5/20/11 Don Coxe Conference Call

· Getting stagflation into the economy which he feels is negative for the S&P.

· Corn chart shows that food challenge for the rest of the world now includes biofuels which is helping fuel inflation and which we did not have to deal with in the ‘70’s. Food inflation kicked off stagflation in the 1970s. Year over year corn is up 108%. Eventually will get cost past throughs. Spring in the Midwest has been bad from a weather perspective. Too dry for wheat and too wet for corn. In Europe there are dry conditions in major wheat growing areas. Corn is used as an animal feed and biofuel. Wheat is a basic part of people’s diet. Surge in wheat price is devastating for the poor in this world. We do need a much better wheat crop and we are not currently getting that in the US.

· Lately we have been experiencing the commodity sell off. The big pullback was in oil. This is due to the fear premium falling off. The concern that whole Mideast would be in flames and no oil coming from Libya is no longer there.

· Does not believe that this economy will be exactly like the 70’s. Disproportion % of people’s income will go to food. Showing up in the lower end stores like the Dollar Generals and Walmarts where the cost of food is so important to shopper’s disposable income. Different than higher end stores where the wealthy still have power to buy.

· All of this is not conducive to robust economic growth that had been forecasted in the beginning of the year. There is no doubt but that discretionary income will be impacted and this will slow down growth. This will impact S&P which he thinks may have hit its high this year. The projected 4% GDP growth in US that we had just 3 months ago is now being scaled back dramatically.

· One of the surprises we saw lately was the comments made by Mark Carney at a private dinner which were supposed to be off the record. He gave a very gloomy outlook stating that we were not out of the economic crisis yet which could go on for a very long time.

· Don thinks the most likely thing to happen will be a stock market correction. His comments makes you think he is worried about the banking sector.

· He talked about the fallout from the IMF which could be a drag. Eurozone crisis packages that were put together were helped significantly by IMF head who was really influential. His loss then to the IMF could be significant as it will be difficult to find someone who had his clout and can force things through to help other countries. So we don’t know yet how this will play out.

· As to Central Bankers there’s no doubt but that Bernanke is just trying to keep things going. If this kind of extraordinary stimulus only gives us growth of only about 2%, it makes you wonder when things will ever get back to normal.

· That brings us back to companies whose earnings are pretty predictable. Agriculture companies will have great earnings, record years, there’s no doubt about that. Miners too will have fabulous years. At these prices these miners will be making “great amounts of money.” China has now moved into #1 position as gold buyer per stats from the World Gold Council. China government is now actively promoting gold purchase through its banks. China has pulled ahead even of India. This is reassuring to those of us who are recommending exposure to PMs as it shows that strong economies like China and India are those who are bidding up prices of the precious metals. Believes this process is only at its early stages. Recommends that people be overweight in exposure to PMs. Yes we will have corrections, that’s inevitable, but we had that in the 70s as well. You can feel very confident of this PM group.

· Even oils at $97 makes oil companies highly profitable.

· The only commodity group that leaves you then with some concern is the base metals. Key here is copper and iron ore. If there is a slowdown in global growth these will be impacted. E.g., there will be a slowdown in steel in this instance.

· He felt it was positive and stated specifically that the commodity groups do not depend on the strength of the banking sector.

· He also mentioned that we never did get the outperformance of these commodities that he expected because of the happy days are here again crowd. So it will be awhile before the larger institutional investors get it. But they will eventually decide they need some exposure to these commodity groups.

· Bond market – no signals here as to inflation. Surprise this summer could be in the bond market. In the 70’s it was a breakdown in the bond market that really crushed the stock market. As long as the bond market remains serene don’t think we will have a real sell off in the stock market. But we shall see what happens when QE2 comes to an end. Suggests stock market investors keep the bond yields on their screens to monitor what’s happening in the bonk market.

· Question – have we seen the peak for the farm equipment companies? Answer - They are keeping their eyes on it because tractors are the biggest portion of the farm equipment companies. Thinks there will be more emphasis on smaller more sophisticated equipment that farmers will be using. Should be a theme for years to come.