1. iTulip.com - iTulip, Inc © 2007 iTulip, Inc. The Contrary Market View of the Markets Predicting your economic future since 1998 The Contrary Market View of the Markets Predicting your economic future since 1998 Eric Janszen Founder and President iTulip, Inc. iTulip.com

2. iTulip.com - iTulip, Inc © 2007 iTulip, Inc. All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Nothing appearing in this presentation should be considered a recommendation to buy or to sell any security or related financial instrument. iTulip, Inc. is not liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. See full disclaimer here: http://www.itulip.com/GeneralDisclaimer.htm iTulip.com

3. iTulip.com - iTulip, Inc © 2007 History Founded: 1998 Visitors: 7,000,000 Members: 2,200 Economic and Financial Markets Macro Trends Founded: 1998 Visitors: 7,000,000 Members: 2,200 Economic and Financial Markets Macro Trends Bill Griffeth, CNBC

4. iTulip.com - iTulip, Inc © 2007 What is iTulip?  March 2006: “ iTulip.com, which was restarted this week after a three-year hiatus, does not hesitate to claim credit for accurately predicting that the bubble would pop. It even got the timing right."  March 2006: “ iTulip.com, which was restarted this week after a three-year hiatus, does not hesitate to claim credit for accurately predicting that the bubble would pop. It even got the timing right."

5. iTulip.com - iTulip, Inc © 2007 What is iTulip?  May 2007 "A typical down cycle [for residential real estate] is five to seven years," says Eric Janszen, co-author of America's Bubble Economy: Profit When It Pops (Wiley, 2006), one of a recent crop of bubble books and far from the gloomiest and doomiest.”  May 2007 "A typical down cycle [for residential real estate] is five to seven years," says Eric Janszen, co-author of America's Bubble Economy: Profit When It Pops (Wiley, 2006), one of a recent crop of bubble books and far from the gloomiest and doomiest.”

6. iTulip.com - iTulip, Inc © 2007 Other iTulip Firsts Housing Bubble August 2002: “Yes. It’s a Housing bubble.” January 2004: “Will end by seizing up.” January 2005: “Will Last 10+ Years.” June 2005: “It’s a top.” All-Assets-Up Global Credit Bubble  June 2006: “All assets positively correlated, driven by excess global liquidity.” Housing Bubble August 2002: “Yes. It’s a Housing bubble.” January 2004: “Will end by seizing up.” January 2005: “Will Last 10+ Years.” June 2005: “It’s a top.” All-Assets-Up Global Credit Bubble  June 2006: “All assets positively correlated, driven by excess global liquidity.” Money Matters Finance Award

7. iTulip.com - iTulip, Inc © 2007 The Model Ka-Poom Theory of Bubble Cycles Developed for Osborn Capital, LLC in 1999 to time stock sales, re-investment of proceeds Application Spring 2000: Exit tech stocks and purchase US Treasury Bonds Sell Cisco @ $68, buy 10 year Treasuries 6.51% Summer 2001: Purchase Precious Metals Buy gold @ $270, silver $4.25, platinum $452 Ka-Poom Theory of Bubble Cycles Developed for Osborn Capital, LLC in 1999 to time stock sales, re-investment of proceeds Application Spring 2000: Exit tech stocks and purchase US Treasury Bonds Sell Cisco @ $68, buy 10 year Treasuries 6.51% Summer 2001: Purchase Precious Metals Buy gold @ $270, silver $4.25, platinum $452

8. iTulip.com - iTulip, Inc © 2007 Ka-Poom Theory V1.0 (1999) US Foreign and domestic debt repudation 1.Bubble formation 2.Bubble collapse and disinflation 3.Domestic reflation to protect the economy (rate cuts, tax cuts, dollar depreciation) 4.Repatriation of dollar denominated assets 5.Global central bank cooperation to support the US dollar fails 6.Declining dollar, high inflation, rising interest rates, slowing economy 7.Go to Step 3 US Foreign and domestic debt repudation 1.Bubble formation 2.Bubble collapse and disinflation 3.Domestic reflation to protect the economy (rate cuts, tax cuts, dollar depreciation) 4.Repatriation of dollar denominated assets 5.Global central bank cooperation to support the US dollar fails 6.Declining dollar, high inflation, rising interest rates, slowing economy 7.Go to Step 3 Monetize Debt Inflation Expectations of Future Inflation Consume Now Buy on Credit Insufficient Domestic Savings Classic vicious circle inflation driven by currency depreciation

9. iTulip.com - iTulip, Inc © 2007 Ka-Poom Theory V1.0 (1999) 1999 Prediction  2000: Crash followed by negative wealth effect disinflation  2001: Fed will aggressively cut rates to prevent a Japanese 1990s deflation  CPI inflation bottoms ~ 0% Q3 2001 1999 Prediction  2000: Crash followed by negative wealth effect disinflation  2001: Fed will aggressively cut rates to prevent a Japanese 1990s deflation  CPI inflation bottoms ~ 0% Q3 2001

10. iTulip.com - iTulip, Inc © 2007 Ka-Poom Theory V1.0 (1999) What actually happened?  2000: Q2 crash followed by disinflation  2001: Fed did not permit the CPI inflation to turn negative (no deflation… well, not much)  CPI inflation bottomed @ -1.3% September 2001 What actually happened?  2000: Q2 crash followed by disinflation  2001: Fed did not permit the CPI inflation to turn negative (no deflation… well, not much)  CPI inflation bottomed @ -1.3% September 2001 Disinflation Reflation

11. iTulip.com - iTulip, Inc © 2007 Ka-Poom Theory 1999 Prediction (cont’d)  2001: Dollar depreciation part of reflation policy  2003 -4: Foreign private investors repatriate dollars  Inflation peaks at 20% 1999 Prediction (cont’d)  2001: Dollar depreciation part of reflation policy  2003 -4: Foreign private investors repatriate dollars  Inflation peaks at 20%

12. iTulip.com - iTulip, Inc © 2007 Ka-Poom Theory V1.0 (1999) What we did not expect 1.Housing bubble Kept economy going, so no rapid exit by foreign investors 2.Price-insensitive purchasers of US debt (Oil exporters, China, UK) Filled in for private investors 3.“China factor” influence on traded goods prices and CPI accounting Inflation “contained” What we did not expect 1.Housing bubble Kept economy going, so no rapid exit by foreign investors 2.Price-insensitive purchasers of US debt (Oil exporters, China, UK) Filled in for private investors 3.“China factor” influence on traded goods prices and CPI accounting Inflation “contained” Education Healthcare Insurance Consumer Electronics CPI Monetary Inflation

13. iTulip.com - iTulip, Inc © 2007 Ka-Poom Theory V2.0 (2004) Ka-Poom disinflation-reflation cycle 1.Bubble formation 2.Bubble collapse and disinflation 3.Domestic reflation policies for economic recovery 4.Cooperative currency depreciation props up US dollar 5.Go to Step 1 Ka-Poom disinflation-reflation cycle 1.Bubble formation 2.Bubble collapse and disinflation 3.Domestic reflation policies for economic recovery 4.Cooperative currency depreciation props up US dollar 5.Go to Step 1

14. iTulip.com - iTulip, Inc © 2007 Ka-Poom Theory (either case)  What happens in gold terms? US Dollar Depreciation Global Depreciation

15. iTulip.com - iTulip, Inc © 2007 Now What? Reversion to the Mean  Triggered by random event  No one knows what or when  The usual suspects  War or terrorist attack  Revelation of fraud (GSEs)  Name your pin Reversion to the Mean  Triggered by random event  No one knows what or when  The usual suspects  War or terrorist attack  Revelation of fraud (GSEs)  Name your pin There is a bubble in everything… all asset classes… globally.” - Jeremy Grantham, April 2007

16. iTulip.com - iTulip, Inc © 2007 Then What? Disinflation Phase - Risk Adjustments  Within asset classes  From most risky to least  Among asset classes  Purchasing power vs yield  Liquidity vs value  Among geographies  Local vs remote  Lowest economic and political risk Disinflation Phase - Risk Adjustments  Within asset classes  From most risky to least  Among asset classes  Purchasing power vs yield  Liquidity vs value  Among geographies  Local vs remote  Lowest economic and political risk Crisis

17. iTulip.com - iTulip, Inc © 2007 What happens to gold? Previous asset price reversion periods  Capital flight to political safety  Dollar rises, gold falls  US Government policy fights disinflation  Rate cuts, gov’t spending, $ depreciation  Coordinated global central bank policy  But unlike the 2001 version… Previous asset price reversion periods  Capital flight to political safety  Dollar rises, gold falls  US Government policy fights disinflation  Rate cuts, gov’t spending, $ depreciation  Coordinated global central bank policy  But unlike the 2001 version…

18. iTulip.com - iTulip, Inc © 2007 After Disinflation? What’s different this time?  Not in 2001 “Kansas” anymore  Oil is at $60 not $20  Global inflation is high not low  US is at war not “peace”  US running huge fiscal deficit vs surplus  Dollar is weak not strong  Euro has never been stress-tested What’s different this time?  Not in 2001 “Kansas” anymore  Oil is at $60 not $20  Global inflation is high not low  US is at war not “peace”  US running huge fiscal deficit vs surplus  Dollar is weak not strong  Euro has never been stress-tested

19. iTulip.com - iTulip, Inc © 2007 Two Ka-Poom Scenarios #1: The Last Ka-Poom: Reflation Fails  US-centric currency crisis  1997/1998 style currency crisis, except in major currencies  Dissolution of global monetary system  Sound far fetched? Greenspan was nervous enough last time to propose… #1: The Last Ka-Poom: Reflation Fails  US-centric currency crisis  1997/1998 style currency crisis, except in major currencies  Dissolution of global monetary system  Sound far fetched? Greenspan was nervous enough last time to propose… Senator Paul Sarbanes: "... is it your intention that the report of this hearing should be that Greenspan recommends a return to the gold standard!?" Greenspan: "I've been recommending that for years, there's nothing new about that. It would probably mean there is only one vote in the FOMC [Federal Open Market Committee] for that, but it is mine." - Senate Committee Hearing, Sept. 1997 Crisis

20. iTulip.com - iTulip, Inc © 2007 Two Ka-Poom Scenarios #2: New Ka-Poom Cycle: Relfation Succeeds  The Next Bubble  Developed by markets  Encouraged by government tax and monetary policy  Alternative Energy and Infrastructure #2: New Ka-Poom Cycle: Relfation Succeeds  The Next Bubble  Developed by markets  Encouraged by government tax and monetary policy  Alternative Energy and Infrastructure “We are too dependent on imported oil from troubled parts of the world, so the question was, how would we craft something that would give us energy security as soon as possible? … we had presentations from terrific scientists on progress that's been made in technology and a number of alternative sources of energy — everything from solar to wind to energy to batteries and clean coal. -Treasury Secretary Henry Paulson Feb. 2007

21. iTulip.com - iTulip, Inc © 2007 How to Make an Asset Bubble Five Steps 1.Start with an asset that was already inflating before the last bubble collapsed (e.g., Housing during the stock market bubble) 2.Talk it up (e.g., “Ownership Society”) 3.Create tax incentives (e.g., 1997 Tax Relief Act) 4.Deregulate or don’t regulate (e.g., creative mortgage products, such as liar loans, cite the benefits of “free markets” and “innovation”) 5.Add money (Also, take credit for “booming economy”) Five Steps 1.Start with an asset that was already inflating before the last bubble collapsed (e.g., Housing during the stock market bubble) 2.Talk it up (e.g., “Ownership Society”) 3.Create tax incentives (e.g., 1997 Tax Relief Act) 4.Deregulate or don’t regulate (e.g., creative mortgage products, such as liar loans, cite the benefits of “free markets” and “innovation”) 5.Add money (Also, take credit for “booming economy”)

22. iTulip.com - iTulip, Inc © 2007 The Tea Leaves Hard Assets: The Fourth Currency 1.Disinflation period when gold declines 25%+ during rush to liquidity (ala Feb. 2007 and Spring 2006) 2.If continues, asymmetric economic impact causes unexpected change in pricing relationships (outside “model”) 3.Hits currency and credit derivatives 4.Capital seeks safety from chaos while global central banks cope Hard Assets: The Fourth Currency 1.Disinflation period when gold declines 25%+ during rush to liquidity (ala Feb. 2007 and Spring 2006) 2.If continues, asymmetric economic impact causes unexpected change in pricing relationships (outside “model”) 3.Hits currency and credit derivatives 4.Capital seeks safety from chaos while global central banks cope

23. iTulip.com - iTulip, Inc © 2007 iTulip Select Specialist Interviews: Jim Rogers Martin Mayer Dr. Jamie Galbraith James Scurlock Specialist Interviews: Jim Rogers Martin Mayer Dr. Jamie Galbraith James Scurlock iTulip.com Commentaries Book Reviews Portfolio Modeling ShadowFed Commentaries Book Reviews Portfolio Modeling ShadowFed http://www.itulip.com The Investment Thesis for the Next Cycle