Review & Focus

July 1, 2010

Dear EverBank World Markets Client,

June was busting out all over in the markets with a rebound of sorts in the currencies and metals, while the so-called “flight
to safety” slowed down a bit. We’ve got a lot to talk about this month, and I’ve decided to include a monthly chart of the
currencies’ performances during the previous month. Since we go to press around the middle of the month, the chart will
represent prices from the 15th to the 15th.

The Currencies At A Glance

Last month we wrote about the extreme volatility in the markets, and how this volatility continued to push investors
into the so-called “safe havens” of U.S. Treasuries and Gold. The dollar continued to move higher as volatility and its
close companion “fear” remained in the markets throughout the first weeks of June. This volatility was largely driven by
continuing questions regarding the European debt crisis. While the European Central Bank (ECB) seems to have provided a
backstop for the sliding euro and eased some of the speculative pressures on Greece and the rest of the GIIPS (remember:
Greece, Italy, Ireland, Portugal, Spain), new questions have been raised regarding the health of European banks. A look
at these bank’s holdings of Greek debt illustrates why France was pushing so hard for a bailout, and gives us insight
on why Germany finally succumbed to the pressure. As reported in the Financial Times, banks in France hold 32% of
Greek government bonds, while Swiss banks hold 21% and German banks own 19% of the Greek debt. The French
and German banks also hold between 16% and 17% each of the Portuguese government debt. The massive bailout of
Greece by the European Union (EU) and the IMF was necessary, not only to hold the EU together, but also to prop up
these European banks, which are still reeling from the subprime mortgage mess that originated in the U.S. So the markets
remain on edge, waiting to see if these European institutions can pull through this second credit crisis.

The volatility continued to push investors into what I termed the “uncertainty hedge” of precious metals during the first
few weeks of June. Sales of the 1 ounce American Eagle gold coins surged to the highest level in 11 years according
to the U.S. Mint. And other mints also reported record sales of coins during the month of May. South Africa increased
production of the Krugerrand by 50% to keep up with demand, and the mints in Austria and Canada saw dramatic
increases in sales. The Royal Canadian Mint, which sells around 25,000 Maple Leaf gold coins in a typical month, had total
sales in May of nearly 180,000 ounces. Much of this demand is coming from investors in Europe who were anxious to get
out of the euro. With volatility remaining fairly high, we would expect gold demand to remain strong.

Is Gold The Next Bubble?

The simple answer to that question is… NO! However, some of you might want an explanation, so here it is.

Well-respected economist, Dennis Gartman, tells us that “Market Vane’s bullish consensus figures are, and have been,
hovering at 70%. Bubbles occur when the bullish consensus gets to 90% and above, and even then it must be there and
stay there for several weeks before corrections of consequence develop.”

Thanks, Dennis! But to add to that, Chuck’s own view of bubbles… Gold won’t be in a bubble until the people that have
been telling you to sell your Gold, begin to tell you to buy it!

Yes, the demand is high, but it’s been high for a couple of years now! In 2008, the demand for Gold was up 429% from
the previous year; and in 2009, we matched those numbers. So this isn’t a “recent phenomenon”! People are waking up
and realizing that there are a number of benefits to owning Gold!

Revisiting Canada
As I’m sitting here collecting my thoughts, I have the World Cup playing in the background and I’m watching the soccer

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ball going back and forth from one end of the field to the other. I can’t help but to equate this action to the direction
of risk in the markets that we, once again, have seen over the past month. If it wasn’t the debt concerns from Europe, it
was thoughts of a slowdown in China or reaction to economic reports from the U.S. We saw action move from the “risk
on” side of the field to the “risk off” side of the field almost on a daily basis and continues to be a back and forth type of
match with no goals, i.e. market direction, seen at this point.

With the markets lacking any type of direction, uncertainty surrounding the world economy has been mounting and has
led to the universal uncertainty hedge, gold, setting yet another record high back on June 8 at just over $1,252. The past
month has been owned by the U.S dollar with only a handful of currencies that have stayed above water. That small
group, which includes the Mexican peso, Canadian dollar, and Japanese yen have also held onto year-to-date gains by the
skin of their teeth so far. I know we just talked about Canada a couple of months ago, but the Bank of Canada (BOC)
became the first G-7 central bank to join the rate hike party, so I thought an update on our northern neighbor would be
appropriate. I’ll also touch on Australia briefly, as that currency has sold off quite a bit for several reasons.

As I just mentioned above, the BOC became the first G-7 central bank to raise rates since July 2008 and marks the first
Canadian hike since July 2007. They signaled that further increases could be delayed by slower global growth, but rates
did increase to .50% from the record low of .25%. The statements released after the meeting carried a neutral tone
and contained a fair amount of caution, which caused a bit of selling on the heels of the decision, as many were hoping
for stronger language. After explaining higher domestic growth and inflation as justification for the rate increase, they
also mentioned the European debt situation several times and said further hikes will be weighed against the Canadian
economy and elsewhere.

While that verbiage in and of itself would be expected, that is looking at what’s going on not only at home, but also in
other countries before making decisions. I guess the context in which it was delivered didn’t give traders that warm and
fuzzy feeling they were looking for as to future hikes. Now they did leave a carrot hanging by explaining there is still
considerable monetary stimulus in place that would be conducive to reaching and surpassing the 2% inflation target in
light of the significant excess supply in Canada.

At this point, at least, many economists have better than 50-50 odds on a follow-up hike in July, but that’s obviously
going to depend on future data releases in Canada that would be supportive of such action and, more importantly I think,
the development in Europe along with the impact to global growth. I’ve seen most estimates in the 1.25% to 1.50%
range as to where we’ll end the year. The BOC dropped the conditional commitment to keep rates unchanged until July
at its April meeting on the back of the reasons cited for this hike, so the reversal of its last rate cut back in April 2009 was
pretty much expected.

The Canadian dollar/loonie tends to follow movements in stocks and commodities, particularly gold and oil, and has seen
a 64% correlation to crude oil futures. In other words, a rise in risk aversion and downward price action in commodities
would weigh on the currency even though economic fundamentals would indicate otherwise. There’s enough uncertainty
in the world right now that small steps in terms of rate movements would be the only course of action, but still, we’re
heading in the right direction.

A Trip Down Under

Jumping over to Australia for a bit, the Reserve Bank of Australia (RBA) kept rates unchanged at 4.5% for the first time
in four months to assess the impact of their six hikes in the last seven meetings on consumer and business demand. The
RBA said that monetary policy is appropriate for the near term and left the door open for future hikes. The mixed bag of
domestic data and the global uncertainty that everyone is facing makes it difficult for them to say much at this point. A
key justification for the rate hikes so far has been the threat of inflation, mainly from increased mining activity creating a
tighter labor market, as their resources and direct pipeline to China are stoking an economic expansion that is forecast by
the central bank to almost double in the next two years.

I believe, and have gone on record in my daily newsletter (A Pfennig For Your Thoughts), that the next rate increase
will come in August and it seems the RBA would be comfortable with rates closer to 5% by the end of the year. The
economic reports released lately have been tame, which is the whole point of applying the brakes with these rate
hikes, but consumers seem to be hanging in as the labor market continues to improve prompting continuing demand
at retailers.
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The Australian dollar had a rough month, as it was the worst performing currency for several reasons. The obvious has
been the general risk aversion seen in many of the financial markets, but talk of China slowing down and a proposed tax
on mining profits was the icing on the cake. First off, there was speculation that China was planning on taking steps to
cool the economy and that growth was already heading in the wrong direction.

Since China is in the driver’s seat for the Australian economy with its enormous appetite for resources, the thought was
Australia would suffer as a result and caused investors to begin jumping ship. That particular concern has since worn
away and was followed up with a government proposed tax of 40% on mining profits, as the resources industry makes
up about 10% of the $1.02 trillion economy. The tax is scheduled to be introduced to Parliament in 2011 by the current
administration and implemented the following year, which is estimated to collect A$12 billion in the first two years.

The long and short of the proposal is that profits from resource-related activity, primarily impacting the mining
industry, above what’s referred to as a super profit, would be taxed at 40%. The definition, as currently would be any
returns above the long-term government bond rate, which is now about 6%, and size of the assessment is the point
of contention. It’s the age-old scenario where government wants to make sure they get their fair share and private
industry wants to maximize their bottom line. It has expectedly turned into a heated debate with both sides trying to
justify their stance.

With mining making up a large part of the economy and source of jobs, support for the tax hasn’t been overwhelming.
As a result, the current administration is failing to win voters, with 41% opposed and 36% in favor, as 98% of the
people think mining is an important part of the economy. In fact, I mentioned this in my Daily Pfennig about the tax.
“The A$ is also getting some wind in its sails from the idea that the mining tax that has been proposed on mining profits
might not get a chance to be voted on. One of my fave writers, Bill Fleckenstein, had this to say: for those who have
been worried about the Australian mining tax, the Rudd Administration is now losing badly in the polls. A Bloomberg
story today suggested that this tax proposal is helping Rudd’s opposition, so it’s looking less and less like the plan will be
implemented as proposed.”

I’m sure some type of adjustment to the current tax situation will be made at some point, but hopefully it’s something
that both sides can at least live with. With all of that being said, Australia still has a strong fundamental base, a
comfortable rate differential, and the likelihood of future rate hikes. We talked about Norway being a value last month so
it looks like the Australian dollar could be added to that list at this point as well.

China
Since global growth, commodities, and a number of other things are dependent on Chinese economic growth, I thought
it best to review what’s been reported there lately,

First of all, Chinese exports increased 48.5% in May. Doesn’t look like there’s any slowing down there, eh?

In addition, China printed a very strong Trade Balance for May of $19.5 billion! Their domestic demand is very strong,
too, with Retail Sales rising 18.7% in May. So, China may be trying to apply the brakes on their strong economy, and for
good reason, but for the markets to sell off because they fear a Chinese meltdown—they should take a second look at
this data from China in May!

So… China’s economy remains strong, despite all the talk about how it’s overheating. And that will prove beneficial to
Commodities, and the Commodity Currencies such as Australia, New Zealand, Canada, Brazil, Norway, South Africa, and
even Mexico.

An Inconvenient Debt Revisited

On June 14th, it was reported that the losses at Fannie Mae and Freddie Mac are going to cost taxpayers $1.3 trillion. and
still these entities remain in operation. The debts in this country continue to pile up, and for all those that continue to say
that “deficits don’t matter,” might want to take a look at what’s going on over in the Eurozone right now. And don’t
think for a minute, that… that can’t happen to us!

And with that, here’s the brand spanking new monthly Currency Chart (see next page)! I hope you like it, and can’t
believe you haven’t had this before!
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Currency Change Basket CDs (Currency Only) Change

Currency Australian dollar q -2.82%
Returns Brazilian real q -0.44%
British pound p 1.58%
5/14/2010–6/14/2010
Canadian dollar p 0.50%
Czech koruna q -1.17%
Danish krone q -0.97%
EMU euro q -0.97%
Hong Kong dollar q -0.07%
Hungarian forint q -1.58%
Indian rupee q -2.77%
Japanese yen p 1.04%
Mexican peso q -0.79%
New Zealand dollar q -1.39%
Norwegian kroner q -2.72%
Polish zloty q -2.34%
Singapore dollar q -0.59%
South African rand q -1.69%
Swedish kronor q -1.50%
Swiss franc q -0.62%
Commodity Index q -1.35%
Debt-Free Index q -0.69%
Euro Trax ®
q -1.36%
European Opportunity q -1.76%
Geography Index q -1.16%
Global Power ShiftSM q -1.37%
Investor’s Opportunity q -1.35%
New World Energy SM
II q -1.68%
Pacific Advantage ®
q -0.48%
Pan-Asian SM
Index CD q -1.05%
Petrol Index q -0.64%
Prudent Central Bank q -0.90%
Ultra Resource q -1.18%
Viking CD q -1.83%
World Energy q -0.87%

In Conclusion
The weather has finally begun to warm up in June, and summer will be in full force by the time you receive this in the
mail, and not a moment too soon for yours truly! Summer has returned, so let’s hope that the fundamentals of currencies
and metals begin to return to the markets soon.

Thanks to all who sent along notes about my recent cancer problem. I’m doing quite well, and getting used to having
one eye!

Your glad-it’s-warm-again friend,

­­­­­
EverBank World Markets
8300 Eager Road, Suite 700
St. Louis, MO 63144
Chuck Butler Phone: 800.926.4922
President E-mail: worldmarkets@everbank.com
EverBank World Markets Web: EverBank.com

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