ARTEMIS CAPITAL MANAGEMENT

Council of Supply Chain Management Professionals November 3, 2011

For Investment Professional Use. Not for Distribution

Fall of the House of Money: Changes in Global Trade and Currency Exchange
Christopher Cole, CFA
520 Broadway, Suite 350 Santa Monica, CA 90401 (310) 496-4526 phone (310) 496-4527 fax info@artemiscm.com

Fall of the House of Money Global currency regime will likely face significant changes in the ensuing decade Self-reinforcing cycle between Debtor-Developed and Emerging-Creditor nations likely to unravel perhaps violently European crisis may tip us into a second global recession Global policy makers are out of stimulus options Dollar hegemony may be challenged in the future

1. INTRODUCTION TO CURRENCY DYNAMICS

1

Source: istockphoto.com

US Dollar has lost over 50% of its value since 1985 on a trade weighted basis
FRB Trade-Weighted Dollar is the Major Currency Index published by the Federal Reserve, with the USD weighted by respective merchandise trade volume against EUR, JPY, GBP, CHF, AUD, CAD
105

1. INTRODUCTION TO CURRENCY DYNAMICS

FRB Trade Weighted Dollar Index (1985 to Present)

95

85

75

65

55

45

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source: Federal Reserve & Shadow Government Statistics

Global Currency Markets are like a Backwards Beauty Pageant

Like pageant contestants the value of one currency is judged in relationship to another currency However many contestants want to be the most ugly currency to gain advantage in international trade and to stimulate exports Fiat currencies are backed only by faith in a government beauty is in the eye of the beholder Currencies are subject to laws of supply and demand

1. INTRODUCTION TO CURRENCY DYNAMICS

$USD to GB Pound

Examples of Currency Pairs Aussie to Japanese Yen $USD to Mexican Peso Chinese Renmembi to US Dollar

CHF (Swiss Franc) to Euro $USD to Canadian Loony

The value of a currency (in relationship to another) is driven by a variety of fundamental and speculative factors including: Economic Data Monetary Policy Interest Rates International Trade Flows International Investment Flows Political Stability/Rule of Law/Taxes Geopolitical Events Human Perception

1. INTRODUCTION TO CURRENCY DYNAMICS

Strong Currency +GDP growth High Interest Rates Hawkish Monetary Policy Low Government Debt to GDP Sound Political System Rule of Law High Foreign Investment Capital Inflows High Current Account Balance

Weak Currency Low GDP growth Low Interest Loose Monetary Policy High Government Debt to GDP Political Instability or War No rule of law / high taxes Low Foreign Investment Lack of Capital Inflows More imports than exports

WORLD WAR URRENCY

Countries are artificially devaluing their currencies to generate competitive trade advantages or to finance deficits

2. WORLD WAR CURRENCY

United States Ultra-loose monetary policy (ZIRP & Quantitative Easing) Massive government deficits and high debt levels Unsustainable fiscal spending and entitlements Japan ZIRP and debt-GDP-ratios above 200%+ Japanese government intervened in foreign exchange markets for the 4th time in over a year (selling yen and buying dollars & euros) China Yuan is pegged to the dollar and estimated to be as much as 40% undervalued against the US dollar China keeps buying dollars and printing Yuan to maintain this peg Switzerland Swiss Franc was a popular safe haven appreciating +28% against the Euro and +50% against the dollar since 2003 SNB devalued Franc in September pegging it at 1.20x to the Euro Brazil Central bank cuts interest rates twice in the last quarter despite highest inflation in six years

MASSIVE DEBT AND TRADE IMBALANCE BETWEEN Debtor-developed countries will need to DELEVERAGE Emerging-creditor countries maintain growth w/o currency pegs despite slowdown in developed world

3. GLOBAL TRADE IMBALANCES AND THE CARRY TRADE

High debt Low growth and inflation Bad demographics Low interest rates Shrinking middle class

Low debt High growth & inflation Positive demographics Higher interest rates Emerging middle class

Current Account Balance (exports minus imports of goods and services)

3. GLOBAL TRADE IMBALANCES AND THE CARRY TRADE

Debtor-Developed nations are net importers and Emerging-Creditor Nations are net exporters

Source: IMF World Economic Outlook Database, April 2009

Debtor-Developed nations are massively OVERLEVERAGED

Nations with public debt above 90% of GDP (grey line) grow 1.3% per year slower than countries with lower debt ratios USA at 107% not including social security and Medicare
240 220 200
United States Japan Greece Germany Euro area OECD Countries

3. GLOBAL TRADE IMBALANCES AND THE CARRY TRADE

Government Debt to GDP % Developed Economies

Government Debt to GDP Ratio %

180 160 140 120 100 80 60 40 20 0

Source: OECD, statistic regarding GDP growth from This Time is Different by Carmen Reinhart & Kenneth Rogoff

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Relationship between Developed-Debtor and Emerging-Creditor Nation Mechanics of Chinese Currency Peg
$1 USD = approx 6.35 Yuan Estimated at 15-40% undervalued to $USD

3. GLOBAL TRADE IMBALANCES AND THE CARRY TRADE

Peoples Bank of China print Yuan

buy $USD

Reinvest $3.2 tn excess reserves in:

US consumer buys

$USD

Chinese manufactured goods bought by US consumer

10

Yield% Yield (%)

10% 12% 14% 16% 18% 2% 4% 6% 8% 15% 20% 25%

10%

0%

5%

1962 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

3. GLOBAL TRADE IMBALANCES AND THE CARRY TRADE

Source: Federal Reserve

10 Year US Treasury Yield (1961 to Present)

Rates have nowhere to go but up

Interest rates in the developed world are at generational lows fueling leveraged carry trades and increasing public and private debt

Effective Federal Funds Rate (1961 to Present)

12

Global asset prices driven by the CARRY TRADE instead of economic fundamentals

3. GLOBAL TRADE IMBALANCES AND THE CARRY TRADE

End result is RISK-ON /RISK OFF dynamic

Developed World Borrow at historically low interest rates

Risk Assets + Emerging Economies Reinvest in Risk Assets!

RISK ON!

global stock prices commodities safe haven currencies like the USD or Yen

RISK OFF!
global stock prices commodities safe haven currencies like the USD or Yen

13

Basics of the Carry Trade

Japan Yen = Safety Currency Australia Aussie Dollar = Risk Currency

3. GLOBAL TRADE IMBALANCES AND THE CARRY TRADE

1 AUD = 81.15Yen

borrow 8,115 Yen @ 0.20%

Convert to 100 AUD and reinvest @ 5.60%

+ 5.40% of positive carry

Keys risk is depreciation of the AUD against the YEN (due to economic weakness)

Safety or Funding Currencies

Appreciate During Economic Weakness

Risk Currencies
Depreciate During Economic Weakness

US Dollar Japanese Yen Swiss Franc (until recently)

Australian Dollar New Zealand Kiwi Brazilian Real

14

Excess global liquidity has arguably led to the most correlated period in the history of modern markets rendering diversification futile
(correlation measures the propensity for assets to move in-tandem)

3. GLOBAL TRADE IMBALANCES AND THE CARRY TRADE

ASSET PRICE RISK = CURRENCY RISK

85

S&P 500 - 21 day Rolling Correlation Index

65 55 45 35 25 15 5

S&P 500 Index Implied Correlation

75

Realized Correlation of 50 Largest Cap S&P 500 stocks (1 month rolling- 2005 to Present)

78 73 68 63 58 53 48 43 38 33

Implied Correlation of S&P 500 Index (12 month constant adjustement)

May-07

May-08

May-09

May-10

May-11

Aug-07

Aug-08

Aug-09

Aug-10

Aug-11

Feb-07

Feb-08

Feb-09

Feb-10

Feb-11

Nov-07

Nov-08

Nov-09

Nov-10

Oct-05

Oct-06

Oct-07

Oct-08

Oct-09

Oct-10

Jun-05

Jun-06

Jun-07

Jun-08

Jun-09

Jun-10

Jun-11

120 100 80

Feb-05

Ranked 21 day Realized Correlations of 50 LargeCap Stocks in SPX (2005 to Present)

Feb-06

Feb-07

Feb-08

Feb-09

Feb-10

Feb-11

0.75 0.65 0.55 0.45 0.35 0.25

S&P 500 Sector Correlation

0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2

Country ETF Correlation

21 day Realized Correlation

60 40 20 0 -20 -40 -60 -80 1 101 201 301 401 9/7/2011 (Highest Correlation at 0.82) 2008 Crash High (11/13/2008 - Correlation at 0.76) Bull Market Low (11/3/2006 - Correlation at 0.10) Ranking (Lowest to Highest) 501 601 701 801 901 1001 1101 1201

0.15 0.05

2001

2006

2011

2000

2002

2007

2001

2003

2004

2005

2006

2008

2009

2010

Source: Ivolatility & Artemis Capital Management LLC

2011

2000

2002

2003

2004

2005

2007

2008

2009

2010

15

Mirror reflection: Stock Market Risk and the Carry Trade are now one is the same!!
Stock Market Volatility = Safe to Risk Currency Pairs (e.g. JPY/AUD, USD/AUD, USD/NZD)
VIX (lhs) vs. Japanese Yen/Aussie Dollar(rhs) Correlation = 0.85 since September 2008

3. GLOBAL TRADE IMBALANCES AND THE CARRY TRADE

90 80 70 60

Stock market volatility perfectly mimics the appreciation of funding to risk currency pairs

20

40

VIX index %

50 40 30 20

60

80

100 10 0 120

The marriage of volatility and currency is a worrisome development because it implies risk in the stock market is not about company fundamentals but instead is a function of global central banks fueling leveraged carry trades!
Source: Ivolatility & Artemis Capital Management LLC

JPY/AUD

Jan-08

Jan-09

Jan-10

Jan-11

Oct-07

Oct-08

Oct-09

Oct-10

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

16

Hegemony of the US Dollar

4. HEGEMONY OF THE US DOLLAR

The status of the US dollar as a GLOBAL RESERVE CURRENCY allows massive financial flexibility $USD accounted for 62% of global currency reserve holdings EUR #2 at 27% and GBP #3 at 4% Commodities markets and derivatives are largely settled in US dollars US dollar is the primary currency for cross-border trade and the global black-market Premier Safe Haven currency and appreciates when market sell-off Many currencies are pegged to the dollar (e.g. Chinese Yuan) Despite these facts due to trade imbalances, excessive government debt, slow growth, and unfavorable demographic trends the influence of the US dollar will likely face SIGNIFICANT challenges over the next 10 to 20 years

17

The dollar has lost approximately 30% of its value against a weighted basket of currencies since 2003 and over 50% since 1985
$100 USD translated into Foreign Currencies 2003 to Present

4. HEGEMONY OF THE US DOLLAR

110

100

$100 USD in Foreign Currency

90

80

70
Swiss Franc 1 year 2 years 3 years 5 years 8 years -8.09% -12.56% -18.00% -31.20% -37.42% US Dollar Currency Appeciation/Depreciation Australian Dollar Canadian Dollar Euro -2.41% -12.40% -16.05% -26.45% -36.46% 0.35% -5.96% -0.49% -8.29% -27.34% -0.22% 8.34% 8.15% -5.82% -14.66% Composite -2.59% -5.65% -6.60% -17.94% -28.97%

60

50

40 2003

2004

2005

2006

2007

2008

2009

2010

Source: www.forexrate.co.uk

18

US dollar typically strengthens when shipping rates fall consistent with safe haven status
14,000

RELATIONSHIP between US Dollar and Worldwide Shipping Rates

4. HEGEMONY OF THE US DOLLAR

Baltic Dry Index (lhs) vs. FRB Trade Weighted Dollar Index (rhs) -0.54 correlation since 2000

85

12,000

80

10,000

75

70

8,000 65

6,000
Baltic Dry Index FRB Trade Weighted Dollar Index

60

4,000

55

2,000

50

45

Nov-00

Nov-05

May-03

May-08

Nov-10

Oct-03

Dec-02

Dec-07

Oct-08

Jan-00

Jan-05

Apr-01

Apr-06

Jan-10

Feb-02

Aug-04

Feb-07

Mar-04

Mar-09

Aug-09

Sep-01

Sep-06

Apr-11

Jun-00

Jun-05

Jun-10

Sep-11

Jul-02

Jul-07

FRB Trade Weighted Dollar Index (1985 = 100)

Baltic Dry Index

19

NO VIABLE ALTERNATIVES TO THE US DOLLAR

4. HEGEMONY OF THE US DOLLAR

IMF issued a report in early 2011 on possible replacements for the dollar as the world's reserve currency in response to pressure from emerging economies Russia is actively trying to develop energy markets in alternative currencies China and Brazil are engaging in direct circumventing $USD Special Drawing Rights (SDRS) MOST VIABLE THREAT GOING FORWARD Weighted currency basket of four major currencies: the Euro, the US dollar, the British pound, and the Japanese yen SDRs can be exchanged for freely usable currencies China is in favor of expanding the use of SDRs Gold Pegging currency to the price of gold? you cannot print more gold Removes monetary flexibility and money supply fluctuates with the supply of gold 1971 President Nixon cancelled direct convertibility of the United States dollar to gold

Other Currencies (Yuan, Euro, Yen) - either not liquid enough or structurally weak China issuing Yuan-denominated dim-sum bonds in Hong Kong Euro faces intense structural problems and may not even survive in its current form Japan (Yen) is in worse financial shape than the United States 20

US debt to GDP continues to climb higher

and these numbers do not even include the $7.9 trillion of unfunded Social Security and $22.9 trillion of unfunded Medicare obligations
16

4. HEGEMONY OF THE US DOLLAR

US Government Gross Federal Debt and Debt to GDP (1970 to 2011)

120

14 100 12

Gross Federal Debt ($trillions)

80

60

6 40 4 Debt to GDP Ratio 2 Gross Federal Debt 0 20

Source: http://www.whitehouse.gov/omb/budget/Historicals

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Debt to GDP Ratio (%)

10

21

US continues to run large government deficits as a percentage of GDP .who is financing this?
6.0 4.0 2.0 0.0 -2.0 -4.0 -6.0 -8.0 -10.0 -12.0 -14.0

4. HEGEMONY OF THE US DOLLAR

Total US Government Surplus or Deficit as % of GDP (1948 to 2010)

Total Government Surplus / Deficit as % of GDP

1948

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Source: http://www.whitehouse.gov/omb/budget/Historicals

2010

22

The largest holder of US treasury debt is the FEDERAL RESERVE (China is only #2)
During QE2 the Federal Reserve was purchasing approximately 70% of the new issuance of US treasury bonds
1,800 1,600 1,400

4. HEGEMONY OF THE US DOLLAR

Largest Holders of US Treasury Debt

Holdings of IS Treasury Debt ($bn)

1,200 1,000 800 600 400 200 0 Federal Reserve / USA China Japan United Kingdom Oil Exporters Brazil Carribean Banking

Source: Federal Reserve & US Treasury

23

Can you fight deflation with more debt?

4. HEGEMONY OF THE US DOLLAR

Policy Makers (e.g. Fed) are likely to counter further slowdowns with monetary stimulus
but with 0% rate we are out of policy bullets absent outright debt monetization (Quantitative Easing) so what happens to your currency if you just keep expanding the money supply?
2.5 M1 Growth (YOY) 2 M1 15%

US Money Supply (1970 to present)

25%
Highest YOY M1 growth

20%

M1 Money Supply (trillions)

1.5

10%

5%

0%

0.5 -5%

-10%

Source: Shadow Government Statistics

1970 1971 1972 1974 1975 1977 1978 1979 1981 1982 1984 1985 1987 1988 1989 1991 1992 1994 1995 1996 1998 1999 2001 2002 2004 2005 2006 2008 2009 2011

M1 Growth % (YOY)

24

Currency devaluation can create the illusion of economic growth

120

4. HEGEMONY OF THE US DOLLAR

Performance of German Stock Market during Weimar Republic Hyperinflaton

100,000,000,000,000 10,000,000,000,000 1,000,000,000,000 100,000,000,000

Performance adjusted for fixed rate of exchange

100

80

1,000,000,000 100,000,000

60

10,000,000 1,000,000

40

100,000 10,000 1,000

20

100 10

April-18

April-19

April-20

April-21

April-22

January-18

January-19

January-20

January-21

January-22

October-18

October-19

October-20

October-21

October-22

January-23

April-23

Adj. according to USD exchange rate Adj. according to wholesale index numbers In paper marks, Weimar

October-23

July-18

July-19

July-20

July-21

July-22

July-23

Performance in paper marks

10,000,000,000

Source: Economics of inflation by Constantino Bresciani-Turroni

25

Currency devaluation can create the illusion of economic growth

4. HEGEMONY OF THE US DOLLAR

Long-term US equity performance is atrocious when adjusted by the FRB trade weighted dollar-index (S&P 500 index since 2000 = -20% nominal loss vs. -50% adjusted for dollar depreciation)
1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 S&P 500 Index S&P 500 Index Adjusted by FRB Trade Weighted Dollar-Index

S&P 500 index performance adjusted by Dollar-Index

1985

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2007

2008

2009

2010

2011

Source: Yahoo Finance & Shadow Government Statistics

26

Is monetary policy working?

Economic Cycle Research Institute on September 30: Our most reliable forward-looking indicators are now collectively behaving as they did on the cusp of full-blown recessions, not soft landings.
(ECRI has a perfect recession prediction record with no false alarms)
40

4. HEGEMONY OF THE US DOLLAR

ECRI Weekly Leading Index Growth & US Recessions

-10% Growth usually means Recession in 6-12 months

30

ECRI US Weekly Leading Index Growth 9%)

20

10

-10

-20

-30

ECRI US Weekly Leading Index Growth Recession (Peak to Trough)

TARP/QE1

QE2 by FED

-40

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source:

Economic Cycle Research Institute

2011

27

Are commodities appreciating or is the dollar depreciating? Or both?

Commodities (e.g. Gold or Oil) typically climb when the dollar declines
$1 of Gold & Crude Oil vs. $USD Composite
2.45 Gold (GLD ETF) Crude Oil WTI - Cushing, Oklahoma $USD Composite (CHF,AUD,EUR,CAD)

4. HEGEMONY OF THE US DOLLAR

1.95

Gold
1.45 0.95 0.45 2006

2007

2008

2009

2010

2011

Source: Bloomberg

28

Perhaps the best way to understand the true value of our currency is to melt down the coins and sell the raw metal

4. HEGEMONY OF THE US DOLLAR

Description

Denomination

Metal Value

Nickel 1982 to 2011

5 cents

5.40574 cents

Penny 1909 to 1982 (95% copper) Penny 1982 to 2011 (97.5% zinc)

1 cent

2.37117 cents

1 cent

0.502486 cents

Source: www.coinflation.com / metals data as of October 31, 2011

29

The Fall of the House of Money Global currency regime will face significant changes in the ensuing decade Self-reinforcing cycle between Debtor-Developed and Emerging-Creditor nations likely to unravel perhaps violently European crisis may tip us into a second global recession Global policy makers are out of stimulus options Dollar hegemony may be challenged in the future

5. CONCLUSIONS

How to protect yourself and your business

1. Prepare your business for the potential of a second global recession 2. $USD is historically strong when the economy is weak watch for reversal 3. Evaluate portfolio returns against a global basket of currencies and commodities 4. Diversify exposure during periods of dollar strength and deleveraging : Nations with healthy finances and commodity driven economies (e.g. Canadian Dollar, Norwegian Krone, Australian Dollar) Tangible assets like real estate and metals (but not on leverage) Alternative asset classes (e.g. volatility and managed futures)
30

SOURCES AND ADDITIONAL READING

Sources and Reference Material: This Time is Different: Eight Centuries of Financial Folly Carmen Reinhart & Kenneth Rogoff, Princeton University Press 2011 Dying of Money Lessons of the Great German and American Inflation Jens O Parsson, Wellspring press 1974 The Ascent of Money: A Financial History of the World Niall Ferguson, Penguin Press 2008

6. SOURCES AND ADDITIONAL READING

Materials by the Presenter: Fighting Greek Fire with Fire: Correlation, Volatility, and Truth Christopher Cole / October 2011 http://www.scribd.com/doc/67897176/Artemis-Capital-Q3-2011-Fighting-Greek-Fire-With-Fire The Great Vega Short Christopher Cole / December 2010 http://economiemagazine.fr/documents/ACM-The-Great-Vega-Short.pdf Is Volatility Broken: Normalcy Bias and Abnormal Volatility Christopher Cole / April 2011 http://www.thetrader.se/wp-content/uploads/2011/04/artemis-volreport.pdf

31

Christopher Cole, CFA Managing Partner & Portfolio Manager Christopher R. Cole, CFA founded Artemis Capital Management after working in capital markets and investment banking at Merrill Lynch. During his career in investment banking while in both NYC and LA he structured over $6 billion in transactions for many high profile issuers. Mr. Cole has since focused on systematic and quantitative trading of volatility. His research and volatility commentary has been quoted by publications such as the International Financing Review, CFA Magazine, FT/Alphaville, and Forbes. His decision to form a fund came after achieving proprietary returns of over 200% between 2008 and May 2009 (net of full pro-forma fees per NFA guidelines / confirmed by independent auditor based on AICPA attestation standards). Mr. Cole holds the Chartered Financial Analyst designation, is an associate member of the NFA, and graduated Magna Cum Laude from the University of Southern California. Artemis Capital Management, LLC Artemis Capital Management LLC. is an investment management firm that employs systematic trading models to generate alpha from the behavior of market volatility. ACMs quantitative algorithms are intended to produce returns in a range of market environments and protect against subjective or emotional bias. The fund seeks to generate excess returns above the market from quantitative volatility trading, remain uncorrelated to traditional assets classes, and serve as a vehicle for sophisticated investors to diversify their broader portfolio. Artemis Capital Management is registered with the Commodity Futures Trading Commission (CFTC) as a commodity pool operator (CPO) and with the State of California as an investment adviser, and is a member of the National Futures Association ("NFA"). Artemis will offer the Artemis Vega Fund LP for qualified investors beginning in January 2012.
Note: Past returns are not indicative of future performance. Proprietary account performance verified by Rothstein Kass according to AICPA attestation standards. See accompanying notes in the disclosure section for important information. Past returns are not indicative of future performance. The Principal of the General Partner, Christopher R. Cole, used the Proprietary Account as a vehicle to incubate the investment strategy of the Partnership with personal funds prior to the formation of ACI. The Proprietary Account was not subject to a management fee or performance allocation such as those to which the Fund is subject. Accordingly, the net returns presented above reflect the deduction of (i) an investment management fee equal to 2% per annum of each investors capital account balance, charged quarterly in arrears, and (ii) an annual performance allocation equal to 20% of all net profits allocated to each investor, subject to a high water mark. Detailed information on the verified performance history of the incubator fund is available upon request.

7. BIOGRAPHY OF FUND MANAGER

32

Contact Information Christopher Cole, CFA General Partner and Founder Contact Information

Contact Information

8. CONTACT INFORMATION

Artemis Capital Management, L.L.C. 520 Broadway, Suite 350 Santa Monica, CA 90401 (310) 496-4526 phone (310) 496-4527 fax info@artemiscm.com www.artemiscm.com Christopher Cole, CFA Managing Partner (310) 496-4526 phone (310) 496-4527 fax (917) 434-0106 mobile c.cole@artemiscm.com

33

Legal Disclaimer THIS IS NOT AN OFFERING OR THE SOLICITATION OF AN OFFER TO PURCHASE AN INTEREST IN ARTEMIS CAPITAL INVESTORS, L.P. or ARTEMIS VEGA FUND L.P. (THE FUND). ANY SUCH OFFER OR SOLICITATION WILL ONLY BE MADE TO QUALIFIED INVESTORS BY MEANS OF A CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM (THE MEMORANDUM) AND ONLY IN THOSE JURISDICTIONS WHERE PERMITTED BY LAW. AN INVESTMENT SHOULD ONLY BE MADE AFTER CAREFUL REVIEW OF THE FUNDS MEMORANDUM. THE INFORMATION HEREIN IS QUALIFIED IN ITS ENTIRETY BY THE INFORMATION IN THE MEMORANDUM. AN INVESTMENT IN THE FUND IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. OPPORTUNITIES FOR WITHDRAWAL, REDEMPTION AND TRANSFERABILITY OF INTERESTS ARE RESTRICTED, SO INVESTORS MAY NOT HAVE ACCESS TO CAPITAL WHEN IT IS NEEDED. THERE IS NO SECONDARY MARKET FOR THE INTERESTS AND NONE IS EXPECTED TO DEVELOP. NO ASSURANCE CAN BE GIVEN THAT THE INVESTMENT OBJECTIVE WILL BE ACHIEVED OR THAT AN INVESTOR WILL RECEIVE A RETURN OF ALL OR ANY PORTION OF HIS OR HER INVESTMENT IN THE FUND. INVESTMENT RESULTS MAY VARY SUBSTANTIALLY OVER ANY GIVEN TIME PERIOD. CERTAIN DATA CONTAINED HEREIN IS BASED ON INFORMATION OBTAINED FROM SOURCES BELIEVED TO BE ACCURATE, BUT WE CANNOT GUARANTEE THE ACCURACY OF SUCH INFORMATION.

9. LEGAL DISCLAIMER
34

General Disclosure Statement

An investment in the Partnership and strategies discussed in this document involve a number of significant risks. For a full list of potential risk factors please review the Offering Memorandum. Prospective Limited Partners should read the entire Memorandum and the Partnership Agreement and consult with their own advisers before deciding whether to invest in the Partnership. In addition, as the Partnerships investment program develops and changes over time, an investment in the Partnership may be subject to additional and different risk factors. Prospective investors should also consult with their own financial, tax and legal advisors regarding the suitability of this investment. Artemis Capital Management, L.L.C. does not guarantee returns and investors bear the risk of losing a substantial portion of or potentially their entire investment. All 2009 performance numbers quoted within this document are derived from financial statements that were audited by Rothstein Kass. Proprietary trading results for White Fox, LLC (the Proprietary Account) are presented within this document that were verified by Rothstein Kass. The Principal of the General Partner, Christopher R. Cole, used the Proprietary Account as a vehicle to incubate the investment strategy of the Partnership with personal funds as well as those of close family members. Note that no management or performance fees were charged to the Proprietary Account profiled. Accordingly, the Pro Forma Performance presented in this document includes imposition of a 2% Management Fee and 20% Performance Allocation (in line with those charged against the Partnership).Past performance is not indicative of future returns.

9. LEGAL DISCLAIMER

Commodity Pool Operator Disclosure Statement

YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE POOL. FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETIONS OR EXHAUSTION OF THEIR ASSETS. THE OFFERING MEMORANDUM CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT . THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY STUDY THE OFFERINGMEMORANDUM, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT. YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTIONS TO THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OR REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY BE EFFECTED.

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