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Global Macro Tipping Points

Global Macro Tipping Points

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51184439 gmtp-2011-04-event-risk 51184439 gmtp-2011-04-event-risk Document Transcript

  • Event Risk - Geo-Political or Natural DisasterAll Artificial Economies are Exposed to sudden Event RisksGLOBAL MACRO TIPPING POINTS - APRIL 20113/19/2011 1 RESTRICTED & CONFIDENTIAL
  • Event Risk - Geo-Political or Natural Disaster All Artificial Economies are Exposed to sudden Event Risks GLOBAL MACRO TIPPING POINTS - APRIL 2011TIPPING POINTS........................................................................................................................................................................................ 4 WE ARE HERE ................................................................................................................................................................................................. 4 SHIFTING TIPPING POINTS - CHANGES TO WATCH .................................................................................................................................... 5 RISK LEVELS ................................................................................................................................................................................................... 9 IN FOCUS - APRIL 2011 ................................................................................................................................................................................. 11 I - NATURAL DISASTER ...................................................................................................................................................................................................... 11 II - GEO-POLITICAL EVENT ................................................................................................................................................................................................ 11 III - SOCIAL UNREST ........................................................................................................................................................................................................... 11 IV - FOOD PRICE PRESSURES ......................................................................................................................................................................................... 12 V - OIL PRICE PRESSURES ............................................................................................................................................................................................... 13 VI - INFLATION & INTEREST PRESSURES ..................................................................................................................................................................... 13 OTHER HIGHTLIGHTS ........................................................................................................................................................................................................ 14 XVIII - Bond Bubble: Who Will Buy US Bonds? .......................................................................................................................................................... 14 XIX - Pension - Entitlement Crisis: Collapsing Western Social Net .......................................................................................................................... 14GLOBAL MACRO......................................................................................................................................................................................15 JAPAN.............................................................................................................................................................................................................. 18 GLOBAL IMPLICATIONS: EARTHQUAKE, TSUNAMI & NUCLEAR CRISIS ............................................................................................................... 18 YEN INTERVENTION: GLOBAL G7 COORDINATION .................................................................................................................................................... 19 NORTH AFRICA & MIDDLE EAST ............................................................................................................................................................... 20 NORTH AFRICA:TUNISIA, EGYPT & LIBYA ..................................................................................................................................................................... 20 MIDDLE EAST: BAHRAIN, YEMEN & SAUDI ARABIA .................................................................................................................................................... 20 EU SOVEREIGN DEBT ................................................................................................................................................................................. 21 AGREEMENT ......................................................................................................................................................................................................................... 21 RISK ........................................................................................................................................................................................................................................ 23 PIIGS ....................................................................................................................................................................................................................................... 25 VIII - Sovereign Debt - Unaffordable PIIGS Bond Yields .......................................................................................................................................... 25 GLOBAL IMBALANCES ................................................................................................................................................................................ 30 VII JAPANESE DEBT CONCERNS .................................................................................................................................................................................... 31 BEGGAR-THY-NEIGHBOR .......................................................................................................................................................................... 34US ECONOMY ...........................................................................................................................................................................................35 KEY MONTHLY ECONOMIC INDICATORS – HAVE A CLOSER LOOK AT WHAT THE MAINLINE MEDIA DOESN’T DISCUSS. ...................... 36 2011 US ECONOMIC IMPEDIMENTS......................................................................................................................................................... 37 OBAMAS 2012 BUDGET - CBOS ASSESSMENT .................................................................................................................................... 38 XVII - PUBLIC POLICY MISCUES ...................................................................................................................................................................................... 40 USA INC. ................................................................................................................................................................................................................................ 40 KEEP YOUR EYE ON THE REAL ESTATE DOUBLE DIP ...................................................................................................................... 43 XIV - RESIDENTIAL REAL ESTATE ................................................................................................................................................................................... 43 XV - COMMERCIAL REAL ESTATE ................................................................................................................................................................................... 47 2 RESTRICTED & CONFIDENTIAL
  • MONTHLY PROCESS OF ABSTRACTIONThe Global Macro Tipping Points Service is part of the Process of Abstraction which we conduct monthly. Focus CoverageGlobal Macro Tipping Points Tipping Points Tipping Points Abstraction Global Macro US EconomyMarket Analytics and Technical Analysis Market Analytics Technical Analysis Fundamental Analysis Risk AnalysisMonthly Market Commentary Synthesis Commentary Thesis Conclusions 3 RESTRICTED & CONFIDENTIAL
  • TIPPING POINTSWE ARE HERE 4 RESTRICTED & CONFIDENTIAL
  • SHIFTING TIPPING POINTS - Changes to Watch INCREASES CURRENT Q4 10 CHANGE Natural Physical Disaster 1 31 +30 Geo-Political Event 2 37 +34 Social Unrest 3 36 +35 Food Price Pressures 4 15 +11 Oil Price Pressures 5 30 +25 Rising Inflation & 6 14 +8 Interest Pressures MAJOR DECREASES North & South Korea 35 12 -23 Bond Bubble 18 3 -15 Central & eastern Europe 21 8 -13We need to carefully watch: 1) The increasing & broadening potential for Global Contagion out of: - Japan: Yen Carry Trade Unwind & FX fallout, - North Africa: A Libyan Civil war and Un Military involvement , - Middle East: Escalating pressures on oil prices due to broadening social unrest. - EU PIIGS: Sovereign debt crisis and EU Banking problems 2) How and if global Central Banks actually do unwind their crisis ‗triage‘ programs or are they permanent? Specifically, what will the US Federal Reserve signal in April and May about the expiration of Quantitative Easing (QE) II. It was originally planned to expire in June 2011. 3) What G7 Government public policy initiatives will be concerning: - Weakening economic conditions - Chronic unemployment levels.These events will allow us to determine if ourroadmap is still valid or if we are going to seean acceleration in weakening global financialconditions. 5 RESTRICTED & CONFIDENTIAL
  • Social UnrestOur 2011 Thesis analysis signaled that we needed to be watching for a major shift towards Conflict and Tension in2011. This prediction has arrived with an unexpected jolt in Q1 2011, even to us!Social Unrest and Geo-Political Tensions seem to have broken out globally in a wide spread fashion. It is ouropinion that the drivers behind these tensions are rising food, energy and cost of living prices that coupled withextreme levels of unemployment is heralding this unprecedented levels of global unrest. 6 RESTRICTED & CONFIDENTIAL
  • NOW Q4 Diff. 2010NATURAL PHYSICAL DISASTER Presently: Gulf Oil Spill Economic fallout and 1 31 +30 possible hurricane impactGEO-POLITICAL EVENT A sovereign country overthrow, rebellion or 2 37 +35 insurrectionSOCIAL UNREST Public rallies, protests and rioting against the 3 36 +33 government.FOOD PRICE PRESSURES Production shortages, distribution break- 4 15 +11 downs with growing Asian demandOIL PRICE PRESSURES Shortages, Peak Oil & Asian Growth demand. 5 30 +25RISING INFLATION PRESSURES & Reversal in Interest rate and impact on 6 14 +8INTEREST RATES government financing budgetsJAPAN DEBT DEFLATION SPIRAL Ability for Japan to continue to fund national 7 18 +11 debt with shifting demographic patterns.SOVEREIGN DEBT - PIIGS Insolvency and Inability to stimulate 8 1 -7 economiesEU BANKING CRISIS Bank Ratios of 50:1 and toxic debt on and off 9 2 -7 the balance sheetRISK REVERSAL Historic level of financial market participation 10 5 -5 and dependency (i.e. pension entitlements)US STATE & LOCAL GOVERNMENT Unprecedented budget shortfalls & funding 11 4 -7 problemsCHRONIC UNEMPLOYMENT Historic Unemployment rates in G7 12 9 -3CHINA BUBBLE Real Estate & speculative bubbles 13 22 +9RESIDENTIAL REAL ESTATE – Shadow Inventory, Strategic Defaults, 14 6 -8PHASE II Looming Option ARMS ‗python‘, LTV levels.COMMERCIAL REAL ESTATE Market Values are down 45 - 55% with little 15 7 -8 write downs as of yet being taken by banks, insurance or financial holders.US BANKING CRISIS II Deferred accounted write-downs for Real 16 10 -6 Estate, Commercial Real Estate & HELOCSPUBLIC POLICY MISCUES Impact of Obamacare, Dodd-Frank Bill and 17 13 -4 others in reaction to present environment.BOND BUBBLE Historically high Bond Prices 18 3 -15PENSION – ENTITLEMENT CRISIS Unfunded Pension Liabilities - > $100T in US 19 11 -8US DOLLAR WEAKNESS Domestic Inflationary Pressures 20 28 +8 7 RESTRICTED & CONFIDENTIAL
  • CENTRAL & EASTERN EUROPE The Sub Price of Europe – Level of borrowing 21 8 -13 in non sovereign currency (EU loans)US FISCAL, TRADE AND ACCOUNT Inability of the US to finance imbalances 22 21 -1IMBALANCESCREDIT CONTRACTION II Bankruptcy & Mal-Investment Catalyst 23 18 -5FINANCE & INSUR. BALANCE SHEET Accounting for Commercial Real Estate 24 17 -7WRITE-OFFS market values, loan loss reservesUS STOCK MARKET VALUATIONS Over-Valuation and unrealistic earnings 25 16 -9 estimates.GOVERNMENT BACKSTOP Fannie, Freddie, Ginnie, FHA, FDIC, Pension 26 23 -3INSURANCE Guarantee backstop funding.SHRINKING REVENUE GROWTH Slowing Corporate Top-Line revenue growth 27 27RATE ratesGLOBAL OUTPUT GAP Global Overcapacity & Underutilization 28 29 +1US RESERVE CURRENCY Emergence of alternative solutions such as 29 20 -9 SDRs. Inflationary repatriation impactPUBLIC SENTIMENT & CONFIDENCE Growing social unrest and public rage 30 26 -4SLOWING RETAIL & CONSUMER Impact of slowing consumer sales and 31 25 -6SALES increasing savings rate on 70% consumption US EconomyCORPORATE BANKRUPTCIES Reverse Gearing & margin pressures 32 24 -8TERRORIST EVENT Unknown black swan 33 35 +2FINANCIAL CRISIS PROGRAMS Withdrawal of Financial Crisis Triage 34 24 -10EXPIRATION Programs and interest rate normalizationNORTH & SOUTH KOREA Geo-Political tensions - Escalating 35 12 -23IRAN NUCLEAR THREAT Israeli attack on Iran - Middle East escalation 36 33 -3PANDEMIC /EPIDEMIC Unknown black swan 37 32 -5 8 RESTRICTED & CONFIDENTIAL
  • RISK LEVELSCredit MetricsOn the surface there would appear topresently be no major worries in thecredit markets.The Libor-OIS spread and the TEDspread are at acceptable lowerlevels.The EUR 2 Year Currency Swap doeshowever show an increasinglyelevated level.DivergenceOne of the things to watch for in themarkets is divergence.Divergence are one of the bestwarnings that something is wrongsomewhere. It often tells you thatthere are unbalanced forces at playin the market.These forces will resolve themselvesbut often do this via gradual reversalin trend or a sudden surprise shockto the markets.The ECRI Weekly Leading Index ispresently showing a divergence withthe S&P 500 Index.While the S&P 500 is setting a higherhigh, the ECRI on a longer termweekly basis is setting lower highs.This suggests that the stock marketmay be pricing in more economicgood news than it should. CorporateEarnings are at historically very highlevels and have expanded rapidly.CAPE (Cyclically Adjusted PE) arealso at extremes. 9 RESTRICTED & CONFIDENTIAL
  • Money Supply Growth - M3Though the government no longerreleases the M3 money supplystatistics, they are put together bysuch organizations asShadowStats.com.Despite the massive efforts by theUS Federal Reserve the overallmoney supply as represented by thisbroadest measure of money andcredit continues to contract.What has become even moreworrying is that M3 is now beginningto show signs of rolling over.Bank LiabilitiesThe Shadow Banking System as theprime pusher of toxic debtinstruments collapsed in the 2008financial crisis and so far it simplyhas not re-emerged in some sort ofhybrid fashion. The Federal Reservedesperately needs this to happen andthis has been another reason for theFeds "Extend & Pretend" policy.To the right is the latest figures fromthe Federal Reserves Flow of Fundsreport for Q4 2010. The report wasstartling since Q3 2010 was evenworse than thought after finaladjustments were made.We had aQ4 2010 decline of $206.4Billion in Shadow Banking liabilitieswith $440 Billion in combinedShadow and Conventional BankingSystem Liabilities.This almost guarantees that theFederal Reserve must continue QEX. 10 RESTRICTED & CONFIDENTIAL
  • IN FOCUS - April 2011I - NATURAL DISASTERFirst an Earthquake, then a Tsunami and then a fullscale Nuclear Disaster! This is as big a naturaldisaster as we have had in the last 50 years!With the Japanese Carry Trade having been one ofthe largest sources of hot money for over a decadeand a half, this carry trade it is now exposed tomassive repatriation to stop the losses from apossible rising yen. The bigger crisis may not benatural but rather financial.It cannot be understated how serious this could beto global markets unless the rise in the Yen isquickly stabilized. Though G7 intervention hasalready been initiated to address this it is going toface major head winds as money is increasinglybrought home from foreign holdings to fund therebuilding and reconstruction efforts required afterthe devastation.II - GEO-POLITICAL EVENTYET ANOTHER MILITARY BATTLE OVER OILA UN sanctioned "no fly zone" over Libya and"military intervention" has given the green light toFrance and UKs push for immediate military actionagainst Libyan leader Moammar Gaddhafi.Saturday March 19th saw the first show of foreignforce when a French Rafale fighter shot down aLibyan air force fighter jet over Benghazi while itwas enforcing the UN no fly zone mandate.Make no mistake about what is going on here. Thisis about taking full advantage of an opportunity tosecure the rich oil supplies of Libya.The G7 now have military presence in every majoroil producing nation in the world with two excepts -Iran and Russia. With the US having control of theCaspian basin and its former Russian states, it haseffectively already neutralized Russia.III - SOCIAL UNRESTThe map to the right from the Economist shows themembers of the Arab League. Starting withTunisias overthrow of the 23 year rule of Zine el-Abidine Ben Ali, the rage has spread like a wild fire 11 RESTRICTED & CONFIDENTIAL
  • through the Arab world. Egyptian protestersreplaced President Hosni Mubarak in just 18 days,after 3 decades under his rule. More recentlyAlgeria, Bahrain, Yemen, Jordan, and Libya have allseen major demonstrations by people fed up withthe living standard they face on a daily basis. Itappears to get worse and more deeply rooted eachday.The conflict in North Africa was a predictableoutcome of the US Monetary Policy of QuantitativeEasing.It is not plausible that the US Federal Reserve, asthe manager of the worlds Reserve Currency, didnot fully recognize the global ramifications of suchmonetary inflationary actions well in advance.Quantitative Easing like the IntercontinentalBallistic Missiles (ICBM) of the cold war era has hadthe same devastating pre-emptive impact on Libya.There can also be little doubt that the bi-monthlymeetings of the Bank of International Settlements(BIS) board of directors, which specifically meet todiscuss coordinated monetary policy outcomes, didnot consider this eventuality. The board of directorsof this global power center includes all G7 CentralBanks chiefs, with the conspicuous absence of asingle member of the Arab League not receiving US See Article: Flash Points in the "Age of Rage"military financial aid.IV - FOOD PRICE PRESSURESThe United Nations reckons countries spent at least$1 trillion on food imports in 2010, with the poorestpaying as much as 20 percent more than in 2009.These increases are just getting started. InJanuary, world food prices rose to another recordon higher dairy, sugar and grain costs.Unlike the food-price spike of 2008, this one maybe more secular than cyclical. Asia alone, forexample, will have another 140 million mouths tofeed over the next four years. Add that to almost 3billion people in the fast-growing region and youhave a recipe for booming demand.What‘s killing households surviving on a few dollarsa day is price volatility. If you spend almost half ofyour income to fill bellies, a 10 percent surge incooking oil, wheat or chili peppers is devastating.It‘s hard enough to pay rent and handle health-carecosts today, never mind investing in education.Obviously, the poorer the country the bigger thepercentage food is of disposable income. Foodincreases and volatility devastates the poor but italso cripples the middle class. 12 RESTRICTED & CONFIDENTIAL
  • V - OIL PRICE PRESSURESOil prices have shot up and appear to haveestablished a new level of over $100/ barrel.Both the level of oil and the percentage increasehave been precursors of recessions in the past.G7 countries are least equipped today to face thepossibility of a recession with no bullets left in themonetary and fiscal policy arsenal. It is tough tostimulate an economy when interest rates arealready near zero and fiscal budgets are at recorddeficit levels.VI - INFLATION & INTEREST PRESSURESInterest Rates Are on the Launch Pad - therein liesthe problem for the Fed. Any further debtmonetization by the central bank now becomescounterproductive.That‘s because as inflation rates climb, bondinvestors demand higher interest rates. The lowerreal interest rates become, the less participationthere will be in the bond market from privatesources. If you don‘t believe me, ask Bill Gross. TheFed is now damned if it does and damned if itdoesn‘t.Interest rates have been artificially suppressed forsuch a long time that no matter what Bernankedoes come June, interest rates will rise. If it enactsanother iteration of Quantitative Easing, the Fedmay find itself the only player in the bond market.The truth is that only a central banker could affordto own bonds that are yielding rates well belowinflation, and growing even more so. 13 RESTRICTED & CONFIDENTIAL
  • OTHER HIGHTLIGHTSXVIII - Bond Bubble: Who Will Buy US Bonds?Is This Why Bill Gross Dumped Treasuries? GlobalMonitor"QE2 flushed domestics out of Treasuries andeffectively funded 63 percent of the budget deficitin Q4. The Treasury is prohibited from directlyselling bonds to the central bank, but effectivelyfinances the government through POMO.Given that a large portion of the Rest of Worldcategory are central banks recycling BOPsurpluses, it‘s likely that 90 percent of the U.S.budget deficit in Q4 was funded by central banks.You think this may have anything to do with what‘shappening in the commodity markets? That is, thecentral banks‘ printing presses providing the fuelfor speculators?Furthermore, we ask: who is going to finance theU.S. budget deficit when QE2 ends, especially at asub 3.50 percent 10-year Treasury rate? BillGross knows!"XIX - Pension - Entitlement Crisis: CollapsingWestern Social Net From the Wisconsin State legislature to the mostrecent EU Summit meeting the discussions are howdo governments get out from under their pensionand entitlement promises.Government budgets can no longer be balanced asentitlement payouts now overpower paymentsmade.Unlike corporations, the US government has not setaside entitlement contributions, but rather hasspend them. The unfunded liabilities have beencalculated to be $204T by some estimations and$62T by official government estimates.The gig is finally up as the post World War IIgeneration now begins to retire in waves and claimthe rich promises made to them by theirgovernments.Bernie Madoff referred to the US Government as agiant Ponzi scheme precisely for this reason. Heshould know how to identify a Ponzi scheme! 14 RESTRICTED & CONFIDENTIAL
  • GLOBAL MACROIn the last month we have all had our investments exposed to what is called Event Risk or "Tail" Risk. Whether it isthe Earthquake, Tsunami or Nuclear Fallout in Japan, the overthrow of governments in Egypt and Tunisia, civil warin Libya or social unrest in Bahrain, Yemen, Saudi Arabia; all have been unexpected and caught the financialmarkets by surprise.As we pointed out earlier in this report, our 2011 Thesis: "Beggar-thy-Neighbor" fully identified the socialunrest and political tensions now being experienced globally as a major new emerging theme in 2011.We called it the "Age of Rage" as the days of plenty come to a close for the Western powers.Soon the populations of these countries will witness changes that make them realize that: - Gone are the days of plenty of Job for those who are willing to work, - Gone are the days of plenty of food, energy and water, - Gone are the days of secure pensions and retirement benefits - Gone are the days of affordable education to build a future on, - Gone are the days of affordable and available health coverage, - Gone are the days of plenty of disposable income to maintain a middle class lifestyle, - Gone are the days when children could expect to have a higher standard of living than their parents, - Gone are the days of trust in government.As we experience a massive shift in economic and political power to the East from the West, we will see moretension and conflicts. We will see more confrontations for scarcer and scarcer resources to compete with.We are already seeing the above emerge in many ways. One that is not talked about often enough is RISK. 15 RESTRICTED & CONFIDENTIAL
  • I have written extensively of Regulatory Arbitrage being the dominate strategy over the last few years where riskhas been shifted to sovereign governments by the financial sector (See Sultans of Swap article series).An easy way to consider RISK is by examining Credit Default Swaps (CDS) rates. I have included a large number ofthese charts in the next few sections to give you a perspective of the elevated risk levels we are now operating ataround the world. Yes they are lower than during the 2008 financial crisis but I would argue they are now broaderbased and showing visible upward trends.A CDS level of 300 means that a financial party is willing to pay 3%, 300 basis points or $300K for every $10M, toensure against loss. Consider it as a form of financial risk insurance. Anything at or above 300 is consideredelevated and for a lot of investments, excessive risk. I have drawn horizontally red lines to mark this demarcation. 16 RESTRICTED & CONFIDENTIAL
  • In the lower part of the above chart we see the PIIGS (Portugal, Ireland, Italy, Greece, Spain), European Financials(Investment Grade) and Emerging Markets (as a group) all at or above the 300 threshold level. You will also see abiased rise since March of 20101.Even the states of California, New York, New Jersey and Illinois as a group have been above this threshold in thelast 12 months for the first time.The chart below ads some of the Middle East countries as they experience growing social unrest.Notice that Japan at the bottom of the chart, aswould be expected based on currentdevelopments, has now begun to rise.The "Age of Rage" has begun and the socialunrest it is causing is effecting financial marketsand tensions not only between the people andtheir leaders but additionally between countries.The Global Macro is best typified as entering anera of "Conflict and Tension". 17 RESTRICTED & CONFIDENTIAL
  • JAPANGLOBAL IMPLICATIONS: EARTHQUAKE, TSUNAMI & NUCLEAR CRISISThe horrific events in Japan has gripped global attention as ever worsening developments unfold. As bad as thenatural disasters associated with the earthquake and Tsunami are, as worrying as the potential nuclear fallout is; itall may pale in comparison to the potential financial and economic fallout.In 1989 the recognized author Michael Lewis wrote an articleentitled: "How A Tokyo Earthquake could devastate WallStreet and the World Economy". In this article the author laysout six shocks Japan could go through as a result of such anevent. it may be a pretty good roadmap for consideration.His underlying theme is that Japan will want, or at least need,its money back. Japan has had a positive current account foryears and has accumulated huge wealth which has generallybeen invested outside of Japan where it often receives highlyleveraged yields. Additionally, Japan because of its low Zerointerest policy has been the source of one of the worldslargest carry trades for years. A repatriation of any significantamount of this money could be devastating to the globaleconomy.This repatriation would be the same as a financial tsunami.Lewis lays out the following: Shock 1 => Earthquake/Tsunami, Shock 2 => Surge in Yen as initially Insurance companies repatriate funds, Shock 3 => Broad based Japanese Overseas Liquidation to finance rebuilding infrastructure at home, Shock 4 => A collapse in the US Bond Market and a spike upward in US Interest rates, Shock 5 => US Economic slowdown based on the impact of higher rates, Shock 6 => The Western G7 trading nations faces years of declining growth.I think this is a fairly could roadmap if it was 1989. There are however obviously some major differences 22 yearslater.First, the debt levels around the world are so large that the rates being paid on this ever increasing debt levelcannot be allowed to rise. Rates have been cleverly manipulated through QE II so that they are presently helddown while duration is additionally shortened. Even a small increase of 1% from present historic interest rate lowswould have profound impacts on already deficit plagued government budgets. A 1% increase in the US wouldapproximate $150B which is close to double what the current congress, after much machinations, has been able tocut from this years fiscal budget.A rising Yen would force an unwinding of the Yen Carry Trade. With Japan being the second largest sovereignholder of US Treasury debt there would be forced wholesale selling of US Treasuries. For years the Yen Carry Trademeant the banks could borrow in Japan at close to zero under the Japanese ZIRP policy and buy US Treasuriesyielding 4-8%. Fortunes have been made and are still being made. They all go away in a blur if the YEN increasessignificantly in value.Secondly, participants in the $620T Interest Rate and Currency SWAPS market would face monumental collateralcalls and forced selling. The world would immediately face an unprecedented liquidity squeeze. 18 RESTRICTED & CONFIDENTIAL
  • Thirdly, a higher Yen would mean higher costs for Japanese products.The global supply chains are so integrated today that a stronger Yenwould act as an inflation shock to global producers until alternativesourcing could be established. The fragile global economy could notwithstand the shock.YEN INTERVENTION: GLOBAL G7 COORDINATIONAs a result the G7 took coordinated joint intervention for the first timein more than a decade to weaken the Yen. (See chart to the right)The Yen intervention will not work because:1- It has never worked in the past other than for very brief durations.2- The size of the Foreign Exchange market and the volumes traded,make it near impossible for a group of central banks to overpower it forany sustained period of time.3- Participation must be much broader today than in past attempts. Itwould minimally take a coordinated G20 initiative today versus aeconomically weakened G7 effort.4- The SWAPS market will price in the real Japanese risk. The size andscope of the SWAPS market momentum will be unstoppable over time. 19 RESTRICTED & CONFIDENTIAL
  • NORTH AFRICA & MIDDLE EASTNORTH AFRICA:TUNISIA, EGYPT & LIBYATunisia and Egypt have both overthrown their governments; we have civil war in Libya; and we have the MoroccanKing Mohammed VI appeasing his people by promising "comprehensive constitutional reform". What suddenlychanged to cause such a wildfire of unrest?If you listen to the protestors and not to the western media coverage you will hear words like: "Food", Jobs", Costto Live", "Fuel Costs". Corruption has always been a way of life in this area but it becomes intolerable when thedisparity is such that people can no longer get by and their family is hungry.MIDDLE EAST: BAHRAIN, YEMEN & SAUDI ARABIAIt is the same situation in the middle east with both the monarchy of Saudi Arabia and Bahrain making promises.Yemen declared a state of emergency on March 18th after dozens of protestors were killed. 20 RESTRICTED & CONFIDENTIAL
  • EU SOVEREIGN DEBTAGREEMENTEurozone debt deal struck - Governments to cut borrowing costs for peripheral economies Financial TimesGermany wanted and more or less got the measures they were calling for in a new EU agreement to address theever worsening PIIGS sovereign debt problems.: 1- Raising retirement ages to reduce the burden on pension funds, 2- Ending the linking of wages to increases in the cost of living, 3- Committing to debt reduction and 4- Submitting to a level of budget scrutiny that was until recently considered anathema — and is still viewed by many as a step too far. 21 RESTRICTED & CONFIDENTIAL
  • Germany must agree to act as the region‘s lender of last resort. And for that, Chancellor Angela Merkel, withpolitical problems even within her own governing coalition, has a steep price. She has moved into a visible positionof European leadership, trying to frame the debate in German terms and impose her will on her neighbors. ―There‘sa common understanding that we need to help Merkel get something that looks like a victory,‖ said a seniorEuropean Union officialThe Germans would also force private bondholders who bought the high-yielding debt of the most troubled euro-zone countries to bear part of the burden if countries defaulted or needed to restructure their debt — and not beprotected by taxpayers.They have been working on at least three levels for a comprehensive package. 1- The most important is a ―permanent regime‖ — the so-called European Stability Mechanism, which will replace the temporary bailout fund called the European Financial Stability Facility, set up during the Greek crisis last May. That fund ends in June 2013, and the Germans want a permanent fund of perhaps 500 billion euros ($695 billion) to show the markets that the euro zone is prepared for future problems. But that fund must also show Germans that private investors will not be bailed out by taxpayers, that no country will assume the debts of another and that there will be collateral offered and penalties for bad behavior. 2- The governments are also in heated discussions about whether and how to strengthen and extend the existing temporary fund of 440 billion euros ($612 billion), intended to help Greece and Ireland, to allow it to lend the entire amount, which could then cover Portugal and Spain. But Berlin does not want the fund to be used to buy back Greek or Irish bonds. 3- The issue that has gotten the most attention is the German-French Pact for Competitiveness, a name chosen for German ears. The intention was to lay down specific commitments to coordinate euro-zone economies — a common basis for corporate taxes for instance, or a common age for retirement — intended to unify policies across the region while raising tax revenue and reducing spending. Wage indexation was to be banned and high deficits punished. And here I thought mashing teeth over an agreement meant something different! 22 RESTRICTED & CONFIDENTIAL
  • RISK Interactive Graphic: Europe’s financial contagion Washington Post 23 RESTRICTED & CONFIDENTIAL
  • The top charts above assesses credit connectivity risk versus local sustainability risk. Clearly the PIIGS stand outbut we need to also pay attention to the US and Japan. A downgrade on US debt or a change in Japanese savingsand investment habits could have significant cascading impacts.The lower chart shows the interconnectivity associated with loans extended as a percentage of GDP and Exports asa percentage of GDP.IX - EU Banking CrisisIt cannot be stressed enough how interconnected the banking sector in within the EU and Central & EasternEurope. A failure anywhere within the financial infrastructure WILL cascade throughout the sector. This is clearlyshown in the schematic representation below. 24 RESTRICTED & CONFIDENTIAL
  • PIIGSWe have shown a dearth of CDs charts in thismonths report but it would be helpful to matchthose up with sovereign bond yields. The followingcharts all use the 10 year duration for comparisonpurposes.The charts indicate that the sovereign debt crisisin the PIIGS is a long way from being addressed.There is little doubt that the EU must immediatelyincrease the scope of the bailouts or face thesePIIGS will collapse.VIII - Sovereign Debt - Unaffordable PIIGS BondYieldsThe summary chart below shows that yields arestill rising on all PIIGS 10 year sovereign bondsdespite EU aid. Rates for Greece, Ireland andPortugal are simply not fundable. 25 RESTRICTED & CONFIDENTIAL
  • GERMANY3.237%FRANCE3.615% 26 RESTRICTED & CONFIDENTIAL
  • BELGIUM 4.23% ITALY 4.731% 27 RESTRICTED & CONFIDENTIAL
  • SPAIN5.455%PORTUGAL 7.41% 28 RESTRICTED & CONFIDENTIAL
  • IRELAND 9.148%GREECE11.859% 29 RESTRICTED & CONFIDENTIAL
  • GLOBAL IMBALANCESThe Economist reports: Last year was only the second since 2004 when the current-account balances of the world‘s big surplus economies added up to less than 2% of global GDP. But at 1.93% of world output, last year‘s surplus was higher than 2009‘s 1.75%. The IMF predicts that imbalances will rise again, to over 2% this year. The surplus of emerging economies in Asia fell to 0.78% of world output last year, the lowest since 2005, but will cross 1% of world GDP by 2013 (not shown) for the first time since 2007. International deficits and surpluses should offset each other. But because of errors in measurement, the world appears to have been running a surplus with itself since 2004. The discrepancy is thought to be due to delays in recording imports. 30 RESTRICTED & CONFIDENTIAL
  • VII JAPANESE DEBT CONCERNS 31 RESTRICTED & CONFIDENTIAL
  • THE LOST DECADE (Actually the last 20 years) - Over the last twenty years, asset prices are down by 65% for the Nikkei stock index, 50% for residential real estate, and 70% for commercial real estate. - Public debt rose from virtually nothing to 225% of gross domestic product (GDP), - Central government debt approaching one quadrillion (one thousand trillion) Yen and central government revenues are approx ¥48 trillion. Their ratio of central government debt to revenue is a fatal 20X. (1000Y supported by 48Y ~ 20:1)INTEREST RATE INCREASE EXPOSURE - According to J. Kyle Bass Hayman Capital, every 100 basis point change in the weighted-average cost of capital (interest rates) is roughly equal to 25% of Japans central governments tax revenue. (12Y) - A 200 basis point move higher over time in Japans interest rates will increase their interest expense by more than ¥20 trillion. 1% = 12Y 2% = 20Y - Over the last year Greece with a 1/3 less and Ireland with less than 1/2 the debt to GDP ratio of Japan, imploded when foreigners refused to invest. - If Japan had to borrow at Frances rates (a AAA-rated member of the U.N. Security Council), the interest burden alone would bankrupt the island nation.ABILITY TO SELF FINANCE - Japan has avoided this deficit financing end-game, because the nation has been able to finance 95% of its debt at home. Lower family formation has caused the household savings rate for the thrifty Japanese to fall from 5% at the end of the 1990s to just above 2% currently. 32 RESTRICTED & CONFIDENTIAL
  • - Millions of Japanese savers are about to start spending their savings on essentials, since they have lost their jobs and businesses due to the damage - Japan has maintained a 41% corporate tax rate; the highest in the world, 10% above the US and Europe and triple the fast growing Asian economies of Taiwan and Singapore. This has made Japan an unattractive location for private investment.PARADOX - Has maintained current-account surplus and has been sending more than 3% of its GDP abroad, providing more than $175 billion of funds this year for other countries to borrow. - A combination of high corporate saving and low levels of residential and non-residential fixed investment due to poor investment opportunities in Japan.INSURANCE - Earthquake insurance in Japan is very expensive and only 10% of homeowners buy coverage. Therefore, the Japanese government will be on the hook for several hundred billion in infrastructure and reconstruction costs.RECENT SITUATION - Standard & Poors credit rating service had just downgraded Japans sovereign debt to AA- in mid- January. - The huge increase in the costs for welfare and unemployment payments, the economic disruption, the scale of the devastation, the lack of insurance and the minimum five years to rebuild the country may take Japans credit rating down to "junk bond" levels. ==> DOWNGRADE AHEADThe debt crisis tsunami has been building for twenty years and may be much more devastating to the future ofJapan.Based on all the above, then the recent earthquake, tsunami and nuclear disaster, the following chart is even morefrightening! 33 RESTRICTED & CONFIDENTIAL
  • BEGGAR-THY-NEIGHBORBeggar-thy-Neighbor policies involve gaining trade advantage by disadvantaging another country. It is a zero sumgame were what helps one country directly takes away from another country with no net gain. Nothing is gained -only transferred. Therefore it is unsound economic policy.There can be little doubt that we are movingtowards an era of Beggar-thy-Neighbor foreignpolicy.We have recently heard Brazil public shout aboutemerging Currency Wars & Capital Controls andfrom Argentina about Protectionism & Tariffs.The US Smoot-Hawley Tariff Act of June 1930 thatushered in the Great Depression was theprotectionist policy that was felt to have caused theglobal slowdown that led to the Great Depression inthe US.Today the World Trade Organization (WTO) bans alot of the protectionist policies that might otherwisebe implemented, as does Free Trade agreements orRegionalization pacts such as the Euro Zone and theInternational Co-operative Alliance-Asia & Pacificwhich additionally restrict broad brush protectionistresponses.However, you can expect more manipulation ofcurrencies for competitive advantage as well ascreative protectionism policies that use tariffs,surtaxes, capital controls and other regulations togain advantage at the expense of other tradingpartners. 34 RESTRICTED & CONFIDENTIAL
  • US ECONOMY 35 RESTRICTED & CONFIDENTIAL
  • KEY MONTHLY ECONOMIC INDICATORS – Have a closer look at what the mainline media doesn’t discuss. REAL Earnings (Production/Non-Supervisory) Average Weekly Earnings DECELERATING Commodity Price IndexDisposable Income Now Comes from Government Profits without Increasing Workforce! Profits without Wage Increases! 36 RESTRICTED & CONFIDENTIAL
  • 2011 US ECONOMIC IMPEDIMENTSWe agree with Hoisington & Lacy and see seven main impediments to economic progress in 2011 that will slow realGDP expansion to the 1.5%-2.5% range. 1- Fiscal policy actions are neutral for 2011. - Personal taxes, including federal and non-federal, rose to 9.44% of personal income in November, up from a low of 9.1% in the second quarter of 2009. Even with the tax compromise this effective tax rate will continue moving higher as a result of higher state and local taxes. - Total real federal expenditures are likely to contract (in real terms) this year. 2- State and local sectors will continue to be a drag on the economy and labor markets in 2011. - Municipal governments face substantial cyclical deficits and significant underfunding of their employee pension plans. - Municipal bond yields rose sharply in the second half of 2010 and will continue increasing borrowing costs. Any trend toward increased bankruptcy would raise caution in the broader municipal market and add to higher borrowing costs. - (1) cut personnel; (2) reduce expenditures including retirement benefits; (3) raise taxes; (4) borrow to fund operating deficits; or (5) declare bankruptcy. All retard economic growth. 3- Quantitative Easing round 2 (QE2) will likely produce only a slight economic benefit as the Fed continues to encourage additional leverage in an already over-indebted economy. - Fed actions have affected stock and commodity prices. The benefits from higher stock prices accrue very slowly, are small, and are slanted to a limited number of households. Conversely, higher commodity prices serve to raise the cost of many basic necessities that play a major role in the budget of virtually all low and moderate income households. 4- While consumers boosted economic growth in the second half of 2010 by sharply reducing their personal saving rate, such actions are not sustainable. - From 6.3% in June 2010, the personal saving fell by a significant 1%, to 5.3% in November (Table 1). Consumer spending is slightly in excess of 70% of real GDP. Without the one percentage point reduction in the personal saving rate, the second half growth rate would have been 2.6%, a shade slower than the first half growth pace, and materially less than the presumed second half growth rate. - When job insecurity is high, and defaults, delinquencies and bankruptcies are at or near record levels, a drawdown in the saving rate would seem to be an unlikely event. 5- Expanding inventory investment, the main driver of economic growth since the end of the recession in mid-2009, will be absent in 2011. - In the second half of 2010, real GDP grew at an estimated 3.3% annual rate (assuming the fourth quarter growth rate was 4%), up from 2.7% in the first half of the year. Transitory developments in two of the most erratic and unpredictable components of the economy---the personal saving rate and inventory investment---accounted for all of this acceleration. - Inventory investment was the main driver of economic growth since the recession ended in mid-2009. Based on published data, real GDP grew at a 2.9% annual rate over this span. However, real final sales, which excludes inventory investment from GDP, increased at a paltry 1.1% pace. - At a minimum, the dominant source of aggregate economic strength will not repeat in 2011. 6- Housing will continue to be a persistent drag on growth. - Prices have re-accelerated to the downside over the past four months, as mortgage yields have risen and the housing overhang has increased. - As gauged by an aggregate of housing indexes dating to 1890, real home prices rose 85% to their highest level in August 2006. They have since declined 33 percent... In fact, home prices still must fall 23% if they are to revert to their long-term mean 37 RESTRICTED & CONFIDENTIAL
  • 7- External economic conditions are likely to retard U.S. exports. - Higher food and fuel prices will serve to significantly depress growth in countries like China, India and Brazil where food and fuel are known to be a much higher percentage of household budgets. Already reports have surfaced from international agencies on the growing adverse consequences of higher food prices, and social unrest has also been witnessed on a limited basis. - Chinese economic policy is designed to slow growth and reduce inflationary pressures. Thus, changing global conditions should serve to moderate U.S. exports. - A firm dollar will serve to keep U.S. disinflationary trends intact.OBAMAS 2012 BUDGET - CBOs ASSESSMENTCompared with the Administrationsestimates, CBOs estimates of thedeficit under the Presidents budgetare lower for 2011 (by $220 billion)but higher for each year thereafter (bya total of $2.3 trillion over the 2012–2021 period).That disparity stems from differencesin the underlying projections of whatwould happen under current law ($1.3trillion) as well as from differingassessments of the effects of thePresidents proposals ($1.0 trillion). 38 RESTRICTED & CONFIDENTIAL
  • As a basis for analyzing thePresidents budget, CBO updated itsbaseline budget projections, whichwere last issued in January 2011.Unlike its estimates of the Presidentsbudget, CBOs baseline projectionslargely reflect the assumption thatcurrent tax and spending laws willremain unchanged.Under that assumption, CBO estimatesthat the deficit will total $1.40 trillionin 2011—$81 billion less than theagency estimated in January. For thefollowing 10 years (2012 to 2021),CBO now projects a cumulative deficitof $6.7 trillion—$234 billion less thanthe amount in the previous baseline.CBO has not modified its economicforecast since January, so the updatedbaseline projections mainly reflect newinformation that the agency hasobtained about various aspects of thefederal budget since the previousprojections were completed.The Presidents policy proposalsmostly affect the revenue side of thebudget. Those proposals would reducerevenues, compared with CBOsbaseline projections, in every year ofthe coming decade—for a totalreduction of about 6 percent over the2012–2021 period.Nevertheless, revenues would riserelative to GDP: from 16.2 percent in2012 to 19.3 percent in 2021. The19.3 percent figure is 1.5 percentagepoints below CBOs baseline projectionfor 2021 but 1.3 percentage pointsabove the average ratio of revenuesto GDP seen over the past 40 years. 39 RESTRICTED & CONFIDENTIAL
  • XVII - PUBLIC POLICY MISCUESUSA INC. HOUSTON, WE HAVE A PROBLEM HERE! Remember - The government has already spent ALL taxed Entitlement Revenues. Now that the Baby Boomer is ready to retire, the government has no money set aside for it. 40 RESTRICTED & CONFIDENTIAL
  • On Facebook, Sarah Palin (predictably) lashes out at Obamas budget plan, and she links to this series of charts byDoug Ross posted at The Blaze.They certainly put the cutting in perspective.First, the budget: 41 RESTRICTED & CONFIDENTIAL
  • Cant see the cuts? Heres a zoom-in:And heres a further zoom-in: Image: Doug Ross 42 RESTRICTED & CONFIDENTIAL
  • KEEP YOUR EYE ON THE REAL ESTATE DOUBLE DIPXIV - RESIDENTIAL REAL ESTATEThe facts below are taken from: Nearly 11% of Houses Empty CNBCHOME OWNERSHIP - Americas home ownership rate, after holding steady for a while, took a pretty big plunge in Q4, from 66.9 percent to 66.5 percent. - Thats down from the 2004 peak of 69.2 percent and the lowest level since 1998. - Homeownership is falling at an alarming pace, despite the fact that home prices have fallen, affordability is much improved and inventories of new and existing homes are still running quite high. - Bargains abound, but few are interested or eligible to take advantage.OCCUPANCY RATE - Of the nearly 131 million housing units in this country: - 112.5 million are occupied. - 74.8 million are owned - only dropped by about 30 thousand in the past year. - 38 million are rented, but thats up by over a million year over year. - That means more new households are choosing to rent.VACANCY RATE - More concerning than the home ownership rate is the vacancy rate. - There were 18.4 million vacant homes in the U.S. in Q4 10 (11 percent of all housing units vacant all year round), which is actually an improvement of 427,000 from a year ago, but not for the reasons youd think. - The number of vacant homes for rent fell by 493 thousand, as rental demand rose. - 471,000 homes are listed as "Held off Market" about half for temporary use, but the other half are likely foreclosures. And no, the shadow inventory isnt just 200,000, its far higher than that.So think about it. Eleven percent of the houses in America are empty. This as builders start to get more bullish,and renting apartments becomes ever more popular. Vacancies in the apartment sector have been falling steadilyand dramatically, why? Because were still recovering emotionally from the toll of the housing crash.Younger Americans have seenwhat home ownership has doneto their friends and families,and many want no part of it.Credit has become very nearlyelitist. Home prices, whateveryour particular data providerpreference might be, are stillfalling. 43 RESTRICTED & CONFIDENTIAL
  • The year-over-year decline inhome prices, as measured bythe Case-Shiller, accelerated to2.4% from over 1.5% inNovember.Dont buy the real estate spinthat this downturn is regional.This is a National Double Dip inHousing.You see all major metropolitanareas peaking between Marchand May 2010 (the end of thefirst-time home-buyer taxcredit). After only 8 months inpositive territory, the overallindex comprising 20 cities isback into the red (-1% inOctober and -4.1% inNovember). 44 RESTRICTED & CONFIDENTIAL
  • 18 out of 20 regions now showdeclining house prices.Its another bust.Things are good inWASHINGTON however!!Lots of well paying jobs there!Prof. Robert Shiller (one of thecreators of the index) pointedout that 6 out of 20 cities in theindex have hit new lows (evenlower than in early 2009). Hesaid that the economy wouldface “serious worries” ifhouse prices kept fallingthis fastWhy did he say ―this fast‖? Tounderstand, you have to look atthe annualized rate of changeof the last 3 month. And it isnot a pretty picture.While the 10-city index droppedan annualized 8.8% in thethree-month period from Julyto October 2010, the 20-cityindex fell at a rate of 10.4%.The annualized three-monthrate of change gave an earlywarning sign went it went intonegative territory in June 2006,while both the 10-city and 20-city only showed declininghouse prices in January of2007. 45 RESTRICTED & CONFIDENTIAL
  • New Home Sales continue tofall from already low levels.Total housing starts slumped by22.5% during February versusJanuary to the lowest level ofthe economic recovery. Thedecline to 479,000 starts wasfrom an upwardly revised618,000, initially reported as596,000. The latest figuredisappointed Consensusexpectations for 570,000 starts.Building Permits declined20.5% Y-o-YLower Lowers and Lower Highsdefines a trend -- and itsDOWN.New Eight Year Low in HousingPrices. 46 RESTRICTED & CONFIDENTIAL
  • XV - COMMERCIAL REAL ESTATEThe following analysis was done by MyBudget360. Their findings tell the story very clearly. The media has done a fantastic job painting over the enormous sinkhole of a problem that is commercial real estate (CRE). U.S. banks hold over $3 trillion in commercial real estate loans on properties that were once valued at over $6 trillion. Today those values are down to roughly $3 to $3.5 trillion depending on what metric you believe. How is it possible for a market that has lost $2.5 to $3 trillion to become largely hidden in the dark from the mainstream media? We constantly hear about $3 billion deficits or other issues but is the trillion dollar figure just so enormous that they don‘t even bother investigating? It is probably more likely that the Federal Reserve has concealed massive failures in CRE by allowing banks to play a game of extend and pretend that continues today. The shadowy problems of empty shopping centers, vacant car dealership lots, and misplaced strip malls is largely a taxpayer problem now. Banks made these irresponsible loans but had the Fed hand over taxpayer loot in exchange for worthless real estate. Source: MIT CRE values are still hovering near their trough and are likely to move lower. The only reason these prices haven‘t moved lower is because banks are more generous with the borrowers of CRE debt since these holders are grappling with multi-million dollar cuts in each deal. Banks would rather pretend a mall is valued at $100 million instead of marking it to a real value of $40 million or less. The fact that the Federal Reserve allows this to happen is financial chicanery. Can you pretend to the government that you really don‘t make $100,000 a year so instead you will act as if you make $30,000 a year and act 47 RESTRICTED & CONFIDENTIAL
  • accordingly? This is what is happening here. Banks are essentially allowing these toxic loans to be laundered through the system in exchange for taxpayer dollars. The Fed is betting that the public doesn‘t wake up to this scam. CRE is a giant and pernicious problem. With residential real estate it hits directly home and many American families are considered home owners. This bubble has garnered most media attention as it should. Yet CRE debt is enormous, larger than every state budget deficit combined by many times! In fact, the losses on CRE loans is larger than the state budget issues. Of course the Fed wants the public to look away from the real culprit behind the decline of the American middle class. The scheme was to build junk and pawn off the loans to average Americans whether they wanted to accept the debt or not. The cost of CRE problems Banks have no faith in this recovery. Look at the above regarding commercial loans. Banks continue to claim that the reason for the taxpayer bailouts was to help the American public weather the economic storm and for banks to continue lending to average Americans. Instead, as you can see above, commercial loan lending has collapsed and banks have hoarded money and speculated on the stock market casino on the taxpayer dime. This money was used to shore up bad balance sheet problems and for gambling on the stock market to boost profits. In short it was one giant swindle perpetrated on the public. And think about the supposed recovery we are experiencing. If we were truly growing and expanding don‘t you think there would be healthy demand for loans as businesses expand their workforce? Wouldn‘t it be logical to conclude that commercial loans would reflect the supposed increased demand from a booming American economy? Of course the only boom occurring is for the top 1 percent who are siphoning off the wealth from average Americans to spin their continuing speculation in the stock market. Many are starting to wake up from this collective sleepwalk where taxpayers were robbed in open daylight.48 RESTRICTED & CONFIDENTIAL
  • The problems are coming up Source: ZeroHedgeWhat is even more problematic is many of the CRE loans are going bad in the next few years. Just like residentialreal estate is now experiencing a second collapse, CRE will have another move lower. Banks can only carry fantasypaper for so long. So far we have been paying for it through QE1, QE2, TARP, and other convoluted programs tolaunder money and devalue the U.S. dollar and decrease the quality of life of average Americans. The public didnot sign up for this. The banks talk about shared responsibility and many are paying for it by losing their homesand going bankrupt. Millions are facing this economic ―responsibility‖ on a daily basis. What penalty for thebanks? Instead, they get bailouts and continue to pretend the junk loans they made on concrete disasters areworth inflated values only to shovel them off to taxpayers. How is it that there are no buyers for these supposedlyhighly priced items?CRE debt exposes the worst aspect of the bubble. Pure profit motive by supposed sophisticated investors on bothsides of the coin with no financial responsibility or ownership. This isn‘t some poor family in a low-incomeneighborhood taking out a subprime loan. This is actually a supposed responsible bank and a supposed financiallysavvy investor. There is no justification for one penny of a bailout here. Yet the Federal Reserve continues withtheir hidden bailout where they support malls in Oklahoma to Chick-fil-A. Don‘t expect to hear about this on yournightly news.Gordon T Longgtlong@comcast.netWeb Page Tipping Points(http://lcmgroupe.home.comcast.net/Tipping_Points.htm)Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and shouldnot be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any otherfinancial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own crediblesources. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies inyour legal jurisdiction, before making any investment decisions, and barring that you are encouraged to confirm the facts on your own beforemaking important investment commitments.© Copyright 2010 Gordon T Long. The information herein was obtained from sources which Mr. Long believes reliable, but he does notguarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of thepurchase or sale of any securities or commodities. Please note that Mr. Long may already have invested or may from time to time invest insecurities that are recommended or otherwise covered on this website. Mr. Long does not intend to disclose the extent of any current 49 RESTRICTED & CONFIDENTIAL
  • holdings or future transactions with respect to any particular security. You should consider this possibility before investing in any securitybased upon statements and information contained in any report, post, comment or suggestions you receive from him. 50 RESTRICTED & CONFIDENTIAL