JP Conklin 704-887-9880 office jp.conklin@pensfordfinancial.com www.pensfordfinancial.com Leveling the Playing Field November 5, 2012 _______________________________________________________________________ Election time!

Intrade has Obama as a 2-1 favorite and we wouldnt be surprised to see the popular vote go to Romney and the Electoral College going to Obama. In either scenario, what is the over/under on number of days after Tuesday before a final winner is declared in the presidential election?

Obama decided to have the NFP show a gain of 171k jobs in the final report before elections, although the unemployment rate did tick up slightly to 7.9% because more pesky unemployed people returned to job seeking activities.

Typically, a strong NFP print would translate into bond sell off and stock rally, but not Friday. This is likely attributable to reluctance to take a position ahead of the elections (near term) and the fiscal cliff deadline (longer-term). The economy is showing signs of resiliency. While the numbers arent fantastic (well address that the below), it should be noted that we are doing much better than a few years ago. Heres the average monthly job gain/loss since 2007: 2007: + 92k 2008: - 300k 2009: - 422k 2010: + 86k 2011: + 153k 2012: + 157k

Pros: Construction gained 17k jobs, the best since January. Manufacturing added 13k jobs after two straight months of losses. And even the increase in the UR can be interpreted as positive because people are optimistic enough to begin looking for work again. The

economy needs to add about 125k jobs per month just to keep pace with population growth, so were closing in on two consecutive years north of that Mendoza line. Cons: Average hourly earnings were flat and the annualized rate is at an all-time low. Wage gains are at a mere 1.6%. These translate directly into consumer purchasing power, which drives 2/3rds of GDP. Two other interesting tidbits from some of our favorite sources are below. 1. Graph courtesy of Mish Shedlock illustrating how hours worked have shifted from full time to part time over the last six years.

2. From ZeroHedge: those in the 55-69 age group have gained nearly 4 million jobs under President Obama, everyone else has lost just over 2.5 million

Unrelated to the jobs report, a disturbing signal from a respected Goldman Sachs leading indicator, the GSAI: The GSAI tumbled 11.2 points to 32.9 in October from 44.1 in September. This is the lowest level since the end of the 2008-09 recession, and the underlying components fell broadly as well. The sharp deterioration in the headline and underlying components seems consistent with the predominantly negative sentiment from disappointing Q3 earnings (especially on the revenue side) thus far. Compared to other business surveys such as the Philadelphia Fed and the Chicago PMI, the GSAI sends a more pessimistic bottom-up message and suggests downside risks to ISM.

This is a much more pessimistic message than from the government-run business surveys like the Philly Fed or Chicago PMI and it suggests real economic activity is at its lowest since the start of the recession.

Now that Ive rained on your NFP parade, you probably want to know what our predictions are. So what happens this week and the subsequent 7 weeks to close out the year? Here are 10 quasi-bold calls that are based on nothing other than gut feeling: 1. Obama wins. Its going to happen, get over it. 2. Republicans will retain control of the House. 3. Democrats will retain a very slight majority in the Senate. Note to future political wannabes do NOT call rape Gods will or ever refer to it as legitimate rape. If you are stupid enough to say something like this out loud, you are stupid enough to believe it. And you dont get to represent us unless its on Are You Smarter Than a 5th Grader just so we can watch you lose. 4. Michael Vick will win the NFL MVP 5. Obama will win by enough that Republicans cant rationally demand a recount. This wont stop all of them, though. Probably the same guys from #3. 6. The fiscal cliff resolution will immediately become the main focus for both Congress and the markets. 7. Hurricane Sandy will serve as a catalyst for politicians to quickly reach some sort of resolution. Losses are reportedly north of $50B and undoubtedly will climb further. If we assume a politicians first goal is to take care of self above all else to ensure re-election, then it seems unlikely anyone wants to put the nation at risk in the midst of a natural disaster. 8. Helicopter Ben will continue long end purchases of bonds and MBS into 2013. 9. I was just kidding about #4 10. Europe will avoid the complete meltdown because the troika will intervene at any cost, but the underlying issues will create a euro-drag (not the kind Eddie Murphy likes) through Joe Bidens first term.

LIBOR Outlook Usually ticks up slightly towards year end as banks hoard cash.

Fixed Rate Outlook The lid is on long term rates for the time being, but as the meltdown risk dissipates, the 10yr Treasury is likely to climb. This Week Very quiet week outside deciding the leader of the most indebted nation in the world. Whoever you vote for, just get out and vote.

Economic Calendar
Economic Data Day Monday Tuesday Wednesday Time 10:00AM 10:00AM 7:00AM 3:00PM Thursday 8:30AM 8:30AM 8:30AM Friday 8:30AM 8:30AM 9:55AM 10:00AM November 12 Report ISM Non-manufacturing Composite JOLTs Job Openings MBA Mortgage Applications Consumer Credit Initial Jobless Claims Continuing Claims Trade Balance Import Price Index (MoM) Import Price Index (YoY) U. of Michigan Confidence Wholesale Inventories Markets Closed for Veteran's Day $10.250B 370k 3260k -$45.0B 0.0% -0.4% 82.9 0.4% Forecast 54.5 Previous 55.1 3561k -4.8% $18.123B 363k 3263k -$44.2B 1.1% -0.6% 82.6 0.5%

Speeches and Events Day Monday Thursday 8:00PM Time Report G20 Finance Ministers and Central Bankers meet Fed's Bullard speaks on Economy Place Mexico St. Louis, MO

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

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