Nordic Association of Electricity Traders 15 th anniversary of NAET in Paris

1. Nordic Association of Electricity Traders 15th anniversary of NAET in Paris David Fuller 14th April 2011 Bubbles, Supercycles and the Next Three Big Energy Stories

2. The Art of Bubbleology What are the two really big bubbles today? Can you identify them?

3. September 1981 US 10-yr T-Bond Yield 28-year bull market over Secular bear market beginning Yield should at least over next ten years Does it make sense to buy at these yields?

4. 30-year T-Bond futures - (My Baby Steps tactic) Expecting a ranging downward bias, I short lightly on rallies and cover incrementally on declines

5. G-7 sells JPY JPY/USD Yen bubble burst by multilateral intervention

6. USD/JPY – From ¥360 to ¥76.25 on 17/03/11 – G-7 intervenes on the following day

7. Happiness in forex is having the central bank(s) and the trend on your side.

8. Previous multilateral interventions • Plaza Accord September 1984 (weaken USD) • Louvre Accord February 1987 (support USD) • April 1994 – August 1995 (support USD) • September 2000 (support EUR) • March 2011 (weaken JPY) • Previous multilateral interventions have always been successful, if not immediately, • over the medium term.

9. Using Baby Steps, I buy on easing and lighten on rallies, looking for ¥90 to ¥100

10. Same tactic applicable for EUR or any other currency against the yen

11. Supercycles Do you see any?

12. Continuous Commodity Index (Old CRB) An equal-weighted geometric average of commodity price levels relative to the base year average price Supercycle 1971 to 1980 Supercycle 2001 to 20??

13. Continuous Commodity Index (Old CRB) Semi-log scale

14. Which global economic trend do you think we will we see: • Depression? • Muddle through? • Supercycle?

15. Supercycle: “A period of historically high global growth, lasting a generation or more, driven by increasing trade, high rates of investment, urbanisation and technological innovation, characterised by the emergence of large, new economies, first seen in high catch-up growth rates across the emerging world. “Growth will be strong but not smooth – the business cycle exists.” Gerard Lyons, Chief Economist and Group Head of Global Research at Standard Chartered Bank 15 November 2010

16. “The first supercycle took place during the second half of the 19th century, from 1870 until 1913, the eve of the First World War. At the time, the world economy witnessed a significant step-up in its rate of growth, rising 2.7% on average per annum in volume, or real terms. That was a full 1% higher than the average growth rate seen during the previous half-century. America was the big gainer, moving from the fourth largest to the largest economy.” Gerard Lyons, Standard Chartered Bank 15 November 2010

17. “The second supercycle was after the Second World War until the early 1970s. World growth averaged a huge 5% per annum, again real or inflation-adjusted terms. Japan and the Asian tigers saw the biggest gains over the time.” Gerard Lyons, Standard Chartered Bank 15 November 2010

18. Supercycle enablers: • (1870-1913) technologies emerging from the Industrial Revolution • (1945-1971) post WW2 reconstruction and emerging middle class in the west • (2003-20??) near universal adoption of capitalism, globalisation, accelerated technological innovation, emerging middle classes from Asia to South America and Western Europe

19. The next three big energy stories – what are they?

20. 1. Shale gas 2. Shale oil 3. Nuclear renaissance (subject to governance)

21. Source: US Energy Information Association (EIA) April 2011

22. Regions currently known to have shale-gas reserves

23. “Study reports non-US global shale gas recoverable resources of 5,760 Tef; global shale gas boosts total recoverable natural gas resources by 40%.” EIA (US Energy Information Association) 6 April 2011 Note: This 40% estimate above is based on a very conservative recovery of only 20% to 30% of currently known reserves.

25. The nuclear renaissance was finally underway, until…

26. Nuclear Godzilla Unleashed

27. The biggest nuclear risk - Most the reactors used today were built in the 1970s – 1980s. No wonder they leak!

28. Fuel for the Pebble Bed Reactor – meltdown free?

29. Pebble Bed Nuclear Reactor

31. Pebble Reactor Nuclear Fuel

32. Where does their electricity come from?

33. Uranium (MBURNXRE)

34. Shall we look at some stock markets? The best ones will have already surpassed or at least equalled their 2007-2008 highs.

35. Stock markets are currently caught within a tug of war. Commoditiesvs Liquidity Consequently ranging is occurring, albeit within a cyclical bull market.

36. Denmark

37. Finland

38. Fortum yield 4.25%

39. Norway

40. Sweden

41. S&P 500 Index since 1953 Secular valuation contraction 2000 to 2015? David, SPX historic, semi-log here Box and label the valuation contraction cycles Secular valuation contraction 1967 to 1982 Updated through 30 Sept 2010

42. S&P 500 important because of leash effect Susceptible to further mean reversion towards rising MA

43. S&P 500 ÷ Gold Bullion

44. NDX 100 above 2007 high, outperforming S&P 500 but still susceptible to MA mean reversion

45. German DAX susceptible to further ranging mean reversion

46. Fullermoney secular equity themes: Asian-led emerging (progressing) markets Central and South American-led resources markets Precious metals Industrial resources Supply inelasticity themes such as energy and water Global infrastructure development Information technology Western multinational leaders leveraged to global growth Dividend ‘aristocrats’

47. How many of you are bearish of China? List reasons:

48. Property bubble Ghost cities Desertification Aging population Inflation Authoritarian government Corruption Command Economy

49. Ancient civilization Huge population Work ethic Self-belief Education Command capitalism Huge foreign reserves Visionary planning

50. China Shanghai A-Shares Massive issuance of government held, previously unlisted shares to raise bank reserve ratios from Aug 2009 to Nov 2010 Now has medium-term upside breakout potential