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JP Conklin 704-887-9880 office www.pensfordfinancial.

com Leveling the Playing Field October 3, 2011 _______________________________________________________________________ The Eagles played one of the worst games I can ever remember. They looked clownish. Im not even certain they practiced during the week. Their rookie kicker missed two field goals. Had he made even one of them, we would have won. I also play fantasy football. Ill give you one guess who my kicker is. And as if thats not enough, I played against Arian Foster and Matt Forte, who combined for like 46,000 points. I need the Phillies to win tonight. Need, not want. A week after Operation Twist was announced, 30 year Treasury yields are unchanged and 10 year Treasury yields are up slightly. Thanks Ben, I can feel the economy humming already. Personal income and spending data from last week is worrisome since we all know consumers drive GDP. Nominal income fell for the first time in two years. Real income fell 1.1% over the last quarter. This means falling food and energy prices are being offset by a fall in income. This probably translates into higher precautionary saving and lack of spending translates into weaker GDP. The optimists out there would say JP, why arent you mentioning the strong Chicago PMI from last week? Or the solid Durable Goods release? Or that you had a date with Allison Stokke? Because I dont like to brag, thats why. But also because manufacturing data is no longer considered a great leading indicator of our economy. Manufacturing now more closely tracks emerging market strength than US market strength. And manufacturing comprises 9% of the US workforce, whereas (for example) state and local government employees account for 15%. When netting manufacturing job gains against state and local government losses in 2011, weve experienced a loss of 67k jobs. Random Hypothetical Question of the Day: Lets say youre captain in a slow pitch work softball league and you have the first overall pick. By the same wrinkle in the universe that says Sarah Jessica Parker is an attractive leading actress, a #1 MLB pitcher like Roy Halladay happens to be available to select. Do you take a Roy Halladay over the office athlete? Ive spent more time thinking about this than is reasonably healthy.

Im confused by BofAs decision to charge $5/mo for debit cards. Remember when BoNY started charging certain institutional clients a fee for holding deposits? This feels an awful lot like that. BofA has $1T in deposits and I have to think this is more than just a way to raise fees. Could BofA be encouraging customers to move their cash deposits to another institution? Netflix raised subscriber fees by $6/mo about two months ago and are on the verge of collapsing. This could create a run on BofA.ORevery other bank will be unveiling similar fees in the very near future and the word collusion will need to come back into favor. How many NC State fans are watching Russell Wilson and asking themselves Is it just me or is he suddenly a good QB? European Credit Crisis Now that the mainstream business reporters have caught on, we can spend a little less time sounding the horn. The German parliament voted to expand the EFSF by a vote of 315 to 305, which suggests that Germany is pretty divided about how much it wants to be on the hook for the European bailout. Greece is going to run out of cash within the next month or so. The G20 meets on November 3 and 4. Greece is going to default in some form or fashion, even if it is called a restructuring. Keep in mind that European banks are in worse condition than US banks were in 2008. Once the dominoes start to fall, its going to be very painful. Its convenient to say the euro will survive, but I think its a 50% - 50% proposition over the next two years. Incredible stat that I havent bothered to verify: Greece has been in default 160 out of the last 200 years. LIBOR Outlook 3 month LIBOR is up 10bps in the last two months. Nothing to write home about, but it reinforces the notion that funding issues linger. Fixed Rate Outlook I asked The Best Trader Ive Ever Known (TBTIEK) if Operation Twist could push 10 year Treasury yields down 0.50%. No chance. He thinks were basically at the bottom because real interest rates are already negative. Over time, inflation could recede and allow for a lower 10 year yield without real rates

being negative. But for the foreseeable future, he believes the 10 year will trade within a range. This Week Monday may provide a temporary head fake towards strong economic data as some economists expect ISM Manufacturing and auto sales to show improvement over last month. But the most important set of data comes on Friday when the jobs reports come out. Based on discussions with economists we trust, NFP may disappoint and the Unemployment Rate could tick up. Consensus NFP forecasts call for a gain of 50k jobs, but we think theres a very legitimate risk that we see a net job loss last month, perhaps as high as 50k jobs. This would also increase the Unemployment Rate to 9.2%. Bernanke testifies before the Joint Economic Committee on Tuesday at 10am. Last week he referred to the labor market turmoil as a national crisis and wed expect him to use similar phraseology this week. Bernanke is trying to avoid a lost year as politicians spend more time campaigning than governing and he wants fiscal policy to take an increased role. Im going to say it right here and right now JoePa is done after this year. The Nittany Lions arent quite Florida-awful (since we lost to Bama by 16 at home and the Gators lost by 28 at home), but PSU is on a crash course to a 6 loss season and 7 losses isnt unreasonable. Cue the Urban Meyer hype machine.

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Economic Calendar
Economic Data Day Monday Time 10:00AM 10:00AM 10:00AM 5:00PM 5:00PM Tuesday Wednesday 10:00AM 7:00AM 7:30AM 8:15AM 10:00AM Thursday 8:30AM 8:30AM Friday 8:30AM 8:30AM 8:30AM 8:30AM 8:30AM 8:30AM 8:30AM 8:30AM 8:30AM 10:00AM 3:00AM Report Construction Spending MoM ISM Manufacturing ISM Prices Paid Total Vehicle Sales Domestic Vehicle Sales Factory Orders MBA Mortgage Applications Challenger Job Cuts YoY ADP Employment Change ISM Non-Manufacturing Composite Initial Jobless Claims Continuing Claims Change in Nonfarm Payrolls Change in Private Payrolls Change in Manufacturing Payrolls Unemployment Rate Underemployment Rate (U6) Avg Hourly Earning MoM All Employees Avg Hourly Earning YoY All Employees Avg W eekly Hours All Employees Change in Household Survey Employment W holesale Inventories Consumer Credit 0.6% $8.000B 0.2% 1.9% 34.2 -0.1% 1.9% 34.2 331 0.8% $11.965B 50k 90k -5k 9.1% 75k 53.0 Forecast -0.2% 50.4 54.0 12.30mm 9.60mm 0.2% Previous -1.3% 50.6 55.5 12.10mm 9.52mm 2.4% 9.3% 47.0% 91k 53.3 391k 3729k 0k 17k -3k 9.1%

Events and Speeches Day Monday Time 7:00AM 6:00PM Tuesday 10:00AM 10:00AM Friday 10:45AM Fed's Fisher speaks to CNBC Fed's Lacker speaks Fed's Chairman Bernanke to Testify before JEC Congressman Ron Paul holds Hearing on Auditing the Fed Fed's Lockhart speaks on Economy Atlanta, GA Madison, W I Report Place

Treasury Issuance Day Closing Issues Size