Summer Goldrums29 May 2014

War Room

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Presentation deck

Product UpdatesScenario Updates

I. Market Update

II. Gold Scenarios

III. Gold 101

IV. Gold Macro Picture

Summer Goldrums

HiddenLevers

MARKET UPDATE

Market Update

EU Deflation = QE Reborn

World Cuprising

EM regime changes

US-China Tensions

sources: HiddenLevers, Marketwatch, New Yorker, Wikipedia, Reuters

Macro Snapshot

Endless bull? VIX + UI claims at 2007 levels, and 10Y diverging southward

SUMMER GOLDRUMS – SCENARIOS

HiddenLevers

Review: Gold Crash Scenario – Aug 2011

Solid analogyGold 2011-13Oil 2008-09

gold miners distinction

was key

start of HL risk parity

ethos

Gold Crash Amidst Uptrend100% priced in

Aug 2011

Dec 2013

-33%

Slide from Aug 2011 War Room

sources: HiddenLevers

Ugly: Gold signals Deflation

caveatgovt price controls

MDD700usd/ounce

fiat currency1930s

analogiesinvalid

USDpurchasing

power rising

1929-41

CPI

Gold Standard

sources: HiddenLevers, MarketWatch, USAGold.com

Several precedents on- 40-50% MDD

Bad: Gold 1k drift

don’t confuse bounce for long term investment

Fed sees no inflation risk,

continuing taper

MDD1000usd/ounce

-40% dropfits into usual

MDD paradigm

technical support

at 1k

$1000/ounce

Good: Gold Rebound

Bounce off technical

support at 1k

QE ending priced in, so is gold bottom

Safe-harbor during EM chaos

Russia, Ukrazy escalation

India/China demand surprise

sources: HiddenLevers, Forbes, WSJ, John Holt

Scenario: Summer Goldrums

GoodGold

Rebound

BadGold 1k Drift

UglyGold Signals

Deflation

Rising inflation could drive gold prices back up – if a source of inflation can be found.

Typical gold decline is 40-50% from peak, 1900 -> 1000 in this cycle. This could occur while S&P continues its steady climb.

A deeper gold crash could be a harbinger of deflation, which is negative for both equities and gold.

HiddenLevers

SUMMER GOLDRUMS – GOLD 101

Gold 101 – Overview

Gold trading below long term oil-gold ratio, as it did for most of ‘00s

Median Ratio = 15

Silver follows gold –precious metals moving together

Gold demand down 3 years straight

sources: HiddenLevers, World Gold Council

Gold 101 – Interest rates + Inflation

source: HiddenLevers, Reuters

Gold price returns follow

inflation…

And by extension rates as well.

Gold 101 – Historical Comparisons

source: Bloomberg, HiddenLevers, Principes de Science Economique

Gold Era Max Rise MDD

Jan 1973 – Dec 1974 +197% -

Dec 1974 – Aug 1976 - -44%

Aug 1976 – Jan 1980 +551% -

Jan 1980 – Jun 1982 - -48%

Mar 1985 – Dec 1987 +70% -

Dec 1987 – Apr 2001 - -47%

Apr 2001 – Sep 2011 +637% -

Sep 2011 – present - -35%

• Real commonality between events driving gold: Inflation

• Gold has experienced numerous bull/bear cycles, with typical Max Drawdown over 40% before new cycle begins

• Gold 10y standard deviation almost 20%, greater than S&P 500

Gold 101 – Recap

worldwide demand down3 years running

typical Gold drawdown = - 40-50%

volatility: Gold > S&P 500inflation = key driver of Gold

HiddenLevers

SUMMER GOLDRUMS – MACRO PICTURE

Macro Picture – India

source: HiddenLevers, WSJ, CNN

Post 2014 election• BJP govt relaxing import laws• Investors selling, prices weaker• Shortage of gold over• Jewelers not buying for long-term

2013• Rupee tanks• Stocks rally to record• US recovery boon to software + exporters• State-run Gold importers only• Gold performance = -28%

Rupee strong, diverging

Macro Picture – China

source: HiddenLevers, Economic Times, Shanghai Daily

Yuan USD fix over

2013 ---> 2014• Jewelry demand up 9%• Investor demand down 17% 2013

China CPI vs Gold

Macro Picture – Bitcoin + Other Alternatives

History

Gold: 5000y

BTC: 4y

source: Coin Market Cap, Only Gold

02000

40006000

8000

Bitcoin

Gold

Market Cap in Billions of USD

Market Caps

Gold: 6500 B

BTC: 7.3 B

Crypto-currencyMarket

7.8 B

Similaritiesdivisible, durable, known/limited supply, transferrable.

Macro Picture – Global Deflation Risk

sources: HiddenLevers, Economist

technology automation

commodities sinking

first world baby bust decreasing birth rate

sluggish GDP growth

If you believe inflation will return, buy Gold.(we don’t)

China + Goldjewelry, not investment

global deflation = quicksand

India no longer worships gold

Macro Picture – Recap

Bitcoin – the new girl in school

HiddenLevers Use Cases

scenarioEnd of QE

scenarioGlobal Deflation

scenarioGold Crash

Summer Goldrums

Data CenterCommodities

Data CenterCurrencies

• Annuities Support (Fixed / Variable / Equity Indexed)

• Advisor Fees Support

• Index Correlations

• Options Support – Call Writing

Integrations:

BlackDiamond

WealthAccess

Product Update