War Room 31 July 2012

Commodities Schizophrenia

War Room

•Monthly macro discussion

•Using tools in context

•Update on HiddenLevers Features

•Your feedback welcome

Commodities Schizophrenia

I. Nat Gas + Coal: A Tale of Two Electricities

II. Oil Prices – Mid-year Pulse Check

III. Agricultural Commodities = Winner!

IV. Scenarios

NATURAL GAS + COAL: A TALE OF TWO ELECTRICITIES

HiddenLevers

Nat Gas + Coal: A Tale of Two Electricities

Nat Gas overtaking coal in 2012 as biggest resource for electricity generation

source: US Energy Information Administration

Patriot Coal Takedown – Taste of Things to Come?

Coal demand declines in 2012:

• Competition from nat gas

• Milder weather in US

• Weaker industrial demand (China + Europe)

• Tougher environmental rules

• Wind + solar getting cheaper

• Oversupply from bad planningPCX Coal ETFs

Natural Gas + Coal – Carnage in both camps

Neither Coal Miners nor Natural Gas Drillers have been good investments

source: HiddenLevers

Nat Gas Opportunity – Utilities, not Drillers

Gas and Electric companies rock- lower prices for Nat Gas + Coal- Usually offer a nice yield

Source: HiddenLevers

HiddenLevers

OIL PRICES – MID YEAR PULSE CHECK

Oil Prices – Iran + Europe tug of war2012 – strange days for oil prices

Jan – Feb• Rhetoric from Iran + US + Israel drives

prices to 110usd• Election year in all three countries

Mar – Apr• Banks make ridiculous upside calls on oil• Oil fades as saber rattling fades

May – Jun• Oil crashes – Euro dies, US Dollar lives• Europe is a way bigger deal than Iran

July• US decoupling in tact – sluggishly

improving econ data• Oil + USD rising together• Rhetoric returns – Romney in Israel• Trading on QE expectations

78usd

Source: HiddenLevers

Oil Prices – HiddenLevers gets it right in Jan 2012

slide from Jan 2012 War Room – Got Oil?

AGRICULTURAL COMMODITIES = WINNER!HiddenLevers

Agro Commodities – Bucking Trend

Source: HiddenLevers

Big Cap Food - Bright Spot in Commodities

Source: HiddenLevers

Agro Commodities ETFs – Choose Wisely!

click to get live chart

Dude, where’s my alpha?

Benchmarking Agro ETFs 6m performance

• Agro Commodities Lever +22%

• iPath Pure Beta Agro (DIRT +27%)

• UBS E-Tracs CMCI Agro (UAG +15%)

• PowerShares DB Agro (DBA +4%)

• PowerShares Global Agro (PAGG +2%)

Long Agro? – Try Consumer Staples over Commodity Funds

Benchmarking Agro Funds1y performance

• Agro Commodities Lever +8%

• Fidelity Advisor Consumer Staples B (FDBGX +10%)

• Vanguard Consumer Staples Index Adm (VCSAX +11%)

• ProFunds Consumer Goods UltraSector (CNPSX +8%)

no no no maybe yes

COMMODITIES SCHIZOPHRENIA - SCENARIOS

HiddenLevers

Climate Change: Will We Adapt?

Guidance

1. Agro commodities prices skyrocket due to decreased supply and increased global population

2. CPI rises with food prices, and consumer confidence is negatively impacted

3. GDP growth could slow to standstill, based on subpar legacy infrastructure

4. DOD budget rises to cope with rise in global conflicts over resources

Guidance

1. Agro commodities prices rise, but less quickly

2. Manageable CPI rise, consumer confidence not heavily affected

3. GDP growth rises due to investments in infrastructure and durable goods

Both Scenarios:1. Agricultural Commodities rising2. CPI rising - inflation

HiddenLevers – Product Update

• Macro Profile - Improved

• Scenario Impact Widget

Coming soon:

• iPad App (beta)

• Big Screen Presentation (beta)