report
14th August 2009
This issue:
“Bread and circuses” - buying
exposure to Food/Agriculture
US Treasury bonds - emerging
Ponzi scheme (here)
Contact/additions to distribution:
Paul Mylchreest
paul@thunderroadreport.com
“Bread and circuses” – buying exposure
to Food/Agriculture
The phrase “bread and circuses” was penned by the Roman
satirical poet, Juvenal, nearly two thousand years ago. In Satire
10, he wrote:
“Already long ago, from when we sold our vote to no man, the
People have abdicated our duties; for the People, who once upon
a time handed out military command, high civil office, legions -
everything, now restrains itself and anxiously hopes for just two
things: bread and circuses.”
The modern day versions of “circuses” are professional sports
and their epitome, at least in Britain, is Premier League soccer.
The new season begins tomorrow. But we are even “luckier” -
since the economic crisis really hit, with the collapse of Lehman
last September, the price of wheat has plunged:
Wheat price (Chicago) - 1-year
Source: timingcharts.com
Unfortunately, this is unlikely to be sustained, but therein lies
opportunity.
My favoured asset classes in my “global end of normal” thesis
are gold/silver, network technology stocks, energy and food/
agriculture. The long-term bull argument in food/agriculture is
 obvious – rising population (about 230,000 per day globally), rising incomes in the emerging world,
constraint on arable land and increasingly volatile climactic conditions.

The next chart shows how the percentage of disposable income spent on food in the US (in total and for
food consumed at home) has fallen sharply. Total expenditure on food has fallen from c.25% in the 1930s
and late-1940s to 9.6% of disposable income in 2008. Food consumed at home has fallen from c.20%
down to 5.6% last year. It looks to me like these ratios are levelling out and my guess is that they are
going to start to increasing. Remember, when financial sector stocks accounted for about 40% of total S&P
earnings in early 2007? That wasn’t sustainable and I doubt that Americans spending only about 5% of
their disposable income on food consumed at home is either.

Percentage of disposable income spent on food in the US: 1929-2008

30.0

25.0

20.0

15.0

10.0

5.0

0.0
1929

1933

1937

1941

1945

1949

1953

1957

1961

1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

2005
Total At Home

Source: USDA

Bill Doyle, President and CEO of fertiliser producer, Potash Corp. of Sasketchewan, was talking up the bull
case in a conference call following its Q209 results on 23 July 2009:

“The pressure on the food supply is just enormous…you are going to see these same headlines on food
crisis appear once again. My guess is a year from now we’ll be back in the food crisis, where people are
saying jeez, what happened this thing came back at us again. We thought it was over, well isn’t over with
it is never been over with. And you are just going to have a lot of pressure on food supply, which means
you’re going to have higher prices. You are going to have higher prices across the Ag commodity spectrum
the process, (which is) going to use more fertilizer. So, this is a long term story.”

He would say that wouldn’t he, but I agree with him. Until now, I’ve had no exposure to food/agriculture
but I’ve bought what is a medium-sized position for me using the remaining cash in my portfolio, switching
out of a bit of technology exposure and one of my junior gold explorers.

With food/agriculture, there are different ways of gaining exposure. Fertiliser and crop protection
(agrochemical) companies are obvious ways via the stock market. However, rightly or wrongly, I’m
concerned about the sustainability of the current stock market rally, so I’m opting for more direct exposure
to agricultural commodity prices via an ETF (exchange traded fund).

The hard part is getting the timing right on the individual commodities so I’ve opted for some diversification.
I’ve bought the Power Shares DB Agriculture Fund (ticker: DBA) which gives exposure to wheat, corn,
soybeans and sugar (rebalanced to 25% each every November). The two-year performance chart is shown
below. The recovery from the December low is c. 20%, i.e. much less than the recovery in the stock market
from its low back in March

© Thunder Road Report - 14 August 2009 2

 Power Shares DB Agriculture Fund

Source: yahoofinance.com

I like the fact that DBA’s current exposures are:

BB Sugar 36%: currently in a powerful bull market;

BB Soybeans 26%: showing some positive signs

BB Wheat 20%: close to bottoming?

BB Corn 18%: close to bottoming?

I’m hoping is that the bull market in sugar continues to drive DBA higher between now and November when
the rebalancing takes place. After that, soybeans, wheat and corn should take up the baton. Well that’s the
plan!

The surge in the sugar price due to lower production in Brazil (world’s largest sugar cane producer), due
to too much rain, and India (world’s largest consumer), due to a drought, has been well documented. With
only another month to go in the Indian monsoon season, rainfall has been 29% below average so far. The
problems with sugar supply on a worldwide basis remain acute. Here is a Reuters report from earlier this
week:

“Some of America’s biggest food companies say the U.S. could “virtually run out of sugar” if the Obama
administration doesn’t ease import restrictions amid soaring prices for the key commodity. In a letter
to Agriculture Secretary Thomas Vilsack, the big brands - including Kraft Foods Inc., General Mills Inc.,
Hershey Co. and Mars Inc. - bluntly raised the prospect of a severe shortage of sugar used in chocolate
bars, breakfast cereal, cookies, chewing gum and thousands of other products. The companies threatened
to jack up consumer prices and lay off workers if the Agriculture Department doesn’t allow them to import
more tariff-free sugar.”

© Thunder Road Report - 14 August 2009 3

 Sugar 1-year Soybeans 1-year

Source: timingcharts.com Source: timingcharts.com

The price of soybeans has also done fairly well – rising about 35% from the low in late-2008 helped by strong
Chinese demand and problems in drought-ridden Argentina. The Chinese customs authority announced on
22 July 2009 that June soybean imports rose 31% year-on-year to 4.71m tonnes. Imports for the first six
months were 28% higher at 22.09m tonnes. While the Chinese government has been holding auctions of
soybeans, it has sought prices above the level on international markets. This has led to few takers and a
question mark as to how serious its desire to sell really is?

“Nogger” is an independent commentator on the agriculture industry and a 30-year veteran as a shipper,
trader and broker (see Nogger’s Blog at www.nogger-noggersblog.blogspot.com). Here is his blog entry for
21 July 2009:

“The markets took a hit last Thursday, and are lower again today, on the back of the news that China was
to sell assorted quantities of corn, wheat and soybeans out of its strategic reserve. Does that mean that
China has more than enough stocks and is looking to offload a few million tonnes, or could there be another
explanation…They certainly seem to keep coming back for more US soybeans. Last week on the very
day China announced the sale of 500,000 MT (metric tonnes) of soybeans sending the market tumbling,
Chinese buyers actually were reported to have booked 636,200 MT themselves in the USDA’s weekly export
sales report…They are unlikely to find a huge queue of buyers at asking prices $40-50 higher than current
US levels…It makes China look better in the eyes of the WTO, rather than just being a buyer and hoarder
of grains they become a world ‘player’, supplying their needy Asian neighbours.”

While coffee, cotton and cocoa have also been good performers of late, with prices up 35-55% from their
2008 lows, let’s consider the laggards among the major crops, i.e. corn and wheat (see the price charts
below). I am expecting that we will see a reversal in corn and wheat prices in the near future although this
seems to be something of a contrarian view.

© Thunder Road Report - 14 August 2009 4

 Wheat (Chicago) 1-year Corn 1-year

Source: timingcharts.com Source: timingcharts.com

I’ve been watching the wheat price, in particular, as it has fallen back from US$6.75/bushel on 1 June 2009
to its current level in Chicago of US$4.90/bu on Friday. Obviously, the heady days when the price reached
US$13/bu in the 2007/08 season seem like a distant memory. Back then, world wheat stocks fell to c.120-
150m tonnes depending on whether you believe USDA (US Department of Agriculture) or the FAO (Food
& Agriculture Organization of the United Nations). In terms of the stocks to use (consumption) ratio, we
reached levels not seen for more than 30 years.

Wheat - stocks to use ratio

Source: Chris Meyer

The high prices back then incentivised farmers to plant wheat and apply fertiliser and, combined with good
weather, worldwide wheat production recovered from 616.7m tonnes in 2007/08 to 687.4m tonnes in
2008/09 according to USDA. Based on the latter’s data, world wheat stocks increased from 121.2m tonnes
at the end of the 2007/08 season to 167.4m tonnes at the end of the 2008/09 season. Although USDA
currently expects wheat production to fall by more than 20m tonnes in 2009/10, it is projecting an increase
in stocks at the end of the season. The general view is that the market is well supplied and that’s why the
wheat price has been weak of late.

© Thunder Road Report - 14 August 2009 5

 World wheat estimates 2009/10

millions tonnes
Beginning stocks 169.50
Production 659.29
Consumption (645.23)
Ending stocks 183.56

Source: USDA

The current 2009/10 wheat season has been interesting because many of the big exporting regions/nations,
like the EU, US, Canada, Russia, Argentina and the Ukraine, have reported declining production due to
drought and the credit crunch. Furthermore, some of the estimates published by the closely-followed USDA
in recent months have been so obviously incorrect for wheat as to question, in some quarters, whether it
is incompetent (or something else)?

Source: Nogger’s Blog

For example, here is part of an unambiguous report titled “Smallest Wheat Crop Since 1910 Forecasted For
Argentina” from Meropress (the South American news agency) on 30 April 2009:

“Argentina is forecasted to plant the smallest wheat crop on record because of drought and export restrictions,
according to the Buenos Aires Cereals Exchange. Planting will fall as low as 3.7 million hectares this fall that
would be the smallest since the Exchange began recording such data in 1910…This year’s planted area will
be 18.6% less than a year ago, said the Exchange.”

Argentina has traditionally been a major wheat exporter, but exports have dwindled after two disastrous
harvests. In the 2008/09 season, USDA estimated that Argentina produced 8.40m tonnes of wheat down
from 18.00m tonnes in the previous year. In June 2009, USDA was still forecasting a 2.60m tonne increase
in this year’s harvest to 11.0m tonnes despite reports like the one above! The forecast was lowered to
9.50m tonnes in July and to 8.50m tonnes (still implying a marginal year-on-year increase) in the latest
data published on Wednesday.

Below is a table showing estimated world wheat production for the world’s largest exporting nations
according to USDA and a comparison with Nogger’s estimates.

© Thunder Road Report - 14 August 2009 6

 World wheat production and major exporters (mt)

2007/08 2008/09 2009/10E (USDA) 2009/10E (Nogger)

World 610.93 682.32 659.29 654.9
EU-27 120.24 151.64 136.29 136.2
US 55.82 68.03 59.43 59.0
Argentina 18.00 8.40 8.50 7.0
Australia 13.84 21.50 23.00 23.0
Canada 20.05 28.61 22.50 22.0
Ukraine 13.90 25.90 19.50 19.5
Russia 49.40 63.70 55.50 57.0
Top 7 exporters 291.25 367.78 324.72 323.7
% of world prodn. 47.7% 53.9% 49.3% 49.4%
World exports 117.51 136.35 123.38 n/a
Top 7 % 81.3% 88.1% 85.8% n/a

Source: USDA, Nogger

Production from the world’s seven largest exporters is expected to be well down in 2009/10 – 44.4m tonnes
using Nogger’s estimates. These seven exporters typically account for over 80% of world exports in any
given year. It suggests to me that supply and demand could tighten up quite quickly if harvests disappoint
in any of the key consuming/importing nations.

China is not usually a large importer or exporter of wheat but, in terms of individual countries, it is (not
surprisingly) the world’s largest producer and consumer.

China wheat statistics (mt)

2007/08 2008/09 2009/10E (USDA) 2009/10E (Nogger)

Consumption 106.00 102.50 101.00 n/a
Production 109.30 112.50 114.50 115.0
Imports 0.05 0.35 0.30 n/a
Exports 2.84 0.75 1.50 n/a

Source: USDA, Nogger

The current crop got off to a very poor start with severe drought affecting the major wheat growing areas
in Henan, Shandong, Anhui and Hebai during January and early February this year. The problem was so
severe that the Chinese government reportedly sent 279,000 “experts and technical personnel” to the
wheat-growing regions and fired thousands of shells containing silver iodide pellets into the atmosphere.
The rains came towards the end of February and the crop was reported to be in good condition by April.

The two pieces of information which piqued my interest were, firstly, the reports in June that heavy storms
delayed some of the harvesting and had adversely affected some of the crop in Shandong and Hebei,
although Henan, the most important region, seemed to fare much better. As China Economic Net reported
on 11 June 2009:

“China is racing extreme weather including hail, heavy rain and strong winds to harvest wheat.”

By 22 June 2009, China’s Ministry of Agriculture reported that almost all the crop (over 90%) had been
successfully harvested. Hmmm maybe.

The second piece of information was the data on Chinese wheat imports in May and June. May imports
were 70,968 tonnes which was a 103% increase on the previous months while the June figure was 192,905
tonnes. Chinese imports in H109 have already matched USDA’s 0.3m estimate for 2009, although the
numbers are obviously small at this stage. The key question for me is whether the Chinese crop was really

© Thunder Road Report - 14 August 2009 7

 as good as we have been led to believe or whether imports will have to remain strong. If they do, it will
have a beneficial impact on the wheat price.

Let’s get back to USDA (“loveable chumps” I think is Nogger’s expression) and its strange forecasts and this
time focus on its upgrade to Indian wheat production published this week. Nogger highlighted in his blog
entry “Today’s USDA Faux Pas” in which he noted:

“Have you spotted it yet? You might have heard that there’s a drought on in India. Maybe you are aware
that they had their worst monsoon rains in 83 years during June?...Here around 60% of the agricultural
land is exclusively rain-fed, the remaining 40% relies on irrigation from reservoirs normally filled with
abundant monsoon rains. The sugar market has been hitting regular daily highs on the back of this drought,
so what does this mean for wheat production potential in the world’s second largest producer for the season
ahead? That’s right it’s increased by 3 MMT (million metric tonnes) from last month to an all-time high of
80.58 MMT!”

India wheat statistics (mt)

2007/08 2008/09 2009/10E (USDA) 2009/10E (Nogger)

Consumption 76.35 70.77 76.88 n/a
Production 75.81 78.60 80.58 77.6
Imports 1.89 0.01 0.00 n/a
Exports 0.05 0.20 0.20 n/a

Source: USDA, Nogger

From digging around, I’d like USDA to explain why the Indian government announced in early July that it
would permit exports of 900,000 tonnes of wheat and 650,000 tonnes of wheat products by March 2010,
only to reverse this decision two weeks later due to concerns about the monsoon?

The next chart from Texas AgriLife Extension Economist, Mark Welch, shows that in seasonal terms buying
exposure to wheat in mid-August has usually been a reasonable bet over the last five and ten years:

Source: Texas AgriLife

A medium-term concern regarding the supply of wheat is the potential spread of the Ug99 fungus (it
originated in Uganda in 1999) known as “stem rust”. The fungus forms reddish brown flakes on the plant
stalks and deprives the plant of nutrients. The fungus is carried by the wind but has so far only been
found in Africa and the Middle East – although the International Maize and Wheat Improvement Center
has estimated that 19% of world production could be in danger. There are 17 international research

© Thunder Road Report - 14 August 2009 8

 organisations collaborating on the development of resistant wheat varieties. In the meantime, if it reaches
the “bread baskets” of North America, Asia and Central Europe, we are in trouble.

Finishing on a lighter note, I like Nogger’s blog and he has a very amusing “donate” button:

“Feeling guilty and embarrassed about accessing all this quality free information? Of course you are, and
I don’t blame you, nobody likes a freeloading cheapskate. Why not ease your burden by hitting Donate
to buy Nogger a beer via PayPal? You’ll feel better, I’ll feel better, and the puppy will feel better. If you’re
Icelandic I’ll settle for a half and a bag of nuts.”

I was talking about the collapse of the Icelandic currency in the last Thunder Road – a poster child for the
UK and US at some point? Anyway, I’m going to buy Nogger a beer as he sounds like a good bloke

US Treasury Bonds – emerging Ponzi scheme

A key theme of Thunder Road reports is that we are approaching a dollar crisis and that this will be brought
on by investors refusing to continually pour more good money after bad into buying US Treasury bonds
and financing gargantuan US federal deficits. This was the lesson from the collapse of the London Gold Pool
in 1968 which led to the end of the (quasi) gold standard and massive devaluation of the US dollar – gold
went from being fixed at US$35/oz to its interim high of US$195/oz in 1974.

The out-of-control spending of the US Federal Government continues with Geithner, the Treasury Secretary,
seeking yet another increase in what is currently a US$12.1trn debt limit.

“It is critically important that Congress act before the limit is reached so that citizens and investors here
and around the world can remain confident that the United States will always meet its obligations,”

Meet its obligations in increasingly worthless paper? I doubt they are raising their glasses to him in Beijing
– more likely Chinese officials are buying more gold, copper, soybeans and wheat, etc.

A week ago, there was a buzz around financial websites after Chris Martenson (article here) uncovered how
the demand for US Treasury bonds might not be as robust as the authorities would like us to believe. On
30 July 2009, the US Treasury announced the results of an auction of US$28.0bn of 7-year US Treasury
Notes. According to the release (here) bids of US$73.6bn were received giving a “bid-to-cover” ratio of
2.63. Of the US$28.0bn of notes sold, US$10.0bn went to the Primary Dealers. Overall, the Primary Dealers
(basically 18 of the world’s largest banks, including the US government’s primary “agents”, GS and JPM),
who are obliged to bid in these auctions, accounted for US$48.0bn, or 65.2%, of all bids tendered. The full
details of this auction can be seen here but Chris scanned in the top part of the announcement highlighting
the all-important CUSIP number, i.e. identifying the bonds specifically sold in this auction.

Source: Chris Martenson

© Thunder Road Report - 14 August 2009 9

 Let’s move forward just seven days to 6 August 2009 and the details of the Federal Reserve’s Permanent
OMO (open market operations) on that day. A Permanent OMO is an outright purchase or sale of US
Treasury securities from the banking system (i.e. the Primary Dealers) for the Fed’s own balance sheet. On
6 August, the Fed bought US$7.0bn of long-dated (7 to 10-year) Treasuries:

Source: Chris Martenson

Drilling down into the details of this purchase, Chris showed how US$4.7bn of the purchase were the same
Treasuries which had only been issued a week earlier as identified by the CUSIP number.

Source: Chris Martenson

As he commented:

“Good grief! Just last week when the auction results were announced it was trumpeted to great fanfare that
there was ‘more than sufficient’ bid-to-cover, ‘strong demand’ and all the rest. And now it turns out that
47% (!) of the bonds that were taken by the primary dealers in that auction have been quietly bought by
the Fed and permanently secreted to its balance sheet. They didn’t even wait a full week!  A more honest
and open approach would have been for the Fed to simply buy them outright at the auction but this way,

© Thunder Road Report - 14 August 2009 10

 using “primary dealers” and “POMOs” and all these other extra steps the basic fact that the Fed is openly
monetizing US government debt is effectively hidden from a not-too-terribly inquisitive US  press and
public. The speed of the shell game is accelerating.”

Zero Hedge made a poignant remark:

“The question is did the Fed implicitly tell the primary dealers they are merely holding the treasuries for a
flip, and that it would acquire them immediately.”

It also makes me question just how serious the other US$48.0bn of tendered but not accepted bids from the
Primary Dealers really were if the latter are in on the scam. Strip out the US$4.8bn of bonds immediately
monetised and US$38.0bn of tendered but unaccepted bids from the Primary Dealers and the bid-to-cover
ratio suddenly drops to 1.10. Hey presto, Washington we have a problem.

The timing of this rapid monetisation of longer-dated Treasuries was interesting for two reasons. Firstly,
as I noted in the last Thunder Road Report, there had been a disappointing auction of US$39.0bn 5-year
Treasury Notes only the day before this one (on 29 July 2009) when the bid-to-cover ratio was only 1.92.
The next day, with the bid-to-cover ratio rising to 2.63 everything looked rosy again. Here is how CNBC
reported the 30 July 2009 auction on its website:

“The bond market got a bit of relief Thursday, as a $28 billion auction of seven-year notes went somewhat
better than expected. The auction saw a yield of 3.369 percent on a bid-to-cover ratio of 2.63 as the price
continues to increase for the government’s massive debtload. The bond market this week already has
weathered two tepid auctions, for two- and five-year notes. With today’s auction of $28 billion in seven-
year  notes sending investors even further out on the yield curve, there was little optimism that things
would change.”

Secondly, the point about “sending investors even further out on the yield curve”, i.e. selling them longer-
dated bonds, is important. Let’s look at the change in holdings of short-dated (Treasury Bills, i.e. less
than one year maturity) versus longer-dated (Notes and Bonds, i.e. more than one year maturity) of US
Treasury Securities by foreign governments from July 2008 to May 2009 (the most recent data).

Foreign central bank holdings of US Treasury Securities (US$bn)

July 2008 May 2009

Treasury Bills 232.5 586.2
T-Bonds & Notes 1,694.4 1,701.3
Total 1,926.9 2,287.5

Source: US Treasury

While the overall holdings have increased by c.US$350bn, there has been a marked change in the balance
of maturities. Foreign governments have essentially refused to lend any more money to the US on a longer
term basis although they are still happy to lend money on a short-term basis. This is clearly the behaviour
of creditors who sense bankruptcy/inflation risk. If nobody wants to buy your long-term debt, then the
game will soon be up.

What I’m also wondering is whether there is a link between the Chinese delegation travelling to Washington
(what was said about the deficit behind closed doors?) the same week as the bond auctions described
above and signs that the man overseeing US government finances is starting to feel the heat? Remember
the Wall Street Journal story about the unusual meeting between Geithner and US regulators on the Friday
(31 July 2009) of that week. The online WSJ reported on :

“Treasury Secretary Timothy Geithner blasted top U.S. financial regulators in an expletive-laced critique
last Friday as frustration grows over the Obama administration’s faltering plan to overhaul U.S. financial
regulation, according to people familiar with the meeting…Among those gathered in the Treasury conference
room were Federal Reserve Chairman Ben Bernanke, Securities and Exchange Commission Chairman Mary

© Thunder Road Report - 14 August 2009 11

 Schapiro and Federal Deposit Insurance Corp. Chairman Sheila Bair. Friday’s roughly hourlong meeting was
described as unusual, not only because of Mr. Geithner’s repeated use of obscenities, but because of the
aggressive posture he took with officials from federal agencies generally considered independent of the
White House. Mr. Geithner reminded attendees that the administration and Congress set policy, not the
regulatory agencies.

Mr. Geithner, without singling out officials, raised concerns about regulators who questioned the wisdom of
giving the Federal Reserve more power to oversee the financial system. Ms. Schapiro and Ms. Bair, among
others, have argued that more authority should be shared among a council of regulators.”

Let’s continue the fine double act of Chris Martenson (I think I’m going to subscribe to his paid service)
and Zero Hedge and look at another chart published by the former. This shows the Dow Jones Industrial
Average since 1 January 2009 above the chart of the total Permanent OMOs (both Treasury and Agency
securities, e.g. Fannie and Freddie). Just to clarify, this is the Federal Reserve creating money and buying
securities off the banking system in exchange for cash.

Dow Jones Industrial Average and Fed POMO activity

Source: Chris Martenson

This cash increases the reserves of the banks which can either lend the money or put it some other use…
like the stock market maybe?

© Thunder Road Report - 14 August 2009 12

 “The goal, we surmise, is simply to get the stock market to move upwards. This is not an unthinkable idea
to me because, frankly, it is exactly the prescription I would write for an economy as dependent on rising
asset prices as is the United States’.  If a rising stock market helps to get people out buying and spending
again then it is a worthy goal in many a policy-makers mind, I am sure.”

After all, there is a close link between consumer confidence and the stock market, especially in the US,
which has more of an “equity culture” than the UK.

It’s not all gloom, however, and at least the July 2009 US employment report from last Friday was better-
than-expected on a seasonally adjusted basis – 247,000 job losses versus consensus expectations of
320,000 (following a 467,000 figure in June). The irony for me was that if you try to calculate the underlying
number, excluding the most obvious US government manipulations, it was even better than reported.

Two Thunder Roads ago, I showed how using John Williams’ (shadowstats.com) detailed analysis of the
June numbers, a better estimation of the number of job losses was 698,000 compared with the headline
figure of 467,000 adjusting for the concurrent seasonal factor bias (CSFB) and birth/death model. Making
the same adjustments to the July data, the underlying number might have been close to 145,000.

US non-farm payrolls - estimated underlying change in unemployment in 2009

(,000s) April May June July

Headline reported 504 322 467 247
CSFB (48) 89 46 (134)
Birth/death 226 220 185 32
Underlying change 682 631 698 145

Source: BLS, shadowstats.com

We know that the payrolls data is low quality, based on sampling, and Obama needed some good news,
so it could have been somewhat fabricated, I don’t know. Certainly, the disruptions to the auto industry
played havoc with the normal phasing of production shutdowns this year. It is also worth remembering that
the non-seasonally adjusted reduction in non-farm payrolls in July was 1.333m compared with 1.401m last
July, which was hardly an improvement.

f we give the BLS the benefit of the doubt on the July data I also have an explanation for such a good
number. We’ve just been through a quarterly earnings season where the majority of companies exceeded
consensus expectations for earnings although the dismal trend in sales revenue was as bad as feared.
Hence the realisation that the corporate sector did a surprisingly “good” job of cutting jobs in order to beat
numbers for the quarter. I think it’s possible that companies are now holding back on layoffs to see if sales
begin to recover, given all the talk of green shoots. If they don’t, I expect that job losses will pick up again
later this quarter.

© Thunder Road Report - 14 August 2009 13

 Author: I started work the month before the stock market crash in 1987. I’ve worked mainly as an analyst
covering the Metals & Mining, Oil & Gas and Chemicals industries for a number of brokers and banks
including S.G. Warburg (now UBS), Credit Lyonnais, JP Morgan Chase, Schroders (became Citibank) and,
latterly, at the soon to be mighty Redburn Partners.

Disclaimer: The views expressed in this report are my own and are for information only. It is not intended
as an offer, invitation, or solicitation to buy or sell any of the securities or assets described herein. I do not
accept any liability whatsoever for any direct or consequential loss arising from the use of this document or
its contents. Please consult a qualified financial advisor before making investments. The information in this
report is believed to be reliable , but I do not make any representations as to its accuracy or completeness.
I may have long or short positions in companies mentioned in this report.

© Thunder Road Report - 14 August 2009 14