October 5, 2010

THIS PRESENTATION WAS PREPARED BY:KEITH MCCULLOUGH, DARYL JONES, HOWARD PENNEY, RORY GREEN, DARIUS DALE & MATT HEDRICK

Q42010

THEMESJAPAN’S JUGULAR

Disclaimer• Hedgeye Risk Management is not a broker dealer and does not make

investment recommendations. This presentation does not constitute an offer to sell, or a solicitation of an offer to buy any security.

• This research is presented without regard to individual investment preferences or risk parameters; it is general information and does not constitute specific investment advice.

• This presentation is based on information from sources believed to be reliable. Hedgeye Risk Management is not responsible for errors, inaccuracies or omissions of information.

• For more information, including Terms of Use of our information, please go to www.hedgeye.com

© 2010 Hedgeye Risk Management LLC All rights reserved. 2

2010 MACRO THEME CHARTS THAT MATTER

3

4

5

6

7

8

9

10

11

JAPAN’S JUGULAR

2010Q4

JAPAN’S JUGULAR

12

• Japan’s export-led recovery

slows to a halt in 4Q10. GDP could potentially go negative in the next 2 quarters.

13

14

15

16

17

18

19

20

• 3D Risk: Japan’s debt, deficits, and demographics will fuel a potential economic and financial collapse.

21

22

23

24

25

26

27

28

29

30

31

32

33

34

KRUGMAN’S KRYPTONITE

2010Q4

KRUGMAN’S KRYPTONITE

35

36

“So never mind those long list of reasons for Japan’s slump. The answer to the country’s

immediate problem is simple: PRINT LOTS OF MONEY.”

- Paul Krugman, 1997

KRUGMAN KRYPTONITE!

37

38

39

KRUGMAN KRYPTONITE

40

“Second, regardless of the risks of deflation, the FOMC will do all that it can to ensure continuation of the economic recovery.”

“The Federal Reserve is already supporting the economic recovery by maintaining an extraordinarily accommodative monetary policy, using multiple tools. Should further action prove necessary, policy options are available to provide additional stimulus.”

- Federal Reserve Chairman Ben Bernanke August 27th2010

41

According to Bernanke in Jackson Hole on 8/27/2010, the Federal Reserve has three policy options:

1. Additional purchases of longer-term securities2. Modifying the Committee’s communication3. Reducing the interest paid on excess reserves

QE = KRUGMAN KRYPTONITE

42

43

“To close a gap of more than $2 trillion - possibly a lot more, if the budget office projections turn out to be too optimistic -

Mr. Obama offers a $775 billion plan. And that's not enough.”

- Paul Krugman, NYT, 1/9/2009

“Some bleary-eyed thoughts from Japan on the reported administration proposal for $50 billion in new spending:

1. It’s a good idea2. It’s much too small”

-Paul Krugman, NYT, 9/7/2010

MORE GOVERNMENT SPENDING

44

1.PRINT MONEY

2. INCREASE GOV’T SPENDING

45

46

WORLD WAR II raised defense spending by $540 billion at the peak (1994 dollars)

WORLD WAR II raised real GDP by $430 billion at the peak (also, 1994 dollars)

Even on this massive investment, multiplier was 0.8

Source: Robert Barro, “Macroeconomics: A Modern Approach”

47

“ Much more focus should be on incentives for people and businesses to invest, produce and work. On the tax side, we should avoid programs

that throw money at people and emphasize instead reductions in marginal income-tax rates -- especially where these rates are already

high and fall on capital income. Eliminating the federal corporate income tax would be brilliant.”

- Robert Barro, WSJ, 1/27/2009

48

CONSUMPTION CANNONBALL

2010Q4

CONSUMPTION CANNONBALL

49

Five primary buckets:1. Employment2. Income3. Wealth4. Expenses5. Intangibles

50

52

53

54

55

56

57

58

59

60

61

62

“The only difference between death and taxes is that death doesn't get worse every time Congress meets”- Will Rogers

63

64

65

66

67

This presentation was prepared by Keith McCullough, Daryl Jones, Howard Penney, Rory Green, Darius Dale, and Matt Hedrick.

For more information and a complete listing of research pleasesee: www.hedgeye.com

or email: sales@hedgeye.com 68

Slide Number 1�Disclaimer�Slide Number 3Slide Number 4Slide Number 5Slide Number 6Slide Number 7Slide Number 8Slide Number 9Slide Number 10Slide Number 11Slide Number 12Slide Number 13Slide Number 14Slide Number 15Slide Number 16Slide Number 17Slide Number 18Slide Number 19Slide Number 20Slide Number 21Slide Number 22Slide Number 23Slide Number 24Slide Number 25Slide Number 26Slide Number 27Slide Number 28Slide Number 29Slide Number 30Slide Number 31Slide Number 32Slide Number 33Slide Number 34Slide Number 35Slide Number 36Slide Number 37Slide Number 38Slide Number 39Slide Number 40Slide Number 41Slide Number 42Slide Number 43Slide Number 44Slide Number 45Slide Number 46Slide Number 47Slide Number 48Slide Number 49CONSUMPTION CANNONBALLSlide Number 51Slide Number 52Slide Number 53Slide Number 54Slide Number 55Slide Number 56Slide Number 57Slide Number 58Slide Number 59Slide Number 60Slide Number 61Slide Number 62Slide Number 63Slide Number 64Slide Number 65Slide Number 66Slide Number 67Slide Number 68