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

com Leveling the Playing Field May 7, 2012 _______________________________________________________________________ Congrats to Rickie Fowler for winning the Quail Hollow Charlotte Bank That Shall Not Be Named Championship. He also was one of about a dozen golfers to sign my sons ball cap and his bright colors have made him my sons favorite golfer. Fridays job data was a little disappointing, coming in at a gain of just 115k jobs. As you may recall, forecasts had been revised lower to 165k while the two economists we trust the most called for 125k. This means we are basically treading water, just keeping pace with population growth. This report likely included some payback from the strong winter reports (from warm weather), and next months report will probably have some of this effect as well. The real impact of this seasonality will likely weigh heavily on the need for additional QE. The unemployment rate dropped to 8.1% (does a 7 handle get Obama reelected?), but the participation rate dropped another 0.2%, pushing it to the lowest levels since 1981. Policymakers must be concerned that this sidelining of resources is becoming permanent and that it comes in the face of unprecedented accommodation.

Quantitative Easing Weve said all along we expect Helicopter Ben to initiate QE3, and probably when it provides maximum political benefit. But in last weeks newsletter we finally conceded that maybe, just maybe, Bernankes silence on the topic actually means there are no current plans for additional QE. The primary driver for this decision is likely to be job growth if the recent slowdown turns out to be seasonal, maybe the Fed really does allow Operation Twist to expire with no replacement program. If job growth continues to reveal weakness, however, the Fed will have to look past the declining unemployment rate and initiate additional easing to help keep stocks up and make us feel all warm and fuzzy about the governmental backstop. Well get Mays job reports before the next FOMC meeting. Do you think those will carry some weight?

Random Thought Remember that pesky debt ceiling debate last year when Congress simply increased its own spending limit to $16.39 trillion? Well, the current US debt is approximately $15.65 trillion and we are on pace to hit that ceiling (again) around the beginning of Septemberjust in time for the elections.

LIBOR Outlook Chicago Fed President Evans: I'd like nothing more than to raise rates before 2014 on the back of a stronger economy.

Fixed Rate Outlook The Treasury is likely to start auctioning floating rate debt for the first time ever. This would be the first change to the arsenal of debt that the Treasury offers in over 15 years. This debt is likely to be short term in nature, likely two years and less. This floating rate debt will partially take the place of Treasury Bills. Treasury Bills are auctioned nearly every week and require that the Treasury constantly come to the market on a near weekly basis. By offering floating rate debt for a maturity of 2 years, the Treasury wont have to come to the market as often. While there is not a shortage of buyers of US debt, coming to market less often is seen as a good thing in the light of recent weak Spain and Italy debt auctions. The Treasury considered issuing floating rate debt in the 1990s, but decided against it. Of note, the Treasury has extended their duration of outstanding bonds from 4 years in 2008 to slightly over 5 years now. The longer duration profile has occurred as the Treasury has focused on locking in the historical low fixed rates. To reiterate from last week: what if the Fed really allows Operation Twist to expire and doesnt replace it with any additional quantitative easing? We could be in store for a 0.25% - 0.50% jump in Treasury yields in the near future.

This Week Very light week for economic data, but quite a few Fed speeches. Bernankes testimony on Thursday shouldnt be a market mover since its on banking regulation. Most of the other Fed speakers are hawkish and could create some confusion since Bernanke has been so quiet on the QE front.

Some Fed quotes from last week that explain why Fed-speak may be complicating matters: Fed on Europe Williams: If Europe goes into severe recession it could require Fed to do QE3 Lockhart: US banks have cut exposure to Europe dramatically Fed on QE3 Williams: QE3 may be needed if unemployment rate is stuck Lacker: hard to back more stimulus absent dramatic deterioration Lockhart: wouldnt rule out new round of QE Lockhart: reticent to pull the trigger on any new Fed action

Id make fun of Sarkozy for bowing out of the French presidential race if retiring to spend more time with Carla Bruni didnt sound so appealing.

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 Tuesday Time 3:00PM 7:30AM 10:00AM 10:00AM Wednesday 7:00AM 10:00AM Thursday 8:30AM 8:30AM 8:30AM 8:30AM 8:30AM 2:00PM Friday 8:30AM 8:30AM 8:30AM 8:30AM 9:55AM Consumer Credit NFIB Small Business Optimism IBD/TIPP Economic Optimism JOLTs Job Openings MBA Mortgage Applications Wholesale Inventories Initial Jobless Claims Continuing Claims Import Price Index (MoM) Import Price Index (YoY) Trade Balance Monthly Budget Statement Producer Price Index (MoM) Producer Price Index (YoY) PPI Core (MoM) PPI Core (YoY) U. of Michigan Confidence 0.6% 370k 3273k -0.2% 0.8% -$49.9B $30.0B 0.0% 2.1% 0.2% 2.8% 76.0 Report Forecast $9.500B 93.0 48.0 Previous $8.735B 92.5 49.3 3498 0.1% 0.9% 365k 3276k 1.3% 3.4% -$46.0B -$40.4B 0.0% 2.8% 0.3% 2.9% 76.4

Speeches and Events Day Monday Tuesday Time 7:15PM 9:45AM 9:45AM 12:45PM Wednesday 10:00AM 10:45AM 12:00PM Thursday 9:30AM 1:20PM Friday 9:15AM Fed's Lacker speaks Richmond Fed Leaders meet with Community College Students Fed's Lacker meets with Community College Students Fed's Fisher speaks on Panel Fed's Kocherlakota speaks on Monetary Policy Fed's Pianalto speaks on Leadership Fed's Plosser speaks on Community Development Fed's Bernanke speaks on Bank Capital Fed's Kocherlakota speaks on Monetary Policy Fed's Fisher speaks on Too-Big-To-Fail Report Place Greensboro, NC Greensboro, NC Greensboro, NC Dallas, TX Minneapolis, MN Lexington, KY Philadelphia, PA Chicago, IL Minneapolis, MN Fort Worth, TX

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