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Kevin M. Wilson, ChFC , PhD President/CEO/CIO

Monthly Market Review “What We Like Right Now” March 15, 2012. Kevin M. Wilson, ChFC , PhD President/CEO/CIO. Dheenu Sivalingam, MBA AVP/CCO/Senior Analyst. Ted A. Pavlovich, WMS VP Wealth Management. Office: 218-464-4399 Toll Free: 877-327-5062 Fax: 218-464-4397

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Kevin M. Wilson, ChFC , PhD President/CEO/CIO

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  1. Monthly Market Review • “What We Like Right Now” March 15, 2012 Kevin M. Wilson, ChFC, PhD President/CEO/CIO Dheenu Sivalingam, MBA AVP/CCO/Senior Analyst Ted A. Pavlovich, WMS VP Wealth Management Office: 218-464-4399 Toll Free: 877-327-5062 Fax: 218-464-4397 Email: info@bluewater-cap.com www.bluewatercapitaladvisors.com 1314 E. Superior Street Suite 2 Duluth, MN 55805 1

  2. IntroductionTed a. pavlovich 2

  3. “We live in what most business commentators call a volatile world. I would argue that when an environment is continuously unstable, it is no longer volatile. Rather, we have entered a new economic era. It could remain this way for a long time….” - Jeff Immelt, head of GE, the largest US conglomerate, in his annual letter to shareholders. This is the quote of the year or possibly the decade. 3

  4. Monthly Situation reportTed A. Pavlovich 4

  5. Slow-Motion Bank Run In Europe

  6. ECB’s LTRO Program Has Provided Liquidity

  7. European Recession Has Begun, Raising The Risk of Contagion

  8. China’s Economy Slowing Rapidly

  9. Downward Unemployment Trend May Reverse

  10. Gov’t. Unemployment Data Not Confirmed By Tax Rolls?

  11. Changes To Tax Code Will Affect Income Investors

  12. High quality stocksdheenu v. sivalingam 12

  13. The Case for Quality“You can’t make a silk purse out of a sow’s ear.” • How do you define "quality" stocks? • Quality companies as those with high and stable profitability, and low debt. These companies are able to maintain high levels of profitability over longer time periods than the market in general, thus mitigating the tendency for profits to regress to mean levels. Low leverage High profitability/High profit margin Low earnings volatility Lower Beta 13

  14. The Seven Immutable Laws of Investing (GMO) • Always insist on a margin of safety • This time is never different • Be patient and wait for the fat pitch • Be contrarian • Risk is the permanent loss of capital, never a volatility number • Be leery of leverage • Never invest in something you don’t understand 14

  15. Quality stocks have beaten out low quality stocks over the long term 15

  16. 16

  17. Valuation are the primary determinant of long-term returns 17

  18. Which Portfolio Offers the Greatest Potential to Enhance Total Return? (BWCA’s Current Holdings Have Avg. Quality Scores of 80) 18

  19. Energy & agricultural industry stocksKevin M. Wilson 19

  20. DEMOGRAPHIC THEME Population Growth Rate Has Been Falling… 7 Billion But Actual Population Is Still Rising (7 Billion) 20

  21. China and India Will Again Put a Strain on Global Food Supplies Later in 2012-13 21

  22. Regionally (e.g., Africa, China) This Decline Is Already Happening

  23. Climate Patterns Cause Problems La Nina El Nino

  24. Demand For New Crops Increasing

  25. Gasoline Prices Abnormally High

  26. Gasoline Prices Directly Related To Brent Crude Prices

  27. Oil Price Spikes Associated With Both Kinds of Recessions BSR

  28. Real Prices Not Much Higher Than In 1918, But Rate of Change Very Damaging

  29. Why High Prices: (1) Oil Prices Unstable Due To Marginal Demand Pricing x 2012 x 2011

  30. Why High Prices: (2) Middle East Security Risks Might Change Supply Bottleneck: Straits of Hormuz Source: USGS, 2003

  31. Why High Prices: (3) Discovery Rate Permanently Lower

  32. Ghawar Super-Giant Irreplacable Source: USGS, 2003 32

  33. Projected Level Of Production/Reserves = 1.8 x Saudi Arabia’s (In 6 Years) – Note That US Will Get 3-5 MMBOPD From Oil Shale By 2020 20 mmbo/d

  34. Why High Prices: (4) Global Spare Capacity Now Falling Rapidly

  35. US Industry’s Response To High Prices Strong, Yet Production Still Not Adequate

  36. However, More Oil Wells (Less Natural Gas Wells) Are Being Drilled

  37. Sophisticated Horizontal Drilling Changed Everything

  38. “Fracking” Changed Everything (Process: Set Casing, Run Cement, Perforate, Frack, Cleanup)

  39. Global Natural Gas Demand Rising Source: ExxonMobil 39

  40. Natural Gas Prices Have Plummeted… …But Arbitrage With EU & Japan Will Promote Eventual Global Market

  41. Shale Plays Have Tremendous Reserves Of Both Oil & Gas Bakken Marcellus Regional Plays, But Each Has Its Own “Personality,” Especially w/Respect To Completion Techniques Antrim Barnett

  42. Poor Shale Reservoir Quality Means Rapid Production Declines – An Automatic Stabilizer If Firms Stop All Drilling In Response To Low Prices 80% Initial Decline Rate Not Really A Reservoir In Classical Sense

  43. Income-oriented playsKevin M. Wilson 43

  44. In This Environment Dividends Are Even More Important Than Normal

  45. Income Investing Has Been Useful, And Will Continue So

  46. -Risk/Reward Dangerous, But Market Still Wants To Go Up Near Term -Economic Data and Earnings Should Cause Big Doubts By Summer -We like High Quality, Energy, Agriculture, Biotech, Dividends, Value -If Market Sells Off, Risk/Reward Will Be VG & Huge Opportunity Awaits Summary & Conclusions KEVIN M. WILSON 46

  47. Disclaimer This report is provided for informational purposes only and does not constitute an offer or solicitation to purchase or sell any security or commodity and is not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Any opinions expressed herein are subject to change at any time without notice. Information has been obtained from sources believed to be reliable, for its accuracy and interpretation are not guaranteed. Investing in securities involves risk, including possible loss of principal. Past performance should not be taken as an indication of guarantee of future performance and no representation, express or implied, is made regarding future performance. The firm does not provide tax advice; clients should contact their attorney, accountant, or other tax adviser regarding tax matters. Blue Water Capital Advisors, LLC is an SEC registered investment advisor. Not FDIC insured. No bank guarantee. May lose value. Not a deposit. Not insured by any federal government agency. Blue Water Capital Advisors, LLC is not affiliated with National Bank of Commerce or NATCOM Bancshares, Inc. 47

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