................................ 242
IMF CUTS ECONOMIC OUTLOOK ............................................................................................................................................................ 247
OECD CUTS ECONOMIC OUTLOOK AGAIN!............................................................................................................................................ 258
OECD CUTS ECONOMIC OUTLOOK ........................................................................................................................................................ 260
ECONOMIC WARNINGS....................................................................................................................................................................................... 263
G20 WARNS Need to Add $2T in Economic Activity & Tens of Millions of Jobs ........................................................................................ 263
IMF WARNS - May 2013 ................................................................................................................................................................................. 264
Japanese & Spanish Debt Unsustainable ................................................................................................................................................... 266
Global Recovery Faltering, Reduces Global Growth to Just Above 3% Global Recession Level .............................................................. 268
BIS WARNS - June 2013................................................................................................................................................................................. 270
Monetary Policy At Its Limits ........................................................................................................................................................................ 276
WORLD BANK WARNS - June 2013 .............................................................................................................................................................. 277
Social Unrest Stems from Shrinking Disposable Income. Jobs are the central issue. ............................................................................... 279
GLOBAL MACRO: INDICATORS ............................................................................................................................................ 281

GLOBAL GROWTH ............................................................................................................................................................................................... 281
CHARTS OF NOTE ......................................................................................................................................................................................... 281
GLOBAL GROWTH Global Leading Indicator Has Now Rolled Over ...................................................................................................... 281
GLOBAL GROWTH Global PMI Business Surveys Fall .......................................................................................................................... 281
GLOBAL GROWTH Baltic Dry Index Collapses 50% .............................................................................................................................. 282
GLOBAL GROWTH Global Slowdown on Verge of Contraction.............................................................................................................. 283
GLOBAL GROWTH - GDP Forecasts Continue to Be Taken Down........................................................................................................... 283
GLOBAL GROWTH Global Leading Indicator Goldmans Swirlogram Getting More Serious ......................................................... 283
GLOBAL GROWTH Global Industrial Production Rolling Over ............................................................................................................. 284
GLOBAL GROWTH Consensus 2014 GDP Forecast - Differential ......................................................................................................... 285
GLOBAL GROWTH G10 Macro Change ................................................................................................................................................. 285
RESEARCH OF NOTE .................................................................................................................................................................................... 286
GLOBAL GROWTH - The Wal-Mart Measure or How the US Consumer Is the Global Engine ................................................................ 286
GLOBAL GROWTH Potential of a Global Recession Mounting .............................................................................................................. 287
GLOBAL GROWTH What the hint of a Fed Taper Did to Global Growth Estimates ............................................................................. 291
GLOBAL GROWTH - Uneconomic Energy Problematic ............................................................................................................................. 293
GLOBAL GROWTH - Global Growth Cycle ................................................................................................................................................. 295
GLOBAL GROWTH - Global GDP Contribution .......................................................................................................................................... 296
GLOBAL GROWTH - Slowing Global Growth - Air Cargo Shipments ........................................................................................................ 297
GOBAL UNEMPLOYMENT ................................................................................................................................................................................... 298
CHARTS OF NOTE ......................................................................................................................................................................................... 298
CHART Global Unemployment ................................................................................................................................................................. 298
CHART Global Unemployment EU Comparison ................................................................................................................................... 298
CHART Unemployment in Advanced Countries ....................................................................................................................................... 299
CHART Global Labor Participation Rates ................................................................................................................................................ 299
CHART Global Youth Unemployment By Country ................................................................................................................................ 300
CHART Global Chance of Finding a Job Within Year .............................................................................................................................. 300
RESEARCH OF NOTE .................................................................................................................................................................................... 301
GLOBAL UNEMPLOYMENT - The Beginnings of the Welfare Myth Unwind ............................................................................................. 301
GLOBAL UNEMPLOYMENT - The Unsustainable Welfare Myth ............................................................................................................... 303
GLOBAL UNEMPLOYMENT - Global Financial Sector Job Cuts ............................................................................................................... 305
GLOBAL TRENDS ................................................................................................................................................................................................. 307
11-02-13-STANDARD OF LIVING - The Facts are Clear. The US Standard of Living is Falling ................................................................... 307
GLOBAL TRENDS - Profound Changes in Global Youth As Japan Leads the Way...................................................................................... 308
GLOBAL TRENDS Brands & Commodities Tell the Global Story ............................................................................................................... 311
Cooper - Rio Tinto ........................................................................................................................................................................................ 311
Aluminum - Alcoa, Rio Tinto ........................................................................................................................................................................ 313
Iron Ore and Thermal Coal - Rio Tinto ........................................................................................................................................................ 315
Consumable Brands - P&G.......................................................................................................................................................................... 317
Parcel Volumes - FEDEX ............................................................................................................................................................................. 318
Shipping - Baltic Dry Index........................................................................................................................................................................... 319
GLOBAL SENTIMENT ........................................................................................................................................................................................... 323
GLOBAL SENTIMENT - Global Business Confidence Sliding Rapidly .......................................................................................................... 323
Must be a Buy Signal... ................................................................................................................................................................................ 323
GLOBAL SENTIMENT - Complacent .............................................................................................................................................................. 326
GLOBAL SENTIMENT - Nielsen's Global Consumer Confidence, Concerns & Spending Intentions .......................................................... 327
GLOBAL CREDIT .................................................................................................................................................................................................. 338
CREDIT CYCLE - HY Leading the Way .......................................................................................................................................................... 338
CREDIT CYCLE - Reversal Ahead ................................................................................................................................................................. 341
GLOBAL MACRO: MONETARY POLICY & CENTRAL BANKING .......................................................................................... 344

GLOBAL CENTRAL BANKING .............................................................................................................................................................................. 344
RESEARCH WE FOLLOWED Global Banking Risk .................................................................................................................................... 344
CHARTS OF NOTE ......................................................................................................................................................................................... 347
CHARTS Major Central Bank Assets versus GDP Forecast ................................................................................................................... 347
CHARTS Major Central Bank Y-o-Y Balance Sheet Growth ................................................................................................................... 347
CHARTS Cumulative Change in Central Bank Balance Sheets Since 2008 ........................................................................................ 348
CHARTS Global Central Bank Assets versus World Equity Prices ......................................................................................................... 348
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CHARTS Cumulative Change in Central Bank Balance Sheets Since 2000 ........................................................................................ 349
RESEARCH OF NOTE .................................................................................................................................................................................... 350
CENTRAL BANKS Axel Merks 2014 Outlook.......................................................................................................................................... 350
CENTRAL BANKS - Japan May Eclipse China Again, as Largest Holder of US Treasuries ..................................................................... 354
CENTRAL BANKS - $3 Trillion "Created" In First 9 Months of 2013 .......................................................................................................... 356
CENTRAL BANKS - Drop Tightening Talk as Easy Money Goes On......................................................................................................... 359
CENTRAL BANKS - Austerity Now Officially Dead Public Policy ............................................................................................................... 362
CENTRAL BANKS - They are the Market ................................................................................................................................................... 362
CENTRAL BANKS - The longer QE persists, the greater the magnitude of the left-tail event & a Minsky Trap ...................................... 365
CENTRAL BANKS - We May Have Reached a Risk-Off Leverage Pivot ................................................................................................... 366
CENTRAL BANKS - The Macro Landscape ................................................................................................................................................ 368
CENTRAL BANKS - A Serious Shortage of Quality Collateral - A $10T US Problem Over 10 Years ....................................................... 369
CENTRAL BANKS - Global Balance Sheet Expansion ............................................................................................................................... 371
CENTRAL BANKS - Where Do these Deflators Come From? .................................................................................................................... 375
CENTRAL BANKS - First Remove Gold Standard, Now Remove Debt ..................................................................................................... 376
TROUBLING DEVELOPMENTS ........................................................................................................................................................................... 380
TROUBLING DEVELOPMENTS Insider Says Central Banks Making it Up as They Go! ........................................................................... 380
TROUBLING DEVELOPMENTS Venezuela: Shortages & Hyperinflation .................................................................................................. 381
TROUBLING DEVELOPMENTS 2007 Redux: Total public and private debt levels are 30pc higher in the advanced economies ........... 382
TROUBLING DEVELOPMENTS Polish Pension Confiscation: Coming to a Theater near You ................................................................. 385
TROUBLING DEVELOPMENTS Global Tax Overhaul................................................................................................................................ 387
BOE - UK ................................................................................................................................................................................................................ 388
UK - Mark Carney and "Flexible Inflation Targeting" ....................................................................................................................................... 388
FED - US ................................................................................................................................................................................................................ 389
10-28-13-CAPITAL DISTORTION - Global Acceptance of the Bernankean Theory ...................................................................................... 389
10-28-13-FINANCIAL REPRESSION - The Suspension of Price Discovery.................................................................................................. 392
US MONETARY - The Fed is Stuck in a QE Trap .......................................................................................................................................... 395
US MONETARY - 2nd Worst Decade In US Growth in Over 220 Years (And Getting Worse) ...................................................................... 397
US MONETARY - Mathematically, The Fed Can Only Fail ............................................................................................................................ 399
US MONETARY - QE Standing Between Inflated Equity Markets and A Recession ..................................................................................... 405
US MONETARY - QE Programs versus S&P 500 Movements ...................................................................................................................... 406
US MONETARY - BAML Warns If The US Economy Does Not Significantly Accelerate Now, It Never Will ................................................ 408
US MONETARY - Debt Increases $1 Trillion in One Year ............................................................................................................................. 410
US MONETARY - Congress Asks Bernanke for Full Risk Analysis On Fed's Soaring Balance Sheet ......................................................... 412
GLOBAL ABE-NOMICS The Road Ahead ......................................................................................................................................................... 417
GLOBAL ABE-NOMICS Monetary Expansion Extremely Difficult to Stop Once Started ............................................................................ 417
GLOBAL ABE-NOMICS Monetary Policy Below the Event Horizon ............................................................................................................ 419
The "OMF" Trial Balloon Raised ...................................................................................................................................................................... 421
OPMF - A Reversing Wealth Effect May Force OPMF & Global Abenomics ................................................................................................. 422
OPMF - Financial Times: Martin Wolf - "The Case For Helicopter Money" .................................................................................................... 423
OPMF - Financial Times: Martin Wolf - "The Case To Reset Basis of Monetary Policy" ............................................................................... 426
OPMF - Financial Times: Gavyn Davies On Why Helicopters Are Dangerous .............................................................................................. 427
OPMF - A Conundrum for the World's Central Bankers ................................................................................................................................. 430
BOJ - JAPAN .......................................................................................................................................................................................................... 432
JAPAN - No Way Out But to Expand the Monetary Base ............................................................................................................................... 432
JAPAN - BOJ to "Own" 100% Of GDP In 5 Years .......................................................................................................................................... 433
JAPAN - Adjusted trade deficit the worst in Bloomberg's 20 year history....................................................................................................... 436
JAPAN - Some Policies Have Clearly Hit the Limit ......................................................................................................................................... 438
JAPAN - Foreshadows Next Global Crisis ...................................................................................................................................................... 439
JAPAN - Japan's Prime Minister Shinzo Abe prepares to print money for the whole world ........................................................................... 444
JAPAN - Shinzo Abes Monetary-Policy Delusions ......................................................................................................................................... 445
JAPAN - BOJ Governor Job Suddenly Available in Historical "Abenomics U-Turn" ...................................................................................... 448
JAPAN - Japanese Economic Policy Goes The Full Ponzi ............................................................................................................................. 449
ECB - EU ................................................................................................................................................................................................................ 451
CHARTS OF NOTE ......................................................................................................................................................................................... 451
CHARTS ECBs Turn to Expand Its Balance Sheet ................................................................................................................................. 451
CHARTS ECBs Balance Sheet Contracted Y-o-Y .................................................................................................................................. 451
CHARTS Expect Major ECB Policy Announcement in Q2 2014 .............................................................................................................. 452
CHARTS ECB Set to Stay on Hold as Inflation Seen Lower ................................................................................................................... 453
RESEARCH OF NOTE .................................................................................................................................................................................... 453
EU MONETARY - EU Version of QE Coming -> UST Purchases To Drive Euro Down ............................................................................ 453
EU MONETARY - Goodbye To Europe's Sterilized Monetization - Hello EU Version of QE ..................................................................... 456
EU MONETARY - Bond Markets Weigh Risks of Eurozone QE ................................................................................................................. 458
EU MONETARY - ECB Version of QE Likely .............................................................................................................................................. 461
EU MONETARY - There Is Just No Escape from Mario Draghi's Monetary Zombie Nightmare ................................................................ 464
EU MONETARY - ECB - Hints at QE for EU ............................................................................................................................................... 468
EU MONETARY - EU Equities Responding to Current Account Differential .............................................................................................. 470
EU MONETARY - Patterns: While Everyone Was Worrying About the US and Washington.... ................................................................ 471
EU MONETARY - ECB Monetary transmission mechanisms in Europe are completely broken ............................................................... 473
EU MONETARY - EU Lending Volumes Collapse ...................................................................................................................................... 475
EU MONETARY - Eurozone Funding Shortfall Rises To Over $4 Trillion .................................................................................................. 476
EU MONETARY - DRIVER$ ........................................................................................................................................................................ 477
EU MONETARY - Japan Will Effectively Monetize European Debt ............................................................................................................ 478
EU MONETARY - TARGET-2 Imbalances - "The Debt Crisis Is Eating Its Way Ever Further Into Europe's Core" .................................. 478
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EU MONETARY - Draghi Will Soon Be Forced to Start Printing - Again! ................................................................................................... 481
MACRO MONETARY INFLATION ..................................................................................................................................................................... 485
CHARTS OF NOTE ......................................................................................................................................................................................... 485
CHARTS Global Country Inflation Rates .................................................................................................................................................. 485
CHARTS Two Worlds if Inflation EM and DM ....................................................................................................................................... 485
CHARTS Developed Country Inflation Rates ........................................................................................................................................... 486
RESEARCH OF NOTE .................................................................................................................................................................................... 487
INFLATION - Asset & Property inflation means shops have to pay higher rents with higher product prices ............................................. 487
GEO-ECONOMIC CONCERNS & TENSIONS ......................................................................................................................... 488

FOOD PRICES & SHORTAGES Potential Disruption........................................................................................................................................ 488
CHARTS OF NOTE ......................................................................................................................................................................................... 488
CHARTS CRB US Spot Foodstuff Index One Year .............................................................................................................................. 488
CHARTS CRB Food Index One Year .................................................................................................................................................... 489
CHARTS Global Food Price Change 2007-2013 ..................................................................................................................................... 490
CHARTS Food Prices Spiking Up ............................................................................................................................................................ 491
CHARTS Food Prices Spiking Up ............................................................................................................................................................ 492
CHARTS Retail Food Services and Drinking Place Sales ....................................................................................................................... 492
CHARTS Retail CRE Price/ Cost Pressures ............................................................................................................................................ 493
CHARTS Retail CRE Price/ Cost Pressures - 2 ....................................................................................................................................... 494
CHARTS Spiking Beef Prices ................................................................................................................................................................... 495
CHARTS Coffee Futures .......................................................................................................................................................................... 495
CHARTS Lean Hog Futures ..................................................................................................................................................................... 496
CHARTS Ukraine Corn and Wheat Prices Up 15% Since YB .............................................................................................................. 496
CHARTS Global Food Imports versus % Y-o-Y US$ Change ................................................................................................................. 497
CHARTS UK Food Retailers v Commodity Food Price Index .................................................................................................................. 497
RESEARCH OF NOTE .................................................................................................................................................................................... 498
FOOD INFLATION - Food Prices Surge as Drought Exacts a High Toll on Crops .................................................................................... 498
FOOD INFLATION - Food Prices, Driver of Social Unrest .......................................................................................................................... 501
FOOD INFLATION - Food Price Manipulation in Thailand.......................................................................................................................... 501
EMERGING MARKETS - Unfolding 2014 Crisis ................................................................................................................................................. 503
RESEARCH WE FOLLOWED ......................................................................................................................................................................... 503
CHARTS OF NOTE ......................................................................................................................................................................................... 506
CHARTS BRIC Countries Responsible for 43% of Global Growth .......................................................................................................... 506
CHARTS BRIC & Emerging Market Inflation Rates ................................................................................................................................. 506
CHARTS Emerging Market Default Probability ........................................................................................................................................ 507
CHARTS Emerging Market versus Developed Market Public Debt and External Borrowing Positions .................................................. 507
CHARTS Emerging Market Outflows........................................................................................................................................................ 508
CHARTS Emerging Market Outflows -2 ................................................................................................................................................... 508
CHARTS Developed versus Emerging Equity Markets 1990-2014 ...................................................................................................... 509
CHARTS Total GEM Flows....................................................................................................................................................................... 509
CHARTS The Emerging Markets Have Been Weakening Since 2011 .................................................................................................... 510
RESEARCH OF NOTE .................................................................................................................................................................................... 511
EMERGING MARKETS - Fragile Five: The new focus of currency wars ................................................................................................... 511
EMERGING MARKETS - Crisis Redux? ..................................................................................................................................................... 512
EMERGING MARKETS - Losing Their Punch ............................................................................................................................................ 517
EMERGING MARKETS - Risk-On! .............................................................................................................................................................. 519
EMERGING MARKETS - Asia, BRIC, Emerging Markets Crater IBM Earnings ........................................................................................ 520
EMERGING MARKETS - Crisis Temporarily Halted ................................................................................................................................... 522
EMERGING MARKETS - Increasing Liquidity Problems In Selected Markets ........................................................................................... 523
EMERGING MARKETS - The plight of four Asian countries - China, India, Indonesia and Japan. ........................................................... 529
EMERGING MARKETS - The Impact of "TAPER" ...................................................................................................................................... 534
EMERGING MARKETS - EM Crisis will make the 1997 Asian Crisis Seem like an Early Warning ........................................................... 538
EMERGING MARKETS - Global Deleveraging Accelerating and Developing Nations Feeling the Pain ................................................... 540
ENERGY PRICING PRESSURES...................................................................................................................................................................... 543
RESEARCH OF NOTE .................................................................................................................................................................................... 543
ENERGY - Major Inflection Point Coming Near-Term In Energy Prices ..................................................................................................... 543
ENERGY - Russia Prepares Mega-Deal with India After Locking Up China With "Holy Grail" Gas Deal .................................................. 546
ENERGY - Putin Prepares To Announce "Holy Grail" Gas Deal With China ............................................................................................. 549
ENERGY - The Growing Rift with Saudi Arabia Threatens To Severely Damage the Petrodollar ............................................................. 552
PRIOR REPORT Reference ............................................................................................................................................................................... 556
GLOBAL BOND SCARE Un-Taper Reverses Fear ............................................................................................................................................ 556
BOND SCARE - Volatility and Instability Increase Risk .................................................................................................................................. 556
BOND SCARE - Inflation Expectations Contributing to Volatility .................................................................................................................... 558
BOND SCARE - The Financial Times Headlines Tell An Interesting Story .................................................................................................... 559
BOND SCARE - A LONG Supply and Demand Problem BUT Heavy SHORT Demand ............................................................................... 560
BOND SCARE - Long Term Support Trendline Achieved .............................................................................................................................. 561
BOND SCARE - Retail Investors Running for the Exit .................................................................................................................................... 562
CHINA LIQUIDITY - Global Tightening Scare ....................................................................................................................................................... 564
RESEARCH OF PARTICULAR INTEREST .................................................................................................................................................... 564
CHINA LIQUIDITY - Housing Bubble Restricting PBOC Actions .................................................................................................................... 564
CHINA LIQUIDITY - PBOC Squeezing Banks towards Reducing Speculative Risk ...................................................................................... 568
CHINA LIQUIDITY - Overnight Repo at 25% .................................................................................................................................................. 569
CHINA LIQUIDITY - Red Flags ....................................................................................................................................................................... 570
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CHINA LIQUIDITY - Credit Fueled Growth ..................................................................................................................................................... 572

CHINA LIQUIDITY - Shadow Banking System Showing Signs of Implosion.................................................................................................. 577
CHINA LIQUIDITY - PBOC Wants to Hold the Line on Explosive Credit Expansion through A Liquidity Squeeze....................................... 580
CHINA LIQUIDITY - Potentially De-Stabilizing Cash Crunch ......................................................................................................................... 582
CHINA LIQUIDITY - Chinese Liquidity Pump Unplugged ............................................................................................................................... 583
CURRENCY WARS BACK ON Rate Wars Reversed With Un-Taper ............................................................................................................... 585
CURRENCY WARS - A Major Shift................................................................................................................................................................. 585
BATTLEFIELD - Combatants & Belligerents ................................................................................................................................................... 589
BATTLEFIIELD - The Race to Debase ........................................................................................................................................................... 590
JAPAN - The Destabilizing Agent .................................................................................................................................................................... 593
EUROPE - Euro Exposed ................................................................................................................................................................................ 593
ARGENTINA - Here we Go Again! .................................................................................................................................................................. 595
VENEZUELLA - Bad Situation ......................................................................................................................................................................... 596
BRAZIL - No One Wants to Listen ................................................................................................................................................................... 596
SWITZERLAND - No Choice ........................................................................................................................................................................... 596
SINGAPORE - Hot Money ............................................................................................................................................................................... 597
UK- Pound Joins War ...................................................................................................................................................................................... 598
CYBER WARS Growing Threat & the Security-Surveillance Complex .............................................................................................................. 599
SECURITY-SURVEILLANCE COMPLEX - NSA Whistleblower Example: Booz Hamilton ............................................................................ 602
SECURITY SURVEILLANCE COMPLEX - Growing Without Public Control or Supervision! ........................................................................ 604
SYRIA & IRAN Complete Middle East Domination ............................................................................................................................................ 605
SYRIA - This has the Earmarks of the Kennedy Ear "Cuban Missile" Crisis .................................................................................................. 607
SYRIA - Syrian War You Are Not Being Told About ....................................................................................................................................... 608
SYRIA - 25 Quotes .......................................................................................................................................................................................... 609
SYRIA - What Coalition? ................................................................................................................................................................................. 612
SYRIA - US Supporting Fully an "Al Qaeda Operation" .................................................................................................................................. 615
A War 20 Years In the Making ..................................................................................................................................................................... 615
The Last Humanitarian War....................................................................................................................................................................... 615
The Bottom Line ........................................................................................................................................................................................... 616
SYRIA - Decision Already Taken to Bomb Syria ............................................................................................................................................. 617
SYRIA - Market Patterns Before and Immediately After Conflict Begins ........................................................................................................ 626
MIDDLE EAST - Watch Out for a "False Flag" or "Covert" Activity Event ...................................................................................................... 628
MIDDLE EAST - Who Is Threatening Who Here? .......................................................................................................................................... 629
REGIONAL ............................................................................................................................................. 631

EU ECB & DRAGHI WILL SOON TAKE ACTION AGAINST CRIPPLING EURO LEVELS ........................................................................... 632
CHARTS OF NOTE ......................................................................................................................................................................................... 635
CHARTS EU Financial Conditions Deteriorating ...................................................................................................................................... 635
CHARTS EU Confidence .......................................................................................................................................................................... 636
CHARTS - Slow Money Growth May Stoke Deflation Concerns ................................................................................................................ 636
CHARTS - Euro-Area Inflation at Lowest Level Since 2009 Individual Countries ................................................................................... 637
CHARTS - Euro-Area Inflation Aggregate ................................................................................................................................................ 638
CHARTS - 10M Part-Time Workers Underemployed in EU ........................................................................................................................ 640
CHARTS - Euro-Area Housing Prices Decline ............................................................................................................................................ 640
CHARTS - Euro-Area Trade Surplus ........................................................................................................................................................... 641
CHARTS - Euro-Area Composite PMI ......................................................................................................................................................... 642
CHARTS - EU Area Weakness ................................................................................................................................................................... 643
CHARTS - EU Area GDP ............................................................................................................................................................................. 644
CHARTS - EU Area PMI .............................................................................................................................................................................. 645
CHARTS - EU Area PMI .............................................................................................................................................................................. 646
CHARTS - EU Real Rates ........................................................................................................................................................................... 647
CHARTS - EU -NON Euro Members GDP RELIANCE ............................................................................................................................... 648
CHARTS - EU GLOBAL GDP GROWTH CONTRIBUTION ....................................................................................................................... 649
CHARTS - EU PMI ....................................................................................................................................................................................... 649
CHARTS - EU CPI ....................................................................................................................................................................................... 651
CHARTS - Regional Risk-Reward ............................................................................................................................................................... 652
CHARTS - Europe's "Core" Problem is France ........................................................................................................................................... 653
CHARTS - Germany's Preoccupation with Inflation is More Than It Would Seem ..................................................................................... 656
CHARTS - Evidence OF Global Slowing Now Indisputable ........................................................................................................................ 657
CHARTS - EU Credit Downgrades, France and UK On Tap ...................................................................................................................... 659
CHARTS - Perceived Reduction in Risk, A Temporary Aberration ............................................................................................................. 661
CHARTS - Dangerous Delusional Divergences .......................................................................................................................................... 663
CHARTS - IMF Projections for Euro Area and GIIPS ................................................................................................................................. 664
CHARTS - Air Cargo Shipments Confirm Slowing Global Growth .............................................................................................................. 665
CHARTS - Eurozone Misery Indices Never Been Higher ........................................................................................................................... 666
CHARTS - Euro Currency ............................................................................................................................................................................ 668
RESEARCH OF NOTE .................................................................................................................................................................................... 673
RESEARCH EU Version of QE Coming -> UST Purchases to Drive Euro Down ................................................................................... 673
RESEARCH Beware of EU Banks! ........................................................................................................................................................... 675
RESEARCH Emerging Markets Aggravates Festering Banking Problems ............................................................................................. 676
RESEARCH European Banks Have $3 Trillion of Exposure To Emerging Markets ................................................................................ 678
May 2014 Edition

7

RESEARCH - EFSF Downgraded to AA+ ................................................................................................................................................... 680

RESEARCH - EU Stabilization Programs Are Presently Very Fragile ........................................................................................................ 681
RESEARCH - Spreads Widened in Peripherals and Significantly in Portugal and Greece ........................................................................ 684
SITUATIONAL ASSESSMENT ....................................................................................................................................................................... 686
PROGNOSIS: Why the European Situation Will Get Worse ....................................................................................................................... 686
PROGNOSIS: Increasing Structural Imbalances ........................................................................................................................................ 689
PROGNOSIS: $22T Unaccounted - A Hidden World of Contingent Liabilities, Government Backing & Guarantees................................ 691
PROGNOSIS: Monetary Malpractice - ECB's LTRO Not a Solution but ..................................................................................................... 696
PROGNOSIS: Monetary Malpractice - ECB's SMP Effort Futile ................................................................................................................. 699
PROGNOSIS: Monetary Malpractice - ECB Accepts BBB Collateral ......................................................................................................... 701
PROGNOSIS: EU Banking Overbanked, Undercapitalized and Now Insolvent ......................................................................................... 702
PROGNOSIS: Monetary Malpractice - TARGET2 "Contingent Liabilities" ................................................................................................. 703
PROGNOSIS: Bailouts - Unsustainable & Unfundable ............................................................................................................................... 709
ITALY BOND YIELDS FALL TO RECORD LOW ............................................................................................................................................... 711
CHARTS OF PARTICULAR IMPORTANCE ................................................................................................................................................... 712
CHARTS - ITALY 10 Year Bond Yields Fall to Record Low .................................................................................................................... 712
CHARTS - ITALY - Forced Rate Cuts ......................................................................................................................................................... 713
RESEARCH OF NOTE .................................................................................................................................................................................... 714
RESEARCH - Italys Budget Failures, Weak Growth Outlook Call Debt Sustainability Into Question ....................................................... 714
SITUATIONAL ASSESSEMENT ..................................................................................................................................................................... 718
ITALIAN ELECTION - What You Need to Know ......................................................................................................................................... 718
ITALIAN ELECTION - Europe Capitulates On Austerity- Never Had The Stomach For It ......................................................................... 719
ITALIAN ELECTION - Message Given By the People ................................................................................................................................ 721
ITALIAN ELECTION - Bad Debt Continue to Soar ...................................................................................................................................... 725
ITALIAN ELECTION - Italians React Badly to Austerity, Elections Hardly a Surprise! ............................................................................... 727
ITALIAN ELECTION - EUROPEAN FEEDBACK - #1 ................................................................................................................................. 728
ITALIAN ELECTION - EUROPEAN FEEDBACK - #2 ................................................................................................................................. 730
ITALIAN ELECTION - Regional Financial Cracks in Sicily.......................................................................................................................... 733
FRANCE HOLLANDE IN TROUBLE .................................................................................................................................................................. 735
CHARTS OF NOTE ......................................................................................................................................................................................... 736
CHARTS - FRANCE - GDP ......................................................................................................................................................................... 736
CHARTS - FRANCE - UNEMPLOYMENT .................................................................................................................................................. 737
CHARTS - FRANCE - BUDGET DEFICIT ................................................................................................................................................... 738
CHARTS - FRANCE - TAX v GDP .............................................................................................................................................................. 739
CHARTS - FRANCE - BUSINESS CONFIDENCE...................................................................................................................................... 740
RESEARCH OF NOTE .................................................................................................................................................................................... 741
RESEARCH - Steady Breakdown Underway .............................................................................................................................................. 741
RESEARCH - France Loses its Coveted and NEEDED AAA Rating.......................................................................................................... 745
SITUATIONAL ASSESSMENT ....................................................................................................................................................................... 747
FRANCE - What You Need to Know ........................................................................................................................................................... 747
FRANCE - Key Indicators ............................................................................................................................................................................ 748
FRANCE: Sharpest Drop in Private Sector Output in Four Years .............................................................................................................. 751
FRANCE - Quits on Austerity - Never a Doubt This Would Happen ........................................................................................................... 754
FRANCE - Socialism is Expensive .............................................................................................................................................................. 755
FRANCE - Has Turned back to Socialism ................................................................................................................................................... 757
FRANCE - Losing Its Way through Political Illusions and Lies ................................................................................................................... 758
FRANCE - Uncompetitive ............................................................................................................................................................................ 759
FRANCE - Titan Tire Calls Out French Labor ............................................................................................................................................. 761
FRANCE - France Responds to Titan Tire .................................................................................................................................................. 763
FRANCE - What Happens In France When Companies Fire People ......................................................................................................... 765
FRANCE - Hollande's Economically Insane campaign Promise ................................................................................................................. 766
GERMANY MERKEL DANCING TO PUTINS ENERGY TUNE ........................................................................................................................ 767
CHARTS OF NOTE ......................................................................................................................................................................................... 768
CHARTS - GERMANY - Inflation ................................................................................................................................................................. 768
CHARTS - GERMANY - IFO Investor Confidence ...................................................................................................................................... 769
CHARTS - GERMANY - ZEW Expectations ................................................................................................................................................ 770
RESEARCH OF NOTE .................................................................................................................................................................................... 772
RESEARCH - Merkel's Third Chancellorship Challenges ........................................................................................................................... 772
RESEARCH - German Election - Merkel Begins Hunt for Coalition Partners............................................................................................. 775
RESEARCH - Europe's Shadow Economy: As Big As Germany................................................................................................................ 776
GERMANY - Anti Euro AfD Party May Cost Merkel in Critical September Election ................................................................................... 781
GERMANY - The Euro Crisis Escalation over Cyprus May Politically Cripple Merkel ................................................................................ 782
GERMANY - Call for End of "Coercive Euro Association" .......................................................................................................................... 784
UK MAY BE FIRST DEVELOPED ECONOMY TO RAISE RATES (AFTER ELECTION) ................................................................................ 786
CHARTS OF NOTE ......................................................................................................................................................................................... 788
CHARTS - UK CPI Too Low for BOE and Falling .................................................................................................................................... 788
CHARTS - UK GDP .................................................................................................................................................................................. 788
CHARTS - UK Population Growth ............................................................................................................................................................ 789
CHARTS - UK - Crushed Disposable Income ............................................................................................................................................. 790
CHARTS - UK - BOE Balance Sheet Growth .............................................................................................................................................. 791
May 2014 Edition

8

CHARTS - UK - Lending .............................................................................................................................................................................. 792

CHARTS - UK - Unemployment .................................................................................................................................................................. 792
CHARTS - UK - GDP - Pre and Post Recession Levels ............................................................................................................................. 793
CHARTS - UK - GDP ................................................................................................................................................................................... 793
CHARTS - UK - BOE Rates ......................................................................................................................................................................... 794
RESEARCH OF NOTE .................................................................................................................................................................................... 795
RESEARCH - UK workers' wage squeeze is longest since the 1870s ....................................................................................................... 795
UK - What you need to Know....................................................................................................................................................................... 796
UK - Joins Currency War - Down 8% YTD ............................................................................................................................................... 797
UK - Specter of Stagflation Haunts UK ........................................................................................................................................................ 798
UK - Public Policy turns Against Austerity and PM Cameron ..................................................................................................................... 799
UK - Doomsday Debt Machine .................................................................................................................................................................... 800
UK - QE Extension Coming ......................................................................................................................................................................... 803
UK - Small Business Credit Squeeze Now Acute - Loan Rejections Rising ............................................................................................... 805
UK - Technically in a Depression ................................................................................................................................................................. 806
IBERIAN PENINSULA NEW MORTGAGE LOANS DOWN 33% Y-o-Y ............................................................................................................ 809
CHARTS OF NOTE ......................................................................................................................................................................................... 811
CHARTS - PORTUGAL - Deficit Problem ................................................................................................................................................... 811
RESEARCH OF NOTE .................................................................................................................................................................................... 812
RESEARCH - Presidential Warning Spikes Yields To 8 Months Highs ...................................................................................................... 812
RESEARCH - Clear Signs of Desperation In Spain from a Growing Collateral Contagion ........................................................................ 814
RESEARCH - The Spanish Government's 'Bad Bank' Scam ..................................................................................................................... 815
IBERIA - Credit Downgrades - At Precipice of "Non Investment Grade" .................................................................................................... 817
IBERIA - Regional Bailout Bailouts a Massive Problem .............................................................................................................................. 818
IBERIA - NPL Going Ballistic ....................................................................................................................................................................... 819
IBERIA - Spanish Funding Problem ............................................................................................................................................................ 820
IBERIA - The Giant Spanish Housing Bubble, Now Beginning to Implode ................................................................................................. 825
IBERIA - Mal-Investment Coming Home to Roost....................................................................................................................................... 827
IBERIA - Bank Deposits Were Leaving, Now they Are Fleeing .................................................................................................................. 828
IBERIA - Now a Capital Investment Problem .............................................................................................................................................. 829
IBERIA - Banks on Artificial "Ponzi Bond" Life Support .............................................................................................................................. 830
ASIA CREDIT CRACKS WIDENING ............................................................................................................................................ 839

CHINA PROBLEMS IN CREDIT & SHADOW BANKING .................................................................................................................................. 839
CHARTS OF NOTE ......................................................................................................................................................................................... 852
CHARTS Chinas Gross Fixed Capital Formation Problem ..................................................................................................................... 852
CHARTS Chinese Investment Peaking .................................................................................................................................................... 852
CHARTS China Equity Flows ................................................................................................................................................................... 853
CHARTS Credit Accumulation Rate Growth Comparisons ................................................................................................................... 853
CHARTS Chinese Credit Growth .............................................................................................................................................................. 854
CHARTS 5 Year Debt Growth versus GDP .............................................................................................................................................. 854
CHARTS 5 Year Credit Growth ................................................................................................................................................................ 855
CHARTS Growth Propensity of Credit Growth....................................................................................................................................... 856
CHARTS Chinas Bad Loans - NPL.......................................................................................................................................................... 857
CHARTS Slowing Steel Consumption ...................................................................................................................................................... 858
CHARTS Shadow Banking System .......................................................................................................................................................... 858
CHARTS Dramatic Chinese Housing Slowdown ..................................................................................................................................... 860
CHARTS - CHINA - A Global Slowdown on the Verge of Contraction........................................................................................................ 861
CHARTS - CHINA - Chinese Credit Market ................................................................................................................................................ 862
CHARTS - CHINA - PMI .............................................................................................................................................................................. 862
CHARTS - CHINA - PMI-2 ........................................................................................................................................................................... 864
CHARTS - CHINA - GDP ............................................................................................................................................................................. 865
CHARTS - CHINA Industrial Output ......................................................................................................................................................... 866
CHARTS - CHINA - Urban Fixed Asset Investment .................................................................................................................................... 867
CHARTS - CHINA Retail Sales ................................................................................................................................................................ 868
RESEARCH OF NOTE .................................................................................................................................................................................... 869
CHINA - What Happens After the Low-Hanging Fruit Has Been Picked? .................................................................................................. 869
CHINA SHADOW BANKING - CCFD (Chinese Commodity Funding Deals) ............................................................................................. 872
CHINA - Cracks Beginning to Show ............................................................................................................................................................ 875
CHINA - Has an Inflation Problem ............................................................................................................................................................... 876
CHINA - Chinese Coal Producer Collapse a Major Shadow Banking Problem .......................................................................................... 877
CHINA - China Orders Its Smaller Banks to Load Up On Cash .................................................................................................................. 879
CHINA - How the Chinese Economic Disaster Scenario Could Unfold ...................................................................................................... 883
CHINA - Skilled Labor Shortages & Losing Labor Cost Advantage ............................................................................................................ 885
CHINA - Launches Crackdown On "Off Balance Sheet" Credit .................................................................................................................. 890
CHINA - China's Stunning $15 Trillion in New Liquidity - Part II ................................................................................................................. 893
CHINA - China's Stunning $15 Trillion In New Liquidity .............................................................................................................................. 895
RESEARCH OF NOTE LAST REPORT (Reference) .................................................................................................................................. 899
RESEARCH - China's Stunning $15 Trillion in New Liquidity ..................................................................................................................... 899
RESEARCH - Dr. Copper Ready to Top and Head Lower.......................................................................................................................... 902
RESEARCH - China's $1 Trillion GDP Lie .................................................................................................................................................. 903
RESEARCH - What the Deceleration Could Portend .................................................................................................................................. 905
May 2014 Edition

9

RESEARCH - Credit Bubble: 240% Of GDP And Soaring .......................................................................................................................... 908

RESEARCH - Forget Taper risk: China is a bigger threat ......................................................................................................................... 911
RESEARCH - Sustainability Requires a Slowdown in Investment .............................................................................................................. 913
RESEARCH - China Likely to Continue Interest Rate Liberalization .......................................................................................................... 915
RESEARCH - China #1 in Broad Array of Key Areas ................................................................................................................................. 918
RESEARCH - Global Business Confidence Sliding Rapidly ....................................................................................................................... 919
RESEARCH - Investors Worried and Losing Confidence ........................................................................................................................... 922
RESEARCH - China Stampeding into Gold ................................................................................................................................................ 923
RESEARCH - China "Will introduce some measures to arrest the slowdown of growth in the next couple of quarters"........................... 925
RESEARCH - Slower Growth In the Cards & Endorsed by New Chinese Leadership............................................................................... 926
RESEARCH - Is a PBOC Controlled Speculation Bust Possible or Will It Get Out of Control ................................................................... 927
RESEARCH - PBOC Liquidity Squeeze ...................................................................................................................................................... 928
RESEARCH - Chinese Housing Bubble Restricting PBOC Actions ........................................................................................................... 930
RESEARCH - PBOC Squeezing Banks towards Reducing Speculative Risk ............................................................................................ 932
RESEARCH - Chinese Overnight Repo at 25% .......................................................................................................................................... 934
RESEARCH - Red Flags ............................................................................................................................................................................. 935
RESEARCH - Credit Fueled Growth in China ............................................................................................................................................. 937
RESEARCH - PBOC Wants to Hold the Line on Explosive Credit Expansion through A Liquidity Squeeze ............................................. 942
RESEARCH - A Potentially De-Stabilizing Cash Crunch ............................................................................................................................ 944
SITUATIONAL ANALYSIS & KEY NOTES ..................................................................................................................................................... 945
CHINA SHADOW BANKING - Shadow Banking System Showing Signs of Implosion .............................................................................. 947
CHINA SHADOW BANKING - Shadow Banking and Credit Growth .......................................................................................................... 950
CHINA SHADOW BANKING - The US Sub-Prime / CDO All Over Again .................................................................................................. 953
CHINA SHADOW BANKING - Report ......................................................................................................................................................... 957
CHINA SHADOW BANKING - Situation ...................................................................................................................................................... 958
CHINA RESERVES - Distorted Foreign Reserve Levels ............................................................................................................................ 959
CHINA RESERVES - Declining Reserve Accumulation .............................................................................................................................. 961
CHINA RESERVES - Has Caught the Gold Bug big time! .......................................................................................................................... 963
CHINA CURRENCY WARS - Hot Money into China .................................................................................................................................. 965
CHINA - Withdraws Liquidity........................................................................................................................................................................ 966
CHINA - Socit General Sees a Likely Soft Landing! ................................................................................................................................ 968
CHINA - True Debt is Orders of Magnitude More than Officially Being Reported ...................................................................................... 976
CHINA - Evidence OF Slowing Now Indisputable ....................................................................................................................................... 979
CHINA - PMI Improvement .......................................................................................................................................................................... 980
CHINA - Political Transition & Ongoing Emergence as a Super Power ..................................................................................................... 983
CHINA - An Implicit Social Contract ............................................................................................................................................................ 985
CHINA - Manipulated Statistics due to Upcoming Decade Long Regime Change ..................................................................................... 987
CHINA - Increasing Leverage is China's Way of Monetary Easing ............................................................................................................ 988
CHINA - Possible Interest-Rate Liberalization............................................................................................................................................. 989
CHINA - Global Impact of China's Slowdown .............................................................................................................................................. 990
CHINA - Shanghai Composite at 2008 Low Levels ..................................................................................................................................... 992
CHINA - Shanghai Composite Warnings Signs ........................................................................................................................................... 993
CHINA - Credit to GDP ................................................................................................................................................................................ 995
CHINA - A Slow Recovery Through 2013 ................................................................................................................................................... 996
CHINA - Manufacturing PMI in Contraction Territory .................................................................................................................................. 998
JAPAN: FINANCIAL REPRESSION BEING DESPERATELY ADVANCED IN JAPAN ON MULTIPEL ABE-NOMIC FRONTS ...................... 1001
RESEARCH WE FOLLOWED ....................................................................................................................................................................... 1002
CHARTS OF NOTE ....................................................................................................................................................................................... 1009
CHARTS Japan Adjusted Trade Balance ............................................................................................................................................... 1009
CHARTS Japan BoP Current Account Balance .................................................................................................................................. 1009
CHARTS 5T Yen of JGB Selling ............................................................................................................................................................. 1010
CHARTS Sovereign Debt % of Tax Revenue ........................................................................................................................................ 1010
CHARTS Public Sector Debt Issuances 2013 as % GDP ...................................................................................................................... 1011
CHARTS - GDP Trend ............................................................................................................................................................................... 1011
CHARTS - CPI Trend ................................................................................................................................................................................. 1012
CHARTS - JAPAN - GDP Resurgence ...................................................................................................................................................... 1012
CHARTS - JAPAN - BOJ Balance Sheet .................................................................................................................................................. 1013
RESEARCH OF NOTE .................................................................................................................................................................................. 1014
JAPAN - Japanese Financial Repression - Changes in Allocation of Japanese Retirement Accounts Coming ...................................... 1014
JAPAN - Japan bond market liquidity dries up as BoJ holding crosses 200tn........................................................................................ 1016
JAPAN - Abe Approval Rating Plunges ..................................................................................................................................................... 1017
JAPAN - What the Japanese been Buying ................................................................................................................................................ 1019
JAPAN - Japan May Matter More Than Tapering ..................................................................................................................................... 1021
JAPAN - Japan Finances Worse than at Wars End ................................................................................................................................. 1024
JAPAN - BOJ: "The days of constructive ambiguity is over! .................................................................................................................. 1025
JAPAN - Abenomics Third Arrow Growth Strategy Underwhelms .......................................................................................................... 1026
JAPAN - 2nd ABE-nomics $200B Stimulus Package Approved ............................................................................................................... 1028
JAPAN - Worlds Biggest Pension Fund Sees Japan Fail on ABE-nomics' 2% Inflation Goal ................................................................. 1029
JAPAN - The Abe-nomics Failure .............................................................................................................................................................. 1032
SITUATIONAL ASSESSEMENT & KEY NOTES .......................................................................................................................................... 1034
JAPAN - What You Need to Know............................................................................................................................................................. 1036
JAPAN - No Way Out But to Expand the Monetary Base ......................................................................................................................... 1039
JAPAN - BOJ to "Own" 100% of GDP in 5 Years...................................................................................................................................... 1039
JAPAN - Adjusted trade deficit the worst in Bloomberg's 20 year history ................................................................................................. 1043
JAPAN - How Japan's National Debt Grew ............................................................................................................................................... 1044
JAPAN - ABE-nomics About Lowering Real Interest Rates ...................................................................................................................... 1045
May 2014 Edition

10

JAPAN - Japanese Bonds Have Lost Their Ability to Price Risk .............................................................................................................. 1046
JAPAN - Japanese Structural Problems a "Canary" for Western Developed Economies ........................................................................ 1050
JAPAN - Shinzo Abe Hasn't the Stomach for the Heavy Lifting Needed to Accompany ABE-nomics. .................................................... 1052
JAPAN - A Credit Squeeze Leads Deflationary Leg Down ....................................................................................................................... 1055
JAPAN - Some Japanese Policies Have Clearly Hit the Limit .................................................................................................................. 1056
JAPAN - The ABE (Asset Bubble Evaluator) Index ................................................................................................................................... 1058
JAPAN - Regional Risk-Reward ................................................................................................................................................................ 1059
JAPAN - Now the Frontrunner of Outright Monetization. .......................................................................................................................... 1060
JAPAN - Yen Devaluation .......................................................................................................................................................................... 1061
JAPAN - New Bank of Japan Policy - 2% Inflation in 2 Years .................................................................................................................. 1062
JAPAN - Appoints BOJ Governor Firmly Committed to Printing Money ................................................................................................... 1064
JAPAN - Third Straight Quarter of Recession ........................................................................................................................................... 1066
JAPAN - Full Out War on Deflation ............................................................................................................................................................ 1066
JAPAN - First Test of the new found dominance of the Central Banks .................................................................................................. 1068
JAPAN - BOJ Was Next Up. No Surprise .................................................................................................................................................. 1071
JAPAN - Negative Current Account Balance and -3.5% Recession ......................................................................................................... 1073
JAPAN - A 50% Over-Valued Yen Has Undermined Self Confidence & Drive ......................................................................................... 1076
JAPAN - Proves QE's Low Cost of Capital Does Structural Damage to Economy................................................................................... 1078
JAPAN - BOJ Being Pressured to "Rip-Up Government Debt"1 ............................................................................................................... 1080
JAPAN - Easy Money Has Hurt Corporate Profitability in the Longer Term ............................................................................................. 1086
JAPAN - The Biggest Debtor with the Biggest Problem! ........................................................................................................................... 1089
JAPAN - A Magnitude Larger Problem than Europe ................................................................................................................................. 1093
JAPAN - QE 9 A Complete Failure - Actually "Tightens" versus It's Intended Easing .............................................................................. 1099
JAPAN - Japanese Yen Continuously Under Attack ................................................................................................................................. 1104
JAPAN - Vast foreign US$ Coming Home for "Claim" .............................................................................................................................. 1105
JAPAN - PMI Breakdown ........................................................................................................................................................................... 1107
JAPAN - Exports Continue To Tumble ...................................................................................................................................................... 1109
JAPAN - Intervention Fails Again - It's a Whole new Ball Game............................................................................................................... 1110
JAPAN - First Signs of Massive Debt Monetization After Next Election ................................................................................................... 1113
JAPAN - Japan to the ESM's Rescue ........................................................................................................................................................ 1113
EMERGING MARKETS ECHO CRISIS STILL AHEAD .............................................................................................................. 1115

CHARTS OF NOTE ....................................................................................................................................................................................... 1120
CHARTS - Reserves versus World ............................................................................................................................................................ 1120
CHARTS - Current Account Balances versus GDP .................................................................................................................................. 1121
CHARTS - Emerging Markets Index versus MSCI World Index ............................................................................................................... 1122
CHARTS - SINGAPORE - Inflation ............................................................................................................................................................ 1123
CHARTS - SINGAPORE - Exports ............................................................................................................................................................ 1124
CHARTS - SOUTH KOREA ....................................................................................................................................................................... 1125
CHARTS - TURKEY - Spreads .................................................................................................................................................................. 1126
RESEARCH OF NOTE .................................................................................................................................................................................. 1127
EMERGING MARKETS - Forced Changes & Advancements in the Normal "Plundering" Strategy ........................................................ 1127
EMERGING MARKETS - Crisis Temporarily Halted ................................................................................................................................. 1128
EMERGING MARKETS - The plight of four Asian countries - China, India, Indonesia and Japan. ......................................................... 1129
EMERGING MARKETS - Negative Current Accounts + Weak(ening) International Investment Positioning ........................................... 1134
EMERGING MARKETS - "TAPER" Shock Waves Across Asia................................................................................................................ 1134
EMERGING MARKETS - Global Bond Yields React Together ................................................................................................................. 1136
EMERGING MARKETS - A Bumpy Ride for Emerging Markets ............................................................................................................... 1138
EMERGING MARKETS - Stunning Withdrawals ....................................................................................................................................... 1144
EMERGING MARKETS - Bond Outflows Accelerating ............................................................................................................................. 1145
EMERGING MARKETS - This will make the 1997 Asian Crisis Seem Like an Early Warning ................................................................ 1147
EMERGING MARKETS - Developing Nations Feeling the Pain of Global Deleveraging Acceleration .................................................... 1149
EMERGING MARKETS - The Impact of "TAPER" .................................................................................................................................... 1152
SITUATIONAL ASSESSEMENT ................................................................................................................................................................... 1156
EMERGING MARKETS - What you Need to Know ...................................................................................................................................... 1156
EMERGING MARKETS - Comparative Ease of Doing Business ............................................................................................................. 1158
EMERGING MARKETS - Importance of Employment, Equality and Per Capital Income ........................................................................ 1159
ASIA ............................................................................................................................................................................................................... 1162
ASIA: CHARTS - REVENUE ..................................................................................................................................................................... 1162
ASIA: CHARTS EXPENDITURES .......................................................................................................................................................... 1162
ASIA: CHARTS SPENDING GAPS ........................................................................................................................................................ 1164
ASIA: CHARTS DEBT SERVICE ........................................................................................................................................................... 1164
ASIA: CHARTS - SINGAPORE ................................................................................................................................................................. 1166
ASIA: CHARTS INDONESIA CPI May 2014 .................................................................................................................................... 1167
ASIA: CHARTS INDONESIA CPI Aug 2013 .................................................................................................................................... 1167
ASIA: CHARTS A Short Term Dead Cat Bounce? .............................................................................................................................. 1168
ASIA: CHARTS Inflation Problems Abound ........................................................................................................................................... 1169
ASIA: CHARTS Healthier Public Debt and Borrowing Positions than DM ............................................................................................. 1169
ASIA: CHARTS - AUSTRALIA ................................................................................................................................................................... 1170
ASIA - Regional Risk-Reward .................................................................................................................................................................... 1172
ASIA - Credit Contraction Problems .......................................................................................................................................................... 1173
ASIA - Corporate Debt Levels Reflect Unintended Consequences of Mispricing & Mal-Investment ....................................................... 1175
ASIA - Synchronized Markets .................................................................................................................................................................... 1177
ASIA - Caution Advised Regarding Positive South Korea Export Turnaround ......................................................................................... 1179
ASIA - Export Growth Looks Similar to Pre-2008 ...................................................................................................................................... 1180
May 2014 Edition

11

ASIA - Global Slowing Quickly a Worsening Situation Across Asia .......................................................................................................... 1184
ASIA - Risks All on the Downside for Asia ................................................................................................................................................ 1185
ASIA - Demographic Headwinds ............................................................................................................................................................... 1188
ASIA - Pronounced Flight to Singapore Safety ......................................................................................................................................... 1189
BRICS ............................................................................................................................................................................................................ 1191
BRICS Responsible for 43% of Global Growth in 2013 ......................................................................................................................... 1191
BRICS A Short Term Dead Cat Bounce? ............................................................................................................................................ 1192
BRICS Inflation Problems Abound .......................................................................................................................................................... 1193
BRICS - EU Major Contributor to EM Current Account Deficit Growth ..................................................................................................... 1194
BRICS - Insufficient Levels Prompt Russian-Chinese Support ................................................................................................................. 1195
BRICS - A Development Bank-Forex Reserve Pool-African Integration ................................................................................................... 1197
BRICS - 40% of World Population and 25% of World GDP ...................................................................................................................... 1199
BRICS - $3 to $13B GDP in Ten Years ..................................................................................................................................................... 1202
BRICS- A World Wide Distrust of Financial Markets Building ................................................................................................................... 1205
BRAZIL........................................................................................................................................................................................................... 1207
BRAZIL - Inflation will remain high thanks to a "growth mismatch". .......................................................................................................... 1207
BRAZIL - Sharpest Decline in 2013 Growth Forecast ............................................................................................................................... 1209
RUSSIA - Central bank will hike rates if inflation and oil prices continue to rise. ......................................................................................... 1212
INDIA.............................................................................................................................................................................................................. 1213
INDIA Inflation ......................................................................................................................................................................................... 1214
INDIA - Inflation .......................................................................................................................................................................................... 1215
INDIA - WPI ................................................................................................................................................................................................ 1216
INDIA - Will be fine as long as it continues to reduce its deficit. ............................................................................................................... 1217
INDIA - Panic in India ................................................................................................................................................................................. 1218
INDIA - India Rupee Collapse Showing Signs of Exhaustion ................................................................................................................... 1220
INDIA - Watch Out For RE-Emergence of Food Price Inflation ................................................................................................................ 1221
SOUTH AFRICA ............................................................................................................................................................................................ 1222
LATIN AMERICA ........................................................................................................................................................................................... 1224
VENEZUELA Signs of a Crack-up Boom and Dictatorship .................................................................................................................... 1225
VENEZUELA - Shortages & Hyperinflation ............................................................................................................................................... 1225
MIDDLE EAST ............................................................................................................................................................................................... 1227
TURKEY ..................................................................................................................................................................................................... 1227
US ECONOMY ..................................................................................................................................... 1228

THE GLOBAL MACRO OVERLAY ........................................................................................................................................ 1230
MACRO - US Macro Data Divergence .......................................................................................................................................................... 1230
MACRO - US Macro Surprise Index .............................................................................................................................................................. 1232
MACRO - Serious Structural US Problems Impeding Global Competitive ................................................................................................... 1235
MACRO Output Gap ................................................................................................................................................................................... 1237
US INVESTMENT CYCLE ...................................................................................................................................................... 1246

GORD'S BIG PICTURE ECONOMIC CYCLE ..................................................................................................................................................... 1246
ECONOMIC INDICATORS .................................................................................................................................................................................. 1247
MONTHLY INDICATORS OF NOTE ............................................................................................................................................................. 1247
RESEARCH - The US Economy Continues to Tank under Obama.......................................................................................................... 1247
REFERENCE CHARTS ............................................................................................................................................................................. 1249
THE CURRENT BUSINESS CYCLE - SITUATIONAL ANALYSIS ..................................................................................................................... 1254
BUSINESS CYCLE - JOBS > CONFIDENCE > CONSUMPTION > GROWTH CYCLE.................................................................................... 1254
BUSINESS CYCLE - JOBS ................................................................................................................................................................................. 1256
SOME GRAPHIC HIGHLIGHTS .................................................................................................................................................................... 1256
CHARTS & TABLES OF NOTE ..................................................................................................................................................................... 1259
CHARTS - Corporate Profits versus Wages .............................................................................................................................................. 1259
CHARTS - Standard of Living Decline and Bear Market in Real Terms Reflect Labor Participation ....................................................... 1259
CHARTS - Underemployment Gap ............................................................................................................................................................ 1260
CHARTS - Participation Rate..................................................................................................................................................................... 1261
CHARTS - Part Time Employment ............................................................................................................................................................ 1261
CHARTS - U3 & U6.................................................................................................................................................................................... 1262
CHARTS - Employment Situation Summary ............................................................................................................................................. 1263
RESEARCH OF NOTE .................................................................................................................................................................................. 1268
RESEARCH - Labor Force Participation Rates ......................................................................................................................................... 1268
RESEARCH - Bridging Jobs to Confidence & Sentiment.......................................................................................................................... 1271
RESEARCH - Participation Rate at 1979 Carter Levels ........................................................................................................................... 1274
SITUATIONAL SUMMARY & ANALYSIS ..................................................................................................................................................... 1275
BUSINESS CYCLE - CONSUMER & BUSINESS SENTIMENT ......................................................................................................................... 1281
A GRAPHIC HIGHLIGHT .............................................................................................................................................................................. 1281
CHARTS & TABLES ...................................................................................................................................................................................... 1282
CHARTS - NFIB Small Business Sentiment .............................................................................................................................................. 1282
CHARTS - Orange Book ............................................................................................................................................................................ 1283
RESEARCH OF NOTE .................................................................................................................................................................................. 1283
RESEARCH - Consumer Confidence & Investor Sentiment ..................................................................................................................... 1283
RESEARCH - Financial Stress Index Sends Market Clue ........................................................................................................................ 1288
RESEARCH - Consumer Confidence and the Mortgage Spike "Peak Signal" ......................................................................................... 1289
RESEARCH - Contrarian Breadth Rule ..................................................................................................................................................... 1290
May 2014 Edition

12

SENTIMENT: Consumer, Investor & Trader ................................................................................................................................................ 1293

Consumer Confidence - Conference Board ........................................................................................................................................... 1293
Consumer Sentiment - Michigan ............................................................................................................................................................ 1297
Consumer Comfort ................................................................................................................................................................................. 1298
Investors Intelligence.............................................................................................................................................................................. 1300
American Association of Independent Investors .................................................................................................................................... 1300
National Association of Active Investment Managers (NAAIM) ............................................................................................................. 1301
Small Business Optimism ...................................................................................................................................................................... 1302
Percentage Stocks above 50 & 200 DMA ............................................................................................................................................. 1303
Margin Levels ......................................................................................................................................................................................... 1304
Mutual Fund Cash Levels v S&P 500 .............................................................................................................................................. 1308
BUSINESS CYCLE CONSUMPTION ............................................................................................................................................................... 1315
CHARTS - Real Disposable Personal Income .......................................................................................................................................... 1318
CHARTS - Real Consumption Expenditure ............................................................................................................................................... 1320
CHARTS - Consumer Credit Deleveraging ............................................................................................................................................... 1321
CHARTS - Core Retail Growth .................................................................................................................................................................. 1322
RESEARCH OF NOTE .................................................................................................................................................................................. 1323
RESEARCH - 95% of Consumer Credit Lending Going towards Student & Car Loans ........................................................................... 1323
RESEARCH - Gallup Survey Shows -10% Reduction in Christmas Buying Plans ................................................................................... 1325
RESEARCH - The Wal-Mart Measure or How the US Consumer Is the Global Engine .......................................................................... 1326
RESEARCH - A Sequential Decline in Wages .......................................................................................................................................... 1327
RESEARCH - Final Sales Signals Pending Potential Recession on the Horizon ..................................................................................... 1328
RESEARCH - Consumers Using Savings to Maintain Life Style .............................................................................................................. 1328
RESEARCH - The Destruction of America's Middle Class ....................................................................................................................... 1331
RESEARCH - Dramatic Slowing in Restaurant Business ......................................................................................................................... 1331
RESEARCH - Signs of Serious Troubles .................................................................................................................................................. 1332
RESEARCH - Falling Real Disposable Income means Falling Consumption ........................................................................................... 1335
BUSINESS CYCLE - GROWTH .......................................................................................................................................................................... 1340
CHARTS - Manufacturing .......................................................................................................................................................................... 1342
CHARTS - Exports ..................................................................................................................................................................................... 1342
CHARTS - Durable Goods ......................................................................................................................................................................... 1343
CHARTS - NFIB Small Business CAPEX .................................................................................................................................................. 1343
CHARTS - US Manufacturing Conditions Deteriorating ............................................................................................................................ 1344
RESEARCH OF NOTE .................................................................................................................................................................................. 1345
RESEARCH - US GDP Growth Forecasts ................................................................................................................................................ 1345
RESEARCH - Economic Recoveries Don't Look Like This! ...................................................................................................................... 1345
RESEARCH - 2nd Worst Decade in Over 220 Years (And Getting Worse) ............................................................................................. 1346
RESEARCH - US Economy is being fundamentally transformed ............................................................................................................. 1348
RESEARCH - Shrinking CAPEX, Expanding Buybacks and Dividends ................................................................................................... 1351
REFERENCE - Prior Posts ............................................................................................................................................................................ 1355
RESEARCH - US Economic Recovery Has Peaked ................................................................................................................................ 1355
ECONOMIC CYCLE, INVESTMENT CYCLE, SECTOR ROTATION ................................................................................................................. 1364
US PUBLIC POLICY GROWING LIST OF POLICY PROBLEMS ........................................................................................ 1371

NSA-SECURITY-SURVEILLANCE COMPLEX......................................................................................................................................... 1371
OBAMACARE ............................................................................................................................................................................................ 1372
GENERAL PUBLIC POLICY...................................................................................................................................................................... 1374
CHARTS - US Incarceration Rate Out of Control ...................................................................................................................................... 1376
RESEARCH OF NOTE .................................................................................................................................................................................. 1378
POLICY - A self-destructive path toward oblivion...................................................................................................................................... 1378
POLICY - Indictment of US Public, Fiscal & Monetary Policy ................................................................................................................... 1383
POLICY - The Crisis of Trust Continues to Worsen .................................................................................................................................. 1396
POLICY - The Stunning Truth about Inequality In America....................................................................................................................... 1397
POLICY - Pointing US towards Government Dependence ....................................................................................................................... 1398
POLICY - Yet another Game of Deception ................................................................................................................................................ 1402
POLICY - Obamacare A Flawed Public Policy Implementation ................................................................................................................ 1406
POLICY - Financial Repression and Manipulated Illusions ....................................................................................................................... 1409
Manipulating Bad Financial Data ........................................................................................................................................................... 1409
Manipulating Bad Nuclear Facts ............................................................................................................................................................ 1410
Manipulating Oil Spill Info ....................................................................................................................................................................... 1411
Manipulating Data on Other Environmental Issues ............................................................................................................................... 1411
Manipulating Food Safety Data .............................................................................................................................................................. 1412
Manipulating Health Safety Data ........................................................................................................................................................... 1412
Manipulating Metrics for War ................................................................................................................................................................. 1412
The Core Problem .................................................................................................................................................................................. 1412
POLICY - US Economic Decline is Obvious to Anyone Caring to Look ................................................................................................... 1413
May 2014 Edition

13

POLICY - Policy Uncertainty and Confidence in Monetary Policy Direction is exposed........................................................................... 1416
POLICY - "What is good for GM is good for America" is no longer correct .............................................................................................. 1418
POLICY - Where is the Logic In US Public Policy ..................................................................................................................................... 1419
POLICY - What is the Real Driving Force Behind the New Immigration Law? ......................................................................................... 1422
POLICY - Crony Capitalism and How America Lost its Way! ................................................................................................................... 1425
MONETARY POLICY THE TAPER RATE & THE NEW FED CHAIR ............................................................................................ 1431
TAPER ....................................................................................................................................................................................................... 1435
TAPER - Fed December 2013 FOMC "TAPER" .................................................................................................................................... 1437
TAPER - The Last Time a Major Central Bank "Tapered" QE .............................................................................................................. 1438
TAPER - FOMC QE Meeting ................................................................................................................................................................. 1440
TAPER - The Fed Cannot Possibly "Exit" Without The Market Crumbling ........................................................................................... 1442
TAPER - It Matters and the Fed Has Few Options As Quality Collateral Disappears. ......................................................................... 1444
TAPER - Look for QE to Morph Into Quantitative Education ............................................................................................................... 1446
TAPER - Why Fed Bond Buying Can't Go on Indefinitely and Why TAPER ......................................................................................... 1450
TAPER - Political "Push-Back" by the Fed ............................................................................................................................................ 1451
TAPER - Ending QE Will Pressure Fiscal Policy ................................................................................................................................... 1453
TAPER - Delay Risks Bond Market Volatility as Private Availability Steadily Shrinks .......................................................................... 1457
TAPER - Clearly a Bluff or Muddled Policy ............................................................................................................................................ 1460
TAPER - Why is the Fed Talking TAPER? ............................................................................................................................................ 1462
TAPER - The Fed is Unlikely to Taper ................................................................................................................................................... 1465
TAPER - Fed Trapped in a Box ............................................................................................................................................................. 1467
TAPER - The Fed Taper Playbook ........................................................................................................................................................ 1469
TAPER - TAPER Put On Hold ............................................................................................................................................................... 1470
QUEEN YELLEN ........................................................................................................................................................................................... 1473
YELLEN - QEeen YELLEN TESTIMONY - Dampens Taper Bet .......................................................................................................... 1474
VOLKER RULE .............................................................................................................................................................................................. 1477
VOLKER - Dodd- Frank Never Had a Chance .......................................................................................................................................... 1478
CHARTS & TABLES OF NOTE ........................................................................................................................................................................... 1480
CHARTS: US Trade Balance Has Been Shrinking Since 2008 .................................................................................................................... 1480
CHARTS: Inflation Arrived with the Removal of a Gold Standard Discipline and Creditism ........................................................................ 1480
CHARTS: Economic Growth Based Significantly on Credit Growth ............................................................................................................. 1481
CHARTS: Fed deliberately ignoring data on both growth and inflation ........................................................................................................ 1483
CHARTS: US Economic Activity .................................................................................................................................................................... 1484
CHARTS: Effects of QE on S&P 500 ............................................................................................................................................................ 1485
CHARTS: Monetary Velocity versus Monetary Base .................................................................................................................................... 1486
CHARTS: Days Between 'Unsterilized' Actions ............................................................................................................................................ 1487
CHARTS: FOMC Economic Projections ....................................................................................................................................................... 1487
CHARTS: Taylor Rule & Evans Rule Estimates of Fed Funds Rates .......................................................................................................... 1488
CHARTS: Market Pricing In A Longer On-Hold Fed ..................................................................................................................................... 1488
CHARTS: Fed Balance Sheet Assets & Liabilities ........................................................................................................................................ 1489
CHARTS: Fed Policy Turns 180 Degrees ..................................................................................................................................................... 1489
CHARTS: US Banking Industry Concentration ............................................................................................................................................. 1490
CHARTS: Total Credit Market Debt as % GDP............................................................................................................................................. 1491
CHARTS: Debt-to-GDP Ratio Above What Caused Great Depression ........................................................................................................ 1492
CHARTS: Yield Chase Completely Distorted ................................................................................................................................................ 1492
CHARTS: Velocity of Money ......................................................................................................................................................................... 1495
CHARTS: Real Negative Rates ..................................................................................................................................................................... 1498
CHARTS: Short Interest Rates a Fed Problem ............................................................................................................................................. 1501
RESEARCH OF NOTE ........................................................................................................................................................................................ 1503
MONETARY - Dollar, Currency & Gold Outlook ........................................................................................................................................... 1503
MONETARY - Federal Reserves False Media Reporting ............................................................................................................................ 1508
MONETARY - The Unintended Consequences of it all................................................................................................................................. 1510
MONETARY - QE Proves to be the "Sham" We All Knew it was! ................................................................................................................ 1519
MONETARY - Owns 32.47% of all 10 Year equivalents and monetizing 70% of all net equivalent issuance ............................................. 1521
MONETARY - The Policy Options Available to the Fed................................................................................................................................ 1522
MONETARY - Capital Distortion & Global Acceptance of the Bernankean Theory ..................................................................................... 1523
MONETARY - The Suspension of Price Discovery (Marriage of Financial Repression & Crony Capitalism) ............................................. 1527
MONETARY - The Fed is stuck in a QE Trap ............................................................................................................................................... 1530
MONETARY - Mathematically, the Fed Can Only Fail .................................................................................................................................. 1533
MONETARY - QE versus S&P 500 Movements ........................................................................................................................................... 1538
MONETARY - QE is standing Between Inflated Equity Markets and A Recession ...................................................................................... 1540
MONETARY - Mounting Policy Failures ........................................................................................................................................................ 1542
MONETARY - QE Doesn't Help the Economy .............................................................................................................................................. 1546
MONETARY - The US Reserve Currency and the steady erosion of trust ................................................................................................... 1548
MONETARY - The FAC is to the FED as the TBAC is to the TREASURY (Same Banks) .......................................................................... 1551
MONETARY - $2.3 Trillion of Leveraged Derivative Collateral ..................................................................................................................... 1552
MONETARY - Leverage, Funding and Profit Pressures as Money Is No Longer Quite as Free ................................................................. 1557
MONETARY - The Fed's Double-Bind .......................................................................................................................................................... 1563
MONETARY - The Federal Reserve is at the very heart of our economic problems ................................................................................... 1564
MONETARY - FED Inflation & Deflator ......................................................................................................................................................... 1566
REFERENCE - Prior Posts .................................................................................................................................................................................. 1568
RESEARCH - Reduction at the Core of the Growth of the Federal Reserve Balance Sheet ....................................................................... 1568
May 2014 Edition

14

RESEARCH - Fed's Excess Reserves are 51% Foreign Banks, 49% Domestic ......................................................................................... 1571
RESEARCH - A Game of Calculated Deception is Evolving to Something Worse ...................................................................................... 1573
RESEARCH - A Loan Distribution Credit Bubble .......................................................................................................................................... 1574
RESEARCH - QE to be replaced with Guidance, Thresholds and Promises ............................................................................................... 1575
RESEARCH - Bernanke in a Box and Talking Out of Both Sides of Your Mouth ......................................................................................... 1577
RESEARCH - Duration Extraction: The Hidden Fed Game .......................................................................................................................... 1578
RESEARCH - The Fed's Stated Guidance Sign-Posts ................................................................................................................................. 1580
RESEARCH - An Artificial Market ................................................................................................................................................................. 1582
RESEARCH - Bank Reserves A Ticking Bomb, But Who Will Be Caught in the Blast? .............................................................................. 1582
RESEARCH - QE An Intentionally Broken Mechanism Due to 2008 Policy Payable Interest on Bank Reserves...................................... 1586
RESEARCH - QE Ineffective In Increasing GDP .......................................................................................................................................... 1587
MONETARY: Helicopter Money of Central Bank Bond Purchases are Forever .......................................................................................... 1588
MONETARY: Central Bank Balance Sheet Expansion and the Theoretical Path to SPX of 1950 .............................................................. 1590
MONETARY: Central Bank Balance Sheet Expansion versus CPI .............................................................................................................. 1592
MONETARY: The Fed Model No Longer Prices Risk ................................................................................................................................... 1592
SITUATIONAL SUMMARY & ANALYSIS ............................................................................................................................................................ 1600
FISCAL POLICY GOVERNMENT CAPITULATES ON SEQUESTRATION & AUSTERITY THINKING ............................... 1603
RESEARCH WE FOLLOWED ............................................................................................................................................................................. 1603
BUDGET AGREEMENT ................................................................................................................................................................................ 1604
GOVERNMENT SHUTDOWN ....................................................................................................................................................................... 1605
GOVERNMENT WASTE - CORRUPTION ................................................................................................................................................... 1605
FISCAL MATTERS ........................................................................................................................................................................................ 1606
CHARTS & TABLES OF NOTE ........................................................................................................................................................................... 1607
CHARTS - Government Receipts & Outlay Growth Improves Significantly .................................................................................................. 1608
CHARTS - Federal Budget Surplus / Deficit .................................................................................................................................................. 1608
CHARTS - Real Federal Government Purchases ......................................................................................................................................... 1609
CHARTS - US Trade Balance Improvement ................................................................................................................................................. 1609
CHARTS - Growth & Jobs ............................................................................................................................................................................. 1610
CHARTS - Taxes & Spending ....................................................................................................................................................................... 1614
CHARTS - Politics & Policy ........................................................................................................................................................................... 1617
CHARTS - The Stakes ................................................................................................................................................................................... 1618
CHARTS - Official Fiscal Deficit & Debt ........................................................................................................................................................ 1620
CHARTS - Payroll Tax Holiday ...................................................................................................................................................................... 1621
CHARTS - Tax Rate Comparisons ................................................................................................................................................................ 1622
CHARTS - Risk Perceptions .......................................................................................................................................................................... 1623
CHARTS - 2013 Quarterly Impact ................................................................................................................................................................. 1624
CHARTS - Budget Deficit .............................................................................................................................................................................. 1625
CHARTS - Sovereign Debt ............................................................................................................................................................................ 1628
CHARTS - State & Local Government Drag ................................................................................................................................................. 1629
CHARTS - Government Dependence ........................................................................................................................................................... 1632
CHARTS - Coming Demographic Shock ....................................................................................................................................................... 1633
CHARTS - Fiscal Cliff Outcome .................................................................................................................................................................... 1637
BUDGET - What You Need to Know ................................................................................................................................................................... 1639
BUDGET - Political Budget Cowardice and Capitulation .............................................................................................................................. 1640
BUDGET - Political Budget Cowardice and Capitulation - 2 ......................................................................................................................... 1642
BUDGET - The Ultimate in Political Can-Kicking! ......................................................................................................................................... 1644
BUDGET - The Next Step in the Collapse Of The Dollar .............................................................................................................................. 1647
BUDGET - As Represented and Spun for the Public .................................................................................................................................... 1650
BUDGET - Implications .................................................................................................................................................................................. 1651
BUDGET - A Budget That Institutionalizes Big Government ........................................................................................................................ 1653
BUDGET - The Secrets in The Budget ......................................................................................................................................................... 1657
RESEARCH OF NOTE ........................................................................................................................................................................................ 1660
RESEARCH - Budget Deficit Shrinking ......................................................................................................................................................... 1660
RESEARCH - Avoiding Taxes ....................................................................................................................................................................... 1662
RESEARCH - A Confluence Of Risky Economic Events .............................................................................................................................. 1663
RESEARCH - Everyone Hates Sequestration, But Few Can Agree On What to Cut .................................................................................. 1664
RESEARCH - $70T Off-Balance Sheet Federal Liabilities ........................................................................................................................... 1666
SITUATIONAL SUMMARY & ANALYSIS ............................................................................................................................................................ 1669
BUDGET SELLOUT ............................................................................................................................................................................................. 1669
KEY DRIVERS - CATALYSTS OF CHANGE.......................................................................................................................... 1672

EMPLOYMENT .................................................................................................................................................................................................... 1677
CHARTS & TABLES ...................................................................................................................................................................................... 1677
CHARTS - Wages & Salary Accruals / GDP ............................................................................................................................................. 1678
CHARTS US Employment/Population Ratio Total in Labor Force ......................................................................................................... 1678
CHARTS US Industrial Production v Manufacturing Jobs...................................................................................................................... 1679
CHARTS - Part-Time Employment ............................................................................................................................................................ 1679
CHARTS - Nonfarm Payrolls Y-O-Y DECLINE ......................................................................................................................................... 1679
CHARTS - Hiring Stalled at 200K Per Month (Approximates ONLY the New People Entering Workforce)............................................ 1680
CHARTS - The Under-Employment Gap ................................................................................................................................................... 1680
CHARTS Staycations A Sign of the FEAR of Job Loss & Competition for Jobs ................................................................................... 1681
RESEARCH OF NOTE .................................................................................................................................................................................. 1682
May 2014 Edition

15

EMPLOYMENT - With and Without Obama's Recovery Plan ................................................................................................................... 1682

EMPLOYMENT - Millennials Devastated As American Dream Becomes Nightmare for Most ................................................................ 1684
EMPLOYMENT - 30 Mind-blowing Statistics about Americans Under The Age Of 30............................................................................. 1686
EMPLOYMENT - Going Nowhere Even With All Jobs Becoming Temporary Jobs and the Participation Rate Plummeting .................. 1689
EMPLOYMENT - Low-Wage Jobs Bias Continues to Hamper U.S. Recovery......................................................................................... 1690
EMPLOYMENT - A REAL Family Wage versus Part Time & HES ........................................................................................................... 1691
EMPLOYMENT - It is as much About the Quality, as the Quantity of Jobs .............................................................................................. 1698
1- CAPITAL SPENDING ............................................................................................................................................................................ 1701
2- SMALL BUSINESS OPTIMISM ............................................................................................................................................................. 1704
3- DEMOGRAPHIC SHIFT ........................................................................................................................................................................ 1708
REAL DISPOSABLE INCOME ............................................................................................................................................................................ 1719
CHARTS & TABLES ...................................................................................................................................................................................... 1720
CHARTS This is a Structural .................................................................................................................................................................. 1720
CHARTS Real Disposable Income per Capita ....................................................................................................................................... 1720
CHARTS - Household Incomes a Sign of a Collapsing Middle Class ....................................................................................................... 1721
CHARTS - Food Stamps Now 14% of US Grocery Store Sales ............................................................................................................... 1721
RESEARCH OF NOTE .................................................................................................................................................................................. 1723
RESEARCH How Can a 70% Consumption Have a Recovery When Real DI/Capital Falls ................................................................. 1723
RESEARCH - The Facts are clear. The US Standard of Living is Falling ................................................................................................ 1724
RESEARCH - The Facts are clear. The US Standard of Living is falling .................................................................................................. 1725
RESEARCH - Standards of Living and Artificial Expectations .................................................................................................................. 1728
RESEARCH - A Lack of Demand in US Economy .................................................................................................................................... 1730
RESEARCH - Full Time Jobs or Food Stamps & Disability? .................................................................................................................... 1731
STANDARD OF LIVING - Salary Compression ........................................................................................................................................ 1733
DISPOSABLE INCOME - 66M (20%) Below $28.8/Year Subsistence Level ........................................................................................... 1734
FOOD STAMPS - 46,405,204 Individuals, 22,257,647 Households below Poverty Line ......................................................................... 1735
DISPOSABLE INCOME - Bad Even in Nominal Terms ............................................................................................................................ 1737
INFLATION - It's There but the Government Doesn't Account for it. ........................................................................................................ 1737
US RESIDENTIAL REAL ESTATE ...................................................................................................................................................................... 1739
CHARTS & TABLES ...................................................................................................................................................................................... 1741
CHARTS - The Real Cost of Buying a Home 6.7 X Average Salary......................................................................................................... 1741
CHARTS - Household Formations ............................................................................................................................................................. 1741
CHARTS - Housing Starts ......................................................................................................................................................................... 1742
CHARTS - Composition of Housing Sales ................................................................................................................................................ 1742
CHARTS - New Home Sales ..................................................................................................................................................................... 1743
CHARTS - Existing Residential Supply ..................................................................................................................................................... 1743
CHARTS - Housing Starts ......................................................................................................................................................................... 1744
RESEARCH OF NOTE .................................................................................................................................................................................. 1746
RESEARCH - Insight: A new wave of U.S. mortgage trouble threatens ................................................................................................... 1746
RESEARCH - Household Formation Drives Residential Real Estate ....................................................................................................... 1748
OVERVIEW ................................................................................................................................................................................................ 1751
CURRENT HOME OWNERSHIP TRENDS .............................................................................................................................................. 1756
$6.5 TRILLION IN MIDDLE CLASS NET WORTH EVAPORATES .......................................................................................................... 1759
NATIONAL STATISTICS: PRICE .............................................................................................................................................................. 1760
NATIONAL STATISTICS: EXISITNG HOME SALES ............................................................................................................................... 1762
NATIONAL STATISTICS: NEW HOME SALES ........................................................................................................................................ 1764
HOUSING: Even a Never Seen Before 30 Year Mortgage Rate can't Help Housing ............................................................................... 1765
HOUSING: Soaring FHA Delinquencies .................................................................................................................................................... 1767
US COMMERCIAL REAL ESTATE ..................................................................................................................................................................... 1772
OVERVIEW ................................................................................................................................................................................................ 1774
NATIONAL STATISTICS: COMMERCIAL REAL ESTATE ....................................................................................................................... 1775
FOCUS GROUPS .................................................................................................................................................................. 1781

US COMMERCIAL RETAIL REAL ESTATE ....................................................................................................................................................... 1781
RESEARCH OF NOTE .................................................................................................................................................................................. 1783
COMMERCIAL REAL ESTATE - Indoor Mall Retail in Trouble ................................................................................................................ 1783
COMMERCIAL REAL ESTATE - Mortgage bonds reflect diverging fortunes of US malls ....................................................................... 1786
COMMERCIAL REAL ESTATE - Dead Mall Syndrome: The Self-Reinforcing Death Spiral of Retail ..................................................... 1788
COMMERCIAL REAL ESTATE - The First Domino to fall: Retail-CRE (Commercial Real Estate) ......................................................... 1790
COMMERCIAL REAL ESTATE - After Seven Lean Years: US Commercial Real Estate: The Present Position and Future Prospects 1794
COMMERCIAL REAL ESTATE - Retail Sales Cannibalization ................................................................................................................ 1800
COMMERCIAL REAL ESTATE - Tsunami of Retail Store Closings and Downsizings Coming ............................................................... 1801
US RECESSION A Looming US Recession .................................................................................................................................................... 1804
RESEARCH OF NOTE .................................................................................................................................................................................. 1804
RECESSION - Sequential Decline in Wages ............................................................................................................................................ 1804
May 2014 Edition

16

RECESSION - Final Sales Signals Pending Recession ........................................................................................................................... 1805

RECESSION - Consumers Using Savings to Maintain Life Style ............................................................................................................. 1805
RECESSION - 1987 Yields ........................................................................................................................................................................ 1809
RECESSION - Why a Looming Recession May Be Near ......................................................................................................................... 1810
RECESSION - Minimally in the Back Stretch of the Recovery ................................................................................................................. 1815
RECESSION - Reduced Household Income at the Core of the Growth of the Federal Reserve Balance Sheet ................................... 1821
RECESSION - Household Income and Signs of A Collapsing Middle Class ............................................................................................ 1823
RECESSION - More Cyclical Signs of a US Recession ............................................................................................................................ 1823
RECESSION - A Lack of Demand ............................................................................................................................................................. 1824
RECESSION - Money Going to Cash But Equity Inflows Still Suggest Corrective Correlation ................................................................ 1826
RECESSION - More and More Signals Flashing ...................................................................................................................................... 1829
RECESSION - Term Structures Suggest Signs of a US Recession Ahead ............................................................................................. 1831
THE MUNI MONSTER- A Failure of Public Policy to Respond to Structural Change ........................................................................................ 1833
PEURTO RICO .......................................................................................................................................................................................... 1834
US MUNI LAND ......................................................................................................................................................................................... 1834
DETROIT - Simply the Canary................................................................................................................................................................... 1834
DETROIT - By the Numbers ................................................................................................................................................................. 1836
DETROIT - The News Reporting ........................................................................................................................................................... 1837
DETROIT - A Structural Problem that Failed to be politically addressed .............................................................................................. 1839
RETIREMENT CRISIS Now Beginning to Take Hold....................................................................................................................................... 1840
RESEARCH OF NOTE .................................................................................................................................................................................. 1841
RETIREMENT - Underfunded and Unsustainable .................................................................................................................................... 1841
RETIREMENT - 35 Facts to Scare a Baby Boomer .................................................................................................................................. 1844
RETIREMENT - $205K Account Limits ..................................................................................................................................................... 1846
RETIREMENT - $3M Retirement Cap Unanswered ................................................................................................................................. 1848
RETIREMENT - What Does Heart Surgery Really Cost, And Why Is It 70 Times More Expensive In The US? ..................................... 1849
RETIREMENT - UPS Drops 15,000 Spouses From Health Plan, Blames Obamacare ........................................................................... 1851
CAPITAL & INTEREST RATES ........................................................................................................................................................................... 1853
SOCIAL CHANGE - What America Will Look like When The Next Great Economic Crisis Strikes ................................................................... 1855
SPECIAL SUPPLEMENT....................................................................................................................................................... 1860

US SHADOW BANKING ...................................................................................................................................................................................... 1860
COLLATERAL TRANSFORMATIONS ...................................................................................................................................................... 1860
COV-LITE--PIK .......................................................................................................................................................................................... 1860
TruPS CDOs .............................................................................................................................................................................................. 1860
SHADOW BANKING DOCUMENTATION ................................................................................................................................................ 1860
STEALTH SHADOW BANKING FLOWS ............................................................................................................................................................ 1862
FLOWS: LIQUIDITY, CREDIT & DEBT ......................................................................................................................................................... 1862
SHADOW BANKING CREDIT INTERMEDIATION PROCESS .................................................................................................................... 1863
THE FEDS $2.3 TRILLION EXCESS RESERVES .................................................................................................................................... 1865
SAME GAME, NEW ACRONYMS The Acronyms in the Next Crisis ........................................................................................................ 1865
HOW IT NOW WORKS ................................................................................................................................................................................. 1866
ARCHILLES HEEL: DURATION & COLLATERAL RISK .................................................................................................................................... 1884
DURATION .................................................................................................................................................................................................... 1884
INSTRUMENTS OF TRANSFORMATION .................................................................................................................................................... 1886
SELF SECURITIZATION ........................................................................................................................................................................... 1886
COLLATERAL ................................................................................................................................................................................................ 1889
REHYPOTHECATION ............................................................................................................................................................................... 1889
REPOS & REVERSE REPOS ................................................................................................................................................................... 1891
HQC - HIGH QUALITY COLLATERAL ..................................................................................................................................................... 1893
COLLATERAL TRANSFORMATIONS ...................................................................................................................................................... 1910
LEVERAGED LOANS ............................................................................................................................................................................ 1915
SECURED & UNSECURED ...................................................................................................................................................................... 1929
CONTINGENT LIABILITIES .......................................................................................................................................................................... 1930
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Financial Repression Goes Global: Regional Update

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Financial Repression Goes Global: Regional Update

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FINANCIAL REPRESSION GOES GLOBAL

Accelerating Stealth Policy & Regulatory Responses

GLOBAL MACRO TIPPING POINTS - MAY 2014

1 May 2014 Edition

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