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4 Material Evidence by Sean Corrigan 7th October 2011 Please see accompanying risk & legal disclaimer

German Factory Orders8mma: 1990-to date

US NAPM New Orders3mma: 1948-td

HistogramofNAPMNewordersreadings 50,6monthsafterfirst3mmacontraction

0

1

2

3

4

15.0

13.5

12.0

10.5

9.0

7.5

6.0

4.5

3.0

1.5

0.0

1.5

3.0

4.5

6.0

More

NAPM50,next6months average

Frequency

17instanceswerenegativewithmedianvalue

3.3;8positiveswithmedian=3.0.Overall

median= 2.8

GermanRealM1vBusinessRevenuest+12,YOYof3mma

7.5

0.0

7.5

15.0

22.5

Jan91

Jan93

Jan95

Jan97

Jan99

Jan01

Jan03

Jan05

Jan07

Jan09

Jan11

25.0

15.0

5.0

5.0

15.0

25.0

GermanrM1(lhs)

GERBizRev(rhs)

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6 Material Evidence by Sean Corrigan 7th October 2011 Please see accompanying risk & legal disclaimer

Grossglobalsecurityissuance(blns)[source:ThomsonReuters]

$3,00

$5,50

$8,00

$10,5

$13,0

2002

2003

2004

2005

2006

2007

2008

2009

2010

QIann

QIIann

QIIIann

SyndLoans

Equity

EM

Junk

Allotherdebt

MarketpricedEarningsYieldless realisedROE (inverted)and capitalreturns:a2730yearcycle?

2.0

0.0

2.0

4.0

6.0

8.0

Dec52

Dec57

Dec62

Dec67

Dec72

Dec77

Dec82

Dec87

Dec92

Dec97

Dec02

Dec07

0.5

2.5

4.5

6.5

8.5

10.5

EYROE(lhs)

3yrCPI CAR%(rhs,invtd)

377%,10.8%CAR

5.6%, 0.5%CAR

1033%,14.4%CAR

39%, 4.5%CAR

FasterCPIassociatedwith

equitymultipleshrinkage

AltmanZScoreforAggregateUSNonfinancialCorporationsviaNIPA,FOF&MfgTradesales

1.50

2.50

3.50

4.50

Mar52

Mar60

Mar68

Mar76

Mar84

Mar92

Mar00

Mar08

ZScore

Danger

Safety

Duke U/CFOMag

Survey

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7 Material Evidence by Sean Corrigan 7th October 2011 Please see accompanying risk & legal disclaimer

recordlowmutualfundliquidassetholdingswhich

prevailedontheeveoftheselloff)begantodissipate.

Allwewillsayisthatrevenuegrowthappearstohavecometoahaltandthat,absentmuchtoplinegrowth,

thoseelevatedmarginlevelswillhavetosustainedsim

plyinordertostandstill.Wehaveseenthatthisispre

ciselywhatisworryingtheboardroom,leadingtothe

drasticdownwardrevisionofearningsprospectsseen

overthepage.

Secondly,balancesheetsarestillnonetoohealthyintheaggregate,withouroverallestimateoftheUSnon

financialZscorebarelymovedfromitssecularlows.

Worse,withcapitalmarketseffectivelyshutthesepast

fewmonths,thescopeforboostingpresentreturnson

equityattheexpenseofapotentialimpairmentoffuture

returnsoncapitalcanonlyhaveshrunk.

Thirdly,theplaintruthisthatprice/bookratios(andnet

worthingeneral)arebeingflatteredbytheinclusionof

someverypricyrealestateamongtheassetsasitua

tionwhichmaybeliesomeofthatpropertysproductive

utility,muchlessitsrealisableworth.

Fourthly,themispricingwhichhasbeenpartlydueto

thereckless

suppression

of

bond

yields

around

the

globehaspushedP/Estothepointwhererealizedre

turnsonequitylieanomalouslybelowtrailingearnings

yields.Thisissomethingwhichhashistoricallybeen

followedbyalongstretchofsubparreturns,andwhich

hastypicallyrequiredfallsintherateofpriceinflation

tosustainitaconditionwhosefulfilmentmustbe

mootindeed,givenwhatourfriendsatthecentral

banksandfinanceministriesseeasthesolutiontoallourwoes.

DCI/SPX(bl)vMSCI

EMvWorld(o)

USNonFinCorporatesPricetoBook

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

Mar52

Mar57

Mar62

Mar6

7

Mar7

2

Mar7

7

Mar82

Mar87

Mar92

Mar9

7

Mar0

2

Mar0

7

1.0

1.5

4.0

6.5

9.0

11.5

14.0

P/BwithRE@book

P/BwithRE@rep cost

CPI (rhs,invtd)

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9 Material Evidence by Sean Corrigan 7th October 2011 Please see accompanying risk & legal disclaimer

S&P500 x USD Nominal TWI: 1965-to date

Ever since the LTCM/Russia Crisis, the market has undergone

a series of similar-scale oscillations within the overall, post-

1994 Bubble Era range.

A third decline of c.50% (effectively another 40% from here)

would effect the classic 80-90% retracement of that Bubble

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