On the other hand energy, the middle graph, has a supply curve which conceivably levels off at a certain price level because of access to alternative energy sources with fixed costs to generate. We will not guess as to the next technology to dominate energy production but as an example Photovoltaic Solar Energy is currently at 20-40 cents per kWh1. This means that if we were forced to go 100% solar that could be a baseline price limit for energy production.

Lastly there is the agricultural supply curve which we believe to be an exponential price growth as demand increases. This is primarily due to the two major inputs for production, arable land and water. There are technologies being worked on such as hydroponics and high-rise farms, but the capital investment and lack of scalability to compete on a large scale will put tremendous pressure on agricultural prices.

Now let us discuss how all of this is will help the United States boom for decades to come. This country has slowly allowed a tremendous amount of manufacturing to move overseas yet we are still the largest manufacturer in the world. According to the UN Data, in 2007 the US produced $1.8 Trillion of goods and China at number two came in at $1.1 Trillion2. What has happened is that we moved low margin, commoditized manufacturing overseas and continued to grow high margin specialized goods such as military equipment, airplanes and heavy industrial equipment2.

Advancement in alternative energy technologies along with the trend towards energy production versus our current energy depletion infrastructure will wean us from foreign oil. The huge upside from this change would be the dramatic reduction of our current account deficit considering roughly $300B of the annual deficit is from foreign oil3. We will also be freed from the political stranglehold of our current energy trading partners. Our belief is most of the technological innovation in this sector will come from the United States. This means the best case scenario would actually puts us as a net exporter of energy and technology.

Now we will discuss the renaissance of American agriculture. This is the most exciting part of our outlook because this where this country is the worldwide leader. As of 2007, 0.6% of the US labor force participated in farming, forestry and fishing4, yet in 2007/08 we produced 412 million metric tons of total grains or 19% of the world output5. Compare this to China where 43% of their population participated in agriculture yet they produced a similar 399 million metric tons. Beyond the efficiency of our production, this country also has the most arable and permanent cropland at 179 million hectares6. Please refer to the Arable Land Chart to compare the top 5 countries by arable land and their total production of grains.

The last and possibly the most important advantage this country has is in total rainfall. The legend on these charts will be too small to read but what it shows is approximately half of the country receives over 40 inches (1016mm) of precipitation each year and the other half receives on average 5-15 inches (127-381mm). When you compare this to China, which has roughly the same landmass as the United States, only a fraction of the country receives over 1000mm of precipitation per year.

What we conclude from all of this data is that this country is in a unique position to leverage its strengths on the rest of the world over the coming decades. The world’s labor pool will adjust between subsistence living and commoditized manufacturing to support the future consumption needs of this country. By varying the production levels of agriculture, we can indirectly control the prices of manufactured goods being imported into this country. As energy prices level off, it will no longer dominate the manufacturing and transportation of goods and services. Then it will be the country dominating agriculture that will have leverage over its trading partners. Combining this with the fact that the United States is the leader in capital efficiency and innovation, the long term outlook for the United States looks promising.

That is why we are trying to emphasize the rule of patience and persistence. In this stage of the economic cycle a disciplined approach is key. There will be plenty of money to be made in the future but our current outlook is that the debt problems we amassed over the last decade will take some time to work through. The government is limited in how long it will be able to push out the inevitable consequences of a debt-laden economy. We strongly believe that discipline and patience is what is needed right now to protect your nest egg and allow for you to buy assets at much more attractive prices in the future.

Thank you,

Excelcia Financial Group