Monthly Market Analytics & Technical Analysis

MARCH 2013 Edition

Since the dotcom bubble era we cannot recall the market being 50.8% overvalued by our methodology.
When we have rarely witnessed this before: volumes were exploding, not falling; sentiment was euphoric
not at the historic low levels we are presently experiencing; businesses were expanding not freezing
capital expenditures; profit margins were rising, not falling; corporate cash flow and EBITDA was
increasing, not decreasing and central bankers were talking about reducing liquidity not further
expanding it. Something is seriously wrong with all the normal measures of the securities industry and
we all know it has to do with the endless expansion of central bank balance sheets. The question is when
will the lunacy end and some sort of normality resume?
Maybe this is the new 'normal' because the unfortunate truth is, any attempt to slow or reduce liquidity
from this addicted market will be catastrophic. Instead we wait until something breaks, and you can
assured this will happen. The global markets are too fragile and not sufficiently robust enough, with too
many untested systems, unregulated counterparties and off balance sheet liabilities lurking in the
darkness. We have a classic, decade long, Head and Shoulders pattern now in place. We are likely to have
a major scare soon, an overreaction by the financial authorities, a reactive rebound, then the realization
by the public that the central bankers are in fact not omnipotent and the global financial system is flawed.
The time is near.

Gordon T Long
3/11/2013

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Monthly Market Analytics & Technical Analysis

MARCH 2013
SUBSCRIPTION SERVICE: PLAN IV
BIG PICTURE - KEEPING YOUR PERSPECTIVES ..................................................................................................................................... 9
HIGHLIGHTS - WHAT YOU NEED TO KNOW ..........................................................................................................................................12
SUMMARY ANALYSIS......................................................................................................................................................... 12
Valuation Summary.......................................................................................................................................................... 15
Fed Panics> "QE Unlimited" - ECB Panics> "OMT" Unlimited - Japan /UK Panic> ...................................................... 16
Defining Chart #1 - "Delusional Distortion" Expectations .................................................................................................. 17
Defining Chart #2 - Long Term ......................................................................................................................................... 18
Defining Chart #3 - Short Term ........................................................................................................................................ 19
Defining Chart #4 - Short Term ........................................................................................................................................ 22
OUR APPROACH - MACRO ANALYTICS ...............................................................................................................................................24

............................................................................................................................................................... 25
MARCH 2013: Global Macro Drivers .................................................................................................................................. 26
DRIVER: Real Wealth, Commodities & Dr Cooper ........................................................................................................... 27
DRIVER: Carry Trade & the : Cross .......................................................................................................................... 30
DRIVER: Currency & Forex Markets ................................................................................................................................ 37
DRIVER: Yield, Spread & Credit ...................................................................................................................................... 41
RECIPIENT: Global Equities ............................................................................................................................................ 43
RISK: Risk-On versus Risk-Off........................................................................................................................................... 44
RISK: Peak Price-to-Forward Earnings ............................................................................................................................ 44
RISK: Goldman's MAP (Macro Assessment Platform) Sends Warning ............................................................................. 44
RISK: High Market Cap Concentration ............................................................................................................................. 45
RISK: Global Risk Appetite Signals 'Risk-Off' Process Starting ........................................................................................ 46
RISK: NYSE Margin Debt Is Creeping Toward All-Time Highs ......................................................................................... 48
RISK: Competition Emerging Against Prop Desks for Excess Bank Deposits ................................................................... 49
TECHNO-FUNDAMENTALS ................................................................................................................................................ 50
PATTERNS: Signaling Great Monetary Easing III Still Ahead ......................................................................................... 50
PATTERNS: QE IV Priced in, But the Great Monetary Easing Part III is not! .................................................................... 52
PATTERNS: The Media Attention Stage of the Great Monetary Easing ........................................................................... 53
PATTERNS: 6th Best Rally Since 1929 ........................................................................................................................... 54
PATTERNS: There Is No Asset Bubble?.......................................................................................................................... 54
PATTERNS: Financial Repression - Global Real Rates Now Negative ............................................................................ 59
LAST MONTHS PATTERNS (Reference) ........................................................................................................................ 61
PATTERNS: MACRO - Repetitive Pattern ....................................................................................................................... 61
PATTERNS: MACRO - ECO Has a Death Cross ............................................................................................................. 61
PATTERNS: MACRO - US Macro Surprise Index ............................................................................................................ 63
PATTERNS: DIVERGENCES - Continue to Expand ........................................................................................................ 65
PATTERNS: DIVERGENCES - They Are Global ............................................................................................................. 66
PATTERNS: DIVERGENCES - Consumer Confidence .................................................................................................... 67
PATTERNS: DIVERGENCES - German 'Reality' Check .................................................................................................. 68
PATTERNS: EU - Setting Up for a Market Rout ............................................................................................................... 69
PATTERNS: BONDS - Beware the Ides of March ............................................................................................................ 70
PATTERNS: BONDS - Emerging Market Fund Flows Set Record.................................................................................... 73
PATTERNS: FED - Monetary Expansion Losing Effect on Market.................................................................................... 75
PATTERNS: FED - Finger Prints ..................................................................................................................................... 75
PATTERNS: CHARTS - Yardeni's Year-End S&P Target of 1665 .................................................................................... 77
PATTERNS: CHARTS - A 1994 Scare ............................................................................................................................. 78
PATTERNS: CHARTS - Credit Anticipates But Equity Confirms ...................................................................................... 80
PATTERNS: CHARTS - Parabolic Channel ..................................................................................................................... 81
PATTERNS: CHARTS - Long Term Regression-to-the-Mean Tells the Story ................................................................... 82
PATTERNS: CHARTS - Long Term Consolidations Tells the Story.................................................................................. 83
PATTERNS: CHARTS - Ending Diagonals / Wedges Are signs of Tops .......................................................................... 84
PATTERNS: CHARTS - Parallel Rises ............................................................................................................................ 85
PRIOR MONTHS PATTERNS (Reference) ...................................................................................................................... 86

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PATTERNS: Consumption Slowdown Ahead ................................................................................................................... 88

PATTERNS: Credit Demand Falling Off Dramatically ....................................................................................................... 89
PATTERNS: Bearish US Economic Indicators ................................................................................................................. 90
PATTERNS: Citi US Economic Surprise Index Appears to Have Peaked ......................................................................... 94
PATTERNS: Pre-QEIII, Pre-Election Economic Surprise Index Divergences Will Be Reconciled ..................................... 95
PATTERNS: Bear Market Short Squeeze ........................................................................................................................ 96
PATTERNS: Un-Nerving Divergences ............................................................................................................................. 97
PATTERNS: Volumes Continue to Warn.......................................................................................................................... 97
PATTERNS: Arithmetic versus Geometric Progressions .................................................................................................. 98
PATTERNS: Climatic Readings Signaling Exhaustion ..................................................................................................... 99
PATTERNS: Total Sector Performance Returns of Obama's First Term ........................................................................ 100
OUTLOOK - ANALYTICAL ANALYSIS ................................................................................................................................................... 101
STUDY: BUYBACKS ACCELERATING ............................................................................................................................. 101
BUYBACKS: What is Driving This? Its More than Just Easy Money ............................................................................... 101
BUYBACKS: The Generals Have Stalled (Buybacks Now Needed With Excess Corporate Cash) ................................. 103
BUYBACKS: Earnings, Valuations, Dividends & Buybacks ............................................................................................ 104
BUYBACKS: Dividends and Buybacks Signal Earnings Problems Ahead ...................................................................... 107
BUYBACKS: Private Equity & Venture Capital Companies Unloading Shares ............................................................... 109
BUYBACKS: Offshore cash Hoards Building.................................................................................................................. 111
STUDY: DECAYING ENTERPRISE VALUE....................................................................................................................... 115
ENTERPRISE VALUE: Eroding Fast ............................................................................................................................. 115
ENTERPRISE VALUE: Assortment of EBITDA Charts That tell the Story ...................................................................... 117
STUDY: Q1 EARNINGS ..................................................................................................................................................... 121
Q1 EARNINGS: 2013 Earnings To Be Less Than 2009 Earnings Were Projected To Be In 2007 .................................. 121
Q1 EARNINGS: 2013 Top-Down & Bottom-Up .............................................................................................................. 124
STUDY: BUFFETT IS THE "MASTER OF THE INDIRECT EXCHANGE" .......................................................................... 127
BUFFETT: Overvalued Against GDP ............................................................................................................................. 127
BUFFETT: High Stock Prices BUT Good Intrinsic Value ................................................................................................ 128
BUFFETT: Subpar $24 Billion Gain................................................................................................................................ 129
BUFFETT: 15 Biggest Holdings ..................................................................................................................................... 130
LAST MONTHS STUDIES (Reference)............................................................................................................................. 132
STUDY: BANK PROP DESKS ........................................................................................................................................... 132
BANK PROP DESKS: Deposits and The "Prop" Trading Desks Pushing Markets Up .................................................... 132
BANK PROP DESKS: Public Volume Flee, But Bank Prop Desks Picking Up Slack With Fed Reserves ....................... 135
STUDY: POTENTIAL EARNINGS IMPACT DRIVERS ....................................................................................................... 138
POTENTIAL DRIVERS: Earnings Worse than Most Suspect - Pension Funding a Major Problem ................................. 138
POTENTIAL DRIVERS: ZIRP Fallout - Cash MIS-Management, Capital MIS-Allocation and CAPEX Avoidance ........... 142
POTENTIAL DRIVERS: How Obama's Balanced "Tax-Loophole" Closing Will Crush S&P Earnings ............................ 146
STUDY: CORPORATE CREDIT MARKETS ....................................................................................................................... 151
CREDIT MARKETS: A Mad Rush Could Be Coming In The Corporate Credit Markets .................................................. 151
CREDIT MARKETS: TIPS May Be First To Pop ............................................................................................................ 156
STUDY: MARKETS ............................................................................................................................................................ 157
MARKETS: Where the Consensus is Wrong .................................................................................................................. 157
MARKETS: The Next Secular Bull Market Is Still A Few Years Away ............................................................................ 162
PRIOR MONTHS STUDIES (Reference) ........................................................................................................................... 165
STUDY: BOND BUBBLE - Potential Demand / Supply Mismatch ................................................................................... 168
BOND BUBBLE: Musical Chairs, Yield Chasing & other RISKY Children's Games ........................................................ 168
BOND BUBBLE: A Treasury Rally on Fiscal Cliff ........................................................................................................... 175
BOND BUBBLE: Potential Panic Buying Due to An Orchestrated Demand/Supply Mismatch ....................................... 176
STUDY: QE ISN'T WORKING - An Equity Perspective .................................................................................................... 177
QE ISN'T WORKING - An Equity Perspective ................................................................................................................ 177
November Index - Reference Only ................................................................................................................................. 180
STUDY: Election Risk ....................................................................................................................................................... 184
Post Election: Now for the Main Event - The FISCAL CLIFF .......................................................................................... 184
Post Election: Expect "Electile Dysfunction" ................................................................................................................... 186
Post Election: Following Historic Election Year Trends .................................................................................................. 188
Post Election: BUY Presidential Election; SELL Dividend Tax Credit ............................................................................. 189
Post Election: "Real" Realities - Equity Markets 83% Lower Since 2000 in Real Terms ................................................. 191
STUDY: Spending Deficit Correlation & the Fiscal Cliff.................................................................................................. 192
Deficit Spending: Small Business Concern: "Government Requirements" ...................................................................... 192
Deficit Spending: Government Driver$ of Corporate Margin Levels - GMO's James Montier ......................................... 193
Deficit Spending: Every Investor And CEO Needs To See This Chart Before The Fiscal Cliff Is Hit ............................... 196
STUDY: Economic Cycles ................................................................................................................................................ 198

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Pay Close Attention to the 8 Economic Cycle Theories .................................................................................................. 198

SHORT TERM TECHNICAL ANALYSIS .............................................................................................................................................. 204
SUPPORT & RESISTANCE ............................................................................................................................................... 204
Gann Analysis................................................................................................................................................................ 204
Boundary Conditions...................................................................................................................................................... 205
Channels & Regressions................................................................................................................................................ 207
Fibonacci - Controlling Time Extensions ........................................................................................................................ 209
Elliott Wave.................................................................................................................................................................... 215
SENTIMENT - Consumer, Investor & Trader .................................................................................................................... 222
CONSUMER
Consumer Confidence - Conference Board .................................................................................................................... 222
Consumer Sentiment - Michigan .................................................................................................................................... 225
Consumer Comfort......................................................................................................................................................... 226
INVESTORS
Investors Intelligence ..................................................................................................................................................... 227
American Association of Independent Investors ............................................................................................................. 227
National Association of Active Investment Managers (NAAIM) ....................................................................................... 228
Small Business Optimism .............................................................................................................................................. 229
TRADERS
Smart Money / Dumb Money Confidence ....................................................................................................................... 230
Percentage Stocks Above 50 & 200 DMA ...................................................................................................................... 231
Margin Levels ................................................................................................................................................................ 232
Mutual Fund Cash Levels v S&P 500 ............................................................................................................................. 235
OSCILLATORS & BREADTH: Indicators of Importance................................................................................................. 237
NYSE Overbought / Oversold ........................................................................................................................................ 237
OEX Open Interest (Puts/Calls) ..................................................................................................................................... 238
TRIN .............................................................................................................................................................................. 239
McClellan Oscillator ....................................................................................................................................................... 240
STUDY: UNCERTAINTY & COMPLACENCY .................................................................................................................... 241
SENTIMENT: EU Consumer Sentiment Telltales ........................................................................................................... 241
SENTIMENT: Mispricing Uncertainty ............................................................................................................................. 243
SENTIMENT: High Level of Complacency ..................................................................................................................... 244
SENTIMENT: Uncertainty Always Stops Business Investment ....................................................................................... 245
SENTIMENT: Consumer Confidence Plunges After Election as Fiscal Cliff Realization Faced. ...................................... 247
SENTIMENT: Abruptly Plummets: Post Election, Sandy and pending Fiscal Cliff ........................................................... 248
SENTIMENT: Uncertainty .............................................................................................................................................. 249
SENTIMENT: Market Not Prepared for Fiscal Cliff Disappointment! ............................................................................... 250
SENTIMENT: Fiscal Cliff Uncertainty Parallels With Debt Ceiling Negotiations (The "Holy Shit" Moment) ...................... 252
INTERMEDIATE TERM RISK ANALYSIS.......................................................................................................................................... 256
RISK SUMMARY- Aggregated Global Financial Risk Index ............................................................................................ 256
AGGREGATED GLOBAL FINANCIAL RISK INDEX.......................................................................................................... 256
BANKING RISK - LIBOR-OIS SPREAD (Updated) ........................................................................................................ 257
BANKING RISK - TED SPREAD (Updated) ................................................................................................................... 257
CREDIT RISK - GLOBAL CREDIT DEFAULT SWAPS (Updated)................................................................................. 258
CREDIT RISK - EU CREDIT DEFAULT SWAPS (Updated) ........................................................................................... 259
CONSUMER RISK - HOUSING - RATE OF CHANGE (Reference) ............................................................................... 260
ECONOMIC RISK - ECRI LEADING INDEX (Updated).................................................................................................. 261
INFLATION RISK - MONEY SUPPLY GROWTH - M3 (Updated) .................................................................................. 262
INFLATION RISK - MONEY VELOCITY (Updated) ........................................................................................................ 263
MONETARY RISK - BANK LIABILITIES (Updated)........................................................................................................ 263
COST OF MONEY RISK - INTEREST RATES (Updated) ............................................................................................. 265
AGGREGATED RISK LEVEL............................................................................................................................................. 267
Risk .................................................................................................................................................................................... 268
RISK: 1970 Pattern Comparisons See 20-27% Correction in H2 .................................................................................... 268
RISK: The Bond Bubble the Next to Burst, A Panic into Stocks...................................................................................... 270
RISK: Collateral considerations are a joke and Loans are Disguised ............................................................................. 271
RISK: Citigroup Economic Surprise Index has moved below Zero.................................................................................. 273
RISK: Key Market Warning Signals Triggered ................................................................................................................ 274

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RISK: Nearing End of Short Squeeze ............................................................................................................................ 275

RISK: Shift in Perceptions & Market Optimism Reflected at Davos ................................................................................ 277
RISK: Bonds Most Overbought in 55 Years ................................................................................................................... 278
RISK: A Final Parabolic Lift to 1550 to 1570 in the SPX before Major Capitulation ......................................................... 279
RISK: Brace For A Stock Market Accident ..................................................................................................................... 281
RISK: Excess Euphoria .................................................................................................................................................. 283
RISK: Money is ALL IN .................................................................................................................................................. 285
RISK: VIX - Cost of Risk Plummets ................................................................................................................................ 288
LAST MONTHS RISK (Reference)................................................................................................................................. 290
RISK: An Artificial "Paper" Asset Market ........................................................................................................................ 291
RISK: Forthcoming Deflation Shock ............................................................................................................................... 292
RISK: Cash Going to the Sidelines................................................................................................................................. 294
RISK: Cash Deposits See Largest Weekly Surge .......................................................................................................... 295
RISK: Micro Weakness Indicating Major Macro Problems .............................................................................................. 300
RISK: 2012 v 1987 ......................................................................................................................................................... 303
RISK: 2008 Parallels Keep Showing Up ......................................................................................................................... 305
RISK: No Cash Available for Margin Calls...................................................................................................................... 306
Cassandra's - New Additions to the List ......................................................................................................................... 308
Cassandra: Byron Wien Warns "Oblivious Markets" Of 20% Correction ......................................................................... 308
Cassandra: Harry Dent Warns Stocks to Sink More than 60% by End of 2014............................................................... 308
Cassandra: Stanley Druckenmiller: "When You Get This Kind Of Rigging, It Will End Badly" ......................................... 309
Cassandra: Mohamed El-Erian: "Prices Are Artificially High - Its Time to Take Profits".................................................. 310
Cassandra: Felix Zulauf: World Headed Toward 1987 Style Market Collapse ................................................................ 311
Cassandra: Doug Kass: 'I'm Getting The Summer Of 1987 Feeling' In The Market Right Now ....................................... 311
Q1 - Canaries ..................................................................................................................................................................... 313
Q1 Canaries: The Equity 'Air-Pocket' And 5 Reasons To Worry ..................................................................................... 313
Q1 Canaries: 12 Things That Just Happened That Show The Next Wave Of The Economic Collapse Is Almost Here ... 323
Q1 Canaries: A Mad Rush Could Be Coming In The Corporate Credit Markets ............................................................. 325
Q4 - Canaries ..................................................................................................................................................................... 330
CANARIES: A Snap Shot of Reporting - It's Worse than Ugly! ....................................................................................... 330
Caterpillar ...................................................................................................................................................................... 330
DOW.............................................................................................................................................................................. 331
DuPont .......................................................................................................................................................................... 331
JAPAN: Consumer Electronics & Auto ........................................................................................................................... 332
CHINA: All Sectors......................................................................................................................................................... 333
US: Consumer Retail ..................................................................................................................................................... 334
US: Technology ............................................................................................................................................................. 335
Intel Earnings ................................................................................................................................................................. 337
Q3 - Signs Everywhere ..................................................................................................................................................... 338
Blatant Distortions: Corporations Reducing EU Risk Exposure (aka: Bank Runs) ......................................................... 338
Blatant Distortions: Hong Kong's Hang Seng Warning (August) ..................................................................................... 339
Blatant Distortions: Deutsche Bank Warns of 5 -10% Market Correction (August) ......................................................... 340
Blatant Distortions: Canaries Singing but Few are Listening - TSE Halted (August) ...................................................... 340
Q2 - Everyone Is Suddenly Nervous ................................................................................................................................ 341
Nervousness: GREECE: Investors Flock to Safety as Euro-Exit Fears Rise.................................................................. 341
Nervousness: FRANCE: Showdown in Europe: Hollande Takes on Merkel and Draghi, Insists on Renegotiation of
Merkozy Treaty .............................................................................................................................................................. 342
LONGER TERM - FUNDAMENTAL ANALYSIS....................................................................................................................................... 343
HIGHLIGHTS ...................................................................................................................................................................... 343
Valuation Summary........................................................................................................................................................ 343
Earnings > Margins > PE > Valuation............................................................................................................................ 345
Three Major Disappointments ........................................................................................................................................ 346
Three Evident Themes ................................................................................................................................................... 347
Peek Earnings & Peek PE ............................................................................................................................................. 349
Equity Valuation: The Surprising PE Ratio Regime You MUST Now Watch .................................................................. 350
What to Watch in Q1 ...................................................................................................................................................... 353
VALUATION: Alternative Methodologies ......................................................................................................................... 354
Four Set Consolidated Market Valuation Indicators: Overvaluation Relatively Unchanged ............................................. 354
Crestmont from the Arithmetic ..................................................................................................................................... 356
Cyclical PE 10 Ratio ................................................................................................................................................... 358
Q Ratio ....................................................................................................................................................................... 362
S&P Composite Regression-to-the-Trend ................................................................................................................... 367

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REFERENCE METHODOLOGIES ANALYSIS .............................................................................................................. 368

S&P Fair Value .............................................................................................................................................................. 376
Rule of 20 ...................................................................................................................................................................... 382
Cyclically Adjusted PE's (CAPE) are Richly Valued........................................................................................................ 383
Value Line Arithmetic ..................................................................................................................................................... 384
Shiller PE Ratio.............................................................................................................................................................. 384
Comments on Estimated Forward Operating Earnings ................................................................................................... 385
S&P Earnings Yield versus Bond Yields................................................................................................................... 386
VALUATION: Situational Assessment ............................................................................................................................. 387
Valuation: Earnings, Valuations, Dividends and Buybacks a Problem ............................................................................ 387
Valuation: Unencumbered DCF -- Free Cash Flow is KING! .......................................................................................... 390
Valuation: S&P 500 Between 40-70% above Pre-Bubble Valuation Norms .................................................................... 391
Valuation: Hope Priced In .............................................................................................................................................. 395
Valuation: Median NTM PE ............................................................................................................................................ 396
Valuation: Inflation Adjusted Earnings ............................................................................................................................ 397
Valuation: PE Expansion Possible, though Likely Temporary ......................................................................................... 398
Valuation: PE Compression In Process .......................................................................................................................... 400
Valuation: PE Ratio Election Year Trends ...................................................................................................................... 401
Valuation: The Shiller P/E .............................................................................................................................................. 402
Valuation: Foreign Profits Kept Untaxed Offshore .......................................................................................................... 405
Valuation: Downward Revisions Accelerating................................................................................................................. 406
Valuation: Forward Guidance Significantly Lower than Reported Strength ..................................................................... 409
Valuation: Equity Valuations: It's All Downhill From Here ............................................................................................... 411
Valuation: Earnings Continuing to Weaken without much Media Fanfare ....................................................................... 413
Valuation: A Different Earnings Season. ........................................................................................................................ 414
Valuation: Government Spending Driving Profits: Artificially High Margins .................................................................... 416
Valuation: Inflation Expectations - Markets Mistakenly Expecting Growth & Profit To Accompany It.............................. 417
Valuation: Major Warning Needs Heeding: FedEx......................................................................................................... 418
Valuation: What We Called for Is Beginning To Show .................................................................................................... 420
Valuation: Equities as a Matter of Belief ......................................................................................................................... 425
Valuation: The Charts Wall Street Doesn't Want You To See On Annual Returns .......................................................... 428
Valuation: Some Sobering Japanese Comparison Charts from Michael Darda at MKM Partners ................................... 433
Valuation: Are Corporate Profit Margins About To Grind Lower For Another 10 Years? ................................................. 436
Valuation: Corporations Have Captured 88% Of All Post-Recession Income Growth ..................................................... 437
Valuation: Think Stocks Are Cheap? Here's 7 Reasons Why That's A Myth ................................................................... 438
PE CONTRACTION - Situational Assessment ................................................................................................................. 439
We Have Been Warning, Now Here it is ................................................................................................................. 439
PE Ratio: Expansion, Then Contraction ......................................................................................................................... 442
PE Ratio: The Four Regimes of Equity Valuation ........................................................................................................... 443
PE Ratio: Since 2010, valuations have moved with Non-Investment grade (B) yields .................................................... 446
PE Ratio: PE's Are At Historically Elevated Levels ......................................................................................................... 448
PE Ratio: Signs of Peek PE ........................................................................................................................................... 449
PE Ratio: The Four Regimes of Equity Valuation ........................................................................................................... 450
PE Ratio: Since 2010, valuations have moved with Non-Investment grade (B) yields .................................................... 453
PE Ratio: Have Significant More Room To Compress .................................................................................................... 454
PE Ratio: Over Next Year Trailing PE to be Below Generational Norm. ......................................................................... 456
MARGIN COMPRESSION - Situational Assessment ....................................................................................................... 459
Compression: Cost Push now Creating Margin Compression! ....................................................................................... 459
Compression: Corporate Earnings - Signals of Margin Compression ............................................................................. 463
Compression: Expect Further PE Compression: Margin Squeeze ................................................................................. 468
Compression: Shifting Secular Sands - Emerging Impediments to Global Earnings Growth Rates................................. 470
Compression: Corporate Margins - 2013 Margin Expectations Not Credible .................................................................. 471
Compression: Profits Have Stalled. Has the Market? ..................................................................................................... 472
EARNINGS - Situational Assessment .............................................................................................................................. 474
Q1 Earnings - Outlooks Being Brought Down................................................................................................................. 474
Q1 Earnings: 2013 Top-Down & Bottom-Up................................................................................................................... 474
Q1 Earnings: 2013 Earnings To Be Less Than 2009 Earnings Projected To Be In 2007 ................................................ 477
Q1 Earnings: Classic Hockey stick of False Expectations .............................................................................................. 479
Q1 Earnings: Bearish Corporate Guidance Threatens Q1 Profit Growth Estimates ........................................................ 482
Q1 Earnings: Retailers Report Solid Q4 Profits, But Q1 Outlook Dims Still Further ........................................................ 484
Q1 Earnings: Analysts Apparently Surprised? ................................................................................................................ 486
Q1 Earnings: Wage & Profit Disparity - Peak Profits, Trough Wages ............................................................................. 488
Q1 Earnings: Resting In a Few Tired Hands .................................................................................................................. 489
Q1 Earnings: Overstated Due to the Magnitude of One Time Write-Offs ........................................................................ 493

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Q1 Earnings: 10 Tired Generals Carrying the Market ..................................................................................................... 495

Q1 Earnings: Interest Rates Determined by Future Inflation & Growth ........................................................................... 496
Q1 Earnings: Only 30% of firms Beat Revenue Estimates. 65% Beat Earnings ............................................................. 498
Q1 Earnings: Global Market Comparisons ..................................................................................................................... 499
Q4 Earnings ....................................................................................................................................................................... 500
Q4 Earnings: Cyclical Corporate Earning Highs ............................................................................................................. 500
Q4 Earnings: Market Following Central Bank Driven Seasonal Cycle ............................................................................ 503
Q3 Earnings - ITS A 'TOP LINE' PROBLEM ..................................................................................................................... 505
Q3 Earnings Season: Q4 Earnings Hockey Stick now Officially in Jeopardy .................................................................. 505
Q3 Earnings Season: Revenue Mises Rise.................................................................................................................... 506
Q3 Earnings Season: UGLY! ......................................................................................................................................... 508
Q3 Earnings Season: A Bigger Disappointment than Initially Expected ......................................................................... 512
Q3 Earnings Season: Worst Earning Guidance in Over 5 Years .................................................................................... 514
Q3 Earnings - A DEMAND Problem in the Top Line ........................................................................................................ 517
Demand: Europe Impacting Demand ............................................................................................................................. 517
Demand: European Corporations Report Negative Production Surprises ....................................................................... 520
Demand: Headlines & Highlights Suggest a MAJOR DEMAND Problem ....................................................................... 522
Q3 Earnings: A REVENUE Problem in the Top Line ....................................................................................................... 525
Revenue: Continue to Be the Problem & Accelerating ................................................................................................... 525

S&P 500 TARGETS ..................................................................................... 528

CONCLUSION .............................................................................................. 534
FUNDMENTALS ................................................................................................................................................................. 537
RISK ................................................................................................................................................................................... 539
SENTIMENT ....................................................................................................................................................................... 539
Fed Panics> "QE Unlimited" - ECB Panics> "OMT" Unlimited - Japan /UK Panic> .................................................... 543
Defining Chart #1 - "Delusional Distortion" Expectations ................................................................................................ 543
Defining Chart #2 - Long Term ....................................................................................................................................... 544
Defining Chart #3 - Short Term ...................................................................................................................................... 545
Defining Chart #4 - Short Term ...................................................................................................................................... 546

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