1. Liquidity cycle proxy is still in negative territory as is the global version which is a near duplicate.
Still no indication of any potential improvement in the Economic Research Institute weekly index of
leading indicators.
On the next page is the dollar based ranking of global equity indices. This has shuffled considerably
recently. But to give some color to the desirability going forward also included below is the FX ranking of
the bigger trading currencies. In general investing in equities of a strong currency based index is an aid
to results. Puts the wind at one’s back so to speak.

3. Sector performance over varying time periods is highly unpredictable except our stage 3 sectors are
doing better in both directions.Charts courtesy of FINVIZ.COM

4. This argues for continued poor overall equity performance until some change in policy in US fiscal,
European monetary and fiscal, or Chinese easing is signaled and believed. The one positive for equities
is the severe pessimism that has blossomed in the last month. A real disgust about the total lack of
political leadership in Western developed economies has formed since mid-summer and no new hero
has stepped in to the breach yet. Gartman quoted Liberal economist and a formerly strong Obama
supporter’s recent comment:
We're almost three years into this administration, and there's never been a plan.
And that's what everybody feels. And the president didn't lead. He waited. The
quintessential image, sadly, of an administration that I supported and hoped for
much better, is the president waiting by the phone to hear what Congress calls to tell him.

5. It doesn't work in this country that way. It's not a matter that it's August. It's a matter that
it's August 2011. So we've been drifting for a very long time. And we've been drifting down.
And we had a short-term plan that failed. A short-term stimulus that was supposed to get
the economy back on track, but it failed. And now we have nothing behind it. And we have
no agreements, and we have no leadership.
And, frankly, I do think it's pretty odd the president's on vacation right now. Normally I
wouldn't care about such things, but the world markets are in deep crisis. It's no joke.
This isn't just an up-and-down little blip. This is a very serious situation."
European citizens cannot be feeling any better served by the effete elite holding important positions in
European financial circles. The equity markets need a source of optimism before this dismal trend can be
reversed.
Commodity performance 1 monthsource FINVIZ

6. Expectations on Obama speech from CB
Expectations:
$200-300B tax cuts and spending increases
Extension of one year, 2% reduction in payroll withholding taxes
Extension of emergency unemployment benefits
Less is bad, as the above measures would, according to JPM’s Michael Feroli, offset nearly all of the
expected 1.5% drag on 2012 GDP from budget cuts. (But good for the USD)
More is good, as this might tip short-term fiscal policy from a drag or neutral to actually positive for
growth. (But bad for the USD)
Speech guesses are still being leaked like crazy indicating the administration is still writing the policy and
looking for positive responses. Still looks like leading by following to me. Bruce
Interesting Data on the size of the Euro debt problems
Quantifying the Amount of Questionable Eurozone Debt and the Outlook
Accumulated current account deficits (again assuming FDI inflows are small) would approximate the
borrowing by a debtor economy from foreign creditors. The accumulated current account deficit of PIG is
~€700 billion. As noted above, the interbank part of the debt would have already surfaced under the €457
billion of NCB intra-eurozone claims. The rest, ~€300 billion, would mostly be in direct bank loans to PIG
borrowers still on the books of creditor banks. Residual holdings of PIG bonds by German and French banks
are small.
The time bomb now ticking for creditor banks is the €800 billion (accumulated current account deficit) loaned
to Spain. Given the low level of Spanish public sector debt, we can assume that the majority was in the form of
loans to private entities and banks in Spain. Italy has an accumulated current account deficit of ~€350 billion,
or <30% of its GDP and, thus, a much smaller debt issue. The savings rate of Italians has been high enough to
fund most of the economy’s borrowing needs, including that of its public sector.
Total debts owed by PIIGS to foreign creditors is thus ~€1,450 billion. Actual NPL are a fraction of this sum,
large enough to cause trouble for individual banks in Germany or France, but not the whole eurozone system,
which has an aggregate GDP of over €10,000 billion. The ABS crisis of 2008, US$4 trillion in size, was a far
scarier story.
Source of this data is GSI
Sept 7, 2011
Bruce Lawrence