JP Conklin 704-887-9880 office jp.conklin@pensfordfinancial.com www.pensfordfinancial.com Leveling the Playing Field July 2, 2012 _______________________________________________________________________ Happy Birthday America!

I hope everyone has a great 4th of July and comes back with all fingers intact. As expected, GDP disappointed, coming in at just 1.9% the leading indicators suggest further weakening in the coming months. Consumer confidence is also declining, down to 62.0 from last months 64.4. On the positive side, new home sales came in at the highest level in two years, up a staggering 7.6% from last month. Maybe Operation Twist really is working One of the biggest stories of the week was Barclays settlement of the LIBOR manipulation lawsuit. We sent an email summarizing the event. If you missed our update during the week, please email us to receive the full report.

Not only were banks accused of keeping submitting artificially low LIBOR resets to conceal financial weakness from increased borrowing costs, but traders were actually asking bank employees to submit low resets to help their trades. Bank to Borrower: We Arent Your AdvisorBut Dont Hire One
(please ignore the fine print in the disclaimer that encourages you to check with your own advisors)

Heres an interesting story from The Guardian regarding swap transactions sold to middle market clients in Europe: http://www.guardian.co.uk/business/2012/jun/29/banks-fsa-review-compensationpayouts Some highlights: Banks faced fresh criticism about their treatment of customers on Friday after the Financial Services Authority said the big four high street banks Barclays, RBS, Lloyds and HSBC might need to compensate small business customers. The scandal centres on products sold to firms over the past 10 years that were supposed to help protect them against interest rate movements.

The conclusions came at the end of a two-month review during which 100 customers complained about their treatment by the banks, which sold 28,000 of the so-called interest rate swaps. The British Chambers of Commerce said many businesses now looked at the banks "with disbelief and horror" after the City regulator said it had found "serious failings" in the way products were sold.

We frequently hear from clients that banks push back on hiring us. You dont need Pensford, well give you a great deal with transparency without them. Or well do everything that they will do, but we wont charge you a fee. As one client asked them, If Im the one paying them, what do you care? Ironically, if you read the presentations these banks provide, the disclaimers suggest repeatedly that borrowers check with their own advisors and that the bank is not acting as a fiduciary. From the Bank That Shall Not Be Named: "Neither we nor our affiliates are acting as your agent, broker, advisor, or fiduciary in connection with any such transaction. Please consult your own financial, legal, tax, accounting and other professional advisors". So which is it? Considering the LIBOR lawsuit, The Guardian article, and the encouragement in the disclaimers, a bank must have a lot to lose if they tell borrowers not to hire an experienced derivative consultant. Bill Gross -Debt crisis cant be cured with more debt Im not the biggest Bill Gross fan in the world, but I thought he wrote a good article this week on the current state of events. The article is pretty long and spends a lot of time talking about Americas unfunded liabilities, but I wanted to focus on the more short term impact of flight to safety: What global investors, fixated on historical cyclical trends as opposed to secular delevering dynamics fail to appreciate is that economies and their financial markets historically have taken several decades as opposed to several years to renormalize once the fatal grip of too much debt wreaks havoc on the assumed perpetuity of capitalisms prosperity machine. Can a debt crisis be cured with more debt? Yes, if initial debt levels are reasonable and central banks are able to rejuvenate the delicate dance between debtor and creditor each believing that they are getting a good deal in terms of risk, reward and the deployment of funds between now and some future maturity. But when

debt as a percentage of GDP, or debt service as a percentage of household income, or the appropriateness of the term structure (short vs. long) on both borrower and lender balance sheets becomes imbalanced, then the well-oiled capitalistic engine may sputter and in some cases as in Greece freeze up. Thats when a debt crisis cant be cured with more debt, be it in the form of QEs or LTROs, or implicit firewalls created or to be created by Eurobonds, ESMs, the IMF or any other agency that presumably is money good. The fact is that the current burden of global debt is only being lightly alleviated via zero-bound interest rates. None of it, other than Greek PSI or minor amounts of private U.S. mortgage debt has been extinguished over the post-Lehman era; it has only been transferred from one pocket to another. Banks, insurance companies and mutual funds have passed the peripheral Old Maid from their hands to that of the ECB, or to Spanish and Italian banks, and ultimately on to the German core. Does it matter that Greece decides to stay with the Euro or that the Southern peripherals move towards austerity, or that the U.S. in November decides to go Red or Blue? Not much. Solutions for real growth matter only at the margin. An authentic debt crisis which the world is now experiencing can only be ultimately cured in two ways: 1) default on it, or 2) print more money in order to inflate it away. Both 1 and 2 are poison for bond and stock holders, which is why 7% returns guaranteed or not are so comical. This observer must obviously admit as do rating services that some countries are better than others. Those with initial debt conditions that dont exceed historical norms, those that can print and issue debt in their own currencies, those that have reasonable trade balances, those that emphasize the sanctity of property rights, those that dominate the global military stage, those with innovation and education, those. I could go on. Many of the above conditions point investors to the ultimate safe haven, the cleanest of the dirty shirts, the champion of champions, rose of all roses the United States. I will not dispute it, market movements have confirmed it and my own experience in 2011 is a testament to it. Dont underweight Uncle Sam in a debt crisis. Money seeking a safe haven will find it in Americas deep and liquid (almost Aaa rated) bond and equity markets.

LIBOR As one of our clients noted, LIBOR is starting to feel like a gymnastic or ice skating event.

Fixed Rate Outlook Some minor risk-on attitude Friday as rates shifted higher across the curve following the eurozones announcement to help bring down the borrowing costs of Italy and Spain.

But consider what Bill Gross said above, Dont underweight Uncle Sam in a debt crisis. This Week Holiday shortened week, so markets could pretty be quiet until Thursday. Bond markets close early on Tuesday and are closed all day Wednesday, but Friday brings the monthly payroll data. Total job gains are expected to come in around 90k with the unemployment rate holding steady at 8.2%.

Generally, this material is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Your receipt of this material does not create a client relationship with us and we are not acting as fiduciary or advisory capacity to you by providing the information herein. All market prices, data and other information are not warranted as

to completeness or accuracy and are subject to change without notice. This material may contain information that is privileged, confidential, legally privileged, and/or exempt from disclosure under applicable law. Though the information herein may discuss certain legal and tax aspects of financial instruments, Pensford Financial Group, LLC does not provide legal or tax advice. The contents herein are the copyright material of Pensford Financial Group, LLC and shall not be copied, reproduced, or redistributed without the express written permission of Pensford Financial Group, LLC.

ECONOMIC CALENDAR
Economic Data Day Monday Time 10:00AM 10:00AM 10:00AM Tuesday 9:45AM 10:00AM 5:00PM 5:00PM Report ISM Manufacturing ISM Prices Paid Construction Spending (MoM) ISM New York Factory Orders Total Vehicle Sales Domestic Vehicle Sales Bond Markets Close at 2:00PM Wednesday Thursday 7:00AM 8:15AM 8:30AM 8:30AM 10:00AM Friday 8:30AM 8:30AM 8:30AM 8:30AM 8:30AM July 4th Holiday MBA Mortgage Applications ADP Employment Change Initial Jobless Claims Continuing Claims ISM Non-Manufacturing Composite Change in Nonfarm Payrolls Change in Private Payrolls Unemployment Rate Underemployment Rate (U6) Avg Weekly Hours All Employees 34.4 95k 385k 3305k 52.9 90k 97k 8.2% -7.1% 133k 386k 3296k 53.7 69k 82k 8.2% 14.8% 34.4 0.1% 13.95mm 10.90mm Forecast 52.0 46.0 0.2% Previous 53.5 47.5 0.3% 49.9 -0.6% 13.73mm 10.75mm

Speeches and Events Day Monday Time 1:15PM Fed's Williams speaks Report Place San Francisco, CA

Treasury Auctions Day Time Report Size