report Thunder Road
 All I want for Christmas is the S&P 500(or do I?)
May 2013
Strategy
40060080010001200140016001800
       1       9       9       6       1       9       9       7       1       9       9       8       1       9       9       9       2       0       0       0       2       0       0       1       2       0       0       2       2       0       0       3       2       0       0       4       2       0       0       5       2       0       0       6       2       0       0       7       2       0       0       8       2       0       0       9       2       0       1       0       2       0       1       1       2       0       1       2       2       0       1       3
S&P 500: the Las Vegas period
 
All I want for Christmas is the S&P 500 (or do I?)
 
Soundcheck
page
 
3
 First set:
Crisis? What crisis? 5A trend that is not our friend 6Divergence everywhere 11
Second set:
Equity market models & correlations 17breaking down“Club 18-13” 24Money creation, the “deposit to loan gap” 27& the S&P 500 Collateral and shadow banking 30
Am I missing something?
Industrial gas stocks (Praxair and Linde) 32
The Stadium Tour
US 37Europe 42Asia 50 
Encore
InationaryDeation:end-gameupdate57
Leaving the building
Slide away (slides from recent corporate 62presentations) incl. Cisco, Vallourec, Statoil,Du Pont, Vale, Maersk, Wilmar, Pirelli, RioTinto, John Deere, etc.
Research: Paul Mylchreest+44 (0) 207190 7242pmylchreest@monumentsecurities.com
This is a marketing communication. It has not been prepared under the Independent Investment research regulatoryrequirements and accordingly there is no prohibition on dealing ahead of the dissemination of this research material.
Frontcover:imagecourtesyofLAsVegasConventionandVistorsAuthroity
 
3
May 2013
Soundcheck
Weareapproachingacriticalpoint(again)inthe“battleroyal”betweentheforcesofinationanddeation.Deationaryforcesarethreateningtooverwhelmthereationarypush-backoftheworld’scentralbanks-althoughthisisnotreectedinmostequitymarkets(especiallytheUS).Open-endedQEwasonlyannouncedbytheFedlastAutumn,buttheimpacton(market-based)inationexpectationsplateauedwithinmonths
and has started turning down.
IamnofanofQE,buttheFedisdiscussingscalingbackitspreferredreationarypolicytoolwhenthe
economic cycle is at one of the weaker points since the recovery began in early-2009. This is probably a bluff,
orwouldbeatemporarymeasureatmost.WithrecentsupportforscalingbackfromtheBISandIMF,it’squestionablewhetherthere’sacoordinatedattempttotalkthedollarup...justasBRICSnationsaresteppinguptheireffortstoundermineit(see“Encore”section)?Oristalkofbubblesimpactingtheirfervour?Inequities,previouslyreliablevaluationmodelsbasedonISM/PMIsarebreakingdown-likelyduetoQE.Correlationsbetweenequitymarketsandvariousothernancialassetsandeconomicindicatorsarealso
diverging as the S&P 500 powers ever higher. Currently, few people seem to (even) entertain the notion that
westernequitymarketscouldseeashort-termcorrection.Maybethat’s“correct”-inlightofthemechanicsof“full-blown”QEasexplainedinthereport-butitisworryinglyreminiscentofbubblementality.
As we show in the report, the monetary system in the US has changed dramatically since the 2008 collapse
ofLehmanandtheimplementationofQE.ThisgoesrighttotheheartofhowNEWMONEYISCREATED(QEnotloans),whocreatesit(theFednotthebanks)andwhogetstouseitrst(banksnotborrowers).Asfarasit’spossibletotell,thischangeappearstohavehadaverypositiveimpactonequitiesviathe
banking system. The chart below shows the surprisingly close correlation between the S&P 500 and the
 “deposittoloangap”inUScommercialbanks.The“deposittoloangap”isadirectresultofQEprogrammes
and currently amounts to more than US$2 trillion. These excess deposits create an “investment need” for thebanking system and the collective ability to distort asset prices. This is discussed in more detail below. The
questionishowmuchhasfounditswayintoequitiesandwhatimpactwilltheseowshavegoingforward.
-0.200.300.801.301.802.302.8030.035.040.045.050.055.060.0
   J   a   n  -   0   9   M   a   r  -   0   9   M   a   y  -   0   9   J   u    l  -   0   9   S   e   p  -   0   9   N   o   v  -   0   9   J   a   n  -   1   0   M   a   r  -   1   0   M   a   y  -   1   0   J   u    l  -   1   0   S   e   p  -   1   0   N   o   v  -   1   0   J   a   n  -   1   1   M   a   r  -   1   1   M   a   y  -   1   1   J   u    l  -   1   1   S   e   p  -   1   1   N   o   v  -   1   1   J   a   n  -   1   2   M   a   r  -   1   2   M   a   y  -   1   2   J   u    l  -   1   2   S   e   p  -   1   2   N   o   v  -   1   2   J   a   n  -   1   3   M   a   r  -   1   3
Global manufacturing PMI v. US 5-yr breakeven inflation
Global manufacturing PMIUS Treasuries: 5-year breakeven inflation
 S  o ur  c  e  : M a r k i   t   . c  om ,M on um e n t   S  e  c  ur i   t  i   e  s