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War Room 31 July 2012 Commodities Schizophrenia

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. Nat Gas + Coal: A Tale of Two Electricities Oil Prices – Mid-year Pulse Check

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War Room 31 July 2012 Commodities Schizophrenia

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  1. War Room 31 July 2012 Commodities Schizophrenia

  2. War Room • Monthly macro discussion • Using tools in context • Update on HiddenLevers Features • Your feedback welcome

  3. Commodities Schizophrenia • Nat Gas + Coal: A Tale of Two Electricities • Oil Prices – Mid-year Pulse Check • Agricultural Commodities = Winner! • Scenarios

  4. HiddenLevers Natural gas + Coal: a tale of two electricities

  5. Nat Gas + Coal: A Tale of Two Electricities source: US Energy Information Administration Nat Gas overtaking coal in 2012 as biggest resource for electricity generation

  6. 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 planning PCX Coal ETFs

  7. Natural Gas + Coal – Carnage in both camps source: HiddenLevers Neither Coal Miners nor Natural Gas Drillers have been good investments

  8. Nat Gas Opportunity – Utilities, not Drillers Source: HiddenLevers Gas and Electric companies rock - lower prices for Nat Gas + Coal - Usually offer a nice yield

  9. HiddenLevers Oil Prices – mid year pulse check

  10. Oil Prices – Iran + Europe tug of war • 2012 – 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

  11. Oil Prices – HiddenLevers gets it right in Jan 2012 slide from Jan 2012 War Room – Got Oil?

  12. HiddenLevers Agricultural commodities = winner!

  13. Agro Commodities – Bucking Trend Source: HiddenLevers

  14. Big Cap Food - Bright Spot in Commodities Source: HiddenLevers

  15. Agro Commodities ETFs – Choose Wisely! • 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%) click to get live chart Dude, where’s my alpha?

  16. Long Agro? – Try Consumer Staples over Commodity Funds • Benchmarking Agro Funds • 1y 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

  17. HiddenLevers Commodities schizophrenia - Scenarios

  18. Climate Change: Will We Adapt? Guidance Agro commodities prices rise, but less quickly Manageable CPI rise, consumer confidence not heavily affected GDP growth rises due to investments in infrastructure and durable goods Guidance Agro commodities prices skyrocket due to decreased supply and increased global population CPI rises with food prices, and consumer confidence is negatively impacted GDP growth could slow to standstill, based on subpar legacy infrastructure DOD budget rises to cope with rise in global conflicts over resources Both Scenarios: 1. Agricultural Commodities rising 2. CPI rising - inflation

  19. HiddenLevers – Product Update • Macro Profile - Improved • Scenario Impact Widget • Coming soon: • iPad App (beta) • Big Screen Presentation (beta)

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