1. Prepare For The ComingStock Price Invasion Dian L. Chu, June 2010Economic Forecasts & Opinions

2. Executive Summary Macro Environment From Biflation to a tale of two inflations Hyperinflation & Stagflation Employment & Wage Meager growth next two years Stock Price Invasion Expect a margin squeeze to put a drag on stock prices as companies are unable to pass through the cost increase from the raw material side Four Investment StrategiesBy Dian L. Chu, June 2010 2 3. Europe Debt Crisis Deepened in 2010 Chart Source: The Economist & CFRBy Dian L. Chu, June 2010 3 4. Increasing Concerns of Deflation More pronounced in Europe as spending cuts and tax increases could weigh on economic growth and feed into deflation. Chart Source: The Economist By Dian L. Chu, June 2010 4 5. Slowing Inflation in the U.S. Consumer Prices were up 2.2% in May year- over-year Core CPI was up just 0.9% in May, the smallest increase since 1966.By Dian L. Chu, June 2010 5 6. Goldman Consumer Price Index [Goldman Sachs Diffusion Index] shows clearly that the disinflation since mid-2008 has a considerable amount of breadth. Consumer prices are falling across a wide cross section of the economy right now.~ Goldman Sachs By Dian L. Chu, June 2010 6 7. Easing Inflation Expectation The TIPS market suggestsinvestors' longer-terminflation expectations arerising since hitting bottom inQ4 2008. The implied annual inflationrate over the next decadenow stood at around 2.03%,rising from around 1.47% ayear ago, but down from2.41% at the end of 2009.By Dian L. Chu, June 2010 7 8. Plunging Money Supply The M3 money supply in the U.S. is contracting at a rate matching the Great Depression, also pointing to the risk of deflationBy Dian L. Chu, June 2010 8 9. Commodity Prices Shot Up The May core PPI for crude goods shot up 60%year-over-year, the fastest rate since 1974. Includingenergy and food costs, crude goods prices rose21.2%. Chart Source: U.S. BLS By Dian L. Chu, June 20109 10. Increasing Backlog Backlogs are rising uniformly worldwidesignaling more inflationary pressure in thepipelineISM Manufacturing BacklogsISM Manufacturing Backlogs6565606055555050454540403535303025252020200520062007 200820092010 2005 20062007 2008 20092010 USJapanEurozone ChinaBrazilIndia Source: IHS/Global Insight By Dian L. Chu, June 201010 11. The Employment Malaise The jobless rate rose to 9.7% in May - Slow recovery from the 26-yearhigh of 10.1% in October 2009. The underemployment rate was 16.6% in May, still close to Octobers17.4%, a record high. Wage growth in the U.S. will be meager near 2% over next twoyears.~ IHS/Global Insight Chart Source: World Economic Outlook, Apr. 2010, IMFBy Dian L. Chu, June 2010 11 12. Consumer Confidence Household confidence in advanced economies continues to lag, reflecting subdued employment.~ IMFSource: World Economic Outlook, Apr. 2010, IMF By Dian L. Chu, June 2010 12 13. Most Likely Scenario This could result in a combination of: Pushback from endmarkets are strongenough to trigger pricecorrections directly atsome of the overheatedcommodity levelAnd Companies are forced toabsorb part or all of thecost increasesdepending on thestrength of end markets By Dian L. Chu, June 2010 13 14. Biflation Through 2012 Biflation - A state of the economy where inflation and deflation occur simultaneously Pockets of inflation seen as money flowed into certain categories such as energy and feedstock chemicals and deflation in other non- essential categories Netted to a modest headline consumer inflationBy Dian L. Chu, June 2010 14 15. Bad News For Many Companies Raw material price increases begin to move down the supply chain, pushing up companies costs However, end markets are still too weak to allow a full price increase Many companies say they are reluctant to pass price increases to consumers who are still jittery from the recession Margin Squeeze a drag on shareChart Source: WSJ.compricesBy Dian L. Chu, June 2010 15 16. Asia Leading The Growth Real GDP growth picked up starting in Q2 2009. However, output in most regions of the world remains below or around pre-crisis levels The exception is emerging Asia, which accounts for a growing share of world activity. Commodity prices have rebounded in response to expanding activity Source: World Economic Outlook, Apr. 2010, IMFBy Dian L. Chu, June 201016 17. 2013 - A Tale of Two Inflations Stagflation in developed regions such as the U.S. and Europe, where imported higher inflation from the emerging countries will likely be met with stagnant growth. Hyperinflation in developing and emerging economies due to robust growth. Inflation in India already reached above 10% in May, Source: World Economic Outlook, Apr. 2010, IMF2010By Dian L. Chu, June 201017 18. Investment Strategy # 1 Commodities via physicalETFs or mutual funds Natural gas, copper andagriculture products lookrelatively undervaluedright now Stocks and/or ETFs ofcommodities producers Long term play Crudeoil, oil products, and oilproducers By Dian L. Chu, June 2010 18 19. Investment Strategy # 2 Pare equity holdings with heavyexposure in the U.S. andEuropean markets, particularlythe retail and consumer goodssector. Invest in luxury brands withgood exposure to emergingmarkets Drug and health care sectorsshould still perform relativelywell regardless of regions Investors have poured $27billion of net new money intoforeign equity funds this year,while yanking $20 billion out ofU.S. equity portfolios. By Dian L. Chu, June 2010 19 20. Investment Strategy # 3 Gold shines in times of inflation as well as deflation 3-5% of portfolio should be allocated to gold and other precious metals via physical holdings and/or physical ETFsBy Dian L. Chu, June 2010 20 21. Investment Strategy # 4 Cash and mixture of ETFs and/or mutual funds of short and long dated bonds and TIPS Real estate in the U.S. looks to have another leg down in the 2nd half of this year could be a good long term opportunity in selected markets. Real estate market in China could have a cooling off period with Beijing trying to prevent asset bubbles Could be good entry point in the sector for a long term playBy Dian L. Chu, June 201021 22. Prepare For The ComingStock Price InvasionDian L. Chu, June 2010 Economic Forecasts & Opinions