JP Conklin 704-887-9880 office jp.conklin@pensfordfinancial.com www.pensfordfinancial.

com Leveling the Playing Field February 25, 2013 _______________________________________________________________________ I speak with my grandparents every weekend and my grandmother reads this newsletter every week to help double my total readership. This weekend she said Your Pap and I thought of you yesterday. Did you hear about that guy that slapped the 18 month old baby on the plane Wait, Gram, why did slapping a baby make you think of me? Oh, because of that newsletter from a while back where the baby was kicking your seat. Have I mentioned how highly my family thinks of me This is going to be an incredibly hectic week. Rates are firmly entrenched in their respective ranges, but there are a lot of events this week that could cause a break higher or lower. The very full calendar is included, as always, as the last page on the newsletter, but here are the super-uber biggies (thats a very technical trading term, look it up): Tue/Wed Bernankes semi-annual Humphrey-Hawkins Testimony Friday Sequester fully kicks in The sequestration is finally upon us and a last second deal seems highly unlikely last week, Obama and Boehner both reiterated their willingness to roll through Fridays deadline. The automatic cuts translate into $1.2T over the next ten years. This year, the impact will be $42B in federal spending and a loss of about 400k jobs, but keep in mind some of these job cuts will be furloughs for civilian contractors and not actual layoffs. And some may even be Obama yes-men. Economists we trust expect the actual full time job losses to ultimately end up around 300k spread out over the year. Most government jobs have a 30 day notice period, so heres how BNPs economist expects the job losses to show up: March: 35k losses April: 70k losses May: 40k losses June and thereafter: 15k losses/month

Keep in mind these arent the forecasted totals, but the drag on the overall gain. So if March is expected to show a gain of 185k jobs, now the forecast might call for a gain of 150k jobs instead. Most forecasts expect the impact of the Jan 1 tax expiry and sequestration to lower GDP in 2013 from about 3.2% to 2.0%. This matters little to the Equitypalooza festival, which couldnt care less about underlying fundamentals. But there may be reason for caution. Heres an interesting graph from Barclays, which shows the correlation between gas prices at $3.80 and an S&P correction. Any slowing of economic growth that stems from higher gas prices may prevent companies from meeting earnings projections; whereas sustained expansion would increase the risk of inflation and put pressure on the Fed to scale back its QE4EVA. Rock meet hard place. (QE4EVA is so much cooler than QEternity. DANGIT!!! WHY DIDNT I THINK OF THAT?)

LIBOR Outlook Anchored near zero, whether through manipulation or otherwise. A few banks tried to exit the voluntary survey two weeks ago (BNP and Rabo), only to be encouraged to remain by the FSA, the UKs financial regulator. Banks apparently want to exit because they have no upside to participating now that increased attention prevents them from manipulating it to their benefit. Fixed Rate Outlook We spoke with several traders last week regarding the 10yr. The general theme seems to be that the 10yr Treasury is stuck in a range of 1.92% - 2.06% for the time being. One hedge fund trader said I think the hysteria over sequestration is really beyond idioticwere talking about $85B in cuts when we just authorized an additional $60B in Sandy relief. This probably means other traders have similar views and perhaps the outcome of the sequestration deadline isnt as big of a deal as the WSJ would lead us to believe at least as it relates to the immediate impact on markets. Below is last weeks Bloomberg survey of 60 economists of the 10yr Treasury forecast.

10 Year Note # of Replies Median Average High Forecast Low Forecast

4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 1Q 2013

2013 2014 1Q 2013 2Q 2013 3Q 2013 4Q 2013 1Q 2014 2Q 2014 3Q 2014 66 66 65 65 58 54 51 1.90% 2.00% 2.20% 2.25% 2.50% 2.62% 2.79% 1.93% 2.04% 2.18% 2.32% 2.51% 2.67% 2.83% 2.25% 2.78% 3.56% 4.11% 4.23% 4.38% 4.43% 1.60% 1.60% 1.60% 1.50% 1.98% 1.98% 2.04%

Median
Av erage

High Forecast Low Forecast

2Q 2013

3Q 2013

4Q 2013

1Q 2014

2Q 2014

3Q 2014

This Week This is a big week and markets will be choppy. We have several clients receiving daily updates to stay on top of movements, so please dont hesitate to contact us to check pricing. In addition to the key items mentioned on the first page, there are Treasury auctions beginning Tuesday and Fridays Personal Income should capture the expiration of the payroll tax. This may also show up in Tuesdays Consumer Confidence as well. As for his Humphrey-Hawkins testimony, I actually feel bad for Bernanke. What else can this guy do? Zero percent interest rates for more than 4 years and with no end in sight. QE4EVA. And he has to sit in front of a bunch of inept politicians and answer questions about the economy? I would give anything for Bernanke to stand up during his testimony, rip the mic from the stand, summon his inner Apollo Creed and yell THERE IS NO TOMORROW! before dropping the mic on the ground and storming out of the hearing.

Generally, this material is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Your receipt of this material does not create a client relationship with us and we are not acting as fiduciary or advisory capacity to you by providing the information herein. All market prices, data and other information are not warranted as to completeness or accuracy and are subject to change without notice. This material may contain information that is privileged, confidential, legally privileged, and/or exempt from disclosure under applicable law. Though the information herein may discuss certain legal and tax aspects of financial instruments, Pensford Financial Group, LLC does not provide legal or tax advice. The contents herein are the copyright material of Pensford Financial Group, LLC and shall not be copied, reproduced, or redistributed without the express written permission of Pensford Financial Group, LLC.

Economic Calendar
Economic Data Day Monday Time 8:30AM 10:30AM Tuesday 9:00AM 9:00AM 10:00AM 10:00AM 10:00AM Wednesday 7:00AM 8:30AM 8:30AM 10:00AM 10:00AM Thursday 8:30AM 8:30AM 8:30AM 8:30AM 9:45AM 11:00AM Friday 8:30AM 8:30AM 9:55AM 10:00AM 10:00AM 10:00AM 5:00PM 5:00PM Report Chicago Fed Nat Activity Index Dallas Fed Manufacturing Activity Case-Shiller 20-city Index House Price Index (MoM) Richmond Fed Manufacturing Index Consumer Confidence New Home Sales (MoM) MBA Mortgage Applications Durable Goods Orders Durables ex Transportation Pending Home Sales (MoM) Pending Home Sales (YoY) Initial Jobless Claims Continuing Claims GDP (QoQ) Personal Consumption Chicago Purchasing Manager Kansas City Fed Manufacturing Activity Personal Income Personal Spending Consumer Sentiment Construction Spending (MoM) ISM Manufacturing ISM Prices Paid Total Vehicle Sales Domestic Vehicle Sales -2.4% 0.2% 76.3 0.4% 52.5 57.3 15.10mm 12.00mm -4.6% 0.2% 1.6% 7.4% 360k 3140k 0.5% 2.3% 54.1 3.0 6.60% 0.6% -3 62.0 3.0% Forecast Previous 0.02 5.5 5.52% 0.6% -12 58.6 -7.3% -1.7% 4.6% 1.3% -4.3% 4.9% 362k 3148k -0.1% 2.2% 55.6 -2 2.6% 0.2% 76.3 0.9% 53.1 56.5 15.23mm 12.08mm

Speeches and Events Day Monday Tuesday Wednesday Time 7:00PM 10:00AM 10:00AM 4:30PM Thursday Friday 8:00PM 10:00PM Report Fed's Lockhart speaks on Economy Fed's Bernanke testifies at Senate Banking Committee Fed's Bernanke testifies to House Financial Services Committee Fed's Fisher speaks on Economy and Monetary Policy Fed's Evans speaks Fed's Bernanke speaks on Low Long-term Interest Rates New York, NY Des Moines, IA Place Knoxville, TN

Treasury Auctions Day Monday Tuesday Wednesday Time 1:00PM 1:00PM 1:00PM 2-year Treasury 5-year Treasury 7-year Treasury Report Size $35B $35B $29B