Monthly Market Analytics & Technical Analysis

MAY 2014 Edition

MAY DATA FILE

MATA- MAY 2014

5/9/2014

1 May 2014 Edition

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Monthly Market Analytics & Technical Analysis

MAY 2014
HIGHLIGHTS - WHAT YOU NEED TO KNOW ................................................................................................................................... 9
SUMMARY ANALYSIS ...............................................................................................................................................................................................9
Valuation Summary ........................................................................................................................................................................................... 16
Era of Delusional Distortions & the Super Cycle Pivot b .................................................................................................................................... 19
Defining Chart #1 - "Delusional Distortion" Expectations & the Log-Periodic Cycle ......................................................................................... 21
Defining Chart #2 - Finding the Longer Term Super Cycle Pivot b ................................................................................................................ 22
Defining Chart #3 - The Big M and Super Cycle b ....................................................................................................................................... 24
Defining Chart #4 - Short Term Small M Top Turmoil .................................................................................................................................... 26
BANDING PROCESS .................................................................................................................................................................................... 29
OEX OPEN INTEREST (Put/Calls) ............................................................................................................................................................ 30
TRIN ........................................................................................................................................................................................................... 31
McClellan Oscillator .................................................................................................................................................................................... 32

OUR APPROACH - MACRO ANALYTICS ...................................................................................................................................... 34

.............................................................................................................................................................................................. 35
MAY 2014: Global Macro Drivers ............................................................................................................................................................................ 36
DRIVER: Real Wealth, Commodities & Dr Cooper ........................................................................................................................................... 39
DRIVER: Carry Trade & the : Cross ............................................................................................................................................................ 49
DRIVER: Currency & Forex Markets ................................................................................................................................................................. 59
DRIVER: Yield, Spread & Credit ....................................................................................................................................................................... 63
DRIVER: Global Equities ................................................................................................................................................................................... 64
RESEARCH WE FOLLOWED ........................................................................................................................................................................... 65
CHARTS OF NOTE ........................................................................................................................................................................................... 66
DRIVER$ - The Central Banks Desperate Stage is Still Ahead! ................................................................................................................ 66
DRIVER$ - Carry Trade Reacting to Accelerating JGB Selling .................................................................................................................... 66
DRIVER$ - USDJPY Taking Aim at 200 DMA and Below ............................................................................................................................. 67
DRIVER$ - US$ Basing View At Risk .......................................................................................................................................................... 68
DRIVER$ - US Treasury 10 Year Yield Breaking Down ............................................................................................................................... 69
DRIVER$ - S&P 500 Rate of Change Tracks Fed Total Asset ROC ............................................................................................................ 70
DRIVER$ - Its About Flows and the Rate of Change of Flows .................................................................................................................... 70
DRIVER$ - A +22.0% average price performance in the 12 months prior to Fed tightening cycles ............................................................ 71
RESEARCH OF NOTE ...................................................................................................................................................................................... 72
DRIVER$ - Underlying Driver$ is Shifting Sentiment .................................................................................................................................... 72
DRIVER$ - A Treasury Supply Squeeze or Something More Sinister? ........................................................................................................ 75
DRIVER$ - BoAML Now Supports Our Long View that US Treasury Yields are Headed Lower ................................................................. 81
DRIVER$ - The Carry Trade Driver$ ............................................................................................................................................................. 83
RISK: Risk-On versus Risk-Off ................................................................................................................................................................................ 86
CHARTS OF NOTE ........................................................................................................................................................................................... 87
CHARTS Smart Money Flows .................................................................................................................................................................... 87
CHARTS Russell 2000 versus Russell 1000.............................................................................................................................................. 87
CHARTS NYSE Margin Debt at All Time High in February........................................................................................................................ 88
CHARTS Risk Being Withdrawn from Markets........................................................................................................................................... 89
CHARTS Old Adage: Rarely a Sell-off Without the Banks Leading the Move Lower............................................................................... 90
CHARTS Hedge Funds Levered to the Hilt on: AMZN, GILD, DISH, PCLN, YHOO and FB .................................................................... 91
CHARTS Poor Historic Comparisons ......................................................................................................................................................... 92
CHARTS US Macro the Lowest in 19 Months ............................................................................................................................................ 93
CHARTS Russell 2000 200 Week MA Distortion ....................................................................................................................................... 93
CHARTS 1929 Crash, Nikkei 1989 Crash .................................................................................................................................................. 94
CHARTS - The Mutual Fund Decoder ........................................................................................................................................................... 94
CHARTS - Maximum Drawdown by Year Since 1960 .................................................................................................................................. 95
CHARTS - Swap Spreads Widening & Often Accompany S&P 500 Declines.............................................................................................. 96
CHARTS - Skew Index .................................................................................................................................................................................. 97
CHARTS - VIX ............................................................................................................................................................................................... 98
RESEARCH OF NOTE ...................................................................................................................................................................................... 99
RISK - The Last Two Times This Happened, The Stock Market Crashed .................................................................................................... 99
RISK - Hedge Funds Most Short Into Latest All Time High Ramp since September ................................................................................. 102
RISK - Felix Zulauf: Expect 20% Correction This Year ............................................................................................................................... 105
RISK - Markets Are Riskier Than At Any Time Since The Depths Of The 2008/9 Crisis ........................................................................... 106
RISK - Small Business Optimism Disconnected from Markets ................................................................................................................... 110
TECHNO-FUNDAMENTALS ................................................................................................................................................................................. 112
RESEARCH WE FOLLOWED......................................................................................................................................................................... 112
CHARTS OF NOTE ......................................................................................................................................................................................... 115
CHARTS Nasdaq Leading the Way Towards June Market "Death Cross" .............................................................................................. 115
CHARTS Global Equities Reach All Time Market Cap High of $62.4T ................................................................................................... 117

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CHARTS Cluster Zone of Trend Support & Prior Resistance .................................................................................................................. 118
CHARTS Russell 200 DMA Support Test ................................................................................................................................................ 119
CHARTS Symmetry in the DOW Transportation Average ....................................................................................................................... 120
CHARTS Bank Index Sending A Message ............................................................................................................................................... 121
CHARTS Fed Balance Sheet Versus QE Actions .................................................................................................................................... 122
CHARTS Pattern Shift in High Beta Risk Distortion............................................................................................................................ 123
CHARTS Russell 2000 versus Leuthhold Small Cap Universe Medium P/E on 5-Yr Normalized EPS .................................................. 124
CHARTS 2002 2007 Reflation Pattern Comparison ........................................................................................................................... 125
CHARTS 1929 Crash and Nikkei 1989 Collapse Comparison ................................................................................................................. 125
CHARTS Shanghai Composite Trend ...................................................................................................................................................... 126
CHARTS Mid-Term Election Year Pattern ............................................................................................................................................... 127
CHARTS - GLOBAL EQUITES versus GDP Expectations ......................................................................................................................... 128
CHARTS - The NYSE / PPI ......................................................................................................................................................................... 129
CHARTS - Bear Market Began with the End of the Tech Bubble ............................................................................................................... 129
CHARTS - Unusual US Macro Decay Pattern ............................................................................................................................................. 130
CHARTS - Steadily Falling CNBC Viewership ............................................................................................................................................ 131
RESEARCH OF NOTE .................................................................................................................................................................................... 132
PATTERNS Be Patient: Wait for the Death Crosses! ............................................................................................................................ 132
PATTERNS M Tops ............................................................................................................................................................................... 139
PATTERNS- Soross Reflexivity Suggests another Crash Is Inevitable ..................................................................................................... 145
PATTERNS - Early Credit Crack Warning Signals in the SWAPS Market ................................................................................................. 147
PATTERNS - Mid Term Election Year Pattern ............................................................................................................................................ 150
PATTERNS - Sornette's Log-Periodic Model Prediction ............................................................................................................................. 152
PATTERNS - The Stock Market Is Not the Economy Anywhere In the World............................................................................................ 154

OUTLOOK - ANALYTICAL ANALYSIS .......................................................................................................................................... 155

STRATEGIC MACRO INVESTMENT INSIGHTS Q2 2014 RETAIL CRE (RETAIL COMMERCIAL REAL ESTATE) .................................. 155
RESEARCH WE FOLLOWED ......................................................................................................................................................................... 157
CHARTS & TABLES OF NOTE ....................................................................................................................................................................... 157
RESEARCH OF NOTE .................................................................................................................................................................................... 159
COMMERCIAL REAL ESTATE - Imploding Retail Floor Space Requirements ......................................................................................... 159
COMMERCIAL REAL ESTATE - Family Dollar to cut jobs, shut 370 stores as sales fall .......................................................................... 162
COMMERCIAL REAL ESTATE - The Death of a 71% Consumption Driven Economy ............................................................................. 165
COMMERCIAL REAL ESTATE - Getting Worse Fast ................................................................................................................................ 166
COMMERCIAL REAL ESTATE - Unfolding Implosion ................................................................................................................................ 168
COMMERCIAL REAL ESTATE - Unfolding Implosion - II ........................................................................................................................... 169
COMMERCIAL REAL ESTATE - Financial Crisis II Coming....................................................................................................................... 174
COMMERCIAL REAL ESTATE - Indoor Mall Retail in Trouble .................................................................................................................. 181
COMMERCIAL REAL ESTATE - Mortgage bonds reflect diverging fortunes of US malls ......................................................................... 184
COMMERCIAL REAL ESTATE - Dead Mall Syndrome: The Self-Reinforcing Death Spiral of Retail ....................................................... 186
COMMERCIAL REAL ESTATE - The First Domino to fall: Retail-CRE (Commercial Real Estate) ........................................................... 188
COMMERCIAL REAL ESTATE - After Seven Lean Years: US Commercial Real Estate: The Present Position and Future Prospects .. 193
COMMERCIAL REAL ESTATE - Retail Sales Cannibalization .................................................................................................................. 199
COMMERCIAL REAL ESTATE - Tsunami of Retail Store Closings and Downsizings Coming ................................................................. 200
STRATEGIC MACRO INVESTMENT INSIGHTS - Q1 2014 - UKRAINE CONFLICT & ENERGY ...................................................................... 202
CHARTS OF NOTE ......................................................................................................................................................................................... 204
UKRAINE NATO Encroachment ............................................................................................................................................................... 204
UKRAINE Russias Current Account Problem.......................................................................................................................................... 205
UKRAINE Russias Oil Export Destinations ............................................................................................................................................. 205
UKRAINE Russian Natural Gas and Oil Production ................................................................................................................................. 206
UKRAINE Bank Exposure to Russian Debt .............................................................................................................................................. 206
UKRAINE European Bank Exposure to Ukraine ...................................................................................................................................... 207
UKRAINE Rising CDs Spreads Make Russian Investments More Expensive......................................................................................... 207
UKRAINE Global MARKETS Are Pricing in Russian and Chinese Hard Landing ................................................................................... 208
UKRAINE Food Import Costs A Real Problem ......................................................................................................................................... 209
UKRAINE Wheat & Corn Supplier ............................................................................................................................................................ 209
RESEARCH OF NOTE .................................................................................................................................................................................... 210
UKRAINE Financial Warfare ..................................................................................................................................................................... 210
STUDY: CURRENCIES ......................................................................................................................................................................................... 214
CHARTS OF NOTE ......................................................................................................................................................................................... 215
CURRENCIES Major Country Current Account Balances ....................................................................................................................... 215
CURRENCIES Interest Rates, Differentials ............................................................................................................................................. 215
CURRENCIES Inflation ............................................................................................................................................................................. 216
CURRENCIES Central Bank Policy Pressures ........................................................................................................................................ 216
CURRENCIES Central Bank Asset Growth ............................................................................................................................................. 216
CURRENCIES Currency Cartel Bank Asset Growth ................................................................................................................................ 217
STUDY: Q1 EARNINGS ........................................................................................................................................................................................ 218
RESEARCH WE FOLLOWED ......................................................................................................................................................................... 218
CHARTS OF NOTE ......................................................................................................................................................................................... 219
CHARTS Q1 Earnings Pre-Announcements ............................................................................................................................................. 219
CHARTS Q1 Earnings Taken Down Dramatically ..................................................................................................................................... 219
CHARTS Q1 Earnings Already Taken Down By 5% since January ......................................................................................................... 220
CHARTS Positive & Negative Q1 Pre-Announcements ........................................................................................................................... 220
CHARTS Q1 Revenue Slippage in Last 60 Days ..................................................................................................................................... 220
CHARTS Earnings Slippage in the last 60 Days Consumer Discretionary Plummeting! ..................................................................... 221

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RESEARCH OF NOTE .................................................................................................................................................................................... 221

Consumer Discretionary Sector Has Plunging Cuts to Earnings Estimates ............................................................................................... 222
STUDY: Q1 VALUATIONS .................................................................................................................................................................................... 224
RESEARCH WE FOLLOWED ......................................................................................................................................................................... 224
CHARTS OF NOTE ......................................................................................................................................................................................... 225
CHARTS Single Exponential Smoothing PE at Historic High .................................................................................................................. 225
CHARTS Tobins Q Equity Values ............................................................................................................................................................ 226
CHARTS Equities No Longer Follow Earnings......................................................................................................................................... 226
CHARTS Forward 12 Month EPS vs Price: 15-Year ................................................................................................................................ 227
CHARTS PE Irrationality in Tech .............................................................................................................................................................. 227
CHARTS Forward 12 Month EPS vs Price: 10-Year ................................................................................................................................ 228
RESEARCH OF NOTE .................................................................................................................................................................................... 228
Q1 VALUATIONS - Markets in a "Topping Process" .................................................................................................................................. 228
Q1 VALUATIONS - Markets in a "Topping Process" .................................................................................................................................. 229
STUDY: CREDIT SIGNALS ................................................................................................................................................................................... 231
CHARTS OF NOTE ......................................................................................................................................................................................... 231
CHARTS S&P Could Correct 70 S&P Points Before May Options Expiration ......................................................................................... 231
CHARTS Disillusionment One Asset At A Time ....................................................................................................................................... 232
CHARTS Bond & Credit Markets Not Buying Current Market Strength - Divergence ............................................................................. 233
CHARTS Spreads No Longer Follow Leverage ....................................................................................................................................... 234
STUDY: CORPORATE CASHFOW....................................................................................................................................................................... 235
CHARTS OF NOTE ......................................................................................................................................................................................... 235
CHARTS Falling EBITDA and Free Cash - Buybacks and Dividends Bleeding Cash ............................................................................ 235
CHARTS Corporate EBITDA versus S&P 500 ......................................................................................................................................... 235
STUDY: DIVIDENDS & BUYBACKS ..................................................................................................................................................................... 236
CHARTS OF NOTE ......................................................................................................................................................................................... 240
CHARTS Corporate Buy-Back Growth ..................................................................................................................................................... 240
CHARTS Rate of Corporate Buy-Back Growth ........................................................................................................................................ 240
CHARTS How Executive Incentives Can Destroy a Nation ..................................................................................................................... 240
RESEARCH OF NOTE .................................................................................................................................................................................... 242
DIVIDENDS - Continuing Shift from Capex to Dividends ............................................................................................................................ 242
BUYBACKS - Going nowhere if it wasnt For BUYBACKS from Cheap Debt ............................................................................................. 247
BUYBACKS - Buyback Achievers Index at 2007 Top ................................................................................................................................. 250
STUDY: GOLD ....................................................................................................................................................................................................... 251
RESEARCH WE FOLLOWED ......................................................................................................................................................................... 251
CHARTS OF NOTE ......................................................................................................................................................................................... 253
CHARTS Gold May Soon Start Rising While Equities Fall....................................................................................................................... 253
CHARTS - Chinas Exploding Rise in Gold Consumption ........................................................................................................................... 254
RESEARCH OF NOTE .................................................................................................................................................................................... 255
GOLD Golds Real Value is Now > $10,000/Oz According to SocGen.................................................................................................... 255
GOLD Our Trigger$ Gold Analysis 03-19-14 ........................................................................................................................................ 257
GOLD Our Trigger$ Gold Analysis ........................................................................................................................................................... 258
GOLD - China Buys, Produces Record Amounts of Gold ........................................................................................................................... 264
GOLD - Going to China ................................................................................................................................................................................ 266
GOLD - Below Cash Cost, Approaches Marginal Production Costs ........................................................................................................... 266
GOLD - Bottom Still Likely Not In - A Little More in Price and Time ........................................................................................................... 268
GOLD - Level Of Currency Debasement ..................................................................................................................................................... 269
GOLD - Winners in Q3 ................................................................................................................................................................................. 273

SHORT TERM TECHNICAL ANALYSIS ..................................................................................................................................... 274

SUPPORT & RESISTANCE .................................................................................................................................................................................. 274
Gann Analysis .................................................................................................................................................................................................. 274
Boundary Conditions ....................................................................................................................................................................................... 275
Channels & Regressions ................................................................................................................................................................................. 277
Fibonacci - Controlling Time Extensions ......................................................................................................................................................... 278
Elliott Wave ...................................................................................................................................................................................................... 280
SENTIMENT - Consumer, Investor & Trader ........................................................................................................................................................ 282
Consumer Confidence - Conference Board .................................................................................................................................................... 282
Consumer Sentiment - Michigan ..................................................................................................................................................................... 286
Consumer Comfort .......................................................................................................................................................................................... 287
Investors Intelligence ....................................................................................................................................................................................... 288
American Association of Independent Investors ............................................................................................................................................. 288
National Association of Active Investment Managers (NAAIM) ...................................................................................................................... 289
Small Business Optimism ................................................................................................................................................................................ 290
Percentage Stocks above 50 & 200 DMA ....................................................................................................................................................... 291
Margin Levels ................................................................................................................................................................................................... 292
Mutual Fund Cash Levels v S&P 500 .............................................................................................................................................................. 296
OSCILLATORS & BREADTH: Indicators of Importance ...................................................................................................................................... 299
NYSE Overbought / Oversold .......................................................................................................................................................................... 299
OEX Open Interest (Puts/Calls) ....................................................................................................................................................................... 300
TRIN ................................................................................................................................................................................................................. 301
McClellan Oscillator ......................................................................................................................................................................................... 302
CHARTS OF NOTE ............................................................................................................................................................................................... 303

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CHARTS Smart Money Flows .................................................................................................................................................................. 303

CHARTS Fed Assets versus Bullish Sentiment ....................................................................................................................................... 303
CHARTS Macro Support Has Technically Broken Down ......................................................................................................................... 304
CHARTS US Surprise Index Setting Up for Downturn ............................................................................................................................. 304
CHARTS The Public No Longer Trusts the Market Feel it is Manipulated and Ineffectively Regulated ........................................... 305
RESEARCH OF NOTE .......................................................................................................................................................................................... 306
SENTIMENT: US Households To Withdraw $430 Billion From Stocks In 2014 ............................................................................................. 306
SENTIMENT: Elliott Wave's View from the Top .............................................................................................................................................. 309

INTERMEDIATE TERM RISK ANALYSIS ................................................................................................................................. 313

RESEARCH WE FOLLOWED ............................................................................................................................................................................... 313
AGGREGATED GLOBAL FINANCIAL RISK INDEX ............................................................................................................................................. 316
BANKING RISK - LIBOR-OIS SPREAD (Updated) ........................................................................................................................................ 317
BANKING RISK - TED SPREAD (Updated).................................................................................................................................................... 317
CREDIT RISK - GLOBAL CREDIT DEFAULT SWAPS (Updated) ................................................................................................................ 318
CREDIT RISK - EU CREDIT DEFAULT SWAPS (Updated) .......................................................................................................................... 318
CONSUMER RISK - HOUSING - RATE OF CHANGE (Updated) ................................................................................................................. 319
ECONOMIC RISK - ECRI LEADING INDEX (Updated) ................................................................................................................................. 321
INFLATION RISK - MONEY SUPPLY GROWTH - M3 (Updated) .................................................................................................................. 322
INFLATION RISK - MONEY VELOCITY (Updated) ........................................................................................................................................ 322
MONETARY RISK - BANK LIABILITIES (Updated) ........................................................................................................................................ 323
COST OF MONEY RISK - INTEREST RATES (Updated) ............................................................................................................................ 323
AGGREGATED RISK LEVEL ................................................................................................................................................................................ 325
RESEARCH OF NOTE .......................................................................................................................................................................................... 326
RISK: CS Warns Volume & DeMark Raise "Topping Threat" In Stocks ......................................................................................................... 326
RISK: No One Will Ring the Bell at the Top .................................................................................................................................................... 330
Cassandra's - New Additions to the List ................................................................................................................................................................ 337
CASSANDRA: Comstock Funds Weighs In ................................................................................................................................................. 338
CASSANDRA: Michael Lombardi Weighs In ................................................................................................................................................... 340
CASSANDRA: Ron Paul Portfolio, 'Craziest' we've ever seen? ..................................................................................................................... 342
CASSANDRA: John Mauldin Goes Negative................................................................................................................................................ 343
CASSANDRA: Hayman Capital Dramatically Reduces Risk...................................................................................................................... 351
CASSANDRA: Byron Wien Warns "Oblivious Markets" Of 20% Correction ................................................................................................... 352
CASSANDRA: Harry Dent Warns Stocks to Sink More than 60% by End of 2014 ........................................................................................ 352
CASSANDRA: Stanley Druckenmiller: "When You Get This Kind Of Rigging, It Will End Badly".................................................................. 353
CASSANDRA: Mohamed El-Erian: "Prices Are Artificially High - Its Time to Take Profits" .......................................................................... 354
CASSANDRA: Felix Zulauf: World Headed Toward 1987 Style Market Collapse .......................................................................................... 355
CASSANDRA: Doug Kass: 'I'm Getting The Summer Of 1987 Feeling' In The Market Right Now ............................................................... 355
SECTOR: CANARIES ............................................................................................................................................................................................ 357
Q1 CANARIES ................................................................................................................................................................................................. 357
The Stock Market Bubble is getting ready to burst ...................................................................................................................................... 357

LONGER TERM - FUNDAMENTAL ANALYSIS .............................................................................................................................. 359

HIGHLIGHTS ......................................................................................................................................................................................................... 359
VALUATION SUMMARY ................................................................................................................................................................................. 359
VALUATION: Alternative Methodologies ............................................................................................................................................................... 362
FOUR SET CONSOLIDATED MARKET VALUATION INDICATORS ............................................................................................................ 362
Crestmont from the Arithmetic ..................................................................................................................................................................... 366
Cyclical PE 10 Ratio..................................................................................................................................................................................... 368
Q Ratio ......................................................................................................................................................................................................... 373
S&P Composite Regression-to-the-Trend ................................................................................................................................................... 379
REFERENCE METHODOLOGIES ANALYSIS ............................................................................................................................................... 381
Market Cap to GDP: The Buffett Valuation Indicator ................................................................................................................................... 381
Valuation Based Equity Market Forecasts December 2013 Update ........................................................................................................ 383
VALUATION: Situational Assessment ................................................................................................................................................................... 392
Q1 VALUATIONS ............................................................................................................................................................................................ 392
RESEARCH WE FOLLOWED ..................................................................................................................................................................... 392
CHARTS OF NOTE ..................................................................................................................................................................................... 393
CHARTS Forward 12 Month EPS vs Price: 10-Year ............................................................................................................................ 393
CHARTS Forward 12 Month EPS vs Price: 10-Year ............................................................................................................................ 394
RESEARCH OF NOTE ................................................................................................................................................................................ 394
Q1 VALUATIONS - Markets in a "Topping Process" ............................................................................................................................... 394
PE CONTRACTION - Situational Assessment ...................................................................................................................................................... 397
We Have Been Warning, Now Here it is ......................................................................................................................................................... 397
PE Ratio: Rising PE Multiples, Not Better Earnings, Are What's Driving The Stock Market .......................................................................... 401
PE Ratio: Expansion, Then Contraction .......................................................................................................................................................... 402
PE Ratio: Multiples Grow at Fastest Pace Since Dot-Com Bubble ................................................................................................................ 403
PE Ratio: CAPE currently stands at 23.6, higher than 90% of comparable readings since the 1870s. ................................................ 405
PE Ratio: PE's In Perspective ....................................................................................................................................................................... 407
PE Ratio: The Four Regimes of Equity Valuation ........................................................................................................................................... 408
PE Ratio: Since 2010, valuations have moved with Non-Investment grade (B) yields .................................................................................. 411
PE Ratio: PE's Are At Historically Elevated Levels ................................................................................................................................... 414
PE Ratio: Signs of Peek PE ............................................................................................................................................................................ 415

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PE Ratio: The Four Regimes of Equity Valuation ........................................................................................................................................... 416

PE Ratio: Since 2010, valuations have moved with Non-Investment grade (B) yields .................................................................................. 419
PE Ratio: Have Significant More Room To Compress .................................................................................................................................... 421
PE Ratio: Over Next Year Trailing PE to be Below Generational Norm. .................................................................................................. 423
MARGIN COMPRESSION - Situational Assessment ............................................................................................................................................ 426
Compression: Cost Push now Creating Margin Compression! ....................................................................................................................... 426
Margin Compression versus PE Compression ............................................................................................................................................ 427
S&P 500 PE Ratios ...................................................................................................................................................................................... 429
Big companies' P-E's shrivel to single digits ................................................................................................................................................ 429
Compression: Corporate Earnings - Signals of Margin Compression ........................................................................................................ 430
Margin Compression ...................................................................................................................................................................................... 432
Compression: Expect Further PE Compression: Margin Squeeze ................................................................................................................ 435
Compression: Shifting Secular Sands - Emerging Impediments to Global Earnings Growth Rates .............................................................. 437
Compression: Corporate Margins - 2013 Margin Expectations Not Credible ............................................................................................. 438
Compression: Profits Have Stalled. Has the Market? ..................................................................................................................................... 439
MARGIN & CREDIT ............................................................................................................................................................................................... 441
MARGIN DEBT - Rolling Over & Suggesting a Significant Correction Ahead ........................................................................................ 441
ROTATION-CREDIT CONTRACTION II ............................................................................................................................................................... 445
Credit Contraction - Bank Reserves A Ticking Bomb, But Who Will Be Caught in the Blast?................................................................. 445
Credit Contraction - Traders Reacting to the 1994 Pattern ......................................................................................................................... 448
Credit Contraction - Global Growth Clearly Slowing and near Contraction Without BRICS..................................................................... 450
Credit Contraction - Fundamentals Emerging as ERP is Changing ........................................................................................................... 451
Credit Contraction - Falling Real Disposable Income means Falling Consumption ................................................................................ 454
Credit Contraction - A Credit Squeeze Leads to a Deflationary Leg Down .............................................................................................. 457
Credit Contraction - Stunning Withdrawals from Emerging Markets ......................................................................................................... 458
Credit Contraction - Private Equity are Major Sellers of All Assets ............................................................................................................. 461
Credit Contraction - Asset Trends versus Bubbles ..................................................................................................................................... 463
EQUITY RISK PREMIUM ...................................................................................................................................................................................... 465
Equity Risk Premium: Yields Improved, Especially Against Stock Yields ................................................................................................ 465
Equity Risk Premium: The Incentive for the Anticipated "Great Rotation" ...................................................................................................... 466
BUYBACKS ............................................................................................................................................................................................................ 469
Buybacks: Going nowhere if it wasnt For BUYBACKS from Cheap Debt ...................................................................................................... 469
Buybacks: Buyback Achievers Index at 2007 Top .......................................................................................................................................... 471
INSUFFICENT WEALTH CREATION MEANS SHRINKING EQUITY GROWTH ................................................................................................ 472
Wealth - Debt Saturation Means there is Simply Insufficient Wealth Creation within Developed Nations ..................................................... 472
Wealth - The "TAPER" Scare before the 'OPMF' Storm ............................................................................................................................ 478
Wealth - Cash Flow and CAPEX ................................................................................................................................................................... 482
Wealth - Removing the Manipulation to See Real Enterprise Value Metrics ........................................................................................... 483
EARNINGS - Situational Assessment ................................................................................................................................................................... 486
Q1 EARNINGS Being Brought Down Dramatically ...................................................................................................................................... 486
RESEARCH WE FOLLOWED ..................................................................................................................................................................... 486
CHARTS OF NOTE ..................................................................................................................................................................................... 487
CHARTS Q1 Earnings Pre-Announcements ......................................................................................................................................... 487
CHARTS Q1 Earnings Taken Down Dramatically ................................................................................................................................. 487
CHARTS Q1 Earnings Already Taken Down By 5% since January ...................................................................................................... 488
CHARTS Positive & Negative Q1 Pre-Announcements ....................................................................................................................... 488
CHARTS Q1 Revenue Slippage in Last 60 Days ................................................................................................................................. 489
CHARTS Earnings Slippage in the last 60 Days Consumer Discretionary Plummeting! .................................................................. 489
RESEARCH OF NOTE ................................................................................................................................................................................ 490
Consumer Discretionary Sector Has Plunging Cuts to Earnings Estimates ........................................................................................... 490

TARGETS ................................................................................................................................................................................ 492

CONCLUSIONS....................................................................................................................................................................... 493
I- DEFINING CHARTS ........................................................................................................................................................................................... 493
Defining Chart #2 - Finding the Longer Term Super Cycle Pivot b .............................................................................................................. 493
Defining Chart #3 - The Big M and Super Cycle b ..................................................................................................................................... 495
Defining Chart #4 - Short Term Small M Top Turmoil .................................................................................................................................. 497
BANDING PROCESS .................................................................................................................................................................................. 500
OEX OPEN INTEREST (Put/Calls) .......................................................................................................................................................... 501
TRIN ......................................................................................................................................................................................................... 502
McClellan Oscillator .................................................................................................................................................................................. 503
II- TARGETS .......................................................................................................................................................................................................... 505
III - MONTHLY RISK & PATTERNS ...................................................................................................................................................................... 506
RISK ................................................................................................................................................................................................................. 506
PATTERNS ...................................................................................................................................................................................................... 510
IV STUDIES ........................................................................................................................................................................................................ 513
STRATEGIC MACRO INVESTMENT INSIGHTS Q2 2014 RETAIL CRE (RETAIL COMMERCIAL REAL ESTATE) ............................ 513
STRATEGIC MACRO INVESTMENT INSIGHTS - Q1 2014 - UKRAINE CONFLICT & ENERGY ............................................................... 515
STUDY: Q1 Earnings ....................................................................................................................................................................................... 518
STUDY: Q1 Valuations .................................................................................................................................................................................... 523
V - TRIGGER$ ZONES .......................................................................................................................................................................................... 525

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VI - DRIVER$ & BIA$ ............................................................................................................................................................................................. 526

VII- QUARTERLY KEY METRICS & ASSESSMENT UPDATE ......................................................................................................................... 527
A - LONG TERM: Fundamentals ..................................................................................................................................................................... 527
FUNDAMENTALS ........................................................................................................................................................................................ 529
B - INTERMEDIATE TERM: Risk .................................................................................................................................................................... 530
CANARIES-RISK ......................................................................................................................................................................................... 530
C - SHORT TERM: Sentiment ......................................................................................................................................................................... 532
VIII- GORD'S VIEWS & OPINIONS ....................................................................................................................................................................... 535
SENTIMENT & CONFIDENCE - NERVOUSNESS ........................................................................................................................................ 535
EARNINGS ...................................................................................................................................................................................................... 537
MARKET AT HISTORIC HIGHS ..................................................................................................................................................................... 539
The Intrinsic Enterprise Value ...................................................................................................................................................................... 544
Stock Valuations are based on a Discounted Free Cash flow. EBITDA is Cash flow. ............................................................................... 545
How Long Will Labor Tolerate this or Survive on Shrinking Disposable Income? ...................................................................................... 546
Have a Look at the Market Deflated by QE ................................................................................................................................................. 546

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