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1 March 2013 Edition Restricted & Confidential

Copyright 2012 Gordon T. Long All Rights Reserved [email protected]

DESTABILIZING CURRENCY WARSA Stalled Global Economy is Exposed to Destabilizing Currency Wars

GLOBAL MACRO TIPPING POINTS - MARCH 2013

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2March 2013 Edition Restricted & ConfidentialCopyright 2012 Gordon T. Long All Rights Reserved [email protected]

DESTABILIZING CURRENCY WARS

A Stalled Global Economy is Exposed to Destabilizing Currency Wars

GLOBAL MACRO TIPPING POINTS - MARCH 2013

TIPPING POINTS ........................................................................................................................ 9

GLOBALMACRO:RISKASSESSMENT ...................................................................................................................................................... 9

SITUATIONAL ANALYSIS ...................................................................................................................................................... 9POSITIONAL FRAMEWORK: "WE ARE HERE!"......................................................................................................................................................... 9Q1 2013 DEVELOPMENTS TO WATCH..................................................................................................................................................................... 10GLOBAL TRENDS - NATIONAL INTELLIGENCE COUNCIL ................................................................................................................................... 19A BROKEN PONZI SCHEME - BOSTON CONSULTING GROUP.......................................................................................................................... 21RISK CONTINUUM......................................................................................................................................................................................................... 23

MACRO MONITORING INSTITUTIONS ............................................................................................................................... 24WEF (WORLD ECONOMIC FORUM) .......................................................................................................................................................................... 24

IMF (INTERNATIONAL MONETARY FUND) .............................................................................................................................................................. 39OECD (ORGANIZATION FOR ECONOMIC COOPERATION & DEVELOPMENT) .............................................................................................. 54MAPLECROFT (SCANNING THE GLOBE) ................................................................................................................................................................ 56

GLOBAL RISK SIGNALS ...................................................................................................................................................... 58RISK - SIGNS APLENTY, BUT NO ONE PANICKING - YET!.................................................................................................................................. 60RISK - CANARIES SINGING AGAIN........................................................................................................................................................................... 62RISK - COMPLACENCY & REPRESSED FEAR........................................................................................................................................................ 63RISK - TIED TO EU IN 2012......................................................................................................................................................................................... 64RISK - GLOBAL DERIVATIVE COLLATERAL ............................................................................................................................................................ 65RISK - GLOBAL RISK MATRIX..................................................................................................................................................................................... 67RISK - GLOBAL MACRO HEADWINDS / TAILWINDS .............................................................................................................................................. 67RISK - FOOD A GROWING GLOBAL INFLATION & SOCIAL UNREST RISK...................................................................................................... 69RISK - INCREASINGLY DYSFUNCTIONAL CAPITALS MARKETS ....................................................................................................................... 74

RISK - GLOBAL RISK REWARD .......................................................................................................................................... 76RISK - RISING GEO-POLITICAL EVENT RISK.......................................................................................................................................................... 77

GLOBALMACRO:RISKLEVELS .................................................................................................................................................... ............ 81AGGREGATED GLOBAL FINANCIAL RISK INDEX .............................................................................................................. 81

BANKING RISK - LIBOR-OIS SPREAD (Updated) .................................................................................................................................................... 82BANKING RISK - TED SPREAD (Updated) ................................................................................................................................................................ 82CREDIT RISK - GLOBAL CREDIT DEFAULT SWAPS (Updated) .......................................................................................................................... 83CREDIT RISK - EU CREDIT DEFAULT SWAPS (Updated) ..................................................................................................................................... 84CONSUMER RISK - HOUSING - RATE OF CHANGE (Reference) ........................................................................................................................ 85ECONOMIC RISK - ECRI LEADING INDEX (Updated) ............................................................................................................................................. 86INFLATION RISK - MONEY SUPPLY GROWTH - M3 (Updated) ............................................................................................................................ 87INFLATION RISK - MONEY VELOCITY (Updated) .................................................................................................................................................... 88MONETARY RISK - BANK LIABILITIES (Updated) ................................................................................................................................................... 88COST OF MONEY RISK - INTEREST RATES (Updated)........................................................................................................................................ 90

AGGREGATED RISK LEVEL ................................................................................................................................................ 92

TIPPINGPOINTS:CHANGES................................................................................................................................................................ ...... 93

TIPPING POINT MAPPING: 2013 UPDATE .......................................................................................................................... 93

TIPPINGPOINTS:TOP5FOCUS-FEBRUARY 2013 .......................................................................................................................... 102

I - RISK REVERSAL............................................................................................................................................................ 102II - JAPAN DEBT DEFLATION ............................................................................................................................................ 105III-BOND BUBBLE .............................................................................................................................................................. 108IV - EU BANKING CRISIS ................................................................................................................................................... 108V - SOVEREIGN DEBT ....................................................................................................................................................... 109VI - CHINA HARD LANDING ............................................................................................................................................... 111

DRIVER$:RISK-ON-RISK-OFFANALYTICS......................................................................................................................................... 115

1- G10 MACRO SURPRISE INDEX .................................................................................................................................... 1182- CUMULATIVE GLOBAL PMI ........................................................................................................................................... 121

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3- SLOWING GLOBAL EXPORTS ...................................................................................................................................... 1274- US NON-REVOLVING CONSUMER CREDIT ................................................................................................................. 1305- IBES' RELATIVE GLOBAL PE RATIOS .......................................................................................................................... 1336- CONSENSUS EARNINGS ESTIMATES - Sell Side Analysts .......................................................................................... 1397- INFLATION PRESSURES - Global Food Prices.............................................................................................................. 141

GLOBAL MACRO ................................................................................................................... 145

GLOBALMACRO:ECONOMICOUTLOOK ............................................................................................................................................. 147

GLOBAL - Credit Fueled Globalization in Retreat ................................................................................................................ 147GLOBAL - Rogoff's Sovereign Debt Default Levels ............................................................................................................. 149GLOBAL - Fiscal Adjustments Required .............................................................................................................................. 152GLOBAL - Imbalances Continue to Increase Along With Financial Fragility ......................................................................... 152GLOBAL - A 67 Million Jobs Gap ........................................................................................................................................ 155GLOBAL - Center of Global Manufacturing Confirmed to be Shifting Away from developed Countries ................................ 158GLOBAL - Mercantilist China the Clear Winner Globally, Mercantilist Germany Regionally ................................................. 159

IMF CUTS ECONOMIC OUTLOOK ..................................................................................................................................... 161IMF Cuts Advanced Economies Growth by 25% f rom 2.0% to 1.5% ..................................................................................................................... 161IMF Cuts Growth from 3.9% to 3.6% and Increases Deficit Multiplier by 100 to 200% ........................................................................................ 168

WARNINGS ........................................................................................................................................................................ 170IMF WARNS .................................................................................................................................................................................................................. 170BIS WARNS................................................................................................................................................................................................................... 174WORLD BANK WARNS ............................................................................................................................................................................................... 175

GLOBALMACRO:INDICATORS ............................................................................................................................................................ ... 177

GROWTH............................................................................................................................................................................ 177Slowing Global Economies .......................................................................................................................................................................................... 177Global GDP Growth Trending Down by Region and Cumulatively......................................................................................................................... 178Global PMI..................................................................................................................................................................................................................... 179Global Recession .......................................................................................................................................................................................................... 181Slowing Global Growth - Air Cargo Shipments......................................................................................................................................................... 182

GOBAL UNEMPLOYMENT ................................................................................................................................................. 183Global Unemployment Rising - 202 Million ................................................................................................................................................................ 183

TRENDS ............................................................................................................................................................................. 185BRANDS & COMMODITIES: Tell the Global Story.................................................................................................................................................. 185

SENTIMENT ....................................................................................................................................................................... 197NIELSEN (Global Consumer Confidence, Concerns & Spending Intentions) ....................................................................................................... 197

INFLATION ......................................................................................................................................................................... 208

Food Prices, Driver of Social Unrest........................................................................................................................................................................... 208

Food Price Manipulation in Thailand.......................................................................................................................................................................... 209

GLOBALMACRO:MONETARYPOLICY&CENTRALBANKING ........................................................................................................ 210

The "OMF" Trial Balloon Raised .......................................................................................................................................... 211Financial Times: Martin Wolf - "The Case For Helicopter Money".......................................................................................................................... 212Financial Times: Martin Wolf - "The Case To Reset Basis of Monetary Policy".................................................................................................... 215Financial Times: Gavyn Davies On Why Helicopters Are Dangerous .................................................................................................................... 216A Conundrum for the World's Central Bankers.......................................................................................................................................................... 219

PBOC - China ..................................................................................................................................................................... 221Chinese Liquidity Pump Unplugged............................................................................................................................................................................ 221

BOE - UK ............................................................................................................................................................................ 223Mark Carney and "Flexible Inflation Targeting"......................................................................................................................................................... 223

FED - US............................................................................................................................................................................. 224FOMC January Minutes Un-Nerve Markets ............................................................................................................................................................... 224Congress Asks Bernanke For Full Risk Analysis On Fed's Soaring Balance Sheet............................................................................................. 225

BOJ - JAPAN ...................................................................................................................................................................... 229Japan's Prime Minister Shinzo Abe prepares to print money for the whole world................................................................................................. 229Shinzo Abes Monetary-Policy Delusions................................................................................................................................................................... 230BOJ Governor Job Suddenly Available in Historical "Abenomics U-Turn"............................................................................................................. 233Japanese Economic Policy Goes The Full Ponzi...................................................................................................................................................... 234

ECB - EU ............................................................................................................................................................................ 236Japan Will Effectively Monetize European Debt........................................................................................................................................................ 236TARGET-2 Imbalances - "The Debt Crisis Is Eating Its Way Ever Further Into Europe's Core"......................................................................... 236Draghi Will Soon Be Forced to Start Printing - Again!.............................................................................................................................................. 238

COMBINED ......................................................................................................................................................................... 242Global Balance Sheet Expansion ................................................................................................................................................................................ 242Where Do these Deflators Come From? .................................................................................................................................................................... 246First Remove Gold Standard, Now Remove Debt.................................................................................................................................................... 247

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GEO-POLITICALTENSIONS ................................................................................................................................................................ ..... 251

CURRENCY WARS ............................................................................................................................................................ 251BATTLEFIELD - Combatants & Belligerents ............................................................................................................................................................. 253BATTLEFIIELD - The Race to Debase ....................................................................................................................................................................... 254JAPAN - The Destabilizing Agent............................................................................................................................................................................... 256

EUROPE - Euro Exposed............................................................................................................................................................................................ 256ARGENTINA - Here we Go Again!.............................................................................................................................................................................. 258VENEZUELLA - Bad Situation..................................................................................................................................................................................... 259BRAZIL - No One Wants to Listen .............................................................................................................................................................................. 259SWITZERLAND - No Choice ....................................................................................................................................................................................... 259SINGAPORE - Hot Money........................................................................................................................................................................................... 260UK- Pound Joins War................................................................................................................................................................................................... 261

CYBER WARS .................................................................................................................................................................... 262The Motivations For Cyberwar.................................................................................................................................................................................... 263A Potential Destabilizing Catalyst............................................................................................................................................................................... 270Rules of Engagement................................................................................................................................................................................................... 271Brushfire Battle: China.................................................................................................................................................................................................. 276Brushfire Battle: Iran ..................................................................................................................................................................................................... 280Cyber Wars: Rogue Groups Currently More Dangerous than Sovereign Powers ................................................................................................ 281Cyber Pearl Harbor? ..................................................................................................................................................................................................... 283US Response................................................................................................................................................................................................................. 284Cyber Defense - Does it Mean Police State? ............................................................................................................................................................ 288

IRAN ................................................................................................................................................................................... 289Watch Out for a "False Flag" or "Covert" Activity Event........................................................................................................................................... 289Who Is Threatening Who Here? .................................................................................................................................................................................. 289

REGIONAL ............................................................................................................................... 292

EUROPE-MUDDLESTAGEENDS -CRISIS STAGEBEGINS ........................................................................................................................ 292

SUMMITS ........................................................................................................................................................................... 293The 20th Summit........................................................................................................................................................................................................... 293Muddle" Stage has ended. "Crisis" S tage has Begun ........................................................................................................................................ 293A Banking Union & Central Budget ........................................................................................................................................................................ 296Government Debt Dynamics Interactive Model.................................................................................................................................................... 297Roadmap of EU Hurdles and Surprises Ahead .................................................................................................................................................... 298"19th Nervous Breakdown".......................................................................................................................................................................................... 300

MEDICAL CHARTS - Situation Critical ............................................................................................................................... 307Perceived Reduction in Risk - A Temporary Aberration ........................................................................................................................................... 307Dangerous Delusional Divergences ....................................................................................................................................................................... 309IMF Projections for Euro Area and GIIPS .................................................................................................................................................................. 310Euro-Area Manufacturing Shrank in September....................................................................................................................................................... 311Misery Indices Never Been Higher.......................................................................................................................................................................... 311

EUROSIS -A Terminal Disease ........................................................................................................................................ 319PROGNOSIS: Why the European Situation Will Get Worse ................................................................................................................................... 319PROGNOSIS: Increasing Structural Imbalances ...................................................................................................................................................... 322PROGNOSIS: $22T Unaccounted - A Hidden World of Contingent Liabilities, Government Backing & Guarantees. ....................... 324PROGNOSIS: Monetary Malpractice - ECB's LTRO Not a Solution but................................................................................................................ 329PROGNOSIS: Monetary Malpractice - ECB's SMP Effort Futile ............................................................................................................................. 332PROGNOSIS: Monetary Malpractice - ECB Accepts BBB Collateral..................................................................................................................... 334PROGNOSIS: EU Banking Overbanked, Undercapitalized and Now Insolvent.................................................................................................... 335PROGNOSIS: Monetary Malpractice - TARGET2 "Contingent Liabilities" ..................................................................................................... 336PROGNOSIS: Bailouts - Unsustainable & Unfundable ............................................................................................................................................ 342

IBERIAN PENINSULA - Spain & Portugal Imploding ........................................................................................................... 344Credit Downgrades - At Precipice of "Non Investment Grade"................................................................................................................................ 344Regional Bailout Bailouts a Massive Problem ..................................................................................................................................................... 345NPL Going Ballistic .................................................................................................................................................................................................... 346Spanish Funding Problem ........................................................................................................................................................................................ 347Banks on Artificial "Ponzi Bond" Life Support............................................................................................................................................................ 357

ITALY - Cracks Impossible to Hide and Contain .................................................................................................................. 364Bad Debt Continue to Soar.......................................................................................................................................................................................... 364

UK ....................................................................................................................................................................................... 369QE Extension Coming.................................................................................................................................................................................................. 369

FRANCE ............................................................................................................................................................................. 371

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Has Turned back to Socialism ..................................................................................................................................................................................... 371

ASIA-CHINA-JAPANCONFLICTEMERGES ................................................................................................................................................... 373

CHINA - POLITICAL TRANSITION ..................................................................................................................................... 375China' Political Transition & Ongoing Emergence as a Super Power..................................................................................................................... 377

An Implicit Social Contract........................................................................................................................................................................................... 379ChinaManipulated Statistics due to Upcoming Decade Long Regime Change ..................................................................................................... 381Declining Reserve Accumulation................................................................................................................................................................................. 382China Has Caught the Gold Bug big time!................................................................................................................................................................. 384Increasing Leverage is China's Way of Monetary Easing........................................................................................................................................ 385Possible Interest-Rate Liberalization .......................................................................................................................................................................... 386Shanghai Composite at 2008 Low Levels .................................................................................................................................................................. 387Shanghai Composite Warnings Signs ........................................................................................................................................................................ 388China's Credit to GDP.................................................................................................................................................................................................. 390A Slow Recovery Through 2013.................................................................................................................................................................................. 391Manufacturing PMI in Contraction Territory............................................................................................................................................................... 393SHADOW BANKING .................................................................................................................................................................................................... 394Shadow Banking System Report................................................................................................................................................................................. 394Shadow Banking in China ............................................................................................................................................................................................ 395Socit General Sees a Likely Soft Landing!............................................................................................................................................................ 396

JAPAN: AUTO EXPORTS TO CHINA PLUMMET 44.5%. JAPAN'S LARGEST EXPORT MARKET ................................... 404

Exports Continue To Tumble ....................................................................................................................................................................................... 406Intervention Fails Again - It's a Whole new Ball Game ............................................................................................................................................. 407Japan in Negative PMI and GDP Territory................................................................................................................................................................. 409

EMERGINGMARKETS-SYNCHRONIZED MARKETS ................................................................................................................................. 412Synchronized Markets .................................................................................................................................................................................................. 413Export Growth Looks Similar to pre-2008.................................................................................................................................................................. 415Global Slowing: A Quickly Worsening Situation Across Asia ................................................................................................................................... 416Risks All on the Downside for Asia ............................................................................................................................................................................. 417Demographic Headwinds ............................................................................................................................................................................................. 420Pronounced Flight to Safety......................................................................................................................................................................................... 421India: Watch Out For RE-Emergence of Food Price Inflation .................................................................................................................................. 422

US ECONOMY ......................................................................................................................... 424

THEGLOBALMACROOVERLAY ................................................................................................................................................... .......... 425

MACRO POSITIONING: A Serious Global Slowdown Underway ........................................................................................ 425

MACRO POSITIONING: Credit Fueled Globalization in Retreat .......................................................................................... 429MACRO POSITIONING: Notion of Eurozone "Decoupling" Has Ended. .............................................................................. 431MACRO POSITIONING: Nielsen's Global Survey - "Consumers Cutting Back & Worrying about a Recession" ................... 434MACRO POSITIONING: Executives Report Deteriorating Economic Environment .............................................................. 437PROSPERITY AT RISK: Harvard Strategy Study Spells Out US Problem ........................................................................... 440

USINVESTMENTCYCLE................................................................................................................................................................. .......... 444

GORD'S BIG PICTURE ECONOMIC CYCLE ...................................................................................................................... 444ECONOMIC INDICATORS .................................................................................................................................................. 445

MONTHLY INDICATORS OF NOTE.......................................................................................................................................................................... 445

THE CURRENT BUSINESS CYCLE - SITUATIONAL ANALYSIS ....................................................................................... 451ECONOMIC CYCLE, INVESTMENT CYCLE, SECTOR ROTATION.................................................................................................................... 451JOBS - CONFIDENCE - CONSUMPTION - GROWTH CYCLE............................................................................................................................. 455JOBS .............................................................................................................................................................................................................................. 456CONSUMER & BUSINESS SENTIMENT.................................................................................................................................................................. 465CONSUMPTION........................................................................................................................................................................................................... 482

GROWTH....................................................................................................................................................................................................................... 496

USINVESTMENTCYCLE................................................................................................................................................................. .......... 508

GORD'S BIG PICTURE ECONOMIC CYCLE ...................................................................................................................... 508

ECONOMIC INDICATORS .................................................................................................................................................. 509MONTHLY INDICATORS OF NOTE.......................................................................................................................................................................... 509

THE CURRENT BUSINESS CYCLE - SITUATIONAL ANALYSIS ....................................................................................... 515ECONOMIC CYCLE, INVESTMENT CYCLE, SECTOR ROTATION.................................................................................................................... 515JOBS - CONFIDENCE - CONSUMPTION - GROWTH CYCLE............................................................................................................................. 519JOBS .............................................................................................................................................................................................................................. 520

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CONSUMER & BUSINESS SENTIMENT.................................................................................................................................................................. 529CONSUMPTION........................................................................................................................................................................................................... 546GROWTH....................................................................................................................................................................................................................... 560

USGOVERNMENTSURRENDERS 'RISKFREE" .................................................................................................................................. 572

Exorbitant Privilege ............................................................................................................................................................. 572US Firmly in Stage 5 of the "Sovereign Life Cycle" .............................................................................................................. 577The Price of Political Chicanery ........................................................................................................................................... 580

"Kick the Can" Politics .................................................................................................................................................................................................. 580

USPUBLICPOLICY-SOMENOTABLEPOLICYPROBLEMS............................................................................................................. 581

POLICY: Congressman Ron Paul's Farewell Speech to Congress ...................................................................................... 583POLICY: Credit Growth Solely Government Funded ........................................................................................................... 588POLICY: Government's Consumption Spending versus Investment Spending .................................................................... 590POLICY: FHA is a Case Study in Failed Public Policy ......................................................................................................... 592POLICY: What Was Intentionally Avoided During the Election Promises By Both Parties .................................................... 596

What about the $84T in Unfunded Federal Entitlements? ....................................................................................................................................... 596What about the $5T in Unfunded State & Local Government Pension Obligations? ............................................................................................ 597What about the $1T in Student Loan Bubble? ........................................................................................................................................................... 600What about the ...... ? ................................................................................................................................................................................................... 601

POLICY: Failure to Recognize & Alter Policy When it is Clearly Not Working ...................................................................... 601Stimulus Hasn't Worked. It is Camouflaging Something Deeper..................................................................................................................... 606

POLICY: A Capitalist System No Longer Realistically Operate When the State Borrows at a Negative Cost ....................... 608

MONETARYPOLICY-ELECTILEDYSFUNCTIONAL.................................................................................................................................... 611

HIGHLIGHTS ...................................................................................................................................................................... 611

QE III POST MORTEM - BROKEN FED MODEL ................................................................................................................ 613POST MORTEM: Market Reacts Badly...................................................................................................................................................................... 613POST MORTEM: Currency War Salvos & The $67T Shadow Banking Currency Cartel..................................................................................... 615POST MORTEM: Fed's Broken Model....................................................................................................................................................................... 624POST MORTEM: QEfinity Working Psychologically the same as 1987 Pre-Crash Portfolio Insurance ............................................................ 626

FED'S NEXT STEP ............................................................................................................................................................. 628NEXT STEP: Current Fed Thinking............................................................................................................................................................................ 628NEXT STEP: Fed Lays Foundation for Further Policy Changes ............................................................................................................................. 629NEXT STEP: High Probability Direction ..................................................................................................................................................................... 635NEXT STEP: Communications to Ensure "Duration" Understood.......................................................................................................................... 637

FED INDICATORS .............................................................................................................................................................. 638PATTERNS: Velocity of Money................................................................................................................................................................................... 638PATTERNS: Real Negative Rates .............................................................................................................................................................................. 640PATTERNS: Short Interest Rates a Fed Problem .................................................................................................................................................... 642CHARTS: Fed Deliberately ignoring data on both growth and inflation .................................................................................................................. 643

PREVIOUSQUARTERLYSUMMARY-REFERENCE............................................................................................................................... 645

FISCALPOLICY-FROMPOLITICALPOLLINGTOPOLITICALBRINKSMANSHIP......................................................................... 646

HIGHLIGHTS ...................................................................................................................................................................... 646TIMELINE: Calendar of Events Ahead ................................................................................................................................ 650

PREDICTIONS.................................................................................................................................................................... 651PREDICTION: The High Probability Outcome .......................................................................................................................................................... 651PREDICTION: Political Brinksmanship & Vigilantes ................................................................................................................................................. 652PREDICTION: US Unwittingly Surrenders "Risk Fee" Status.................................................................................................................................. 660

PERSPECTIVES ................................................................................................................................................................. 661

PERSPECTIVE: One Non-Mainstream Analyst's Views .......................................................................................................................................... 661PERSPECTIVE: One Mainstream Analyst's Views .................................................................................................................................................. 664PERSPECTIVE: A Collection of Wall Street Views ................................................................................................................................................... 669PERSPECTIVE: Barron's Weigh In ............................................................................................................................................................................ 671PERSPECTIVE: Goldman's Fiscal Cliff Scenarios ................................................................................................................................................... 674

CHARTS ............................................................................................................................................................................. 678KEY CHARTS: Growth & Jobs .................................................................................................................................................................................... 678KEY CHARTS: Taxes & Spending.............................................................................................................................................................................. 681KEY CHARTS: Politics & Policy.................................................................................................................................................................................. 684KEY CHARTS: The Stakes .......................................................................................................................................................................................... 685KEY CHARTS: Payroll Tax Holiday............................................................................................................................................................................ 688CHARTS: Tax Rate Comparisons............................................................................................................................................................................... 689

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CHARTS: Risk Perceptions ......................................................................................................................................................................................... 690CHARTS: 2013 Quarterly Impact................................................................................................................................................................................ 691CHARTS: Budget Deficit.............................................................................................................................................................................................. 692CHARTS: Sovereign Debt............................................................................................................................................................................................ 694CHARTS: State & Local Government Drag............................................................................................................................................................... 695CHARTS: Government Dependence .......................................................................................................................................................................... 698CHARTS: Coming Demographic Shock..................................................................................................................................................................... 698

TREASURY FUNDING ....................................................................................................................................................... 701TREASURY DEBT: Latest TIC Table ......................................................................................................................................................................... 701TREASURY DEBT: Who is Buying? ........................................................................................................................................................................... 702

BUDGET ............................................................................................................................................................................. 704STATEMENTS: As A Corporation it is Both Insolvent & Exhibits Fraudulent GAAP Accounting Practices ....................................................... 704QUARTERLY US BUDGET UPDATE........................................................................................................................................................................ 711

PREVIOUS QUARTERLY SUMMARY - Reference ............................................................................................................. 715

KEYDRIVERS-CATALYSTSOFCHANGE............................................................................................................................................ 716

EMPLOYMENT ................................................................................................................................................................... 7201- CAPITAL SPENDING .............................................................................................................................................................................................. 7202- SMALL BUSINESS OPTIMISM.............................................................................................................................................................................. 7233- DEMOGRAPHIC SHIFT.......................................................................................................................................................................................... 727RESEARCH OF NOTE................................................................................................................................................................................................. 732

REAL DISPOSABLE INCOME ............................................................................................................................................ 737RESEARCH OF NOTE................................................................................................................................................................................................. 741

US RESIDENTIAL REAL ESTATE ...................................................................................................................................... 746OVERVIEW.................................................................................................................................................................................................................... 746CURRENT SITUATIONAL ANALYSIS ....................................................................................................................................................................... 750CURRENT HOME OWNERSHIP TRENDS............................................................................................................................................................... 750NEW HOME SALES - Not as Strong as Headlines & Excitement Suggests ......................................................................................................... 754HOUSING - Potentially Increasing Supply v Demand Problem ............................................................................................................................... 758NATIONAL STATISTICS: PRICE............................................................................................................................................................................... 760NATIONAL STATISTICS: EXISITNG HOME SALES ............................................................................................................................................... 762NATIONAL STATISTICS: NEW HOME SALES ........................................................................................................................................................ 764RESEARCH OF NOTE................................................................................................................................................................................................. 765

US COMMERCIAL REAL ESTATE ..................................................................................................................................... 771

OVERVIEW.................................................................................................................................................................................................................... 771

NATIONAL STATISTICS: COMMERCIAL REAL ESTATE...................................................................................................................................... 772RESEARCH OF NOTE................................................................................................................................................................................................. 773

CAPITALSHRUGGED ................................................................................................................................................................................ 777

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Rpt GMTP 2013 03 Cw Peek