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Monthly Market Analytics & Technical Analysis

OCTOBER 2015 Edition

FULL RESEARCH DATA FILE

MATA- OCTOBER 2015

10/12/2015

1 OCTOBER 2015 Edition


Copyright 2015 Gordon T. Long All Rights Reserved

Restricted & Confidential


general@GordonTLong.com

Monthly Market Analytics & Technical Analysis


OCTOBER 2015
HIGHLIGHTS - WHAT YOU NEED TO KNOW ................................................................................................................................. 13
SUMMARY ANALYSIS ............................................................................................................................................................................................ 13
Era of Delusional Distortions & the Super Cycle Pivot b .................................................................................................................................... 24
Defining Chart #1 - "Delusional Distortion" Expectations & the Log-Periodic Cycle ......................................................................................... 26
Defining Chart #2 - Finding the Longer Term Super Cycle Pivot b ................................................................................................................ 27
Defining Chart #3 - The Big M and Super Cycle b ....................................................................................................................................... 29
Defining Chart #4 Intermediate Term Topping Process ................................................................................................................................. 30
The Bottom Line................................................................................................................................................................................................. 33

OUR APPROACH - MACRO ANALYTICS ...................................................................................................................................... 36


OCTOBER 2015: Global Macro Drivers .................................................................................................................................................................. 38
NEW-WEALTH .................................................................................................................................................................................................. 40
UPDATED-HARD ASSETS - Gold ................................................................................................................................................................ 40
UPDATED-HARD ASSETS Silver .............................................................................................................................................................. 42
UPDATED-HARD ASSETS - Commodities .................................................................................................................................................. 43
UPDATED-NEW-EXCHANGE .......................................................................................................................................................................... 44
CURRENCIES - USD .................................................................................................................................................................................... 44
UPDATED-CURRENCIES - EURO ............................................................................................................................................................... 45
CURRENCIES - YEN ..................................................................................................................................................................................... 47
UPDATED-CARRY TRADE - The : Cross ............................................................................................................................................... 49
UPDATED-CARRY TRADE - The $: Cross ............................................................................................................................................... 52
NEW-YIELD, CREDIT & SPREAD .................................................................................................................................................................... 53
NEW-EQUITIES - Global ................................................................................................................................................................................... 55
CHARTS & RESEARCH OF NOTE .................................................................................................................................................................. 56
YIELD ............................................................................................................................................................................................................. 56
NEW-YIELD 10Y EU Country Government Bond Yields ........................................................................................................................ 56
NEW-YIELD UST Note Yields Fall the Most Since 2009 after the Fed Goes On Hold .......................................................................... 56
NEW-YIELD German & US 10Y Bonds Fall Dramatically In Yield Trend is Now Down ..................................................................... 57
YIELD 30Y Treasury Yield Bursts Above 3.00% - 6-Week Highs .......................................................................................................... 58
YIELD Albert Edwards: "Prepare For Sub-1% Treasury Yields and another Financial Crisis" .............................................................. 58
YIELD "This Will End Badly" High Yield Bonds Tumble To Worst Since 2011 ...................................................................................... 61
YIELD Federal Reserve is Running Out of Runway Unless Negative Nominal Rates are Ahead?....................................................... 62
YIELD Bond Route Reduced Negative Nominal Eurozone Sovereign Debt by 1T .............................................................................. 63
YIELD Total Debt Securities Growth ....................................................................................................................................................... 65
CREDIT .......................................................................................................................................................................................................... 66
NEW-CREDIT High Yield Spread the Largest Since June 2012 ............................................................................................................ 66
NEW-CREDIT The spread between BAA and 10-year treasuries is the widest since July 2012 .......................................................... 66
NEW-CREDIT The spread between BAA and Industrial Production...................................................................................................... 67
NEW-CREDIT High Yield Spreads to 10Y UST & 10Y Breakeven Inflation .......................................................................................... 67
NEW-CREDIT Credit Stress Intensifies US Corporate HY.................................................................................................................. 68
NEW-CREDIT Global HY ETF AUN Drawdowns ................................................................................................................................... 68
NEW-CREDIT HY Spread Change versus HY Energy Spread Change ................................................................................................ 69
NEW-CREDIT US Financial Stocks versus US Financial Credit ............................................................................................................ 69
CREDIT Credit Risk Increasing .............................................................................................................................................................. 70
CREDIT TED Spread Increasing ............................................................................................................................................................ 70
CREDIT Credit Always Leads Markets Its the Life Blood!................................................................................................................. 71
CREDIT Global Credit Markets Need QE to Survive .............................................................................................................................. 71
CREDIT TSY 2s30s 2003-2006 versus 2012-2015 ............................................................................................................................. 72
CREDIT HYCDX, IGCDX versus S&P .................................................................................................................................................... 72
CREDIT This Alarming Indicator Is Back At A Level Last Seen 10 Days Before The Bear Stearns Collapse ...................................... 72
CREDIT Why Credit Market Moves Are Now "Hyperbolic," Citi Explains .............................................................................................. 75
CURRENCIES ............................................................................................................................................................................................... 77
CURRENCIES It is Still About the Japanese Carry Trade But Concerns Growing ............................................................................. 77
CURRENCIES Everyone Is Probably Wrong About the US Dollar ........................................................................................................ 77
CURRENCIES 3 charts that show the weak euro might be about to turn around ................................................................................. 80
CURRENCIES Blood on the European Streets As EUR-Yuan Carry Unwinds Crush Stocks .............................................................. 84
CURRENCIES Is the Decline in the Euro Over? .................................................................................................................................... 84
CURRENCIES Japan Much Less Risky Than Europe From a Currency Perspective ........................................................................... 86
CURRENCIES First Break of Overhead Resistance on USDYEN Monthly in 17 Years ....................................................................... 87
CURRENCIES The Yen Is At The Most Undervalued Level In Nearly 30 Years ................................................................................... 87
COMMODITIES ............................................................................................................................................................................................. 90
COMMODITIES Algos Locked into WTI Crude & Alternatively the USDJPY ........................................................................................ 90
COMMODITIES Why commodities are dying the death of 1,000 cuts ................................................................................................... 90
COMMODITIES The Weak Trend In EM currencies and Commodities Isnt Abating ............................................................................ 91
COMMODITIES How Saudi Arabia Sets the Global (Currency) Markets .............................................................................................. 92
COMMODITIES Dr. Copper Is Down, Not Out ....................................................................................................................................... 96
COMMODITIES Are Commodities And EM Stocks Becoming Less Sensitive To The Dollar? ............................................................. 97
COMMODITIES Don't Waste Your Time On Commodity ETFs ............................................................................................................. 99
COMMODITIES Iron Ore Prices Tell the Real Story of Global Deflation ............................................................................................. 107
COMMODITIES Global Shipping Index has Crashed To Its Lowest Level Ever ................................................................................. 108

OCTOBER 2015 Edition


Copyright 2015 Gordon T. Long All Rights Reserved

Restricted & Confidential


general@GordonTLong.com

INFLATION .................................................................................................................................................................................................. 110


NEW-INFLATION Expected Inflation- One Year and Three Years Ahead .......................................................................................... 110
INFLATION Inflation Expectations & Relative Performance................................................................................................................. 110
INFLATION US CPI 1958 2015 Annual Percentage Change ........................................................................................................ 112
INFLATION The Rise of Deflation ......................................................................................................................................................... 113
INFLATION World Inflation Falls To 59-Month Low ..................................................................................................................... 113
PRECIOUS METALS ................................................................................................................................................................................... 114
PRECIOUS METALS Gold demand in Asia hit by weak local currencies; Indian prices at discount .................................................. 114
PRECIOUS METALS Gold Tracked US Debt Until Recently Will Likely Re-Establish Long Term Pattern .................................. 116
RISK: Risk-On versus Risk-Off .............................................................................................................................................................................. 117
CHARTS OF NOTE ......................................................................................................................................................................................... 118
NEW-RISK Total NYSE Short Interest & Monthly Change ...................................................................................................................... 118
NEW-RISK Contrasting Post October Market Drawdowns 1973s Slow Pain versus 1987 Crash ..................................................... 118
NEW-RISK Historical Post-Crash Price Actions 1950 to 2015 ............................................................................................................. 119
NEW-RISK Historical Post-Crash Price Pattern Has Taken an Average of 27 days to Double Bottom .................................................. 119
NEW-RISK Credit Fleeing IG,HY & EM .................................................................................................................................................... 120
NEW-RISK Credit Fleeing IG,HY & EM .................................................................................................................................................... 120
NEW-RISK Margin Debt in NYSE Accounts versus S&P 500 ................................................................................................................. 121
RISK Credit Risk Increasing ..................................................................................................................................................................... 122
RISK TED Spread Increasing ................................................................................................................................................................... 122
RISK VIX Pricing in Credit Problems ........................................................................................................................................................ 123
RISK Credit Always Leads Markets Its the Life Blood! ...................................................................................................................... 123
RISK The Pattern is Clear QE the Market Driver .................................................................................................................................. 124
RISK Internal deterioration in the market is more consistent with the development of more major bull market peaks ........................ 125
RISK A huge gap has opened up between reality and perceptions ......................................................................................................... 126
RISK Economic Surprise Index lower highs, lower lows and a reluctant bounce ................................................................................. 127
RISK Weekly Equity Outflows ................................................................................................................................................................... 127
RISK Weekly EM Fund Outflows .............................................................................................................................................................. 128
RISK Net Outflows as a % of AUM by Year ............................................................................................................................................. 129
RISK HG Spread Per Point of Equity Volume .......................................................................................................................................... 130
RISK Widening Gap between Debt & Equity ............................................................................................................................................ 130
RISK HY Bond ETF (HYG) versus S&P 500 ............................................................................................................................................ 130
RISK HY Credit versus 2007-2008 Credit Always Leads Equity ........................................................................................................ 131
RISK Leutholds High/Low Logic Index Sending a Clear Signal .............................................................................................................. 132
RISK Just Too Many One in a Million Standard Deviation Events! ....................................................................................................... 133
RISK Days with > 100 NYSE & NASDAQ New Highs AND New Lows ................................................................................................... 133
RISK Correlated, Confirmed Hindenburg Omens .................................................................................................................................... 134
RISK Broad Global Equity Index Sitting on the Precipice ........................................................................................................................ 135
RISK Global DOW at Potential Key Support Levels ................................................................................................................................. 135
RISK The Correction Counter Rising Across Assets Classes ............................................................................................................... 136
RISK # of days Since a 2% Up or Down Move......................................................................................................................................... 136
RISK Margin Debt in Perspective ............................................................................................................................................................. 137
RISK PE/VIX Market Emotion Indicator .................................................................................................................................................. 137
RISK Margin Debt Breaks Out- Hits New Record 50% Higher Than Last Bubble Peak ......................................................................... 138
RISK DOW Industrial v Transports ........................................................................................................................................................... 138
RISK ISE Index and ETF Call/Put Hits a 6 Year High .............................................................................................................................. 139
RISK Value Line Composite Breaks Trend After a 26 Year Top ............................................................................................................. 140
RISK ADX Suggests Big Move (Lower) Coming ...................................................................................................................................... 141
RESEARCH OF NOTE .................................................................................................................................................................................... 142
NEW-RISK 10 Signs That Stocks Are Way Overpriced ........................................................................................................................... 142
NEW-RISK The Biggest Short Squeeze In Years" Says Bank of America .............................................................................................. 144
NEW-RISK NYSE Margin Debt Declines Again In August ....................................................................................................................... 147
NEW-RISK Economic Surprises Are Turning Back Over In The US ....................................................................................................... 149
RISK Interbank Credit Risk Is Rising Ominously Again In America ......................................................................................................... 152
RISK Doug Kass: There is a Blizzard Ahead! ........................................................................................................................................ 154
RISK Oblivious To Risk - Complacency Still Reigns ................................................................................................................................ 155
RISK Why Selling the Blips Makes Sense ................................................................................................................................................ 159
RISK Biggest Outflow from Equity Funds In 2015 Offset By Longest Treasury Inflow Streak In 4 Years............................................... 160
RISK The 17-year river [of reserve currency buildup and QE around the world] is no longer flowing .................................................... 164
RISK New Strategies "Are Creating Volatility" .......................................................................................................................................... 164
RISK Why SocGen Is Very Nervous About the Recent Loss Of $9 Trillion In Global Market Cap.......................................................... 166
RISK Goldman Warns, VIX "Is Pricing In A Lot Of Economic Damage" .................................................................................................. 168
RISK This Alarming Indicator Is Back At A Level Last Seen 10 Days before The Bear Stearns Collapse ............................................. 171
RISK Beware 1200 On The Russell - Breadth Breakdown Is Big Risk To Small Caps, BofA Warns ..................................................... 174
RISK When Hindenburg Omens Are Ominous......................................................................................................................................... 175
RISK "One Would Be Bucking Pretty Stiff Odds To Ignore This Development" ...................................................................................... 177
RISK One-In-A-Billion "Hiccups" Are Happening All The Time, Citi Warns Something Is Wrong ........................................................... 178
RISK The Chart That No Stock Market Bull Wants To See ..................................................................................................................... 179
RISK According To Bank of America, This Is "The Biggest Risk to Global Equities" .............................................................................. 182
RISK The "Smartest Money" Liquidating At a Record Pace: "Selling Everything ................................................................................... 184
RISK Top CEO Warns Of Global Reset: "It's In The Cards For Sure... It Could Happen This Year" ...................................................... 186
RISK $140 Billion Bond Fund Goes To Cash As It "Braces For Bond-Market Collapse" ........................................................................ 188
TECHNO-FUNDAMENTALS ................................................................................................................................................................................. 191
CHARTS OF NOTE ......................................................................................................................................................................................... 191
NEW-CHARTS Real S&P 500 Index Cycles with Recessions ................................................................................................................. 191
NEW-CHARTS Quarterly Overbought Cycles .......................................................................................................................................... 191

OCTOBER 2015 Edition


Copyright 2015 Gordon T. Long All Rights Reserved

Restricted & Confidential


general@GordonTLong.com

NEW-CHARTS Monetary Velocity Declines as Excess Leverage Weights on Consumption ................................................................. 192
NEW-CHARTS The Real Value of Cash .................................................................................................................................................. 192
NEW-CHARTS Consumer Sentiment versus S&P 500 ........................................................................................................................... 193
NEW-CHARTS Hedgers Net Long Record of S&P 500 Futures .............................................................................................................. 193
NEW-CHARTS Fed Balance Sheet Changes versus S&P 500 ............................................................................................................... 194
NEW-CHARTS S&P Futures versus Relative Volumes ........................................................................................................................... 194
NEW-CHARTS Japanese Buying Foreign Stocks ................................................................................................................................... 195
NEW-CHARTS Monetary Initiatives versus S&P 500 .............................................................................................................................. 196
NEW-CHARTS Bull Trend Line Support .................................................................................................................................................. 196
CHARTS DOW Industrial 200 WMA Boundary Condition & Trend Direction Change Indicator.............................................................. 197
CHARTS DOW Industrial 200 WMA Boundary Condition & Trend Direction Change Trigger ................................................................ 197
CHARTS Global 150 Equity Index Bounces off Lower Support Channel ................................................................................................ 198
CHARTS Global 150 Equity Index Potential Key Support Levels ......................................................................................................... 198
CHARTS The Rout May Have Just Began According to Some ............................................................................................................... 199
CHARTS The VIX Termination Algo ......................................................................................................................................................... 199
CHARTS The VIX Termination Algo ......................................................................................................................................................... 200
CHARTS Pick-Up In Buyback Activity ...................................................................................................................................................... 201
CHARTS Buybacks Are Tied to Investment Grade Credit Spreads ........................................................................................................ 201
CHARTS Coincident / Lagging Indicator Ratio ......................................................................................................................................... 202
CHARTS Annual Change in Durable Goods Orders ................................................................................................................................ 202
CHARTS Durable Goods v Core-Durable Goods (Ex Defense) .............................................................................................................. 203
CHARTS Real Gross Domestic Investment ............................................................................................................................................. 203
CHARTS Total Real Private Fixed Investment as % of Real GDP .......................................................................................................... 204
CHARTS Businesses Operate Against Actual Demand ........................................................................................................................... 204
CHARTS ISM Composite Index ................................................................................................................................................................ 205
CHARTS Capacity Utilization versus Industrial Production ..................................................................................................................... 205
CHARTS Retail Sales (NSA) Annual % Chg of 12 Month Average ......................................................................................................... 206
CHARTS Monthly Retail Control Purchases Y-o-Y % Chg ................................................................................................................. 207
CHARTS Major Economic Trends ............................................................................................................................................................ 207
CHARTS $9T Loss In Global Market Cap ................................................................................................................................................ 208
CHARTS Median EV/EBITDA Ratio for MSCI World (ex Financials) ...................................................................................................... 208
CHARTS 15 Developed Country Aggregate Bond PLUS Stock Valuations ............................................................................................ 209
CHARTS 15 Developed Country Aggregate -83% are in their top 20% of valuations through history .................................................... 209
CHARTS Death Cross .............................................................................................................................................................................. 209
CHARTS Asian Dollar Index Flags Crisis Events ..................................................................................................................................... 211
CHARTS TSY 2s30s Spread .................................................................................................................................................................... 211
CHARTS S&P versus HY(High Yield) & IG (Investment Grade) .............................................................................................................. 212
CHARTS Fed Balance Sheet versus HYG (HY Bond ETF) ..................................................................................................................... 212
CHARTS Commodity Carnage ................................................................................................................................................................. 213
CHARTS Market Expectations of Support & Resistance ......................................................................................................................... 214
CHARTS Russell 2000 Head & Shoulders versus AD Line ..................................................................................................................... 214
CHARTS NYSE - NYA Head & Shoulders versus AD Line ..................................................................................................................... 215
CHARTS Dotcom Bubble Burst 2 Year Process and a Year After the Long Trend Broken Was Broken ............................................ 216
CHARTS 54% of All EM Stocks Are In A Bear Market Even As The MSCI EM Index Is Off Only 7% .................................................... 216
CHARTS A Spike in New Lows around the World ................................................................................................................................... 217
CHARTS A Spike in New Lows around the World MSCI Europe ......................................................................................................... 217
CHARTS A Spike in New Lows around the World North America ........................................................................................................ 217
CHARTS A Spike in New Lows around the World MSCI Pacific .......................................................................................................... 218
CHARTS A Spike in New Lows around the World MSCI Emerging Markets ....................................................................................... 218
CHARTS A Spike in New Lows around the World MSCI EM EMEA .................................................................................................... 219
CHARTS A Spike in New Lows around the World MSCI EM Latin America ........................................................................................ 219
CHARTS A Spike in New Lows around the World MSCI EM Asia........................................................................................................ 220
CHARTS Copper Prices Just Made a 6-Year Low ................................................................................................................................... 221
CHARTS Volatility is Stealthy Reemerging into the Equity Market .......................................................................................................... 221
CHARTS S&P 500 Suffers First 2% Down Day Since End of 2014......................................................................................................... 222
CHARTS More Stocks Than You Might Guess Are In A Correction - World ........................................................................................... 223
CHARTS More Stocks Than You Might Guess Are In A Correction North America ............................................................................. 223
CHARTS More Stocks Than You Might Guess Are In A Correction Europe ........................................................................................ 223
CHARTS More Stocks Than You Might Guess Are In A Correction Pacific ......................................................................................... 225
CHARTS Percentage of stocks that are fully in a bear market (down over 20%) is 15% of the MSCI World Index. .............................. 225
CHARTS Percentage of stocks that are fully in a bear market (down over 20%) is 11% of the MSCI Europe Index. ............................ 226

OUTLOOK - ANALYTICAL ANALYSIS .......................................................................................................................................... 227


RECESSION RUMBLINGS Revenue, Earnings & Economic ............................................................................................................................ 227
NEW-STUDY: RECESSION SIGNALS ................................................................................................................................................................. 227
NEW-CHARTS OF NOTE ............................................................................................................................................................................... 227
NEW-RECESSION US Manufacturing Sector Recession........................................................................................................................ 227
NEW-RECESSION Large Profit Margin Declines Coincides With Recessions ....................................................................................... 228
NEW-RECESSION Buybacks Drop on Reduced Free Cash Flow Drop Compared to Previous Recession ....................................... 228
NEW-RECESSION Annual % Change in 12Mo Forward EPS Expectations Turn Negative .................................................................. 229
NEW-RECESSION US Recession Estimates Pop ................................................................................................................................... 229
NEW-RECESSION US Recession Indicator & Relative Performance of Stocks & Bonds ...................................................................... 230
NEW-RECESSION Real S&P 500 Index with Historical Recessions ...................................................................................................... 230
NEW-RECESSION September Survey Data versus Non Farm Payrolls ................................................................................................ 231
NEW-RECESSION Regional Surveys for September versus ISM PMI (August) .................................................................................... 231
NEW-RECESSION Regional Manufacturing Surveys versus Forward EPS Estimates .......................................................................... 232

OCTOBER 2015 Edition


Copyright 2015 Gordon T. Long All Rights Reserved

Restricted & Confidential


general@GordonTLong.com

NEW-RECESSION Historical Regional Index Comparisons Last Seen in 2008 .................................................................................. 232
NEW-RECESSION Global Oil Consumption Leads Economic Growth Trend is Down Global Headwinds ...................................... 233
NEW-RECESSION Gross Domestic Income versus Wilshire 5000 Tells the Story ............................................................................. 234
RECESSION CT 2015 Revenue Recession ............................................................................................................................................ 234
RECESSION Q2 2015 Revenue Recession ............................................................................................................................................ 235
RECESSION 4 Consecutive months of y/y Spending Declines ............................................................................................................... 235
RECESSION BOA: Retail sales ex-autos, plunged 0.8% mom seasonally adjusted............................................................................ 236
RECESSION Top 10 US Market Areas Signal Retail Problem Underway .............................................................................................. 236
RECESSION Wholesale Inventories to Sales Spiking To Areas Seen During Recession Trends ......................................................... 237
RECESSION Wholesale Inventories Less Wholesale Sales ................................................................................................................... 238
RECESSION Wholesale Inventories vs GDP Trends .............................................................................................................................. 238
RECESSION Auto Inventories to Sales ................................................................................................................................................... 239
RECESSION Falling Collateral and Residuals Undermine Real Growth .............................................................................................. 239
RECESSION Coincident / Lagging Indicator Ratio versus Recessions ................................................................................................... 240
RECESSION Annual Change in Durable Goods Orders v Recessions ................................................................................................... 240
RECESSION Durable Goods v Core-Durable Goods (Ex Defense) versus Recessions ........................................................................ 241
RECESSION Real Gross Domestic Investment versus Recessions ....................................................................................................... 241
RECESSION Total Real Private Fixed Investment as % of Real GDP versus Recessions .................................................................... 242
RECESSION Businesses Operate Against Actual Demand versus Recessions .................................................................................... 242
RECESSION ISM Composite Index versus Recessions.......................................................................................................................... 243
RECESSION Capacity Utilization versus Industrial Production versus Recessions ............................................................................... 243
RECESSION Retail Sales (NSA) Annual % Chg of 12 Month Average versus Recessions ................................................................... 244
RECESSION Monthly Retail Control Purchases Y-o-Y % Chg versus Recessions........................................................................... 244
RECESSION Major Economic Trends...................................................................................................................................................... 245
NEW-RESEARCH OF NOTE .......................................................................................................................................................................... 246
NEW- RECESSION Economists Finally Admit, Odds Of A US Recession Are On The Rise ................................................................. 246
RECESSION Retail Sales Slump on Deck ............................................................................................................................................... 248
RECESSION This Is another "Subprime" Waiting To Blow ..................................................................................................................... 250
RECESSION Record Gap between US Inventories and Sales Screams Recession .............................................................................. 253
RECESSION August spending was the weakest in nominal dollar terms since 2012 ............................................................................. 255
RECESSION The Next Recession Will Definitely Not Happen In 2018 ................................................................................................... 260
Q3 EARNINGS Reduced Expectations .............................................................................................................................................................. 262
STUDY: Q3 EARNINGS - ...................................................................................................................................................................................... 262
CHARTS OF NOTE ......................................................................................................................................................................................... 262
NEW-Q3 EARNINGS Q3 EPS Expected to Fall -4.5% According to Factset .......................................................................................... 262
NEW-Q3 EARNINGS S&P 500 Average Earnings Growth Y-o-Y Not a Good Pattern ........................................................................ 262
NEW-Q3 EARNINGS Revenue Recession and Flat EPS Consensus .................................................................................................... 263
NEW-Q3 EARNINGS Forward EPS Consensus Matches Manufacturing Surveys Declines ................................................................. 263
NEW-Q3 EARNINGS Q3 Earnings Growth (Decline): Ex-BAC ............................................................................................................... 264
NEW-Q3 EARNINGS IT Sector Q3 Earnings Forecast to be Down -5.9% Without Apple (-0.4% With) ................................................. 264
NEW-Q3 EARNINGS A Good Sign that Goldman Must Be Selling? ....................................................................................................... 265
NEW-Q3 EARNINGS It Should Be Expected that Earnings Will Begin to fall ......................................................................................... 265
RESEARCH OF NOTE .................................................................................................................................................................................... 266
NEW-Q3 EARNINGS Do You See What Happens, Alcoa, When Your "Restructuring" Non-GAAP Add-backs Tumble ....................... 266
NEW-Q3 EARNINGS Q3 Earnings Bloodbath-Terrible Monsanto Results- Company Fires 2,600 - ...................................................... 268
NEW-Q3 EARNINGS Wall Street is preparing for the worst earnings season since 2009 ................................................................... 270
NEW-Q3 EARNINGS The Truth About S&P 500 Earnings: No Growth For 7 Quarters, With A Revenue Recession On Top .............. 274
BUYBACKS Update ............................................................................................................................................................................................ 276
STUDY: BUYBACKS ............................................................................................................................................................................................. 276
CHARTS OF NOTE ......................................................................................................................................................................................... 276
NEW-BUYBACKS Falling Investment Grade Spreads Hurting Buybacks ............................................................................................... 276
NEW-BUYBACKS Quarterly Share Repurchases & No. of Companies Repurchasing Shares Slows ................................................... 276
NEW-BUYBACKS Dollar-Value Buybacks to Free Cash Flow Trailing Twelve Month Basis ............................................................... 277
NEW-BUYBACKS Nearly 25% of Annual Buybacks Occur in November & December .......................................................................... 277
RESEARCH OF NOTE .................................................................................................................................................................................... 279
NEW-BUYBACKS Why Stocks Are Sliding: For The First Time Since 2009 Spending On Buybacks Surpasses Free Cash Flow ....... 279
NEW-BUYBACKS When Buybacks Fail... ................................................................................................................................................ 283
NEW-BUYBACKS "Risky Business": Companies Are Now Funding Share Buybacks By Selling Bonds To Other Companies ............ 284
SENTIMENT & CONFIDENCE Shifting Trend ................................................................................................................................................... 288
STUDY: SENTIMENT ............................................................................................................................................................................................ 288
CHARTS OF NOTE ............................................................................................................................................................................................... 288
NEW-SENTIMENT Goldmans Short Term Sentiment Indicator Shows Low Suggests Near Term Counter Rally Likely ................... 288
SENTIMENT Global Consumer Confidence Begins Reversal from Trend Resistance ........................................................................... 289
SENTIMENT US Economic Index Steadily Eroding ................................................................................................................................. 290
SENTIMENT UMich Consumer Confidence with Biggest Miss on Record .............................................................................................. 290
SENTIMENT Economic Surprise Index lower highs, lower lows and a reluctant bounce .................................................................... 290
RESEARCH OF NOTE .................................................................................................................................................................................... 292
NEW-SENTIMENT Its like someone just flipped the Switch to OFF? .................................................................................................. 292
SENTIMENT Oblivious To Risk - Complacency Still Reigns ................................................................................................................... 296
SENTIMENT UMich Consumer Confidence Tumbles to 12-Month Lows with Biggest Miss on Record ................................................. 300
SENTIMENT Elderly Americans' Confidence Collapses To 11-Month Lows (As Middle-Aged Hope Surges) ....................................... 301
STUDY: RISK-OFF ................................................................................................................................................................................................ 303
CHARTS OF NOTE ......................................................................................................................................................................................... 303
RISK-OFF Cumulative Flows by Client Type - YTD ................................................................................................................................. 303

OCTOBER 2015 Edition


Copyright 2015 Gordon T. Long All Rights Reserved

Restricted & Confidential


general@GordonTLong.com

RISK-OFF Historical Risk versus Returns ................................................................................................................................................ 303


RISK-OFF Cumulative Flows by Client Type January 2008-Present ................................................................................................... 304
RISK-OFF Q Ratio Since 1900 ................................................................................................................................................................. 304
RESEARCH OF NOTE .................................................................................................................................................................................... 305
RISK-OFF Post Q2 Quadruple Witch - Institutional Money Changing Direction ..................................................................................... 305
RISK-OFF The Worst Time In History To Be Invested In Stocks............................................................................................................. 309
STUDY: LEVEL OF WARNINGS ........................................................................................................................................................................... 314
RESEARCH OF NOTE .................................................................................................................................................................................... 314
WARNINGS According To Bank of America, This Is "The Biggest Risk to Global Equities" ................................................................... 314
WARNINGS The "Smartest Money" Liquidating At a Record Pace: "Selling Everything ....................................................................... 316
WARNINGS Top CEO Warns Of Global Reset: "It's In The Cards For Sure... It Could Happen This Year" .......................................... 319
WARNINGS $140 Billion Bond Fund Goes To Cash As It "Braces For Bond-Market Collapse" ............................................................ 320
WARNINGS "It's Time To Hold Physical Cash", Fidelity Manager Warns Ahead Of "Systemic Event" .................................................. 323
WARNINGS Sweden's Largest Fund Manager Is Quietly Dumping Stocks Before The "Herd" Is Caught In A Selling Vortex .............. 325

SHORT TERM TECHNICAL ANALYSIS ..................................................................................................................................... 327


SUPPORT & RESISTANCE .................................................................................................................................................................................. 327
Gann Analysis .................................................................................................................................................................................................. 327
Boundary Conditions ....................................................................................................................................................................................... 328
Channels & Regressions ................................................................................................................................................................................. 329
Fibonacci - Controlling Time Extensions ......................................................................................................................................................... 332
Fibonacci - Controlling Price Extensions ......................................................................................................................................................... 334
Elliott Wave ...................................................................................................................................................................................................... 335
The Bottom Line............................................................................................................................................................................................... 337
BUSINESS CYCLE - CONSUMER & BUSINESS SENTIMENT ........................................................................................................................... 340
A GRAPHIC HIGHLIGHT ................................................................................................................................................................................ 340
NEW-SENTIMENT - Consumer, Investor & Trader ............................................................................................................................................... 342
NEW-Consumer Confidence - Conference Board .......................................................................................................................................... 342
NEW-Consumer Sentiment - Michigan ........................................................................................................................................................... 345
NEW-Consumer Comfort - Bloomberg ............................................................................................................................................................ 346
NEW-American Association of Independent Investors ................................................................................................................................... 347
NEW-Investors Intelligence ............................................................................................................................................................................. 347
NEW-National Association of Active Investment Managers (NAAIM) ............................................................................................................ 348
NEW-Small Business Optimism ...................................................................................................................................................................... 349
NEW-Percentage Stocks above 50 & 200 DMA ............................................................................................................................................. 351
NEW-Margin Levels ......................................................................................................................................................................................... 352
Real Margin Debt as % of GDP ....................................................................................................................................................................... 357
Margin Debt versus S&P 500 .......................................................................................................................................................................... 357
Mutual Fund Cash Levels v S&P 500 .............................................................................................................................................................. 358
NEW-OSCILLATORS & BREADTH: Indicators of Importance ............................................................................................................................ 360
NEW-NYSE Overbought / Oversold ................................................................................................................................................................ 360
NEW-OEX Open Interest (Puts/Calls) ............................................................................................................................................................. 361
NEW-TRIN ....................................................................................................................................................................................................... 362
NEW-McClellan Oscillator ............................................................................................................................................................................... 363
CHARTS OF NOTE ............................................................................................................................................................................................... 364
NEW-CHARTS Nominal & Real Household Spending Expectations .......................................................................................................... 364
NEW-CHARTS Household Spending Expectations by Income Bucket ....................................................................................................... 364
NEW-CHARTS A Very Neutral (Highly Unusual) Bull Market ...................................................................................................................... 365
NEW-CHARTS Historical Swings in Sentiment ........................................................................................................................................... 365
CHARTS Investors Intelligence Bulls & Bears ............................................................................................................................................. 366
CHARTS A/D Line Diverging from Price, Suggesting Weakening Momentum ........................................................................................... 367
CHARTS Smart Money OEX Open Interest Put/Call Ratio Now Off the Charts! .................................................................................... 367
CHARTS UMich Consumer Sentiment Tumbles Most In 16 Months ........................................................................................................... 368
CHARTS Consumer Comfort Plunges Most In 10 Months .......................................................................................................................... 369
CHARTS Only 16% Think Future Employment Opportunities Will Be Better .............................................................................................. 370
CHARTS Inequality Eventually Leads to Economic Adjustments Often Precipitously ............................................................................. 370
CHARTS - NFIB Small Business Sentiment ................................................................................................................................................... 371
CHARTS - Orange Book .................................................................................................................................................................................. 371
CHARTS Asset Allocation Global Equities ................................................................................................................................................ 372
CHARTS Asset Allocation Global Bonds .................................................................................................................................................. 372
CHARTS Active versus Passive Funds Allocation ....................................................................................................................................... 373
CHARTS Investors Intelligence Survey of % Bears ..................................................................................................................................... 373
CHARTS Sentiment at Post 2008 Crisis Highs ............................................................................................................................................ 374
CHARTS CNBC Viewership Steadily Falling ............................................................................................................................................... 375
CHARTS Investor Allocation Trends for Stocks, Bonds and Cash .............................................................................................................. 376
CHARTS Uptick in Feds Financial Stress Index Composite ....................................................................................................................... 377
CHARTS Fear Barometer Diverges with VIX, CDS IG Index ...................................................................................................................... 378
CHARTS Extreme Complacency Seen Near End of Cycles ........................................................................................................................ 378
CHARTS Complacency Seen In PE/VIX ....................................................................................................................................................... 379
CHARTS Post Crisis Sentiment Profile Shows a Clear Ending Pattern ...................................................................................................... 379
CHARTS Smart Money Flows ...................................................................................................................................................................... 380
CHARTS Fed Assets versus Bullish Sentiment ........................................................................................................................................... 380
CHARTS Macro Support Has Technically Broken Down ............................................................................................................................. 381
CHARTS US Surprise Index Setting Up for Downturn ................................................................................................................................. 381
CHARTS The Public No Longer Trusts the Market Feel it is Manipulated and Ineffectively Regulated ............................................... 382

OCTOBER 2015 Edition


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Restricted & Confidential


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RESEARCH OF NOTE .......................................................................................................................................................................................... 383


NEW-SENTIMENT: This Wasn't Supposed To Happen: Household Spending Expectations Crash............................................................. 383
NEW-SENTIMENT: Something's Happened To Investor Sentiment Since The Financial Crisis ................................................................... 384
SENTIMENT: The "Smart Money" Has Never Been More Bearish ................................................................................................................ 386
SENTIMENT: US Economic Confidence Crashes Most Since July to Lowest Since December ................................................................... 389
SENTIMENT: We Are All Bulls Now ................................................................................................................................................................ 391
SENTIMENT: No More Greater Fools: Retail Traders Are "Pretty Fully Invested" In Stocks, TD CEO Says ................................................ 392
SENTIMENT: One Heckuva Bull Market but Momentum Weakening! ........................................................................................................... 393
SENTIMENT: Small Business Confidence is a Major Problem in America .................................................................................................... 395
SENTIMENT: Americas Crisis of Trust ........................................................................................................................................................... 397
SENTIMENT: "Everything Is Awesome" American Consumers Are The Happiest In 11 Years .................................................................... 398
SENTIMENT: For CNBC, 2014 Was The Worst Year. Ever. .......................................................................................................................... 399
SENTIMENT: An Astounding Number Of Americans Aren't Investing A Cent ............................................................................................... 401
SENTIMENT: US Households to Withdraw $430 Billion From Stocks In 2014 .............................................................................................. 406
SENTIMENT: Elliott Wave's View from the Top .............................................................................................................................................. 409
SITUATIONAL SUMMARY & ANALYSIS .................................................................................................................................................... 413

INTERMEDIATE TERM RISK ANALYSIS ................................................................................................................................. 417


UPDATED-AGGREGATED GLOBAL FINANCIAL RISK INDEX .......................................................................................................................... 417
NEW-BANKING RISK - LIBOR-OIS SPREAD ................................................................................................................................................ 418
NEW-BANKING RISK - TED SPREAD ........................................................................................................................................................... 418
NEW-CREDIT RISK - GLOBAL CREDIT DEFAULT SWAPS ....................................................................................................................... 419
NEW-CREDIT RISK - EU CREDIT DEFAULT SWAPS .................................................................................................................................. 419
NEW-CONSUMER RISK - HOUSING - RATE OF CHANGE ......................................................................................................................... 420
NEW-ECONOMIC RISK - ECRI LEADING INDEX ......................................................................................................................................... 420
NEW-INFLATION RISK - MONEY SUPPLY GROWTH - M3 ......................................................................................................................... 422
NEW-INFLATION RISK - MONEY VELOCITY ............................................................................................................................................... 422
MONETARY RISK - BANK LIABILITIES ......................................................................................................................................................... 423
NEW-COST OF MONEY RISK - INTEREST RATES .................................................................................................................................... 423
AGGREGATED RISK LEVEL ................................................................................................................................................................................ 424
CHARTS OF NOTE ............................................................................................................................................................................................... 426
NEW-RISK: Leutholds High/Lpw Logic Index Warns ..................................................................................................................................... 426
NEW-RISK: Megaphone Top with Confirming Oscillator ................................................................................................................................ 426
NEW-RISK: We Have Confirmed and Unusual Hindenburg Omens .............................................................................................................. 427
NEW-RISK: It's been a while since we corrected! .......................................................................................................................................... 428
NEW-RISK: "Seven Signs" Flash Red ............................................................................................................................................................ 430
RISK: When these Two Charts Appear Simultaneously, Bad Things Normally Follow!................................................................................. 431
RISK: Well That's Never Happened Before - Exhibit 1 US Macro versus S&P 500 .................................................................................... 431
RISK: Well That's Never Happened Before - Exhibit 2 Long- and Short-end of the Treasury yield curve so anti-correlated. ................... 432
RISK: Well That's Never Happened Before - Exhibit 3 Fed-Fueled, Mal-Investment Boom ....................................................................... 433
RISK: Well That's Never Happened Before - Exhibit 4 Market breadth diverge from performance for such an extended period.............. 434
RISK: Well That's Never Happened Before - Exhibit 5 More trades per second in stocks ......................................................................... 436
RISK: Well That's Never Happened Before - Exhibit 6 The "Smart Money" Has Never Been More Bearish .............................................. 437
RISK: Well That's Never Happened Before - Exhibit 7 Big decoupling in recent weeks between US equity flows and prices ................... 437
RISK: Well That's Never Happened Before - Exhibit 8 Cumulative 3 Mo net flows out of equities, is now the largest on record ............... 438
RISK: World Stocks versus World 2015 GDP Estimate.................................................................................................................................. 440
RISK: World Stocks versus World 2014 & 2015 GDP Estimates ................................................................................................................... 440
RISK: World Stocks versus 10Y UST Yield, WTI Crude 2015 GDP Estimates .............................................................................................. 441
RISK: Fat Tails Have Disproportionately Large Impact on Returns................................................................................................................ 442
RISK: Statistically We Are Due for a Drawdown ............................................................................................................................................. 443
RISK: The Buffett Indicator .............................................................................................................................................................................. 444
RISK: Speculation Has Taken Control of the Markets .................................................................................................................................... 445
RISK: MSCI versus World GDP Divergence - Unsustainable ........................................................................................................................ 445
RISK: High Yield Credit Risk At Elevated Levels ............................................................................................................................................ 445
RISK: Active Hindenburg Omen ...................................................................................................................................................................... 446
RISK: An Over-Levered Hedge Fund Index Ending ABC Consolidation Pattern ........................................................................................... 446
RESEARCH OF NOTE .......................................................................................................................................................................................... 448
NEW- RISK: 12 Signs That An Imminent Global Financial Crash Has Become Even More Likely ............................................................... 448
NEW- RISK: World's Largest Sovereign Wealth Fund Is About To Become A Seller .................................................................................... 449
NEW- RISK: When Hindenburg Omens Are Ominous ................................................................................................................................... 452
NEW- RISK: The Canaries Continue To Drop like Flies ................................................................................................................................. 454
NEW- RISK: Deutsche Suggests 'Caution' As "Seven Signs" Flash Red ...................................................................................................... 456
NEW- RISK: "The Top's In" David Stockman Warns Of "Epochal Deflation" ................................................................................................. 457
NEW- RISK: When Hindenburg Omens Are Ominous ................................................................................................................................... 458
RISK: Two Point Three Sigmas Above the Norm ........................................................................................................................................... 460
RISK: No Really, Who is Buying? ................................................................................................................................................................... 468
RISK: Curious Sightings .................................................................................................................................................................................. 469
RISK: Even the BIS Is Shocked At How Broken Markets Have Become ....................................................................................................... 476
RISK: The Line between Rational Speculation and Market Collapse ............................................................................................................. 480
RISK: Global Economy Will Shrink By $2.3 Trillion In 2015 ........................................................................................................................... 485
RISK: Market Action Suggests Abrupt Slowing in Global Economic Activity.................................................................................................. 485
RISK: Warnings Signs Are Everywhere .......................................................................................................................................................... 489
RISK: Hindenburg Signals a Warning ............................................................................................................................................................. 490
RISK: Americans say they're too broke to invest ............................................................................................................................................ 492
RISK: The Biology of Risk ............................................................................................................................................................................... 496

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RISK: More Signs Of Bullish Excess ............................................................................................................................................................... 500


RISK: Markets Have Left the "Complacency" Phase, Have Entered Full Blown "Mania" .............................................................................. 502
RISK: VIX Sends Message of Complacency ................................................................................................................................................... 503
RISK: CS Warns Volume & DeMark Raise "Topping Threat" In Stocks ......................................................................................................... 504
RISK: No One Will Ring the Bell at the Top .................................................................................................................................................... 508
Cassandra's - New Additions to the List ................................................................................................................................................................ 515
NEW-CASSANDRA: "Severe Correction Or Cyclical Bear" Ahead: Leuthold Major Trend Index Turns Negative ........................................ 516
NEW-CASSANDRA: CANARIES - Warnings Everywhere! ............................................................................................................................ 517
NEW-CASSANDRA: Stephen Schork: The Commodity Crash Is "A Canary In The Coal Mine For The Global Economy" ......................... 519
NEW-CASSANDRA: Emerging Market Mayhem: Gross Warns Of "Debacle" As Currencies, Bonds Collapse............................................ 521
CASSANDRA: "Another Crisis Is Coming": Jamie Dimon Warns Of the Next Market Crash ........................................................................ 528
CASSANDRA: Steen Jakobsen: Get Ready For The Biggest Margin Call In History .................................................................................... 529
CASSANDRA: Wynn Calls "Big" Recovery "Complete Dream" As Gaming Revenues Collapse .................................................................. 531
CASSANDRA: Stan Druckenmiller's "Horrific Sense" Of Deja Vu: "This Will End Very Badly" ..................................................................... 533
CASSANDRA: Hedge Fund Legend Julian Robertson Warns Of A "Complete Explosion" Unless Fed Contains "Boiling, Bubble" ............ 538
CASSANDRA: Kyle Bass Warns "The Fed Is Backed Into A Corner... Equities Are My Biggest Liquidity Worry" ........................................ 539
CASSANDRA: Paul Tudor Jones Warns "Disastrous Market Mania" Will End In "Revolution, Taxes, or War" ............................................ 540
CASSANDRA: John Hussman - A Who's Who Of Awful Times To Invest ..................................................................................................... 542
CASSANDRA: Carl Icahn - One Day You'll See A Break Like A Few Weeks Ago But The Market Won't Come Back ................................ 545
CASSANDRA: Sam Zell Warns Of Stock Market Correction On CNBC ........................................................................................................ 546
CASSANDRA: Billionaire Carl Icahn warns on US stock prices ..................................................................................................................... 546
CASSANDRA: Soros Bets $2 Billion on Stock Market Collapse .................................................................................................................... 547
CASSANDRA: Dont Ignore Janet Yellens Stock Market Warnings 07-21-14 Fiscal Times ......................................................................... 548
CASSANDRA: Doug Kass: We're Heading for a Bear Market So Plan Accordingly ...................................................................................... 551
CASSANDRA: Comstock Funds Weighs In .................................................................................................................................................... 553
CASSANDRA: Michael Lombardi Weighs In ................................................................................................................................................... 555
CASSANDRA: Ron Paul Portfolio, 'Craziest' we've ever seen? ..................................................................................................................... 557
CASSANDRA: John Mauldin Goes Negative .................................................................................................................................................. 558
CASSANDRA: Hayman Capital Dramatically Reduces Risk .......................................................................................................................... 566
CASSANDRA: Byron Wien Warns "Oblivious Markets" Of 20% Correction ................................................................................................... 567
CASSANDRA: Harry Dent Warns Stocks to Sink More than 60% by End of 2014 ........................................................................................ 567
CASSANDRA: Stanley Druckenmiller: "When You Get This Kind Of Rigging, It Will End Badly".................................................................. 568
CASSANDRA: Mohamed El-Erian: "Prices Are Artificially High - Its Time to Take Profits" .......................................................................... 569
CASSANDRA: Felix Zulauf: World Headed Toward 1987 Style Market Collapse .......................................................................................... 570
CASSANDRA: Doug Kass: 'I'm Getting The Summer Of 1987 Feeling' In The Market Right Now ............................................................... 570
CORRELATION & COMPLACENCY A PROBLEM .............................................................................................................................................. 572
EVENT RISK A PROBLEM .................................................................................................................................................................................... 575
Q2 EARNINGS & THE R WORD .............................................................................................................................................................. 575
POLITICAL-ECONOMIC TENSIONS .......................................................................................................................................................... 575
CENTRAL BANK POLICY MISCUES.......................................................................................................................................................... 575
ASIAN ECONOMIC SLOWDOWN SPILLAGE ............................................................................................................................................ 575
PETRO$ CRISIS BREWING IN BRIICS...................................................................................................................................................... 575

LONGER TERM - FUNDAMENTAL ANALYSIS .............................................................................................................................. 576


HIGHLIGHTS ......................................................................................................................................................................................................... 576
ASSET & LIABILITY OWNERSHIP ................................................................................................................................................................. 576
PANIC TOTAL RETURN DISTRIBUTION SINCE 1974 ................................................................................................................................. 576
PANIC CHASE FOR YIELD ............................................................................................................................................................................ 577
REAL S&P MARKET CAP / REAL GDP ......................................................................................................................................................... 577
UNSUSTAINABLE GAP BETWEEN PROFITS AND INCOME ...................................................................................................................... 578
ADJUSTED CORPORATE PROFITS FROM DOMESTIC OPERATIONS .................................................................................................... 578
TRAILING 10Y 12 MONTH NET MARGINS ................................................................................................................................................... 579
INVESTMENT CLASS PERFORMANCE ....................................................................................................................................................... 580
NEW-VALUATION SUMMARY ....................................................................................................................................................................... 581
VALUATION: Alternative Methodologies ............................................................................................................................................................... 586
NEW-FOUR SET CONSOLIDATED MARKET VALUATION INDICATORS .................................................................................................. 586
NEW-Crestmont from the Arithmetic ............................................................................................................................................................... 590
NEW-Cyclical PE 10 Ratio............................................................................................................................................................................... 594
NEW-Q Ratio ................................................................................................................................................................................................... 601
NEW-S&P Composite Regression-to-the-Trend ............................................................................................................................................. 606
NEW-Reference Methodologies Analysis ....................................................................................................................................................... 608
CHARTS OF NOTE ......................................................................................................................................................................................... 614
NEW-VALUATIONS XXXX ....................................................................................................................................................................... 614
VALUATIONS Forward 12-Month P/E Ratio 10 Years.......................................................................................................................... 615
VALUATIONS Forward 12-Month EPS versus Change in Price 10 Years ........................................................................................... 615
VALUATIONS Net Margin Growth ............................................................................................................................................................ 616
VALUATIONS 10 Year Trailing 12 Mo Net Margin Growth Historically High ........................................................................................ 616
VALUATIONS Record Profits Yet Historically Low Capital Asset Growth ............................................................................................... 617
VALUATIONS Historical Ranking of PE Values ....................................................................................................................................... 618
VALUATIONS Median Price/Cash Flow Multiple for US Stocks .............................................................................................................. 619
VALUATIONS Median Price/Earnings Multiple for US Stocks ................................................................................................................. 620
VALUATIONS Median Price to Book Multiple for US Stocks ................................................................................................................... 621
VALUATIONS Price/Book; Price/Cash flow; Price/Sales ......................................................................................................................... 622
VALUATIONS Global Equities Reported PE, PE before XO & Fwd PE ............................................................................................... 623
YE EARNINGS 2015 Forecasts.......................................................................................................................................................................... 624

OCTOBER 2015 Edition


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Restricted & Confidential


general@GordonTLong.com

CHARTS OF NOTE ......................................................................................................................................................................................... 624


NEW-2015 EARNINGS 2015 & 2016 Annual Earnings EPS Estimate v Historical ................................................................................. 624
NEW-2015 EARNINGS Q3 Earnings Estimate Revisions v Change in Price ......................................................................................... 625
NEW-2015 EARNINGS Consumer Staples & Discretionary are sending a Pretty Clear ( Worsening Since Q1) Message ................... 626
2015 EARNINGS Consensus Long-Term Growth versus Forward PE ................................................................................................... 627
2015 EARNINGS Consensus Analysts Estimates 1979-1995 ............................................................................................................. 628
2015 EARNINGS Consensus Analysts Estimates 1995-2014 ............................................................................................................. 628
NEW-2015 EARNINGS CY 2015 Earnings Growth ................................................................................................................................. 629
NEW-2015 EARNINGS CY 2015 Revenue Growth ................................................................................................................................. 629
NEW-2015 EARNINGS Q2 Forward 12 Mo EPS versus Change in Price ........................................................................................... 630
2015 EARNINGS Q1 Forward 12 PE Ratio ........................................................................................................................................... 631
RESEARCH OF NOTE .................................................................................................................................................................................... 632
2015 EARNINGS Q1 Earnings Guidance: Negative Guidance (84%) Above Average ........................................................................... 632
NEW-Q2 EARNINGS Reported Results ............................................................................................................................................................. 633
CHARTS OF NOTE ......................................................................................................................................................................................... 633
NEW-Q2 EARNINGS Q2 Earnings Growth by Sector ............................................................................................................................. 633
NEW-Q2 EARNINGS Q2 Revenue Growth by Sector ............................................................................................................................. 633
NEW-Q2 EARNINGS Q2 Earnings Growth by Sector - Estimates .......................................................................................................... 634
NEW-Q2 EARNINGS Q2 Revenue Growth by Sector Estimates ......................................................................................................... 634
RESEARCH OF NOTE .................................................................................................................................................................................... 636
NEW-Q2 EARNINGS Q2 Summary ......................................................................................................................................................... 636
NEW-Q2 EARNINGS Percentage of Companies Beating Revenue Estimates (52%) is Below 5 Year Average ................................... 637
NEW-Q2 EARNINGS Forward Earnings, Revenue and Margins ............................................................................................................ 638
NEW-Q2 EARNINGS First Decline in Earnings (-1.3%) Since Q3 2012 (-1.06%) .................................................................................. 639
NEW-Q2 EARNINGS First Back-to-Back Declines in Revenue Since Q2 2009 and Q3 2009 ............................................................... 640
Q1 EARNINGS Reported Results....................................................................................................................................................................... 641
CHARTS OF NOTE ......................................................................................................................................................................................... 641
Q1 EARNINGS Q1 Earnings Growth by Sector ....................................................................................................................................... 641
Q1 EARNINGS Q1 Revenue Growth by Sector ....................................................................................................................................... 641
Q1 EARNINGS Q1 Earnings Growth by Sector - Estimates .................................................................................................................... 642
Q1 EARNINGS Q1 Reveue Growth by Sector - Estimates ...................................................................................................................... 642
RESEARCH OF NOTE .................................................................................................................................................................................... 643
Q1 EARNINGS Q1 Summary ................................................................................................................................................................... 643
Q1 EARNINGS Fewer Companies Beating Estimates and Sales Estimates Than Average .................................................................. 643
Q1 EARNINGS Forward Earnings, Revenue and Margins ...................................................................................................................... 645
Q1 EARNINGS First Decline in Earnings (-0.4%) Since Q3 2012 (-1.06%) ............................................................................................ 646
Q1 EARNINGS First Decline in Revenues (-2.6%) Since Q3 2012 (-11.5%) .......................................................................................... 647
BUYBACKS Situational Assessment .................................................................................................................................................................. 648
CHARTS OF NOTE ......................................................................................................................................................................................... 648
NEW-BUYBACKS 94% of total S&P in 2015 will go back to shareholders, as dividends and buybacks................................................ 648
NEW-BUYBACKS CEO Pay Boosted from Giving Shareholders Cash .................................................................................................. 649
NEW-BUYBACKS Investor-CEO Feedback Loop .................................................................................................................................... 650
NEW-BUYBACKS Buybacks Account for Substantial Share of Corporate Profits .................................................................................. 651
NEW-BUYBACKS Quarterly History of Buyback Announcments ............................................................................................................ 651
NEW-BUYBACKS Buybacks as a Percentage of Total Cash Use at the Highest Level Since 2007 ...................................................... 652
NEW-BUYBACKS Weekly Buybacks and Rolling 3 Month Sum ............................................................................................................. 652
NEW-BUYBACKS What Sustained Buybacks Look Like To Rating Agencies IBM Example .............................................................. 653
NEW-BUYBACKS Dollar Volume of Share Buybacks and Dividends at Record Levels ......................................................................... 653
NEW-BUYBACKS Buybacks & Dividends Hurdle $900B in 2014 ........................................................................................................... 653
NEW-BUYBACKS The Growth of Stock Buybacks .................................................................................................................................. 654
NEW-BUYBACKS Buybacks & Dividends as a Percentage of Operating Earnings ................................................................................ 654
NEW-BUYBACKS Executive Compensation Structure ............................................................................................................................ 655
BUYBACKS During 2014 virtually 100% of S&P 500s reported profits of $1T were disgorged as shareholder distributions ................ 656
BUYBACKS 2015 US Equity Flows Forecast ........................................................................................................................................... 656
BUYBACKS Announced Gross Share Buybacks ..................................................................................................................................... 657
BUYBACKS Global IPO /Secondary Offerings versus Announced Gross Share Buybacks ................................................................... 657
BUYBACKS Actual Net Share Buybacks ................................................................................................................................................. 658
BUYBACKS US IPOs-Actual Buybacks and LBO .................................................................................................................................... 658
BUYBACKS Cash to Stockholders Exceeds 90% of Profits .................................................................................................................... 659
BUYBACKS Stock Repurchases Surge 30% in Q3 ................................................................................................................................. 659
BUYBACKS Stock Repurchases 2nd Highest on Record at $145B.......................................................................................................... 659
BUYBACKS 2914 YTD Stock Repurchases By Corporation 20 Corporations Over $4B ..................................................................... 660
BUYBACKS Operating EPS With / Without Buybacks ............................................................................................................................. 660
BUYBACKS Sales & Revenue Doesnt Support Reported EPS Due to Buyback Distortion ................................................................... 661
BUYBACKS S&P 500 Buyback Index versus S&P 500 ........................................................................................................................... 662
BUYBACKS The New S&P 500 Buyback Index TR ................................................................................................................................. 662
BUYBACKS The New S&P 500 Buyback Index Since Start of QE ......................................................................................................... 663
BUYBACKS IBM Total Debt to Equity (to Fund Buybacks) ..................................................................................................................... 663
BUYBACKS IBM Debt Issuance v Buybacks ........................................................................................................................................... 664
BUYBACKS Global FDI into Finance versus Productive Assets ............................................................................................................. 665
BUYBACKS Total Corporate Debt 35% Higher than 2008 Peak Used for Buybacks .......................................................................... 665
BUYBACKS Buyback Bonanza ................................................................................................................................................................ 666
BUYBACKS Buybacks Have Made a 1% Earnings Growth Distortion to Median S&P 500 Company ................................................... 666
BUYBACKS Top 10 Buyback Companies ................................................................................................................................................ 667
BUYBACKS Intel Buybacks ...................................................................................................................................................................... 667
BUYBACKS Shares Outstanding Back at 2000 Level ............................................................................................................................. 668

OCTOBER 2015 Edition


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Restricted & Confidential


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BUYBACKS Largest Volumes of Buybacks by US Listed Corporation in Last Year ............................................................................... 668
BUYBACKS Corporations Are No Longer Investing But Rather Financial Engineering Stock Prices ..................................................... 669
BUYBACKS Q2 Drop-Off Closer to Normal .......................................................................................................................................... 670
BUYBACKS Borrowing to Buy back Shares ............................................................................................................................................. 670
BUYBACKS Cyclical Nature of Buybacks Evident ................................................................................................................................... 670
BUYBACKS Major Q2 Repurchases ........................................................................................................................................................ 671
BUYBACKS Major Q1 Repurchases ........................................................................................................................................................ 671
BUYBACKS Quarterly Repurchase & Buyback Yield ............................................................................................................................... 672
BUYBACKS US Corporate Cash versus Buybacks .................................................................................................................................. 673
BUYBACKS Net Debt/EBITDA of American Non-Financial Corporations ............................................................................................... 673
RESEARCH OF NOTE .................................................................................................................................................................................... 674
NEW-BUYBACKS Stock Buybacks To Grind To A Halt Following Massive Credit Fund Outflows, "Bond Carnage" ............................. 674
NEW-BUYBACKS"The End Of The Road" - Debt-Funded Buyback Boosts Are Finite ........................................................................... 676
NEW-BUYBACKS Why There Is No Growth: The Entire S&P 500 Free Cash Flow Is Going Back To Shareholders ............................ 679
NEW-BUYBACKS Do Share Buybacks Create Value? (Spoiler Alert: No) .............................................................................................. 680
NEW-BUYBACKS Surprise! CEOs Are Getting Rich by Buying Back Stock............................................................................................ 682
NEW-BUYBACKSThe End of Buybacks? Goldman Warns Political Pressure On Share Repurchases Is Rising................................... 687
NEW-BUYBACKSCorporate Buybacks: Connecting the Dots to the F-Word........................................................................................... 689
NEW-BUYBACKS Capex Recovery Is Worst In History, BoAML Says .................................................................................................... 694
NEW-BUYBACKS Stock Buybacks Move to the "Terminal" Next Stage .................................................................................................. 697
NEW-BUYBACKSOne Heckuva Bull Market ............................................................................................................................................. 699
BUYBACKS - The US Equity Bubble Depends On Corporate Buybacks; Here's the Proof ....................................................................... 700
BUYBACKS - Why Markets Are Manic - The Fed Is Addicted To the "Easy Button" ................................................................................. 704
BUYBACKS - When $140 Billion In Buybacks Isn't Enough... .................................................................................................................... 706
BUYBACKS - "Obsessive" Buybacks Could Be Big Mistake, "Serious" People Tell Unserious People .................................................... 706
BUYBACKS - Q3 Buybacks Surging, These Are The Top 20 Repurchasers Of Their Own Stock ............................................................ 710
BUYBACKS - Accounting Magic .................................................................................................................................................................. 712
BUYBACKS - The largest source of overall US equity demand in recent years......................................................................................... 714
BUYBACKS - Has Boosted Median Earnings Growth by 100 bps for S&P 500 ......................................................................................... 717
BUYBACKS - Companies Spend Almost All Profits On Buybacks ............................................................................................................. 722
BUYBACKS - Buyback At Biggest Pace Since 2007 .................................................................................................................................. 727
BUYBACKS - Buyback Party Slowing ......................................................................................................................................................... 729
BUYBACKS - Buyback Party Slowing ......................................................................................................................................................... 734
THE $2T TAX RUSE Its a Free Ride for US Corporations ......................................................................................................................... 739
UNPRECEDENTED BUYBACKS LEVELS ................................................................................................................................................. 739
A FREE TAX RIDE....................................................................................................................................................................................... 741
GENERIC TAX EXAMPLE ........................................................................................................................................................................... 741
CHARTS OF NOTE ............................................................................................................................................................................................... 746
CHARTS Finance the Biggest Source of Corporate Funds rising from 19% to 30% .................................................................................. 746
CHARTS Average Age of Private Fixed Assets ........................................................................................................................................... 747
CHARTS Percent of Families With Business Equity .................................................................................................................................... 747
CHARTS Percent of Families With Business Equity .................................................................................................................................... 748
CHARTS New England Patriots NFL Franchise Valuation ......................................................................................................................... 749
CHARTS US Equity Market is Not Outgrowing the Economy AS Measured by the Coincident Indicator .................................................. 750
CHARTS Deviation of Earnings Above / Below Long Term Growth Trend ................................................................................................. 751
CHARTS S&P 500, Moodys Baa Corporate & 30Y UST Yields ................................................................................................................. 751
CHARTS Corporations Carrying Higher Levels of Leverage than a Few Years Ago .................................................................................. 752
CHARTS US Corporate CFROI (Cash Flow ROI) ....................................................................................................................................... 753
CHARTS Weakening Sector Retunrs ........................................................................................................................................................... 753
CHARTS SPX, Corporate Profits versus Employed Population % .............................................................................................................. 754
CHARTS Executive Incentives Distort Earnings .......................................................................................................................................... 754
CAPITALIZATION Market Capitalization as a % of Nominal GDP .............................................................................................................. 755
CAPITALIZATION Market Capitalization Adjusted by Gold and CPI ........................................................................................................... 756
CAPITALIZATION Market Capitalization versus Total Federal Reserve Assets ......................................................................................... 757
CAPITALIZATION Total Market Capitalization versus M2 ........................................................................................................................... 758
CAPITALIZATION Total Market Capitalization versus Monetary Base ....................................................................................................... 759
CAPITALIZATION Total Market Capitalization versus Gross Federal Debt ................................................................................................ 760
CAPITALIZATION Market Capitalization Ratios .......................................................................................................................................... 761
CAPITALIZATION Regional Corporate Loss Comparisons Problems in Japan....................................................................................... 761
CHARTS 7 Year Total Return Cycle ............................................................................................................................................................ 762
CHARTS Profit Margins Shrink as Proportion of GDP ................................................................................................................................. 762
CHARTS Q1 Earnings Pre-Announcements ................................................................................................................................................ 763
CHARTS Q1 Earnings Taken Down Dramatically ....................................................................................................................................... 763
CHARTS Q1 Earnings Already Taken Down By 5% since January ............................................................................................................ 764
CHARTS Positive & Negative Q1 Pre-Announcements .............................................................................................................................. 764
CHARTS Q1 Revenue Slippage in Last 60 Days ........................................................................................................................................ 765
CHARTS Forward 12 Month EPS vs Price: 10-Year ................................................................................................................................... 766
CHARTS Forward 12 Month EPS vs Price: 10-Year ................................................................................................................................... 766
RESEARCH OF NOTE .......................................................................................................................................................................................... 768
NEW-FUNDAMENTALS A Bad Equilibrium & How Speculative Distortion Ends ....................................................................................... 768
NEW-FUNDAMENTALS Valuations ............................................................................................................................................................. 776
FUNDAMENTALS Corporate Profits Vaporizing .......................................................................................................................................... 781
FUNDAMENTALS Fundamentals No Longer Currently Matter - Proof ....................................................................................................... 785
FUNDAMENTALS Profit Margins - Is the Ladder Starting to Snap? ........................................................................................................... 786
FUNDAMENTALS The Great PE Multiple Expansion of 2011-2014 ........................................................................................................... 793
FUNDAMENTALS Stocks Have Never Been More Expensive Based On Long-Term Growth Forecasts .................................................. 797

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FUNDAMENTALS Long Term Return Trends ............................................................................................................................................. 799


FUNDAMENTALS Profit Margins Contract as a Percentage of GDP .......................................................................................................... 801
FUNDAMENTALS Stagnant Wages a Major Contributor to Profits ............................................................................................................. 803
FUNDAMENTALS Worsening risk/reward fundamentals in US corporate credit ........................................................................................ 805

TARGETS ................................................................................................................................................................................ 809


CONCLUSIONS....................................................................................................................................................................... 813
MARKET MESSAGE ............................................................................................................................................................................................. 813
I DEFINING CHARTS ......................................................................................................................................................................................... 821
Defining Chart #3 - The Big M and Super Cycle b ..................................................................................................................................... 823
Defining Chart #4 Intermediate Term Topping Process ............................................................................................................................... 824
The Bottom Line............................................................................................................................................................................................... 827
II TARGETS ........................................................................................................................................................................................................ 830
III QUARTERLY SENTIMENT RISK AND FUNDAMENTALS ........................................................................................................................... 834
SENTIMENT .................................................................................................................................................................................................... 834
NEW-FUNDAMENTAL ANALYSIS ................................................................................................................................................................. 837
IV STUDIES ........................................................................................................................................................................................................ 839
RECESSION RUMBLINGS Revenue, Earnings & Economic ............................................................................................................................ 839
NEW-STUDY: RECESSION SIGNALS ................................................................................................................................................................. 839
NEW-CHARTS OF NOTE ............................................................................................................................................................................... 839
NEW-RECESSION US Manufacturing Sector Recession........................................................................................................................ 839
NEW-RECESSION Large Profit Margin Declines Coincides With Recessions ....................................................................................... 840
NEW-RECESSION Buybacks Drop on Reduced Free Cash Flow Drop Compared to Previous Recession ....................................... 840
NEW-RECESSION Annual % Change in 12Mo Forward EPS Expectations Turn Negative .................................................................. 841
NEW-RECESSION US Recession Estimates Pop ................................................................................................................................... 841
NEW-RECESSION US Recession Indicator & Relative Performance of Stocks & Bonds ...................................................................... 842
NEW-RECESSION Real S&P 500 Index with Historical Recessions ...................................................................................................... 842
NEW-RECESSION September Survey Data versus Non Farm Payrolls ................................................................................................ 843
NEW-RECESSION Regional Surveys for September versus ISM PMI (August) .................................................................................... 843
NEW-RECESSION Regional Manufacturing Surveys versus Forward EPS Estimates .......................................................................... 844
NEW-RECESSION Historical Regional Index Comparisons Last Seen in 2008 .................................................................................. 844
NEW-RECESSION Global Oil Consumption Leads Economic Growth Trend is Down Global Headwinds ...................................... 845
NEW-RECESSION Gross Domestic Income versus Wilshire 5000 Tells the Story ............................................................................. 846
Q3 EARNINGS Reduced Expectations .............................................................................................................................................................. 846
STUDY: Q3 EARNINGS - ...................................................................................................................................................................................... 846
CHARTS OF NOTE ......................................................................................................................................................................................... 846
NEW-Q3 EARNINGS Q3 EPS Expected to Fall -4.5% According to Factset .......................................................................................... 846
NEW-Q3 EARNINGS S&P 500 Average Earnings Growth Y-o-Y Not a Good Pattern ........................................................................ 847
NEW-Q3 EARNINGS Revenue Recession and Flat EPS Consensus .................................................................................................... 848
NEW-Q3 EARNINGS Forward EPS Consensus Matches Manufacturing Surveys Declines ................................................................. 848
NEW-Q3 EARNINGS Q3 Earnings Growth (Decline): Ex-BAC ............................................................................................................... 849
NEW-Q3 EARNINGS IT Sector Q3 Earnings Forecast to be Down -5.9% Without Apple (-0.4% With) ................................................. 849
NEW-Q3 EARNINGS A Good Sign that Goldman Must Be Selling? ....................................................................................................... 850
NEW-Q3 EARNINGS It Should Be Expected that Earnings Will Begin to fall ......................................................................................... 850
V - TRIGGER$ ZONES .......................................................................................................................................................................................... 852
VI - DRIVER$ & BIA$ ............................................................................................................................................................................................. 853

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