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

com Leveling the Playing Field February 6, 2012 _______________________________________________________________________ I am back in SoCal this week, having booked the trip months ago and failing to realize the flight was at the exact same time as the kickoff for the Super Bowl. So I showed up at the airport at 6am Sunday morning to fly standby on a 7:50am flight so I can watch the game tonight. Leadpipe Lock Predictions for the Game Most overrated commercials Budweiser, who alternates between sentimentally mushy commercials (dogs and Clydesdales, anyone?) and blatant slapstick (someone will run into a wall and get bounced back and we will force a laugh). Pepsi must use the same ad agency. Minutes Ill Watch of the Halftime Show 0. Hey Madonna, my 11 year old daughter has never heard of you. Bet that hurts. Over/Under on # of times Victor Cruz and obscurity will be used in a sentence: 17 Commercials involving Peyton Manning 4 Commercials involving Eli Manning 0 Combined references to Gronks hand size and ankle: 11 Whiny Temper Tantrums thrown by Brady: 3 References to Pats OC OBrien Splitting Duty with PSU HC Recruiting Responsibilities: 1 (although it should be zero because based on our recruiting class, he didnt spend a moment on the trail) Game: Ive been riding the Giants all playoffs, calling for them to win each week. But the buck stops here. Too many people are predicting the Giants. Brady and Belicheck clearly have a pact with the devil. Revenge. The Giants won 9 games this year, the Pats 13 (yes, I know none of those were against a winning team). Tight game. Eli drives to take the lead late in the 4th quarter, but then Mr. Bunchden throws 44 consecutive 2 yard completions to Wes Welker before throwing a slant to Gronk (did you know hes redefining the tight end position?) who will plant hard off his healthy ankle and the media

will play it up as a tribute to Belichecks coaching genius to have him cut left instead of right to account for the injury. Pats: 28 Gmen: 24 Fridays headline jobs number showed a gain of 243k jobs last month and a three year low unemployment rate of 8.3%. Rates ticked up a bit but stocks really rallied, 2% on the day for the DJIA. The private sector accounted for all of the gains while the public sector shed another 14k jobs. Manufacturing hiring was the strongest in 12 months. The participation rate dropped to 63.7%, the lowest in 30 years. The employment-to-population rate held steady at 58.5%. But with 43.9 percent of the unemployed (5.5 million people) out of work for 27 weeks or more, we still have a long way to go. Seven million more, in fact, to get back to 2007 totals before even adjusting for population growth. The Bureau of Labor Statistics (BLS) revises its data in January of each year and so the ability to manipulate this report is higher than usual. If it had used the average adjustment from the last three years, Fridays gain would have been + 132k, not +243k. That isnt to suggest Fridays reports were intentionally misleading or that Obamas planned speech 30 seconds after the release should be interpreted as a conspiracybut stocks up 2% on a number that was manufactured by a BLS adjustment feels overdone. On Tuesday, the S&P warned it may downgrade a number of highly rated G20 countries. If you havent caught on by now, that means the S&P WILL downgrade a number of highly rated G20 countries. Portugals CDS hit an all-time higher while its 5 year yield hit a euro-era record of 22.69%. Great returns if you can get your money back! Conference Board Consumer Sentiment number that came out on Monday dropped precipitously, falling to 61.1 from 64.8 (revised up from 64.5), suggesting that individuals are still experiencing mixed results in their own economic situations and that labor market woes continue to be a drag on confidence. Greg Weldons graph below suggests there has been little growth in disposable income for five years, which probably also contributes to the overall pessimism.

FOMC Rate Forecasts aka Summary of Economic Projections (SEP) Greek Default Imminent? In a word, yes. Greece is scrambling to get the Troika to disperse the second round of bailout funds (just 130 billion) ahead of the March 20th payments it owes on 14.5 billion government bonds. One pesky condition of this bailout is substantial labor reform, such as a cut of the 750/month minimum wage and various job cuts, eliminating holiday bonuses. Additionally, dramatic cuts in defense spending (400 million) and pharmaceutical spending (1 billion) are required. Greek labor costs have risen 30% more than German labor costs, so it is time for Greece to cut wages. Or exit the euro. Why the talk now of default if the real deadline is March 20th? Because it takes 6 weeks to finalize the bailout package. As Reuters reports, "The possibility of a sovereign default by Greece cannot be ruled out, Jean-Claude Juncker, head of the Eurogroup of finance ministers from the single currency zone, said in a German magazine on Saturday."

Juncker continues, "If we were to establish that everything has gone wrong in Greece, there would be no new programme, and that would mean that in March they have to declare bankruptcy. Lehman was just one bank and when it went under no one realized the systemic danger that existed. Ultimately, $30 trillion in bailout/backstops was required to avoid a global financial depression. It would be too convenient to suggest the diminutive size of the Greek economy cant lead to another meltdown. Lehman was just a few years ago and for that reason, we strongly believe a resolution will be reached. The wounds are too fresh for anyone to call bluff. We would expect increased rhetoric in the media to focus attention on Greeces unwillingness to meet conditions of the bailout, but ultimately some type of deal will be reached.

LIBOR Outlook More boring than that one commercial well all be forgetting about tomorrow.

Fixed Rate Outlook Short and intermediate rates should have a lid on them, anchored by 0% FF and minimal inflation. Longer term rates like 10yrs and 30yrs could be in for a volatile year. Real rates are negative, but while the Eurocrisis hovers, US Treasurys remain the worlds mattress. Resolve that crisis and we could see a dramatic move higher.

This Week Relatively light week for economic data, but there are the usual Treasury auctions. More importantly are the slew of Fed speeches, which should reinforce the statement from the most recent FOMC meeting and could shed some light on when QE3 will be unveiled. Fridays strong labor data may push back the timeframe for QE3, but Helicopter Ben is still likely to push forward in the near future. Look at this graph below from Bloomberg that shows what happened to personal income even with the government intervening with trillions in stimulus. Imagine how much worse it would have been without the Feds monetary accommodation. The trade-off is a huge federal deficit, but do you think Bernanke wants to risk a decline in personal incomeduring an election year?

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ECONOMIC CALENDAR
Economic Data Day Monday Tuesday 10:00AM 10:00AM 3:00PM Wednesday Thursday 7:00AM 8:30AM 8:30AM 10:00PM Friday 8:30AM 9:55AM 2:00PM IBD/TIPP Economic Optimism JOLTs Job Openings Consumer Credit MBA Mortgage Applications Initial Jobless Claims Continuing Claims Wholesale Inventories Trade Balance U. of Michigan Confidence Monthly Budget Statement 370k 3488k 0.5% -$48.5B 74.0 -$45.0B $7.000B 47.1 47.5 3161 $20.374B -2.9% 367k 3437k 0.1% -$47.8B 75.0 -$49.8B Time Report Forecast Previous

Speeches and Events Day Monday Time 8:55AM 12:15PM Tuesday Wednesday Friday 10:00AM 10:40AM 12:30PM 12:50PM Report Fed's Bullard speaks on Inflation Targeting Fed's Fisher speaks on Economy Fed's Bernanke testifies to Senate Budget Committee Fed's Williams speaks Fed's Bernanke speaks on Housing Fed's Pianalto speaks on Housing Ramon, CA Orlando, FL Cleveland, OH Place Chicago, IL Washington, DC

Treasury Auctions Day Tuesday Wednesday Thursday Closing 1:00PM 1:00PM 1:00PM 3 year Treasury 10 year Treasury 30 year Treasury Issues Size $32B $24B $16B