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JP Conklin 704-887-9880 office jp.conklin@pensfordfinancial.com www.pensfordfinancial.

com Leveling the Playing Field March 5, 2012 _______________________________________________________________________ Dear Dook Sorry, we were tied up and couldnt help out Saturday. Howd it go? Sincerely, Germany

Goldman revised their eco forecasts for the US lower last week, and of course the lemmings followed suit and it now appears the economy is headed southward again. BofA reduced Q1 GDP forecasts from 2.2% to 1.8% and BNP reduced the same from 2.5% to 1.75%. Despite this, stocks go up because thats all they can do when the Fed is printing money hand over fist and the DJIA broke 13,000. Some of the equity optimism came from the appearance of continued coordination for a euro-zone resolution. We believe this to be overstated. Greek CDS spiked at week end, which could be front running of a default from the bailout falling apart. From Bloomberg: Greece may fail to garner enough investors to participate in a voluntary writedown of its debt, Der Spiegel magazine reported, citing unnamed officials at the European Central Bank. A second Greek bailout is partly tied to investors agreeing to the writedown by a March 8 deadline. In other words, private bond holders of Greek sovereign bonds may not voluntarily agree to the haircut on the bonds because they would rather go to court and try to get something closer to par. This PSI (private sector involvement) is critical to Germanys backing of the bailout, so if this falls through the whole package may unravel. Hence Greek CDS spikes and were not as optimistic about the health of the world as US equities would suggest. From another Bloomberg report: Greece is reneging on programs to spur its economic competitiveness that it signed with Germany since July, calling into question its willingness and capacity to revitalize its economy, the Economy Ministry in Berlin said.

Economy Minister Philipp Roesler and other German officials started bilateral projects with Greece from creating a development bank to advising on the construction of the Trans Adriatic Pipeline and on improving tax collection, the ministry said in a report, a copy of which was obtained by Bloomberg News. Greece has failed to fulfill its pledges in most cases, it said. Greeces implementation of project targets remains insufficient, the ministry said in the report. Revamping Greeces economy at the same time as cutting its debt is decisive -- thats why Germany agreed to its support for the programs. For the Greek government, the programs obviously have no priority, the ministry said. This is unacceptable from the German standpoint. German tax collectors actually volunteered to go to Greece to help eradicate tax evasion. Can an actual invasion be far behind? On CNBC last week, the founder of the Economic Cycle Research Institute Lakshman Achuthan was interviewed, reaffirming his call for a recession (http://www.businesscycle.com/#). Its a 10 minute, easy to watch discussion and we found it pretty compelling as he cites a composite index that in every previous occurrence with data similar to todays data has led to a recession: Q: Lakshman, in three years there has not been a more anticipated set of interviews than with you today. Reaffirm your recession call. A: Consider it reaffirmed, and let me explain why. Since our recession call five months ago, the definitive, hard data used to determine official recession dates have gotten worse, not better, despite the consensus view that things have been improving since we made that call in late September. Q: Is the beginning of a consumption slowdown apparent? A: Lets go to those key, hard facts. GDP growth, year-over-year, peaked in the third quarter of 2010 at 3.5%. By the second quarter of 2011, it had fallen to 1.5% and its basically flat-lined from there. It has not reaccelerated. Its a similar pattern for personal income growth and its a similar pattern for the broad measures of sales growth. As of January, when you look at industrial production growth, year-over-year, it has now declined to a 22-month low. Taking all of these key aggregate measures of output, jobs, income, and sales, putting it into our Coincident Index, the growth rate has now dropped to a 21-month low. The economy is weaker today than it has been in 21 months. Compounding this, rising oil prices of $10/barrel translates into roughly 0.9% drag on GDP. But hey, Carolina beat Dook!

LIBOR Outlook Vegas spread on the Heels game was Heels -17.5. Every Tar Heel knew they would cover. It would have been 23 on a neutral floor.

Fixed Rate Outlook Very range bound until something gives 10 year Treasury yields an excuse to break out of the 1.90% - 2.05% band. US economic data probably wont do it, even the labor reports on Friday. Right now only the Eurozone issues matter enough to really drive rates one way or another.

This Week Relatively quiet week ahead with the big data coming in Fridays employment report. Remember that last month had the surprise jump of 243k gain, but it turned out to be largely manipulated by the annual seasonal adjustment. In fact, it was the largest seasonal adjustment since 2000. And Obama was on TV 3 seconds after the release touting the recovery! But of course the administration had nothing to do with it Back in 2000, the seasonal adjustment led to a ridiculous gain of 847k jobs and then followed up in February with a gain of just 39k jobs. The consensus this month does not call for a similar drop off (gain of 210k), but there are a lot of traders afraid of the downside from a shockingly weak number. But we dont think the administration would allow that to happen in a headline number, theyll just bleed that into the monthly revisions from the last month that no one pays attention to.

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ECONOMIC CALENDAR
Economic Data Day Monday Time 10:00AM 10:00AM Tuesday Wednesday 7:00AM 8:15AM 8:30AM 8:30AM Thursday 7:30AM 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 MBA Mortgage Applications ADP Employment Change Nonfarm Productivity Unit Labor Costs Challenger Job Cuts (YoY) Initial Jobless Claims Continuing Claims Trade Balance Change in Nonfarm Payrolls Change in Private Payrolls Change in Manufacturing Payrolls Avg. Hourly Earning (MoM) Avg. Hourly Earning (YoY) Avg. Weekly Hours Unemployment Rate Underemployment Rate (U6) Wholesale Inventories 0.6% 351k 3388k -$49.0B 210k 220k 20k 0.2% 2.0% 34.5 8.3% 210k 0.8% 1.2% -0.3% 170k 0.7% 1.2% 38.9% 353k 3404k -$48.8B 243k 257k 50k 0.2% 1.9% 34.5 8.3% 15.1% 1.0% Report ISM Non-Manufacturing Composite Factory Orders Forecast 56.2 -1.5% Previous 56.8 1.1%

Speeches and Events Day Monday Time 1:20PM 7:30PM Report Fed's Fisher speaks on the State of the Economy Fed's Fisher speaks on the State of the Economy Place Dallas, TX Houston, TX

Treasury Auctions Day Closing Issues Size

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