This document provides a summary of Robert Lutts' presentation at Cabot's 22nd annual investment conference and luncheon. The presentation discusses changes in currencies, stocks, governments and gold due to the new economic order. Lutts outlines the status of government fiscal crises, currency and interest rates, and why one should take risk today. He also discusses corporate conditions, gold and precious metals markets, and provides recommendations for how investors can position themselves during this period of currency debasement and global financial market changes.

1. CABOT’S 22ND ANNUAL INVESTMENT
CONFERENCE & LUNCHEON
Friday, September 23, 2011

2. Robert T. Lutts
President & Chief Investment Officer
NEW ECONOMIC ORDER:
Currency, Stocks, Governments and
Gold

3. A CHANGING WORLD
“It is not the strongest of the species that survives,
nor is it the most intelligent,
it is the one that is the most adaptable to change.”
– Charles Darwin

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5. OUTLINE
 Governments – Status of Fiscal Crisis
 Currency and Interest Rates – Temperature of
patient
 Why Should One Should Take Risk Today?
 Alternatives to equities are fading
 Long-term conditions excellent
 Corporate Conditions –Steady and Fairly Strong
 Gold and Precious Metals

6. Status of World Financial Markets
 Governments and Consumers (US and many
Developed Economies) are now overleveraged
 Deleveraging Cycle – It takes time to remove debt
 Top-Line Growth Will Be Challenging – Manage
profits
 Employment Growth Elusive – may recover very
slowly
 Global Growth Concerns and Deflation Concerns

7. GOVERNMENTS: Far Too Important Today
(They Control Debt Pile)
 Currency Debasement – Watering down value of currency.
 Currency Debasement – Has been carried out by central
bankers since beginning of time. Printing of money – more
money chasing the same amount of goods and services.
This eventually leads to inflation!
 Roman Empire – Gold Coins, Silver Coins, Base Metals
 Central Bankers – No central banker has ever had the
opportunity to debase without doing so.
 Government Strategy – Financial Repression

8. GOVERNMENTS:
Solutions to Sovereign Financial Crisis
• Reform Financial Management of Government – This will take
decades and will not likely have positive impact for many years.
It is possible we will not really reform at all.
• Inflate Economy To Create Growth – This is the path the Federal
Reserve is taking. Today the Fed and other Global Central
Bankers are creating money to give governments the ability to
invest and create a new wave of growth. Problem: The cost is
high – currency debasement leading to inflation. Not understood
by average citizen.
• Most Likely Outcome – A watered down version of Reform that
looks more like the same as the last few years. In this case we
are confident gold goes higher and currency values decline
further relative to real assets.

9. What is Currency Debasement?
1. More Dollars Chasing the Same Goods – Classic definition
of inflation
2. Fed – Bernanke has Chosen the Inflation Route – The cost
is your dollar’s value fading fast. (UK, Europe are taking this
path as well.)
3. Debt Burden Large and Growing - $14 Trillion Official Debt.
Value Destruction – Burden on Future Generations – A
Debasement Factor
4. Gold and Precious Metals – A real asset impervious to
currency debasement.

10. Debasement is Not a New Strategy

11. What Can You Do to
Protect Against Currency
Debasement?
• To Understand Currency Debasement - “Gold – Once and
Future Money” – Nathan Lewis (A history of central bankers
over 2000 years – all have debased the currency). “Empire of
Debt” – The Rise of an Epic Financial Crisis – Bill Bonner
and Addison Wiggin
• Real Asset Strategy – Precious Metals – Gold, Silver, Platinum,
Diamonds, Land. Stocks – represents real assets – although it is
difficult to manage profits in inflationary periods. Protect wealth
with a healthy dose of these asset classes
• Gold – A Very Difficult Asset Class to Analyze – See
www.eCabot.com for our white papers on this topic. Or,
www.gold.org, the World Gold Council website. Another
resource is “Hard Money”, Shayne McGuire, 2010 Wiley. (I
believe it is the single best gold book ever written.)

12. Allocation to Alternative Assets
 Currency Protection – Gold and Gold mining Shares, Silver,
Diamonds, Platinum other precious metals
 International Bonds – High-quality sovereign bonds
 Fixed-Income Hybrids – High Yield, Preferred, Convertibles,
Floating Rate Notes
 Non-US Currency Securities – Yield plus protection from
weaker dollar
 Commodities – Energy, grains and other indexes

13. Anticipate Inflation to
Increase in Next 2-3 Years
• Risks Today - Bond market is in a large bubble.
• 10-Year Treasury Yield 2.0% - Not compensating you
for interest rate risk or credit risk.
• Manipulation of Interest Rates or Real Recession
Fears?
– Both. Federal Reserve is buying about $20 billion
per week to keep interest rates low!
• We Believe the Fed Will Get Its Wish – Reflation will be
Successful. Side effect: 2-5 years will create higher
levels of inflation.

16. Where Are We Today?
Long-term Perspective
30-Year Chart of 10-Year Treasury Yields
Thirty Year Chart of
Ten Year Treasury
This Trend
Yields Will
Eventually
This Trend Will Eventually End – When?
End

17. Where Are We Today?
Short-term Perspective
30-Year Chart of 10-Year Treasury Yields
Depression
Fears Abated Double-Dip
Fears Again

18. Positive Considerations
• Economies Adapt in Time – Conservative economic
thinking is spreading like wildfire.
• What is Important After Crisis: TIME – We are
healing and adapting now. Risk taking is slowly
coming back into the markets.
• Economic Data – Glass is more than half full today.
• There are Bull Markets Today – It is not all bad.

19. Bullish Factors
• Investor Psychology – Investors have given up on
equities today. This means opportunity!
• One needs to think positively when all others are
fearful.
• Markets today are looking forward 12-18 months.
• Governments Strategy – Move money to active
risk-taking places. This is beginning today and will
accelerate once confidence levels rise.

20. 4 Reasons Why Not to Give Up on Stocks
1. If you wait for clear signs of economic improvement,
markets will already be much higher. Stock market
discounts 12-18 months ahead.
2. Time is on your side. Once you have 10 years of close to
zero performance in broad-based equity indexes, large
opportunity is likely just ahead!
3. Money flows are ultra-bullish and monetary conditions are
ultra-bullish. Contrary indicators here are helpful.
4. Classic Bullish Signs: Corporate Buybacks, Insider Buying
by CEOs and Corp Officers are both at very high levels.
These buyers usually know value better than most.

21. Why Equities Now?
Low 12-year Returns = High Expected Returns
DOW JONES INDUSTRIALS AVERAGE 10-YEAR ROLLING RETURNS
20%
15%
10%
5%
0%
Dec-19
Dec-39
Dec-44
Dec-64
Dec-69
Dec-89
Dec-94
Dec-24
Dec-29
Dec-34
Dec-49
Dec-54
Dec-59
Dec-74
Dec-79
Dec-84
Dec-99
Dec-04
Dec-09
-5%
-10%
NOW!
-15%

24. 16 Year
Trading
Range
15 Year
Trading
Range

25. We Are
Here Now!

26. Gold Bull Market - Primary Drivers
• Central Bankers Debasement Activity – Printing $$$
• Investment Demand is Accelerating – There are three
phases of a bull market. We are now in Phase Two.
Phase Three is the most interesting and most
profitable!
• Wealth and Power Building in China and India – These
investors love gold.
• We Believe Institutions (Pension and Profit Sharing $)
Are Just Discovering Gold – Evidence of this just
beginning.

27. Investment Demand For
Gold Bullion Is Growing

28. 30 Years Ago, Gold
Represented 2.5% of All
Financial Assets
Today Approx
.70 percent

29. If we project a 15x
increase from $400
Move from $40 to level, we could reach
$600 price was a $6000 per ounce. This
15x total increase is considered
over 11-year period. impossible today!

30. What Happens if Institutional Investors
Start Buying Gold?
It would be like an elephant jumping into a bathtub!
1% of World Wealth - $1.3 Trillion. This equates to
20 times the amount now invested in GLD (ETF) or
20 times annual mine production globally.

31. What Is the Public Doing With Gold Today?
1. They Are Selling – Ask a local jeweler.
2. Gold Parties: MyGoldParty.com – Large part of
the public is not joining the bull market in gold.
3. Public Is Buying Gold Coins and Bullion.
4. How Does Cabot Buy Gold? – Bullion (GLD), Gold
Miners (GDX and PSAU) and Gold Companies like
Barrick Gold (ABX)

32. What Is America Reading about the
World Financial Markets Today ?
• There is a bull market in books promoting fear!
• The titles do not paint a pretty picture.
• Considering America is focused on these subjects,
it is a wonder anyone takes any risk at all!

42. Will the bull return? If so, when?

43. Established Bull Markets Today
 China, India & Brazil – Emerging Middle Class
Dramatic outperformance of these equity markets
over last ten years.
 Internet Productivity Companies – New Products
and Services
 Productivity Companies (technology) – Leading
Change
 Gold and Precious Metals – Seven-Year Bull
Market

44. Tianjin, China

45. Singapore

46. São Paulo, Brazil

47. Beijing, China 2002

48. Tianjin, China

49. Tianjin, China

50. Jaipur, India

51. We travel both globally and locally!

54. Where Are the Coming Opportunities?
1. Internet
Networks are changing everything. Internet arrived about
25 years ago. Email gained popularity in the late 1980s.
An internet that links 100 million people is not worth 10
times one that links 10 million people. In fact, due to
massive connective power, a network that links 100 million
people is really worth much more than ten times the one
that links 10 million. Most of the productivity benefits in the
internet are in the future. We are expecting many great
investment opportunities in this space.

55. Where Are the Coming Opportunities?
1. Internet
• Mobile Data – Wireless Proliferation
• Cloud Computing
• Software – Smart Phones, E- Readers, Migration to
Digital
• Search – Application Market, Medical Applications
• Networks – Infrastructure
• Unique Use of Internet

56. Where Are the Coming Opportunities?
2. Energy
Energy complex is the single largest sector of our
economic world and has changed only moderately in the
past 50 years. Cars are essentially the same technology –
better, but the same engine. Electricity is also generated
pretty much the same way it was 50 years ago. We
anticipate some very large opportunities to invest in wealth
creating ideas in the coming decade. Solar, Wind,
Advanced Materials, Battery Technology, Clean Energy,
Climate Change are just a few of the incredible new
developments we anticipate. Large fortunes will be
created for those who think big and invest in the winners!

59. Where Are the Coming Opportunities?
3. Healthcare
• Demographics favor this space in the USA.
• Cardiac technology
• Diabetic Trends / Preventive Medicines
• Best-in-Class Medical Devices
• Next Generation Drugs
• Healthcare waste Disposal

60. Where Are Coming Opportunities?
4. Emerging Middle Classes: China, India and Brazil
• Retail and Healthcare
• Travel and Transportation
• Banks
• Insurance and Education
• Auto
• Internet and Advertising
• Infrastructure

61. CHINA: Opportunity and Risk
• Companies in China – have double the profit margins of US
Companies: Why?
• Lower government infrastructure costs
• Lower taxes
• Lower healthcare expenses
• Lower executive salaries
• We anticipate outperformance in China for many years
• Volatility – Will Continue to Be High. Markets are Immature.

62. To Succeed Today One Needs
• Flexible Thinking. Do not be afraid of change –
Embrace it!
• Use Risk Management Techniques:
– Size of positions
– Loss discipline
– Diversification strategy
• “It Will Go Well – But It Will Not Be Relaxing!” Greg
Esterbrook

63. IN SUMMARY
 Longer-term we are constructive and bullish, but
shorter-term we are more cautious and defensive.
 Government solutions and the new economic order will
work in time. We will adapt and manage. Currencies will
be depreciated.
 Overall economic conditions will improve in time.
Capitalism will not disappear – economic growth will
again reassert itself.
 Patience and a conservative strategy will be rewarded.

64. QUESTIONS
Thank you for joining us today.