January 12, 2015

Awkward Beginnings

2015 issue 1
With all due respect

What a way to start the year. The crash in oil prices is no small matter. The previous down sweep in energy prices occurred in the midst of the financial crash
0f 2008 and Great Recession. Oil prices soon reversed afterwards and climbed back to dizzying heights, even as world economic and financial recovery
remained fragile. This time it would be foolish to bet solely on such a similarly quick snapback. The current bear market for oil may actually be the beginning of
a longer and extended period of low commodity prices. First, the price of oil at $100/bl or above had been an absurdity. Second, many nations simply cannot
afford to curtail pumping oil, even at a loss in the short run. Third, global growth is proving to be woefully inadequate and uncertain. Even as growth in the U.S.
economy is becoming more firmly entrenched, the rest of the major economic engines remain mired, as we have argued for some time, in subpar growth
trajectories. The Euro area may be facing another soft patch and remains entangled in both economic and geopolitical crises. The recovery in Japan has
been slower than expected. And China continues to grow well below its previous super- track; and it obviously faces headwinds from a volatile real estate
sector, awkward debt buildups and massive stockpiles of high-priced commodities. Fourth, the shale gas revolution has transformed Americas energy
markets, with profound effects for economic growth, competitiveness, security, and environmental quality. And the extensiveness of the oil rush in America is
also playing a big role in pushing the adjustment on prices. Naturally, the new weakness in commodity prices will bolster the economies of some countries, but
clearly damage others. The strength of the U.S. dollar in the face of a stronger U.S. economy and shift in Fed policy this year, combined with the sharp drop in
commodities could expose severe underlying vulnerabilities in situations with significant currency mismatches. The effects of exchange rate movements for the
developing world may also become more marked if the duration of the upward climb of the U.S. dollar becomes extended even more. The various
repercussions will be extensive; this extremely tense business picture will be detailed herein in 2015. Stay tune

OPECleadervowsnottocutoil
outputevenifpricehits$20
BrentoilhitsnewlowasOPEC
pricewardeepensslump

US Oil Rigs are Shutting Down

Oil prices crash amid concerns over

oversupply and weakening demand for crude

U.S. economy posts fastest growth in

more than a decade
U.S. Posts Best Job Growth Since
99 U.S. employers added to payrolls at
a solid pace last month, a sign of steady
momentum for the labor market after the
strongest year of job growth in 15 years. The
unemployment rate fell to 5.6%

ABRAHAM GULKOWITZ
abe@gulkowitz.com
917-402-9039

T
r
T
f
s
w

The cost of insuring Russian bonds against

default rose to the highest levels in many
years on concerns that the collapse in oil and
commodity prices will damage the economy
and its finances

China is stepping up its role as the lender

of last resort to some of the worlds most
rogue and financially strapped countries.
China:asurveyindexforbusiness
expectationsfortheyearaheaddipped
toitslowestreadingsinceAugust2014.

Deflation is Stalking the Euro Area

The ECB will defy Germany in launching QE
Attack Reflects 'Dangerous Moment' for Europe...
Brinkmanship of Greek Crisis Returns

Greece exit fears rise after failed vote

Greek lawmakers have failed to elect a new president in a

final round of voting. As Sonia Legg reports it leaves the
country facing a January 25th election that could derail
the international bailout program it needs to keep paying
its bills. For the first time since the foundation of the
modern Greek state nearly 200 years ago, radical leftists
marginalized, tortured and tormented for the best part of
the 20th century were on course to assume power.

The ECB Governing Council on December 4 discussed the

possibility of conducting a quantitative easing (QE) programme
through the purchase of government bonds, together with
other bonds and asset classes. The Governing Council is not
unanimous on the necessity of such a programme, but,
according to ECB President Mario Draghi, this will not prevent its
implementation. Most market participants would welcome such
a move; the ECB is likely to unveil these new measures at its next
meeting on January 22, as technical preparation has stepped up.

The PunchLine...

January 12, 2015

In This Issue
Awkward Beginnings With All Due Respect.
What a way to start the year. The crash in oil prices is no small matter. The
previous down sweep in energy prices occurred in the midst of the financial
crash 0f 2008 and Great Recession. Oil prices soon reversed afterwards and
climbed back to dizzying heights, even as world economic and financial
recovery remained fragile. This time it would be foolish to bet solely on such a
similarly quick snapback. The current bear market for oil may actually be the
beginning of a longer and extended period of low commodity prices. First,
many nations simply cannot afford to curtail pumping oil, even at a loss in the
short run. Second, global growth is proving to be woefully inadequate and
uncertain. Even as growth in the U.S. economy is becoming more firmly
entrenched, the rest of the major economic engines remain mired, as we
have argued for some time, in subpar growth trajectories. The Euro area may
be facing another soft patch and remains entangled in both economic and
geopolitical crises. The recovery in Japan has been slower than expected.
And China continues to grow well below its previous super- track; and it
obviously faces headwinds from a volatile real estate sector, awkward debt
buildups and massive stockpiles of high-priced commodities. Third, the shale
gas revolution has transformed Americas energy markets, with profound
effects for economic growth, competitiveness, security, and environmental
quality. And the extensiveness of the oil rush in America is also playing a big
role in pushing the adjustment on prices. Naturally, the new weakness in
commodity prices will bolster the economies of some countries, but clearly
damage others. The strength of the U.S. dollar in the face of a stronger U.S.
economy and shift in Fed policy this year, combined with the sharp drop in
commodities could expose severe underlying vulnerabilities in situations with
significant currency mismatches. The effects of exchange rate movements for
the developing world may also become more marked if the duration of the
upward climb of the U.S. dollar becomes extended even more. The various
repercussions will be extensive; this extremely tense business picture will be
detailed herein in 2015. Stay tune
(pg 1)

In This Issue
Dislocation, Dislocation
The Return to Normal
Extreme Sports
Go Figure

U.S. Wake Up
The Likelihood of Unlikely Events...
Engines of Growth

(pg 7)
(pg 8)

Despite a broadening U.S. growth potential, most of the global economy faces
woefully inadequate growth prospects. Risks from the crash in commodity
prices only raises the dangers for many sectors, nations and currencies. Very
obvious financial vulnerabilities, and serious geopolitical concerns are
aggravating the dangers. And lets not forget that many of the challenges are
not fleeting and cannot be resolved easily
(pg 9)

Households
You Cant Handle the Truth
Credit
More Credit
A New Geography of Business
Pumping Iron
The DNA of Business
Real Estate and Construction
More Real Estate
Will Life Ever be the Same?

(pg 10)
(pg 11)
(pg 12)
(pg 13)
(pg 14)
(pg 15)
(pg 16)
(pg 17)
(pg 18)
(pg 19)

(pg 2)
(pg 3)
(pg 3)
(pg 5)
(pg 6)

Contact information:

Abraham Gulkowitz
phone: 917-402-9039

Headlines and data appearing in The Punch Line came from widely available publications including
national and international newspapers, trade journals, economic and industrial bulletins and news websites.

email:abe@gulkowitz.com

The PunchLine...

January 12, 2015

Dislocation, Dislocation, Dislocation

A couple of weeks ago, Claudio Borio told investors to wake up
to the threat posed by currency mismatches. In the past few years,
the chief economist at the Bank for International Settlements
observed, companies in places such as Russia, China, Brazil and
India have rapidly increased their borrowing, particularly in
dollars. And though nobody fretted about this until recently, if
or when the dollar suddenly rises, this debt pile could trigger
shocks, since much of it is serviced by revenues in domestic
currencies.

Broken Eurozone hits currencies

Mario Draghi,
President of the European Central Bank, said in an interview published
Jan. 2 that he couldnt exclude the risk of deflation in the euro-area,
igniting a selloff in the euro amid prospects hell embark on large-scale
quantitative easing. The euro slid to an almost nine-year low against
the dollar amid prospects the European Central Bank will embark on
large-scale government-bond purchases to ward off deflation. Asian
stocks fell with oil as silver climbed. The euro slid to an almost nineyear low against the dollar amid prospects the European Central Bank
will embark on large-scale government-bond purchases to ward off
deflation. Asian stocks fell with oil as silver climbed.

First tuna auction of the year at Tokyo's famed Tsukiji

market came in below a year ago
The first tuna auction of the year at Tokyo's famed Tsukiji market is
a competitive event. Winning the bid for the first fish is believed to
bring good luck for the coming year. The winner landed the 180 kilo
-- or nearly 400 pound -- blue fin at a bargain 25-thousand yen per
kilo -- about a 20 percent discount to last year's price.

87% OF NATION TO DIP

BELOW FREEZING...
Oil Crash - Pipe and Tubing

As the U.S.s emergence as a big oil producer combines

with OPECs refusal to cut production, a budding rivalry
with Saudi Arabia, economic slowdown in China and
Europe and emerging technologies, is the market
fundamentally altered?
Having lost 12% of its value against a resurgent greenback since the start of September,
the Mexican peso fell again trading to 14.87 per dollarits weakest level since March
2009. Although Mexico is seen to be among the least affected by the ongoing slide in
crude prices, the market has been concerned about the impact of falling oil prices on
foreign direct investment in the country as the government opens up its energy
industry.

United States Steel Corp. will lay off

roughly 750 employees between two
plants, undoubtedly the result of falling
oil prices. It is worth noting that these
facilities are not being shut down
completely but temporarily idled. The
layoffs are taking place in a tubular
testing and finishing facility in Houston,
Texas and a manufacturing facility in
Lorain, Ohio. The tubular products that
are produced and tested by these
facilities are associated with drilling and
construction in the oil-and-gas industry.
Lorain has an annual production
capability of 780,000 tons of steel.

Sliding oil prices leave socialist

Venezuela on brink of financial collapse

Russia and four other ex-Soviet nations

completed the creation of a new economic
alliance intended to bolster their integration, but
the ambitious grouping immediately showed
signs of fracture as the leader of Belarus sharply
criticized Moscow. The Eurasian Economic
Union, which includes Russia, Belarus,
Kazakhstan, Armenia and Kyrgyzstan, comes to
existence on Jan. 1. In addition to free trade, it's
to coordinate the members' financial systems
and regulate their industrial and agricultural
policies along with labor markets and
transportation networks.

Nigeria slashes capital budget to

cope with oil shock
Finance Minister Ngozi Okonjo-Iweala on
December 17 presented the government's
revised 'transition and hope' budget
proposal for 2015. It aims to cut
government spending by 10.6% to around
4.5 trillion naira (24.5 billion dollars), from
nearly 5 trillion naira in 2014. However, the
impact of austerity will be muted by a sharp
reversal of development outlays towards the
recurrent budget. This is unlikely to be
popular with voters -- who are now
expected to fund a much greater share of
government spending.

The PunchLine...

January 12, 2015

The Return to Normal ?

U.S. Annual Home Price Growth Continues to Slow

Auto Sales Owe Loans Some Credit

Nobody buys used cars these daysthey're "preowned." Likewise, subprime loans are so
2007: They are more often referred to as "nonprime" now. While risky mortgages remain
far harder to come by than before the financial crisis, the auto market is starting to
resemble the good old days. In some ways, it is even better. Experian Automotive recently
reported that the average term for a car loan has reached a record high of 66 months. For
customers with the worst credit scores, it has reached 71.4 months. Longer terms equal
lower paymentswhich equals more people able to afford cars

Based on a Wards Auto estimate, US light vehicle sales

were at a 16.75 million SAAR in December. That is up
8.8% from December 2013, and down 1.7% from the
17.09 million annual sales rate last month.

The PunchLine...

January 12, 2015

Extreme Sports

The PunchLine...

January 12, 2015

Go Figure
Where Now?
The emerging problem of foreign currency debt
The BIS issues a timely warning about exchange mismatches
It is not so long ago that many emerging economies, especially
those in Latin America, were complaining bitterly about
currency wars. A decade-long commodity price boom,
combined with ultra-loose western monetary policy, flooded the
emerging world with capital and pushed up exchange rates to
wildly overvalued levels.
Those days are over. International tensions with Russia,
concerns about Chinas financial stability, a strengthening US
economy and, most of all, fast-falling commodity prices have
prompted foreign capital to head for the exit. During the past three
months, the JP Morgan index of emerging market currencies has
fallen by almost 8 per cent against the dollar. But that conceals far
sharper falls among some of the weaker currencies. The Brazilian
real is down 17 per cent for instance while the Russian rouble has
slumped by nearly half.

Economic measurement faces huge changes

Important decisions are made on the back of economic statistics that are
compiled by government statistical agencies. Policymakers and
investors use these data with major consequences. However, evidence
suggests that the economic statistics are often based on inadequate
methodologies and data gathering techniques and can be distorted by
rapid changes in the structure of most economies.

The PunchLine...

January 12, 2015

The Likelihood of Unlikely Events

Deflation fears blur
interest rate outlook
Switzerland imposed its first
negative deposit rate since the
1970s and threatened further
action to stem a tide of money
flowing from Russias financial
crisis.
Some of the world's biggest money managers are
making sweeping changes to their European moneymarket funds amid expectations of losses for the
normally staid investments.
The moves by
BlackRock Inc. and Northern Trust Corp. stem from
the European Central Bank's decision in September
to cut interest rates into negative territory. The rate
cut threatened the profitability of the EUR93 billion
industry of euro-denominated money funds, which
are used by large corporations and institutional
investors as a place to park cash while earning a
small amount of interest.
The rise of Islamic State in Iraq and Syria did
not affect the oil market in the way that many
previous crises in the Middle East had, when
concerns about possible disruptions pushed
prices up. The same was largely true of the instability in
Libya and the latest episode in the conflict between Israel
and the Palestinians. IS had little impact on the global
supply of oil, which has been increasingly plentiful due to
the shale oil revolution in the US. At the same time,
demand for oil has weakened due to the slowdown in
China and the persistent sluggishness of the Eurozone and
Japan.

Bank Security Banks are expected to roll out new credit

cards with technology that makes counterfeiting more difficult,
but opt not to use PINs, widely considered to be more secure
than signatures.

Uncertainty ripples across Russian economy

Interbank rates hit high while manufacturers in west suspend
shipments
China Offers Russia Help With Currency Swap Suggestion
Standard & Poor's (S&P) put Russia's foreigncurrency sovereign
rating on 'credit watch negative'. S&P already rates Russia BBB,
the lowest investment grade, and the review in midJanuary could
demote it to 'junk'. Russia's currency crisis is undermining investor
sentiment towards emerging markets (EMs) at a time when the
asset class is already under strain because of plunging oil prices
and the risks stemming from an anticipated rise in US interest
rates next year. The more vulnerable currencies in the Emerging
Europe region, in particular the Hungarian forint and the Turkish
lira, have suffered the effects of financial contagion and are most
at risk if sentiment towards Russia deteriorates further.

The PunchLine...

January 12, 2015

U.S. Wake Up
Natural gas now produces 27 percent of the
electricity generated in the United States, and the
percentage is rising. The plentiful oil and gas from
the drilling boom has reduced Americas
dependence on foreign oil to levels not seen in
decades, and has contributed to falling oil prices.

Enhanced oil recovery (EOR)

The shale gas revolution has transformed Americas energy

markets, with profound effects for economic growth,
competitiveness, security, and environmental quality. In a
nation still deeply concerned about its energy future, this
extraordinary success story should prompt the question:
Can we do it again? The answer is yesif we correctly understand both
the model for innovation that shale gas exemplifies and an opportunity that
now exists to emulate the shale model. That opportunity involves exploiting a
technique called enhanced oil recovery (EOR).
Like fracking on the eve of its success, this concept is virtually unknown to
most Americans, yet it rests not on pie-in-the-sky technological dreams but on
the application and refinement of proven technologies that companies have
been developing for decades. Like fracking, enhanced oil recovery has the
potential to recover staggering quantities of hydrocarbons that were previously
known but considered inaccessible. As with fracking, the primary players will
be the private sectorbut public policy has a crucial role to play in establishing
the necessary conditions and providing the impetus for this market to take off.
Most tantalizingly, enhanced oil recovery should be less controversial than
fracking, because it also offers the opportunity to radically reduce greenhouse
gas emissions from electric power generation (and other industries).
U.S. Nuclear Capacity on the Decline

PlungingOilPricestoTestTexasEconomy
The downturn in energy prices has triggered debate
over whether Texas simply got lucky in recent
years or whether it hit on an economic playbook
that other states could emulate.

Premature nuclear plant retirements are

slowly eroding U.S. nuclear capacity and
reducing a major source of carbon free
electricity. Absent reforms to the current
market structure, at least eight additional
merchant nuclear units with an aggregate
capacity of approximately 8,000 MW are
considered to be at risk of early
retirement.

The PunchLine...

January 12, 2015

Engines of Growth
France'sunemploymentrosetoanewrecord
amidthefragileeconomicactivity,datafrom
theLaborMinistryrevealed
Confidence among Japan's small and mediumsized enterprises decreased in December, survey data
released by the Shoko Chukin Bank showed. The small
business confidence declined to 46.7 in December from
47.7 in November.
Similarly, confidence in the
manufacturing sector fell to 46.1 in December from 47.4
in November.
CHINA PUMPS UP CAP SPENDING AGAIN The government
today distanced itself from a January 6 Bloomberg report that a 7
trillion renminbi (1 trillion dollar) fiscal stimulus package is in the
works, saying that the plan is merely to "guide" private
investment into key projects rather than increase public
spending. Recent developments suggest that policymakers are
happy with slower investment growth, but worry about the
possibility of an abrupt slowdown in lending and the risk that
household consumption will not yet be able to pick up the slack
as investment slows.

Canadian merchandise trade shows oil effect

U.S. Home Values Continue to Rebound But at Slower Pace

U.S. home values are on pace to conclude another year of strong
growth, although the pace is easing up a bit, online real estate
marketplace Zillow says.

WeakIndustrialDataSuggestEurozoneEconomyMayBeFaltering
CurrencyAreaFacesChallengesofPoliticalUncertaintyandFalling
ConsumerPrices

US JOB GROWTH STRONGER, WAGES WEAKER

Total nonfarm payroll employment rose by 252,000 in December, and the unemployment rate declined
to 5.6 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional
and business services, construction, food services and drinking places, health care, and manufacturing.
The change in total nonfarm payroll employment for October was revised from +243,000 to +261,000,
and the change for November was revised from +321,000 to +353,000. With these revisions,
employment gains in October and November were 50,000 higher than previously reported.

The PunchLine...

January 12, 2015

Households Brave New World

December Auto Sales Surge

Major auto makers capped a successful year by

ringing up strong U.S. sales increases last month
with GM and Chrysler posting double-digit gains
over the same month a year-earlier, while Ford
lagged behind

Sluggish US housing may become

a bigger issue in 2015-16
US existing home sales hit slowest pace in 6 months in Nov.

Weak Again !
Sales of new single-family houses in November
2014 were at a seasonally adjusted annual rate
of 438,000, according to estimates released
jointly today by the U.S. Census Bureau and
the Department of Housing and Urban
Development. This is 1.6 percent below the
revised October rate of 445,000 and is 1.6
percent below the November 2013 estimate of
445,000.
For all the actual tightening in the 2014 job market,
what is perhaps the most important indicator from the
perspective of working families wage growth
has hardly budged. Though commentators made a big
deal out of the bump in pay from the last jobs report,
the yearly trend in nominal hourly wage growth
remains at about 2 percent, where it has been since
2010.

Why Is Wage Growth So Slow?

10

The PunchLine...

January 12, 2015

YouCant Handle the Truth

Let'sTaketheConoutofEconomics
Euro Extends Drop to below $1.20

The Federal Reserve is concerned that the rising asset values

and influence of non-banking financial institutions on the U.S.
economy could create conditions for another financial
meltdown. The expanding power of the so-called shadowbanking sector has grown to levels not seen since before the
2008 crisis. The Feds problem is that it has limited
jurisdiction over these financial institutions money-market
funds, hedge funds, trust companies and financial firms other
than banks.

Chinese manufacturers signaled a renewed

deterioration in operating conditions at the end
of 2014, with both output and new orders
falling slightly on the month. In response to
lower total new orders,
firms cut their
workforce numbers again in December, albeit
only slightly. On the prices front, both input
prices and output charges fell at the sharpest
rates in nine months.

Singapore Home Prices Post

Longest Losing Streak in Decade
The government has imposed various
curbs to cool the property market,
including restrictions in June 2013 on the
total loan amount for individuals.
Singapores home prices dropped for a
fifth consecutive quarter, the longest
losing streak in more than a decade, as
tighter mortgage curbs cooled demand
in
Asias
second-most
expensive
housing market.

Japan Demographics time bomb

Deaths outnumbered births in Japan last year by the
widest margin on record, underscoring the scale of
the challenge facing the government as it tries to
ensure a dwindling pool of workers can support
growing ranks of pensioners. The urgency of getting
the countrys finances in order was highlighted this
week as preliminary figures indicated that Japans
population fell by a record 268,000 in 2014.

11

The PunchLine...

January 12, 2015

Credit Matters-Know Risk

Many Excel in Strategy, Few in the Management of Risk

Yet another fracas over timing of CEOC 2nd-lien debt default erupts
Debt of Caesars Entertainment Operating Co. was mixed today in the
wake of several disclosures that could potentially throw a monkey wrench
into the timing of an eventual Chapter 11 filing by the company and, by
implication, the tactical leverage in an eventual proceeding held by the
companys respective creditor classes.
CEOCs 10% second-lien exchange notes due 2018 are down three quarters
of a point today, at 17, according to trade data. Elsewhere in the capital
structure, the 11.25% first-lien notes due 2017 are up a point, at 72.635.
CEOC said in an 8-K filed this morning with the Securities and Exchange
Commission that on Dec. 12, it made a $17.6 million payment to secondlien debt holders to redeem that amount of principal of certain 10% secondpriority senior secured notes due 2015 and 10% second-priority senior
secured notes due 2018, which were issued in December 2008.

Chinas State Council amended its rules to ease market access

for foreign banks in order to open up the domestic financial
sector. The new rules remove the requirement that foreign
banks should transfer a specific amount of operating funds to
its new branch in China. They also allow foreign banks to apply
for conducting yuan transactions after operating in China for
one year instead of three years as previously required, and
drop the requirement for two consecutive years of profit to
engage in the transactions. These rules are aimed to bring
more competition to the banking industry and expand the
opening-up policy, a local analyst said. By doing so, Chinas
also preparing for an internationalization of the renminbi.

Raising Flag on Chinas $1 Trillion Overseas Debt Pile

Payingforsafety
Investorsput1.2tnintonegativehavens

Russian regulators took over a leading

retail bank, as the impact of last weeks
currency crisis reverberated through the
economy even as the ruble recovered.

12

Russia's central bank to help companies

meet debts in initiative to shore up ruble
With inflation showing clear signs of
picking up, Russia's central bank on
Wednesday launched another initiative to
shore up the ruble, offering hard currency
loans to help companies and banks
service their debts. Stabilizing the ruble,
which is one of the world's worstperforming currencies this year following
the slide in oil prices and the sanctions
imposed on Russia for its involvement in
Ukraine, is a priority for Russia's
monetary authorities. One key concern
over the Russian economy is how much
the 50 percent or so fall in the ruble this
year will ratchet up inflationary pressures
a falling currency makes imports more
expensive.

The PunchLine...

January 12, 2015

More Credit
Impact of retention, leverage rules
on credit market
The implementation of the Dodd-Frank risk
retention rules will likely affect broadly
syndicated loan origination and trading
liquidity, resulting in increased corporate
credit financing costs. There may also be
fewer collateral managers, as many will
either not be able to compete or may choose
alternative uses of their capital that are more
economical for them.

There were no defaults among S&P/LSTA Index

loans in December, though Caesars did move a
step closer toward bankruptcy.
A decision on whether a failure-to-pay credit event has occurred with
respect to credit default swaps referencing Caesars Entertainment
Operating Co. will be sent to an external review panel after the ISDA
determinations committee failed to reach the 80% supermajority voting
threshold. This is only the second time that a dispute has gone to an
arbitration panel in the Americas. Previously, cement company CEMEX
in 2009 was the only DC question to be decided by external review,
according to ISDA.

13

The PunchLine...

January 12, 2015

A New Geography of Business

Japan's economy is highly concentrated on a few major urban centres, but the
rest of the country -- the 'regions' -- comprises almost two-thirds of the
population and more than half of GDP. These provincial areas are poorer and
the gap is growing, but they are indispensable for the reinvigoration of the
national economy. Prime Minister Shinzo Abe's administration did not initially
prioritise the regions, and the benefits of Abenomics failed to reach them.
However, regional revitalisation has now become a goal.

Latvia joined the euro club at the start of this past year, taking the
number of members following the currency to 18. On January 1,
2015, Lithuania became the newest member to adopt the euro.

India's Minister of External Affairs Sushma Swaraj will visit Israel in

January, according to media reports. Her visit will build on Indian Prime
Minister Narendra Modi's meeting with his Israeli counterpart Binyamin
Netanyahu on the sidelines of the UN General Assembly meeting in
September 2014. Frequent high-level engagements signal a desire on both
sides to deepen bilateral ties, especially in the defence sector where India
recently agreed to procure jointly-produced Spike-guided, anti-tank missiles
from Israel for 525 million dollars.
Renzi's reform failure would risk snap Italy election
President Giorgio Napolitano indicated on December 18 that he would
resign in early 2015. Ahead of the election of a new president, Prime
Minister Matteo Renzi needs to push through the two major political
reform measures that are waiting in parliament. Success would bolster
him domestically, and strengthen his hand a little in negotiations with
Brussels. Failure would be a political blow, and dent his still fairly high
domestic popularity.

Petrobras legal woes mount in Brazil, United States

A list of 28 politicians, most from the governing coalition, alleged to have benefited from the Petrobras
corruption case was published by O Estado de Sao Paulo yesterday. Multiple US law firms filed class
action lawsuits on behalf of US investors in Brazil's state-controlled Petrobras beginning on December
8, over its alleged failure to disclose corruption in the company that led to accounting misstatements. A
US federal court judge must now decide whether to certify a class, and if a class action is allowed to
proceed, Petrobras could face liability for substantial damages in US courts. This is only one possible
source of US legal liability facing Petrobras.
Brazil recorded a worse-than-expected trade deficit of 3.93 billion dollars in 2014, according to the Trade
Ministry on January 5, the first since 2000. According to Central Bank estimates, a trade deficit of this
magnitude increases the current account deficit to around 4% of GDP, the highest in 13 years, and the thirdlargest among the big economies in 2014, according to the IMF. Brazil's poor trade performance results mainly
from an unfavourable international environment marked by falling commodity prices and the country's failure
to reach preferential trade agreements, but it also reflects the failure of local companies to become more
productive and competitive during the last decade.

Brazils consumer confidence index remained near the six-year low in

December, rising marginally to 96.2 from 95.3 in November, data from the
Getulio Vargas Foundation, or FGV, showed. The last months result had been
the worst since December 2008. The index has a 1 to 200 point range, with 100
considered an indicator of neutral sentiment. Consumer confidence had been
falling steadily since April 2012 on mounting concerns about high inflation and
sluggish economic growth.
Cuba's growth in 2015 will be driven by expectations
On December 20, at the closing of the National Assembly's annual session, President Raul
Castro said that the Cuban economy will grow 1.3% this year, down from the 2.2%
expected. Castro said that recent measures should ensure that the target of 4% GDP growth
projection for 2015 is met. Havana's economic outlook looked bleak until last week, but
the recent shift in US policy has put a higher growth rate within closer reach. Even while
the US Congress keeps the embargo in place, the attractiveness of Cuba has already risen.

14

Lowering their growth forecasts, the South

Korean government now expects the economy to
grow by 3.4% (y/y) this year and 3.8% in 2015,
lower than the projections of 3.7% and 4%
respectively, made earlier in July.
The
downward revision was due to weak business and
consumer sentiment, but the government said it
expects things to improve next year, helped by
lower oil prices and stimulus measures.

Lithuania going to euro

Geopolitics plague Lithuanians at this frozen Russian border

post, where a return trip by car can mean 48 hours of queuing.
It is a reminder for some of why the former Soviet republic will
cement its move to the West by joining the euro zone next
month. Tensions with Moscow have simmered ever since
Lithuania became the first republic to declare independence
from the Soviet Union in 1990, although only 6 percent of the
population are Russian speakers, far fewer than in its Baltic
neighbors. On Jan. 1, it will be the last of the Baltic states to
join the currency bloc, hoping like Estonia and Latvia for more
investment and lower borrowing costs to spur one of Europes
poorest but fastest-growing economies. All three have felt the
blowback from East-West tension over Russia's encroachment
into Ukraine this year in the form of Russian sanctions and
military grandstanding on their borders. When Lithuanian
President Dalia Grybauskaite announced military aid for Ukraine
last month, accusing Moscow of being a "terrorist country",
Russia launched a go-slow on the border with its Kaliningrad
enclave home to Russia's Baltic sea fleet and, most Lithuanians
suspect, tactical nuclear weapons.

Belarus Raises Key Rate to 25% as Russian Rout

The Belarusian central bank
Fuels Devaluation
increased its benchmark rate for the first time since 2011
and rolled out other emergency measures to stabilize the
financial system as the country reels in the aftermath of
the crisis in Russia.

Fire engulfs Libyas largest oil terminal

The terminal, which can export 400,000 barrels a day
of crude oil, has been shut down since militias,
known as Libya Dawn and loyal to the self-declared
government in Tripoli, began moving from their
stronghold in the central city of Sirte in an attempt to
seize the facility. Control of the oil facilities is seen as
a way of altering the balance of the seven-month long
civil war.

The PunchLine...

January 12, 2015

Pumping Iron
The Old Economy Revisited
Natural Gas Futures Drop to Lowest Point in Over a Year

U.S. Grains Lift to Multimonth Highs; Soybeans Also Rise

Booming U.S. Production Creates Surplus

Uncertainty Over Russias Export Policy Raises Concerns About World Wheat Supply

After so much hype and billions of dollars in investment, the nation is

deluged with gas and not enough pipelines to carry the bounty to
consumers. One energy company after another, year after year, has written
off or slimmed down its investments here and in Texas and Louisiana. But
not Southwestern Energy, a Houston-based company that has risen from
being the nations 40th to become the fourth-largest producer of natural
gas. Southwesterns discovery of the Fayetteville shale field a decade ago,
and its quiet leasing of the heart of the field at bargain prices, made the
company a power. Since 2007, Southwesterns Fayetteville production has
risen 800 percent and its reserves are up 570 percent. It still drills more than
30 new wells every month here. And in October, Mr. Mueller doubled
down on gas by committing $5 billion to develop 413,000 acres of reserves
in the Marcellus and Utica shale fields of West Virginia and Pennsylvania
previously owned by Chesapeake, raising Southwesterns debt
considerably.
Rolls-Royce Motor Cars sold a record number of cars last year,
breaking through the 4,000 mark for the first time in its 111year history. The luxury car maker sold 4,063 cars, up 12% on
last year, and marking the fifth consecutive year of record
sales. Sales in the US increased by almost a third, by 40% in
Europe and in the Middle East by 20%, the firm said.

Boeing is targeting 715 to 725 deliveries and is

expected to remain ahead of Airbus in
deliveries for the third year running after
resolving earlier delays to its 787 Dreamliner.
Airbus increased its deliveries in 2014, setting
a new company record, a source at the
European planemaker said. The Airbus Group
subsidiary beat its 2013 peak of 626 deliveries
but is expected to remain behind rival Boeing,
which is due to issue annual data.

Volvo to sell Chinese-made cars in U.S.

GM cuts price on most Cadillac

CTS sedans amid weak demand

Russia, one of the worlds biggest

suppliers of wheat, is preparing to
introduce export duties on grain in an
effort to keep prices in check and
prevent further selling by traders. We
will prepare a draft resolution on grain
export duties. This will be done in the
next 24 hours, said Arkady
Dvorkovich, the deputy prime minister,
at a meeting of the government. Russia
tightened restrictions on grain exports
last week to prevent a shortage on the
domestic market as traders sought
foreign currency by selling grain as the
rouble tumbled. Sanitary controls were
also stepped up, which curbed
transport of grain by rail, traders said.
This was not enough. In order to
stabilise the situation, proposals on
grain export duties will be prepared,
Mr Dvorkovich said. He said that of
its harvest of 104m tonnes, Russia
could afford to export up to 28m
tonnes without risking the stability of
the domestic market. Exports this
marketing season, which started in
July, have so far totalled 21m tonnes,
he said. Russia is the fourth biggest
exporter of wheat, shipping about 20m
tonnes a year, and the second-largest
exporter of barley, selling about 4m
tonnes to overseas buyers.

Car sales in the world's biggest car

market China are gearing down
fast, and the road ahead in 2015 is
looking congested, especially for
Japanese carmakers.

15

The PunchLine...

January 12, 2015

The DNA of Business

Reconfiguring Industries to Define Growth

Wireless Telecom
The level of competition in the industry has been steadily increasing over
the past couple quarters primarily spearheaded by the Un-carrier T-Mobile
who has clearly changed the way the wireless carriers do business but more
recently by Sprint who senses the desperation of needing to turn the
business before it is too late. With various new types of contracts,
optionality around handsets and financing, more flexible data plans, and
overall cheaper service the current winner is the consumer who will receive
more for less for the first time in a long time.
Calling plans, discounts, incentives, bundling and data increases
are the sizzle of wireless. At stake, though, is the network that
runs it all. As more of our things continue connecting to the
Internet and many of them continue to do so wirelessly, we see
no end in sight of continued increasing needs for spectrum.
Dish Network, a satellite television provider, on January 5
announced plans for a web streaming package that will include the
popular sports network ESPN. Live sports is the most profitable part
of the television industry. Its place as part of cable TV packages has
prevented many US households from switching to lower-cost
internet-only subscriptions. In the United States, internet
infrastructure -- the physical cables connecting homes and
businesses -- is almost all built and maintained by cable companies
and telcos that provide internet and TV. Thus, alternate
entertainment delivery mechanisms and political debates about
cable monopolies determine the technology underpinning the US
economy.

First-year law school enrollment in the U.S. fell 4.4

percent from a year ago to the lowest level in 40
years, amid a tighter job market and rising tuition.

Minimum Wage Hikes to Affect More Than 1400 Walmart Stores

ThaiUnionFrozenProductstoBuyBumbleBee
Owner of Chicken of the Sea Will Add U.S. CannedTuna Company to Portfolio
Monster ships become warehouses for worlds excess oil

Containerships queue up outside LA/Long Beach

A key reason for the current gridlock at the important US port include the
increasing sizes of ships in the trans-Pacific trade lane, which require longer
times at berth - - as well as a shortage of chassis and drayage drivers, and,
more recently, slowdowns by members of the International Longshore and
Warehouse Union at certain terminals

HeidelbergCement AG said it has agreed to sell operations in North America and

the U.K. for $1.4 billion to a U.S. affiliate of Lone Star Funds. The German
company, one of Europes biggest building-materials suppliers with annual revenue
of 14 billion ($17 billion), said the sale is in line with its focus on processing and
refining raw materials for its core products of cement and aggregates and other
downstream activities. The deal comes amid a reshaping of Europes cement sector
as Switzerlands Holcim Ltd. and Frances Lafarge SA are close to finalizing their
merger, representing the combination of the regions two biggest players.

TV Advertising: Very mad men

When TV ratings look bad, just claim they are wrong

16

The PunchLine...

January 12, 2015

Real Estate and Construction Outlook

After Two-Year Delay, Construction on California High-Speed Rail Is Set to Start
California's bullet-train agency will officially start construction in Fresno this week on the first 29mile segment of the system, a symbol of the significant progress the $68-billion project has made
against persistent political and legal opposition.

Hotels: Occupancy Rate Finishing 2014 Strong, Best Year since 2000

Self Storage
Its lucrative because these buildings
cash flow like crazy and deliver a high yield. Theres
high year-over-year growth in rent because there are
only so many places to store things. Average asking
monthly rent in 2013 for an average 10-foot-by-10-foot
unit in the US was $115 a month. Now, some of our
clients are getting 6% to 15% higher than that. Also,
several years ago occupancy was 70% to 80%. Now the
public REITs are seeing 80% to 90% occupancy. The
growing economy, increased consumer spending and
the increasingly mobile population are all macro
drivers of this space. Also, life issues such as death and
divorce play into storage needs.

U.S. CMBS Risk Metrics on the Rise

U.S. CMBS conduit originators have increased the amount
of partial interest-only loans in their 2014 securitizations
by 42%. Additionally, leverage metrics, including loan-tovalue ratio, also rose.

17

The PunchLine...

January 12, 2015

More Real Estate

18

The PunchLine...

January 12, 2015

Will Life Ever Be the Same?

This publication is provided to you for information purposes and is not intended as an offer or solicitation for the purchase or sale of any financial
instrument. The information contained herein has been obtained from sources believed to be reliable but is not necessarily complete and its
accuracy cannot by guaranteed. The views reflected herein are subject to change without notice. No one connected to this publication accepts any
liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents. This publication may not be
reproduced, distributed to any person for any purpose without express permission from TPL Advisory, LLC. Please cite source when quoting. All
rights are reserved.

19