BASIC MATERIALS

Ryan Shelley Bill McCarran Thao Truong

AGENDA

Current Holding Sub-Industries Sector Leaders Materials Outlook Deere & Co (DE) Alcoa (AA) SPDR Gold Trust (GLD) Recommendations Q&A

Current Holdings

Alcoa (AA) Purchased 9/14/11 283 shares @ $10.44

Deere & co (DE) Purchased Feb 25th 2011 25 Shares @ $90.49

S&P Basic Materials Weighting: 3.7%

Atkins Basic Materials Weighting: 5.3%

Purchase: 2.2%8/31/11: 2.2%YTD: 23.75%Purchase: (1.99%)8/31/11: 9.8%YTD: 14.41%

SPDR Gold Trust Gold Spot: $1,736

GLD: $168.50Mkt Cap: 71.46 BExpense: .4%

Beta: .11Inst own: 42%1 GLD= 1/10 an ounce

Who Holds gold

1. U.S. - $418 billion 2. Germany $174.7

billion 3. IMF $144.76 billion

4. Italy $ 126.12 billion

5. France $125.28 billion

6. SPDR Gold ETF $72 billion

20%

50%

18%

12%

World Gold Holdings

CBs

Jewlery

Investments

Industrial

Gold investment rationale

1. Demand > Supply

2. Increasing Global MS

3. Low Real Int Rates

4. Weak Dollar

5. Econ/Political uncertainty

6. Portfolio diversification

Gold Supply

2011: 2% Driven by

recycled Min-ing60%

Re-cy-

cled40%

China 14%

Australia 10%

US 9%

Africa 8%

Russia 8%

1. Demand > Supply

Gold Demand

2011: 6% Investment driven: 33% yoy Central Banks buying

1. Demand > Supply

Central Banks

Central Banks purchases were up 200% Signaling concerns about weak currency China: moving from Treasuries to Gold: +30%

YoY WGC predicts purchases to continue for 2012

Negative Real rates: continue to diversify to Metals

Gold as % of foreign reserves Developed nations: 70%

Brazil

.5%

Russia

8.2%

India 8.5%

China

1.6%

Japan

3%

1. Demand > Supply

Today’s World

Global debt crisis Devalue vs Default 1. Devalue:

Target Int rates Increase MS Weak currency

2. Default: Ugly

Debt/GDP

10yr bond

Greece

140% 25.11%

Italy 119% 7.26%

Ireland

96% 7.88%

US 100% 1.95%

Spain 60% 5.77%

Portugal

180% 15.22%

2. Global Money Supply

Global MS &Gold

Loose Global Monetary Policies QE programs: US, JAPAN, UK ECB LTRO to inject liquidity

2. Global Money Supply

United States

US Debt to GDP 100% Fed promises low int rates and

possible QE3

Stocks P/B: 2.05

Graph: Monetary policy & stocks1. Rates low to mid 20132. Operation Twist3. US $ liquidity4. ECB LTRO5. China stimulus6. Rates low to mid 2014

2. Global Money Supply

Europe & ECB

ECB initiates LTRO 3 yr loans to help fund $960B in debt due next

yr

2. Global Money Supply

Europe Crisis

Gold coin: “Heads I win, Tails you lose”

Bond Purchases

Est $2.5 Trillions

Italy+France+Greece

$5 Trillion Debt outstanding

3,4 times Feds QE

Currency break up

Greece returns to Drachma

Capital controls

Gold as currency?

No Resolution

Faith disappears

2. Global Money Supply

Japan

Debt-GDP: 220% 10yr yield .98%

60% debt to roll over in next 5 yrs More borrowing

April: $566 bill to fund budget 2011 first trade deficit- Needs weaker YEN

Sustainable? What’s the Trigger

S&P warn of a downgrade Europe default: Greece, Portugal?

QE boosted to $715B this Oct.

2. Global Money Supply

US Real Interest Rates

1. Implies poss. inflation

2. Investors seek alt. investments

3. Implies weak economy

Gold inverse relationship with real int rates

10 yr yield: 2% Real int rate: -.2%

Fed promise to keep rates low

Limited downside risk

3. Low Real Int Rates

Dollar Index & Gold

Weak dollar performance Debt, Feds weak $ policy, & Trade imbalance

4. Weak US $

Portfolio Diversification

Risk management Low Volatility Low Correlation Superior risk adjusted

return

6. Diversification

Gold Performance charts

Morgan: $2200

BofA: $2000 Barclays:

$1975

Risks

Stronger economy no QE3 Strong Dollar India demand CME Margin Hikes Further correction

Highlights

Physical Demand > supply China and India Miners quit hedges Global MS outpacing gold prices

Monetizing Debt More to liquidity to come

Falling Real interest rates Political stand still: EU, US Diversification benefits

Recommendations

Option 1: HOLD DEERE SELL ALCOA BUY SPDR GLD

Option 2: HOLD DE & AA

Q & A

Fear

Correlation to VIX

Gold and MS2. Global Money Supply

ETF VS MINING

Cutting out the middle man Geographical & Political risks

Africa High Energy Cost

Hurting Margins Top 4 Miners coming up empty handed

More $ chasing less Gold

Graph??????? Vs mining