MAY 2012

THIS PRESENTATION WAS PREPARED BY:

THE HEDGEYE MACRO TEAM 1

2Q 2012

LAST WAR: FED FIGHTING

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1Q12 THEMES RECAP

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Strong Dollar = Strong Consumption: worked for us in January (until Bernanke’s January 25th Policy To Inflate speech). Deflating the Inflation II: that continues to work for us as the US Dollar continues to make a series of long-term higher lows. Growth Slowing’s Bottom: that worked until it didn’t (January 25th); since February, Growth Slowing has gone global again.

LAST WAR: FED FIGHTING

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2Q 2012

LAST WAR: FED FIGHTING

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“The effects of printing dollars are global; by engaging in quantitative easing, the Fed has effectively declared currency war on the world.”

Rickards, James (2011-11-10). Currency Wars: The Making of the Next Global Crisis (Kindle

Locations 101-102). Penguin Group. Kindle Edition.

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1776 - To finance the American revolution, the Continental Congress printed the first fiat money called “Continentals”. Due to rapid inflation, the term “not worth a continental” came to mean “utterly worthless”.

1791 – Treasury Secretary Hamilton urged Congress to establish the first Bank of the United States. It became so dominated by banking and special interests that its 20-year charter was not renewed.

1816 – The political climate become more palatable to a central bank and a new 20-year charter was established. Ardent Central Bank foe, Andrew Jackson, was elected president in 1828. He was successful in his vow to kill the central bank, with the charter expiring in 1836.

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1836 - 1914 – America, which had no central bank during this period considered the first age of globalization, also experienced inflation. The St. Louis Fed wrote about this period: “Economic performance in the United States . . . Was superior under the classic gold standard to that of the subsequent period of managed fiduciary money.”

1913 – The panic of 1907, initiated by the Knickerbocker Trust and other New York banks attempting to corner the copper market, created the perceived need for a lender of last resort. A group of Wall Street bankers drafted “The Federal Reserve Act of 1913” in secret at the exclusive Jekyll Island Club.

1935 – The “Banking Act of 1935” included the creation of the Federal Open Market Committee (FOMC) as a separate legal entity, removal of the Treasury Secretary and the Comptroller of the Currency from the Fed’s governing board and establishment of the members’ terms at 14 years.

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“The Congress established the statutory objectives for monetary policy--maximum employment, stable prices, and moderate long-term interest rates--in the Federal Reserve Act.” - FAQ on federalreserve.gov

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“Achieving price stability is not only important in itself, it is also central to attaining the Federal Reserve's other mandate objectives of maximum sustainable employment and moderate long-term interest rates.” - Chairman Ben S. Bernanke

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“Fed money printing on a trillion-dollar scale may be new, currency wars are not. Currency wars have been fought before—twice in the twentieth century alone—and they always end badly. At best, currency wars offer the sorry spectacle of countries stealing growth from trading partners.”

- James Rickards, “Currency Wars”

“China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.”

- China Daily, September 24th, 2010

BERNANKE’S BUBBLES

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BERNANKE’S BUBBLES

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ASYMMETRIC RISKS

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ASYMMETRIC RISKS

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This presentation was prepared by Keith McCullough, Daryl Jones, Howard Penney, Matt Hedrick, Rory Green, Darius Dale, and Kevin Kaiser.

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or email: sales@hedgeye.com 50