Seeing the back of the letters would give lots of clues.  It looks to me like a 
machine made novelty with the yarn sewn on a sheer fabric and excess yarn 
trimmed off.  The T's are crossed with a short pieces of yarn.  All the rows 
were probably stitched at the same time, across the fabric.  The loops could 
interlock as needed.  Since it's computer controlled, it would be easy to order 
specific names and have them incorporated.  I think that the back would show 
stitches in a clear thread that are not seen in the picture.

I've done lots of craft sewing and have done some weird things with a sewing 
machine.  This lettering would have to have a stabilizing backing on it.  The 
picture looks like there's a sheer film under the letters, probably synthetic 
fabric.  It would have to be soft for draping, but sturdy.  The loops for the 
person to knit into for it to look attached are interesting. It must come in a 
kit for the knitted yarn to match the stitched lettering.

Thanks for an interesting puzzle.

Alice in Oregon .. where it's clear, dry, hot for the third week.  Three lace 
meetings this week, plus the town festival.  Busy, busy, buy.


----- Original Message -----
If you zoom in on the letters, they look as if they are simply made from the 
knitting yarn laid in place to form the letters.  There do not seem to be 
any stitches over them.

I think someone has carefully place the yarn on to the  the fabric world 
equivalent  of sticky backed plastic.  I forgot what it is called, and then 
maybe washed or ironed that plastic out.  Or maybe it is still in place.
Sue

There has been some discussion on Ravelry about this:
http://adsoftheworld.com/media/outdoor/penguin_audiobooks_knitting?size=original

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