Agenda for this Evening

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2. Agenda for this Evening • Last week’s market action • Fed decision • Economic data • BHP Billiton’s bid for POT fails • Technicals: where is the market going? • What’s the trade?

3. Thurs. Nov. 4 2010 | 4:01 PM ET Post FOMC Meeting Rally Play till 3:15 min

4. Video Summary • Many traders and investors are almost dumbfounded by the rally in the last couple months • Everyone thought the market would have sold off after the FOMC meeting • Many don’t believe it, but plan on continuing to ride the wave • Short sellers have felt lots of PAIN • Now might finally be the time to short the market or take profits?

5. This Sunday’sPhrase of the week: “Don’t Fight the Fed” • Don’t bet against the Fed, because the Fed will get its way by-any-means-necessary and win

6. 6 month chart of S&P 500 The rally since September has been a losing battle for the bears

7. Wed. Nov. 3 2010 | 1:08 PM ET The Fed Decision 4:20 min to 8:30min

8. The Federal Reserve’s Dual Mandate • Maximum Employment • Price Stability

9. Fed’s economic outlook and reasons for doing more quantitative easing: • Continues to anticipate weak economic conditions • Unemployment still very high • Employers remain reluctant to add to payrolls • Measures of underlying inflation are still low • Low rates of resource utilization • Tight credit, lower household wealth • Housing starts continue to be depressed • Investment in non-residential structures continues to be weak • Business spending on equipment & software rising less rapidly than earlier in the year • Progress towards the Fed’s objectives and mandate disappointingly slow

10. The Fed’s Decision • No change in interest rates • Keeping the Fed funds rate that banks borrow at, at 0-0.25% for an extended period of time • Decided to expand it’s holdings of securities • Will purchase a further $600 billion of longer term treasury securities by the end of Q2 2011, at a pace of a$75 billon per month • Reinvest $250-$300 billion over the same period at a pace of $35 billion per month • Total asset purchasing will be $850-$900 billion over 8 months ($110/month) • Decision is with-in the range of market’s expectations • FOMC’s “easy” policy decision was voted 10-1, KC’s Hoenig only dissent

11. Fed’s Lone Dissent • Thomas Hoenig • Kansas City Fed President • Fiscal “Hawk” • Believes the risk of additional securities purchases out-weighs the benefits • Likes a strong US Dollar • Prefers a “tighter” Fed policy

12. Pros of the Fed’s Decision • Pros: • Fed’s “easy” policy of more QE and low Fed funds rates weakens the US dollar and helps boost exports, it also raises asset & equity/stock prices • Fed wants asset & equity prices higher to help preserve people’s 401K’s so they feel wealthier and will spend more • When stocks are up, companies feel better about hiring and spending more on investment • Fed’s purchasing of US treasuries also helps lower lending rates that consumers borrow at, which will help the housing market

13. Cons of Fed’s Decision • The Fed’s asset purchasing is basically like printing money, which lowers the US Dollar and raises commodity prices such as oil and cotton • A weaker US Dollar lowers the purchasing power the US consumer has to buy basic goods like food, gas, and clothing • Could hurt consumer spending in the end • Fed’s “easy” policy could create asset bubbles • Fed now will have about $2.5 Trillion dollars on its balance sheet after Q2 2011, might be hard to unwind all of it and possibly cause the market to react negatively • Increases budget deficit

14. Deflation • Deflation is the Fed’s greatest concern • Leads to higher unemployment and price instability • When prices keep dropping, people tend to think things will be cheaper tomorrow and won’t spend • The housing market will continue to get weaker under these conditions • The risk of “run-away” deflation or a “deflationary spiral” can occur in a recession when people and businesses are deleveraging and trying to pay off debt and can lead to a depression • Deflation is very hard to fight once it gets out of control • Deflation occurred in the recent financial crisis

15. Inflation • The Fed currently has a 2% inflation target • Stable levels of inflation are healthy for the economy, allows price stability • Inflation causes people to think that prices will be higher tomorrow, so they will spend and invest • Fed has more tools to fight high inflation, such as raising the interest rates banks borrow at • Hyperinflation—not good

16. Airtime: Thurs. Nov. 4 2010 | 4:23 PM ET Market Technicals

17. Video Summary • Market needs to rest before it goes higher, otherwise there’s a risk of a major correction • Market cannot continue rally without the financials participating and coming back to life • Dollar index is basically an inverse relationship or mirror image of the S&P 500

18. Economic Data week of 11/1/10 • ISM • Payroll number/unemployment rate, etc

19. BHP Billiton’s bid for Potash Corp • Canadian Gov’t blocks BHP Billiton’s $40 billion dollar bid for PotashCorp (POT) on Nov 3rd • Would have been the biggest M&A deal in 2010 • BHP has 30 days to put a better deal on the table • Many think the deal is already dead • Canadian Gov’t most likely wants to protect it’s strategic assets, POT is the biggest potash producer in the world • BHP might go for a smaller fertilizer company than POT like Mosaic (MOS) or Agrium (AGU) next