Agcapita Update September 20, 2012

Agcapita Update

THE BULL MARKET IN UNINTENDED CONSEQUENCES CONTINUES - STAGFLATION The central bankers of the two key western economies have pulled out all the monetary stops in recent weeks. Our mandarins of money assure us that this time their efforts will be sufficient - that this unlimited expansion in central bank balance sheets/ money-supply will provide the raw material for a rebirth of real growth in the west. I would disagree - the western economies currently have in place the raw materials for stagflation: Aging populations; Large unfunded public liabilities; High total debt-to-GDP levels; Low savings rates; Overhang of unliquidated mal-investments; Growing state sectors; and Large fiscal deficits. The monetary authorities are simply adding more of the critical ingredient - devaluing currencies. All of the issues above have been well documented over the last few years and yet strangely stagflation does not seem to be on the markets radar - a Google trends search for stagflation reveals what seems to be a certain complacency on the issue. I think we will begin to see a change in market perceptions - and more importantly investment positioning - as the consequences of the unwavering commitment of the central bankers of the worlds two largest economies, the US and the EU, to unlimited money printing become apparent. Risk assets of all kinds, of course, have been showing considerable life as of late, but over time I would expect the hard asset

Agcapita Update (continued)

GOOGLE TRENDS SEARCH FOR STAGFLATION Search Volume index B D A F E C

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 News reference volume

sub-category to be the winner and financial assets, particularly sovereign debt, to be the loser. Now matter how much Chairman Bernanke would like to believe to the contrary, currency debasements do not generate economic recoveries. To indulge in what has become a trite observation, if it were so Zimbabwe would be a prosperous country. Likewise, to keep the money supply growing aggressively in the stagnant economies of the west will not produce the desired outcome of real growth and increasing employment. By insisting on printing over the systemic solvency issues in the financial sector, by actively preventing

the liquidation of decades of mal-investment, by subsidizing speculation and consumption to the detriment of production (and so on) central bankers will not create a recovery. Unless these problems are addressed they are creating a volatile, inflationary environment with poor real growth dynamics - i.e. the ideal raw materials for stagflation in the west. Stagflation combined with volatility presents the average person with a very difficult investment environment, one where even simple capital preservation becomes a challenge. Of course - the banking system bonus machine might be saved and in the end perhaps thats all that really matters.

DISCLAIMER:
The information, opinions, estimates, projections and other materials contained herein are provided as of the date hereof and are subject to change without notice. Some of the information, opinions, estimates, projections and other materials contained herein have been obtained from numerous sources and Agcapita Partners LP (AGCAPITA) and its affiliates make every effort to ensure that the contents hereof have been compiled or derived from sources believed to be reliable and to contain information and opinions which are accurate and complete. However, neither AGCAPITA nor its affiliates have independently verified or make any representation or warranty, express or implied, in respect thereof, take no responsibility for any errors and omissions which maybe contained herein or accept any liability whatsoever for any loss arising from any use of or reliance on the information, opinions, estimates, projections and other materials contained herein whether relied upon by the recipient or user or any other third party (including, without limitation, any customer of the recipient or user). Information may be available to AGCAPITA and/or its affiliates that is not reflected herein. The information, opinions, estimates, projections and other materials contained herein are not to be construed as an offer to sell, a solicitation for or an offer to buy, any products or services referenced herein (including, without limitation, any commodities, securities or other financial instruments), nor shall such information, opinions, estimates, projections and other materials be considered as investment advice or as a recommendation to enter into any transaction. Additional information is available by contacting AGCAPITA or its relevant affiliate directly.

#205, 120 Country Hills Landing NW Calgary, AB T3K 5P3 Canada

Tel: +1.403.608.1256 Fax: +1.403.648.2776

www.agcapita.com