Perfect Storm for Commodities 05 December 2013 War Room

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I.Market Update II.Perfect Storm for Commodities III.Scenarios IV.Winners + Losers War Room

HiddenLevers MARKET UPDATE

Market Update QE Taper Tantrums Q3 US GDP = 3.6%Iran Détente Nasdaq 4k

Macro Snapshot Employment, manufacturing, equities, and bond spreads trending in the right direction – why won’t CPI get with the program?

PERFECT STORM FOR COMMODITIES HiddenLevers

Commodities Past Real commodities prices flat since 1870’s – 0% real growth Commodities markets appear highly cyclical over 200 years, and we look to be at a top source: Business InsiderBusiness Insider

Commodities Present: Oil & Energy sources: EIA, DOTEIADOT US oil production has recovered rapidly, while total vehicle miles are well below 2007 peak. But global demand and risk premium have kept oil up 4.6% YTD. Supply is up…And demand is flat.

Commodities Present: Metals Gold -27% YTD Silver -37% YTD Silver tracking gold down perfectly, with leverage Copper -13% YTD Aluminum -18% YTD Copper and aluminum falling on weak global demand

Commodities Present: Agriculture source: HiddenLevers, UN, Financial TimesFinancial Times -16% YTD -27% since July 2012 Long term trend Agriculture commodities down since mid 1990s Double digit declines in expected triple top Reasons for continuing drop - Favorable weather - Falling input costs - Larger harvests - Bumper crop in corn

Commodities Future: Deflation? CPI has generally followed S&P 500 – divergence started mid-2012 US CPI had a lagged correlation with S&P 500 until breakdown in mid-2012, despite Fed efforts. Are commodities and CPI predicting deflation?

precious metals out of favor Food prices deflating into 2015 US oil demand declining Perfect Storm for Commodities – Recap Top of Commodities Super Cycle

HiddenLevers COMMODITIES DEFLATION – SCENARIOS

Scenario: Commodities bounce back EM/BRICS recovery is key Signals rising world wide inflation source: HiddenLevers Equities now a leading indicator economy USD weakness helps spur commodities Will this trend pick up?

Scenario: Equities decoupling continues US economy pickup doesn’t increase commodity demand QE continuing means decoupling story in tact source: HiddenLevers QE meltup + deflation in other risk assets Tech growth in US is not like manufacturing growth in EM Decoupling is the current dynamic S&P+ 125% Oil- 55% Copper- 55%

Scenario: Equities follow Commodities down Industrial metals and S&P have long history source: HiddenLevers Deflation spiral on all risk assets Fed taper will kick this off 2008 Crisis S&P- 52% Oil- 76% Copper- 64%

Good Commodities Bounce Back Bad Decoupling continues Ugly Equities follow Commodities Scenarios: Perfect Storm for Commodities EM recovery would lead to rising inflation and a commodities bounce. Commodities could decouple from equities if tech-led growth continues Fed has failed to raise CPI – could be prelude to stronger deflation, with commodities and equities down together

HiddenLevers WINNERS + LOSERS

Winners – Middlemen Food Makers Car Makers Utilities Oil RefinersPlane Makers

Winners – Lower input costs

Losers – Producers + Resource economies source: HiddenLevers Gold -27% YTD GDX -55% YTD Gold miners + producers are leveraged plays on commodity prices CAD -8% YTD AUD -14% YTD Currencies of commodities suffering with key exports

Find it on HiddenLevers Scenario Library Risk Profiles for securities Macro Themes Economic Data Center source: BurtynskiBurtynsk War Room Gold Crash Commodities Industry groupings War Room BRICS

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