TIDAL WAVE OF EU DOWNGRADES

More than just "Cracks" Emerging in the EU Veneer.

The World Economic Forum's 2012 Risks Report, the IMF's Global Financial Stability Report and our proprietary
Aggregated Global Risk Level Index (AGRLI) all suggest global macroeconomic risks are increasing. The consensus
findings are that the center of gravity of Global Macro issues are a combination of Chronic Fiscal Imbalances and a
Global Governance Failure.
GLOBAL MACRO TIPPING POINTS - FEBRUARY 2012

1/23/2012

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TIDAL WAVE OF EU DOWNGRADES

More than just "Cracks" Emerging in the EU Veneer.

GLOBAL MACRO TIPPING POINTS - FEBRUARY 2012

TIPPING POINTS........................................................................................................................................................................................ 5
GLOBAL MACRO: RISK ASSESSMENTS.................................................................................................................................................... 5
SITUATIONAL ANALYSIS - WE ARE HERE ....................................................................................................................................................................... 5
WORLD ECONOMIC FORUM: GLOBAL ECONOMIC, GEO-POLITICAL & SOCIETAL RISKS .................................................................................. 6
INTERNATIONAL MONETARY FUND: GLOBAL FINANCIAL RISKS ........................................................................................................................... 13

GLOBAL MACRO: RISK LEVELS ................................................................................................................................................................ 15

AGGREGATED GLOBAL FINANCIAL RISK INDEX ......................................................................................................................................................... 15
BANKING RISK - LIBOR-OIS SPREAD (Updated) .................................................................................................................................................... 16
BANKING RISK - TED SPREAD (Updated) ................................................................................................................................................................ 16
CREDIT RISK - GLOBAL CREDIT DEFAULT SWAPS (Updated) .......................................................................................................................... 16
CREDIT RISK - EU CREDIT DEFAULT SWAPS (Updated) ..................................................................................................................................... 17
CONSUMER RISK - HOUSING - RATE OF CHANGE (Reference) ........................................................................................................................ 18
ECONOMIC RISK - ECRI LEADING INDEX (Updated) ............................................................................................................................................. 20
INFLATION RISK - MONEY SUPPLY GROWTH - M3 (Updated) ............................................................................................................................ 21
INFLATION RISK - MONEY VELOCITY (Updated) .................................................................................................................................................... 21
MONETARY RISK - BANK LIABILITIES (Updated) ................................................................................................................................................... 22
COST OF MONEY RISK - INTEREST RATES (Updated)........................................................................................................................................ 23
AGGREGATED RISK LEVEL............................................................................................................................................................................................... 24

TIPPING POINTS: CHANGES ...................................................................................................................................................................... 25

TIPPING POINT MAPPING: 2012 UPDATE ...................................................................................................................................................................... 25
SHIFTS TO WATCH .............................................................................................................................................................................................................. 28

TIPPING POINTS: FOCUS - JANUARY 2012 ............................................................................................................................................... 34

I - EU BANKING CRISIS ....................................................................................................................................................................................................... 34
II - SOVEREIGN DEBT ......................................................................................................................................................................................................... 35
III - CHINA HARD LANDING ................................................................................................................................................................................................ 36
IV - RISK REVERSAL ........................................................................................................................................................................................................... 36
V - SOCIAL UNREST ............................................................................................................................................................................................................ 37
VI - GEO-POLITICAL EVENT .............................................................................................................................................................................................. 38

GLOBAL MACRO......................................................................................................................................................................................40
EUROPE - COUNT DOWN, WHILE THE WORLD WATCHES ............................................................................................................................ 42
DEADLINE - Three frantic weeks start with the G20 Meeting in Paris. ........................................................................................................................... 42
CENTRAL CONFLICTS - Reconciling a Multitude of Positions that is the EU ............................................................................................................... 44
FRANCE - French Government, French Banks & Dominant GIIPS Bondholders ................................................................................................... 44
GERMANY: German Politics and Wealth..................................................................................................................................................................... 49
CENTRAL BANKS: The Bundesbank and the ECB ................................................................................................................................................... 49
PRINTING THE MONEY - Fabricating a Scheme ............................................................................................................................................................. 50
THE BAZOOKA - Remember AIG? .................................................................................................................................................................................... 51
INTERNATIONAL FINANCIAL STANDARDS BOARD #9: The Fix Is In ................................................................................................................. 52
BRADY BONDS - The Final EU Solution When the Politics End and Reality Sets In ............................................................................................ 52
BANKS DON'T WANT THE CAPITAL - Threatens Reducing Loans to Dilution & Government Intervention ............................................................. 52
HOW MUCH EU BANK RECAPITALIZATION & FIREPOWER IS REQUIRED? .......................................................................................................... 54
GLOBALLY: $21T IS REQUIRED TO SOLVE THIS PROBLEM - The Boston Consulting Group Weighs in. ........................................................... 56

ASIA - HOUSTON, WE HAVE A PROBLEM!. ...................................................................................................................................................... 57

CHINA: The Slowdown is Indisputable ................................................................................................................................................................................ 57
JAPAN: EU:YEN Cross is Forcing Carry Trade Unwinding .............................................................................................................................................. 59

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EMERGING MARKETS - FALLING MARKETS, PRODUCTION & CURRENCIES ............................................................................................. 60

INDIA: Crippling Inflation ....................................................................................................................................................................................................... 60
SOUTH KOREA: Something isn't right! ............................................................................................................................................................................... 60

US ECONOMY ...........................................................................................................................................................................................61
THE GLOBAL MACRO OVERLAY ............................................................................................................................................................... 62
US INVESTMENT CYCLE............................................................................................................................................................................. 65
GORD'S BIG PICTURE ECONOMIC CYCLE .................................................................................................................................................................... 65
THE CURRENT BUSINESS CYCLE ................................................................................................................................................................................... 66
MONTHLY ECONOMIC INDICATORS OF NOTE ...................................................................................................................................................... 66
ECONOMIC CYCLE, INVESTMENT CYCLE, SECTOR ROTATION ...................................................................................................................... 72
THE ECONOMIC CYCLE FLOW - SITUATIONAL ANALYSIS ........................................................................................................................................ 74
JOBS ................................................................................................................................................................................................................................ 75
CONFIDENCE & SENTIMENT ...................................................................................................................................................................................... 83
CONSUMPTION ............................................................................................................................................................................................................. 90
GROWTH ......................................................................................................................................................................................................................... 97

MONETARY POLICY - INFLATION & MONEY VELOCITY .................................................................................................................... 105

FALLING INFLATION EXPECTATIONS: OPEN DOOR TO ADDITIONAL FED ASSET PURCHASES .................................................................. 105
CONCERNS WITH BANKS & US CREDIT MARKETS .................................................................................................................................................. 108

FISCAL POLICY - US SUPER COMMITTEE ............................................................................................................................................ 111

KEY DRIVERS - CATALYSTS OF CHANGE ............................................................................................................................................ 116
EMPLOYMENT .................................................................................................................................................................................................................... 116
DISPOSABLE INCOME ...................................................................................................................................................................................................... 119
US RESIDENTIAL REAL ESTATE .................................................................................................................................................................................... 120
WHEN WILL REALITY FINALLY SET IN?................................................................................................................................................................. 120
RESIDENTIAL REAL ESTATE- "STILL HOME SICK" ............................................................................................................................................. 121
COMMERCIAL REAL ESTATE.......................................................................................................................................................................................... 145
COMMERCIAL REAL ESTATE DECLINES 3.7% - NEW POST BUBBLE LOW (REFERENCE ONLY) .......................................................... 147

2011 US ECONOMIC IMPEDIMENTS....................................................................................................................................................... 151

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