Dr. Stephen Leeb

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Oil The FutureDr. Stephen Leeb, MegaTrends
Fund (MEGAX)
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Dr. Stephen Leeb, Ph.D.

• Portfolio manager of the MegaTrends Fund (MEGAX)
• Author of The Oil Factor Protect Yourself AND
  PROFIT from the Coming Energy Crisis

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ENERGY AND INVESTING

• The urgent message for investors
• Oil prices are on the rise
• the uptrend is long term
• rising prices will come to dominate the economic
  and investment outlook.
• Oil supplies will become inadequate sooner than
  is generally understood

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CAPACITY LIMITS

• Back in early 2002, 30-a-barrel oil was widely
  viewed as an anomaly
• Most anyone with an opinion on energy from Wall
  Street analysts to oil industry executives
  believed oil prices were in a long-term trading
  range centered around 20 a barrel
• This opinion rested on the assumption that
  worldwide oil capacity was sufficient to supply
  the world with all the oil it needed

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CAPACITY LIMITS

• Much of that capacity was in the hands of the
  Saudis but Saudi Arabia had always proved a
  reliable supplier of last resort
• The emerging Russian oil miracle from the late
  1990s on, Russian oil production and exports had
  been rising sharply
• By 2004 - burgeoning demand for oil became
  obvious

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AMEX OIL INDEX PRICES

• AMEX Oil index, XOI price weighted index of the
  leading companies involved in the exploration,
  production and development of petroleum.

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ARE OIL PRICES HEADED HIGHER?

• Even if demand were to slow?

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DEMAND

• Lately oil has been in the headlines constantly
  as prices have reached previously unseen levels
• demand will continue to rise
• investors should respond
• Rapid growth in Asia will be a major reason
  demand for energy will accelerate

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ENERGY DEMAND
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POSSIBILITY INCREASES IN SUPPLY

• To the extend that Saudi Arabia and Russia can
  produce extra oil
• inevitable that they will need to consume much of
  it themselves
• Enormous investment in which ironically growth
  requires energy

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RUSSIA

• In the 1990s and early 2000s, Russian GDP dropped
  by more than 30 percent.
• Good thing for the rest of the world
• Russian demand for energy fell by 20 percent
• If Russian energy consumption had grown by just
  2.5 percent a year during the same period
• Russian consumption by 2004 would have nearly
  matched production
• leaving almost no oil to import
• As energy production within Russia began to
  climb, so did energy consumption.

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SAUDI ARABIA

• Internal consumption of oil production has been
  in a sharp uptrend
• Energy-intensive economy
• growth has exceeded 4 percent
• energy use has grown by 12 percent

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BOTTOM LINE

• While oil may be volatile shorter term Longer
  term there are simply no scenarios
• apart from a massive worldwide recession
• As long as growth in oil supplies isnt keeping
  pace with growing demand, oil prices will
  continue to rise
• Whether curbing demand or boosting
  supplieshighly unpleasant scenarios will arise

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INVENTORIES
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ULTIMATE ANSWER

• Development of alternative energies
• Likeliest to have the most immediate impact on
  helping us meet our energy needs
• Nuclear energy
• Wind Energy
• Tar Sands
• Liquefied natural gas

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INVESTING

• Heavily in stocks that are suitable for both
  inflationary and deflationary portfolios
• Big players in alternative energies
• Wonderful hedges
• All-weather stocks that can go in any portfolio

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RECOMMENDATIONS

• Exelon
• Entergy
• Air Products and Chemical (inflationary
  portfolio)
• Canadian Oil Sands
• FPL Group
• Of course direct energy plays as well

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EXELON

• Nuclear energy will temporarily fill the gap
• Exelon is the nations largest nuclear utility
• entire fleet is unregulated
• Potential expansion and building additional
  facilities
• Could result in double-digit profit growth

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ENTERGY

• Nations second-largest nuclear utility
• Capacity is regulated
• More downside protection in the event of a
  recession and upside exposure to nuclear energy

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AIR PRODUCTS AND CHEMICALS

• Liquefied natural gas (LNG) has the potential to
  add the equivalent of about 5 or 6 million
  barrels a day to the worlds energy supply
• Heat exchangers - vital components in converting
  natural gas into liquefied form
• Also produces hydrogen - vital in refining
  alternative fossil fuels

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CANADIAN TAR SANDS

• Nearly 180 million barrels of oil sands reserves
  - tar sands are the second largest source of
  fossil fuels in the world
• The Catch - difficult and expensive to mine these
  sands
• Still an important energy niche

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FPL

• Wind the most promising alternative energy
• Best-situated all-weather stock
• 85 of revenues from being a regulated utility in
  Florida
• staid but steady income
• Nations Largest wind generator
• (General Electric - is the largest integrated
  wind company)

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CONTINUING UPTREND

• Turbulent times that lie ahead
• What to buy and what to avoid in order to protect
  yourself and profit
• Upside potential for investors is enormous

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DISCLOSURES

• Please consider carefully the funds investment
  objectives, risks, charges and expenses. For this
  and other important information, obtain a fund
  prospectus by visiting www.usfunds.com/adviser or
  by calling 1-800-873-3639, option 2. Read it
  carefully before investing. Distributed by U.S.
  Global Brokerage, Inc.
• Holdings as a percentage of net assets as of
  9/30/04
• MegaTrends Fund Entergy (1.09), FPL Group
  (2.05) General Electric (2.51).
• Although mentioned, none of the following
  companies were held in the MegaTrends Fund as of
  9/30/04 Exelon, Air Products and Chemicals,
  Canadian Oil Sands.