TWST: When we talked last year, it was right before the credit crunch and falling markets. Perhaps we could start by discussing the last 12 months and how events impacted your investing.

Mr. Puplava: When we last spoke, everything was collapsing. When you take a look at the lift-off in all commodity prices earlier in 2008, when we saw oil go from $100 a barrel to $147, that was remarkable in itself, and I think took the world by surprise. What was even more remarkable was that in a period of four months or five months, oil dropped from $147 to $32 a barrel, along with steep declines in other commodity prices.

Last year as the price of oil kept climbing from $100 a barrel and went to $125, $145, and $147, there was a government commission that was drawn together with seven agencies-everything from the CFTC to the Energy Department, the SEC, and the Federal Reserve-and they took a look at the issue of oil. They wanted to know: How did we get here? How did we go from $20 oil to-at the time of the commission study-over $100? What I think really is key to understand here-and it's also going to be the key to understanding the price of commodities going forward, especially oil-is there were a series of "bottlenecks" in supply throughout this decade. The "how" simply boiled down to this: demand was growing faster than supply.

Supply, despite higher prices, was unable to keep up with and meet demand and so you would get bottleneck. As a good example: the earthquakes in China at the beginning of 2008 shut down quite a few of their power plants, and forced China to go into the open market and buy diesel fuel to generate power. The US itself imports a considerable amount of fuel-I think it's close to 3 million barrels equivalent of gasoline, jet fuel, and diesel-so in addition to the US being a large consumer of petroleum products, China started moving in as a significant consumer of the finite amount of available supply. If you want to go back further, we can look at the hurricanes Katrina and Rita, which shut down not only oil and gas production in the Gulf of Mexico, but also the refineries there. So we had these series of bottlenecks in supply that developed over a period of a decade and the world had to come to grips with something that we hadn't dealt with before: supply, despite higher prices, wasn't-couldn't-keep up with demand.

If you take a look at China, China has become the world's third-largest economy, and there is talk that by next year China will move up the ranks to become the second-largest economy in the world. Ten, fifteen years ago, these were things we didn't think about. We didn't think about emerging market industrialization or emerging market urbanization, which require larger amounts of resources. So this decade's bottlenecks grew out of the inability of supply to keep up with the considerably increased demand from the development of emerging economies.

The increased demand from emerging markets is why I believe the sharp drop-off in commodities we saw last year had more to do with deleveraging and "fear liquidations" than it had to do with any real change to the supply/demand picture over the long term, although we did have/are having a dip in supply in the short term.

It wasn't until the financial crisis became full blown, especially after the bankruptcy of Lehman Brothers, that the credit crisis began to spill over into the economy and temporarily affect demand for various commodities. The drop-off in demand came as a result of lower GDP, with the US and European economies going into a recession, but more importantly, as a result of the slowdown in growth in the emerging world economies. So there was a brief period of respite from the supply/demand crunch. But once the financial crisis was stabilized, commodity prices began to rise again, since there is still a long-term supply/demand imbalance. For example, on the day you and I are speaking, we are looking at West Texas Intermediate Crude at $72 a barrel.

TWST: Now, the price of oil is in the $70 range. What do you see for the outlook going forward?

Mr. Puplava: I can see oil hitting over $80 a barrel by the end of the year, and I think the real key going forward-and this is something that is key to our analysis of this market-at the heart of the commodity problem is essentially a supply shortage due to a multi-decade-long bear market in commodities that resulted in under-investment in the sector. Last year's fall in commodity prices only exacerbated the problem.
For example, Freeport-McMoRan Copper & Gold Inc (FCX) decided to postpone copper mine expansions and re-openings. They essentially said, "We are simply not going to produce copper at these prices because it's a precious resource where it's very difficult to replace our reserves. So, we're not going to produce this stuff at a loss." So you saw copper supplies start to drop.

In the oil sector, the fall-off in demand led to a 20% to 30% drop-off in CapEx spending by major oil companies and national oil companies.

The central point to look at going forward is: regardless of whether or not the world pulls out of this recession anytime soon, I don't think the GDP growth in the developed world-such as Japan, Europe, and in the United States-is going to be as critical to the demand for commodities as GDP growth in the developing world. Commodity prices are determined at the margin, so if China, for example, goes back to 8%, 9%, or 10% economic growth, or if India's, if Brazil's, GDPs continue to grow, that's where I think a lot of the marginal increase in demand is going to come from. So I think we'll see a repeat of what happened earlier in this decade. Price spikes will start to develop as bottlenecks build up in the distribution and production of key resources, whether it's copper, whether it's zinc, whether it's oil. I think the only way that we are going to be able to manage our way through this is that higher prices likely will bring down demand in the western world. In turn, this will allow for demand to increase in the developing world because the only place that markets are really having an impact, in terms of the pricing mechanism, is in the western world where market prices have an influence on demand. If you look at much of the developing world, from China to India to Brazil to the Middle East, the cost of energy usually is subsidized, so demand is somewhat independent of price.

TWST: The commodities and natural resources are still a good place for you to invest, and are you finding any compelling stories in that area?

Mr. Puplava: Looking at the commodities sector, the thing that strikes me is that even in the downturn we've seen since September of last year, we are still operating at high capacity utilization rates-corn production 97%, copper production 96%, petroleum 95%, etc.-and they are all inter-related. To me, energy and agriculture are still two of the most promising areas within the commodity complex.

There are also opportunities within other commodities groups, let's say for example base metals, or any kind of commodity that is tied to the Chinese economy, or any commodity that is a scarce resource in China. With this in mind, I think key commodities such as copper, zinc, or the energy space are still appealing. The story for agriculture and agriculture-related commodities is equally as interesting.

TWST: Would you tell us about any other trends that you have been noting?

Mr. Puplava: What we try to do is pick up on long-term themes. For example, we took a look at what we've just gone through-the collapse in credit and the severe sell-off in nearly all asset classes from September last year all the way up to March of this year-and we said: all right, out of this recession, out of this collapse, which sectors of the economy come out looking better? In other words, where have the fundamentals improved?

I think there are three big drivers in the commodity complex. One is what I mentioned earlier: the dwindling of supply. If you look at the recent downturn, yes, you heard a lot of stories in the media about the collapse in demand as a result of rising prices. But if you look at the other side of that argument fundamentally, the collapse in prices also resulted in a collapse in supply. Coming out of the recession, we think that the fundamentals for commodities come out even looking better than many other sectors.

The second big driver in commodities is population growth, which is mainly occurring in the developing world. In March, the UN released a report that stated there are currently 6.8 billion people on the planet, and that by the year 2050 the world's population is going to be over an estimated 9 billion.

The third driver is the industrialization and the westernization of the developing world, which I mentioned earlier. A strong middle-class is forming, and these countries are industrializing; all of this means a higher demand for commodities. These are the factors that make the commodities story even more compelling going forward.

However, let me add a caveat: what we are seeing occur in the market right now is the unintended effects of central banks flooding the markets with money. Whether through monetary policy or fiscal stimulus, unprecedented amounts of money at unprecedentedly low interest rates-near 0%-are creating unprecedented amounts of liquidity. With return on cash instruments being so low, and the amount of money in the system being so high, there really isn't any such thing as a "mild" correction in the markets right now; massive amounts of money move in and out of the market constantly in a constant trade-off between return and safety.

I think one of the things we've learned as a result of last year is that even though we are long-term investors, we have to hedge against downside risk. One of the strategies we've been using on our commodities-related investments is put options-they're a fairly low-cost way to allow us to hold and maintain our long-term positions, while at the same time hedging some of the downturn or the volatility in the portfolios. Because the commodities complex is so small, any large movement of money into or out of the complex can drive prices up or down substantially in a very short period of time. So if there's another round of deleveraging, or if central bankers start to take away some of the punchbowl perhaps beginning next year and into 2011, we'll likely see money quickly out of the complex, which means we'll either want to get out of the complex, or have our put options in place. We really prefer the put options since our overall portfolio strategy is holding these investments longer-term.

TWST: Let's talk about your investment strategies, in particular, the hedging strategy. Would you take us through your decision-making process?

Mr. Puplava: A lot of this comes from the technical analysis side. We look at charts, we look at the markets, and we look at some proprietary indicators for some red flags that a reversal or rollover is imminent. For example, if a market becomes extremely over-bought then you start putting on hedges. The gold market this year offers a good example. If you were very long gold stocks and you saw the peak and the substantial rise coming out of the March bottoms into the highs reached in May and early June, and your indicators told you the markets were extremely over-bought, you'd have known to start hedging the long side of your portfolio. Again, one of the "cheapest" ways to hedge is buying puts, where you can use a small amount of capital to cover a large amount of long holdings. In this example, you could buy a put on the Market Vectors Gold Miners ETF (GDX) to cover a significant portion of your gold stocks' value. If you really want a low-capital-intensive hedge, you could sell out-of-the-money calls on the gold companies you own and use the call premiums to buy puts.

Options strategies have been a very successful hedging technique for us this year, especially in our sector-specific precious metals and energy portfolios, which are outperforming our major benchmarks (through the end of September).

TWST: What shifts in emphasis in the composition of your portfolios have you made over the past 12 moths?

Mr. Puplava: After the October bottoms last year, there was a nice run up in the major commodities. We used that run to lighten up our positions in energy, metals, and agriculture since our portfolios were overweight those sectors. We still kept allocations to these sectors, but just brought them back to be more in line with our percentage targets for the portfolios. As I mentioned earlier, we've also been using hedging strategies more aggressively in the portfolios so we can keep holding our core positions. In the beginning of the year we had a very strong cash component in our portfolios-in general we've been making more active use of cash as a risk containment strategy. We've also been taking short-term and intermediate-term positions in sectors such as technology and financials when we felt that a liquidity movement or fiscal/monetary announcement was likely to produce a run up in these sectors.

TWST: What weightings have changed your exposure to certain areas or lack of exposure?

Mr. Puplava: The energy component has come down, but it's still a strong percentage. The exposure varies from 15% to 20% of the portfolios, but it's no longer 25% or 30%. Agriculture now makes up about 10% of our portfolios. Many of the ag stocks, like Potash (POT), Monsanto (MON), Mosaic (MOS), and Syngenta (SYT), have been in consolidation patterns-they haven't gotten the major lift that some of the other commodities have. We see a real opportunity in food, so that component of the portfolios will be going up; demand for food did not fall like the demand for energy did in the recent downturn. This is a reflection of some of the commodity drivers we've already discussed: growing populations worldwide, the industrialization of developing countries, and the emergence of the middle class in the developing world. Other factors that affect food supply are: one, the growing middle class in the developing world is consuming more meat protein, and it takes pounds and pounds of grain to produce one pound of meat protein, so there's a supply squeeze there; two, grains-as-fuel are competing with grains-as-food; three, the amount of arable land per person has been dropping steadily for the last 30 years. There are more factors causing a squeeze on the food supply, so we're aiming to get in on the "ground floor" in food-but not in food companies like a Kraft Foods (KFT) whose input costs are likely to continue to rise.

Something that has remained fairly constant has been water. A lot of the water stocks are overvalued and have been for some time, so that's something that we haven't increased our exposure to for a while. We are always looking for infrastructure in the water space, however, whether it's companies that build pipelines to get water from lakes, rivers, or reservoirs to cities-that applies not only to the US but also to the developing world-in addition to, for example, waste treatment, which is also becoming a problem in the developing world.

We still have a strong component of metals-precious metals especially. We've always maintained that position because of our belief the dollar will continue to decline.

TWST: What are some of these opportunities that you have found over the last few months and what are the reasons why you found the companies attractive?

Mr. Puplava: Let's just take the agricultural space. As I mentioned earlier, there's a trend-and it's global-of an ongoing decline in the amount of arable land per person. This ratio peaked in 1970, and by 1980, there was less arable land per person than in 1970; the same thing happened in 1990 vs. 1980, and 2000 vs. 1990. 2010 vs. 2000 is predicted to continue the trend. So there are only two ways to increase agricultural output. One is to increase the amount of arable land devoted to crops; or two, to increase crop yield. So seed companies like Monsanto and Syngenta which provide seeds and products that can increase crop yield, or fertilizer companies like Mosaic, Potash, and Agrium (AGU) that also affect land arability and yield, or companies like John Deere (DEE) that help large farms' automation to increase output per field acre of planted crops are attractive. We think the agricultural space is very undervalued right now and I don't think the market is paying a lot of attention to it right now. Even though some of the companies in this sector are up, they have not participated to the same extent that you've seen in other sectors. So, we still like agriculture.

Another thing we think is that we are heading for a train wreck in the area of energy. Somewhere around the year 2011 or 2012, all of the recent cancellations of projects by major oil companies and national oil companies will start to cause another bottleneck in supply. We think the oil service sector will be one of the first sectors to benefit if that happens. If oil prices go up to $85 per barrel-and we think we could be looking at over $100 oil by the end of next year-the expansion of profit margins in the oil sector will be very promising. We believe that space offers an attractive opportunity for investors.

TWST: What about precious metals and gold? Gold of course has been going up and up as the dollar has been depreciating. What is your outlook there and have you found any companies to play that field?

Mr. Puplava: We still think we have a good possibility of hitting $1,250 or $1,300 gold in the next 12 months. In the gold sector, one of the opportunities we like is with mid-tier producers that are going to be able to increase their production over time. A company like Newmont Mining (NEM), whose production has peaked and who is having difficulty of replacing their reserves and increasing their production is still a fairly solid bet, but I think the outside performance is going to be in mid-tier producers who have the ability to increase their production.

A company like Minefinders (MFN), which went into production in the third quarter of last year, will be growing their production to close to 200,000 ounces-this is a company that is up 100% over the past year, although they did take a severe downturn in the sell-off last fall. Other companies like Northgate Minerals (NXG), which, even though one of their bigger mines will be going out of production by the end of next year, will be producing 400,000 ounces. They're also brining new mines on line. Yamana (AUY), which already producing a million ounces, will be increasing their production considerably over the next couple of years. If I can draw the analogy to the bull market in technology in the 1990s, if you were in IBM (IBM), the big behemoth in the technology space, you made money, but the real money was made in Intel (INTC) Microsoft (MSFT) and Dell Inc. (DEL) or at Cisco (CSCO). These smaller companies that were able to grow their topline and also their bottom line over the decade were the real place to be; in a bull market you want to be in those companies that have the ability to grow their topline.

In the mining space, that means either increasing production or reducing the cost of production. So, we like companies like a Minefinders, a Yamana, or a Northgate; and then in the larger-cap space, we like companies like a Goldcorp (GG), which is now a major producer, but is still a company that is going to be able to increase its production over the next 3 to 5 years.

TWST: Does that mid-cap area apply to other sectors such as your water companies?

Mr. Puplava: In the water space, you have smaller companies that make unique products-maybe filters or measuring devices-that likely will end up being bought out by the larger companies like, for example, General Electric (GE), which has been on the acquisition trail trying to build up its segment in the water space. Right now, that is an area that we haven't found as attractive due to its overvaluations.

We've also liked some of the base metal companies that have done well this year-for example, BHP Billiton (BHP), which is a diversified natural resource company. It's almost equivalent to the Rogers International Commodity Index because it is in just about every space: it is in silver, it is in iron ore, it is in uranium, it is in oil, it is in natural gas, it is in gold production. So that's probably one of our favorites in the base metal space.

TWST: What about alternative energy, have you been looking at any of these renewable technologies that are very fashionable there days?

Mr. Puplava: The problem that we have with that space is that a lot of these "faddish" companies are not likely to survive. Geoffrey Moore wrote a book about emerging technologies in the late 1990s called The Gorilla Game: Picking Winners in High Technology, and I think his points really apply right now to alternative energy. You've got a lot of companies that are moving in this space-from solar companies to wind turbines to biofuels, etc.-but there are so many companies, and a lot of them still are not making a profit. So you don't know who is going to emerge out of the pack as the next "gorilla." For right now I think you are much safer in an alternative energy ETF, which represents 30 or 40 companies, than in individual stocks in this area. One of the problems you have when you get into some of these smaller companies in alternative energy, is that money starts moving into the sector and the companies' charts start to look like a NASA space launch. You remember the ethanol craze a couple of years ago, I think it was in 2005, after the mandate that we must triple our use of ethanol by the year 2022. There were a lot of ethanol companies which became all the rage and went up 200%, 300%, 400%, and then collapsed. They almost looked like a repeat of the Internet companies in the late 1990s. I think at this time, you are much, much safer playing maybe an alternative energy ETF than you are getting into specific companies.

TWST: What about the valuation metrics, do you apply different criteria value-wise to companies in different sectors?

Mr. Puplava: Yes, we do. In the gold space, two of our favorite metrics are market cap per ounce of reserves and market cap per ounce of production. In the energy space, we use a lot of traditional metrics like price to cash flow and price to earnings, but we also look at the ability of the company to grow its reserves and production, especially with oil. You're really looking at the ability of the company to replace and grow its reserves. Like in the mining sector, we're also looking for the energy companies' ability to increase their topline growth. If you're a resource company, the only way you're going to survive is to replace and grow your reserves, and increase your production. Those are the same metrics we use in that sector.

TWST: What triggers an exit from your portfolio? Do you set sell targets?

Mr. Puplava: We believe that commodities are in a long-term secular bull market and that until the supply issue is resolved, we're going to remain in a bull market. The unfortunate thing about the commodities space that makes it a little different, than let's say, financial assets, is its extreme volatility. If you look at the equities bull market of the 1980s, which lasted for close to 18 years from 1982, it was somewhat predictable. Commodity bull markets tend to have convulsive moves, both on the upside and the downside. Setting a lot of stop losses in this area just gets you kicked out of assets you'd really like to be holding for the long term. We do, however, trim back or make changes when we've reached attractive profit targets, or there's an over-allocation to a particular company or sector, or our research indicates a change in the fundamentals behind a particular sector that makes it a less attractive investment. So there's no "sell target" per se; we're watching fundamentals for indications of when to sell, or for indications of when to hedge.

One of the problems at the heart of the commodity bull market is that the supply issue is only going to get resolved if prices remain high for a long period of time. The higher prices will allow companies to make the much-needed investment-and we are talking billions and billions of dollars when it comes to bringing a mine into production, or a new oil well or a natural gas field into production. Unless prices are allowed to be driven by the markets and remain high enough, you're not going to have the incentives for these companies to make the CapEx investments they need to. We need major CapEx spending to increase. Last November the IEA released a key report. They compiled a survey of the 800 largest oil fields, and the thing that came out of that survey that did not get a lot of press is that the depletion rate on the world's existing oil fields that have passed peak production was much larger than they originally thought-6.7% versus their earlier estimate of 3.7%. The conclusion of the study is: we are headed for a problem in the not-too-distant future, much sooner than anybody thinks, unless national oil companies and international oil companies make recommended CapEx investments of about $350 billion to $400 billion a year to solve this crisis. The unfortunate thing with the downturn in the economy that was triggered last fall, and the deleveraging and collapse of commodity prices is: instead of increasing investment, a lot of the natural resource companies have actually pulled back on CapEx spending.

The resource sector tends to go through short boom-and-bust cycles that get accentuated both on the upside and the downside, which makes it very difficult for a lot of these commodity producers to make decisions about discovery and production that won't come to fruition until years and years down the road. For example, it may take ten years to bring an oil field into production. To me the only way that we're going to get out of this mess is if we allow prices to rise high enough, and stay there long enough, that resource companies have enough faith in the market for their product to make the investment that is so desperately needed.

This lack of CapEx investment, which will lead to diminishing supply, combined with the two of the trends I mentioned previously, population growth and industrialization, which will lead to increasing demand, are likely going to create long-term bottlenecks. So I doubt we'll be exiting the commodities complex anytime soon; the supply/demand imbalance is going to be long-term trend that we think is going to last well into the next decade, and in that next decade I would be very surprised if we do not see a similar repeat pattern of the price spikes that we saw earlier in this decade.

However, if central banks start reacting to inflationary pressures and start raising interest rates, you could see additional downturns in the economy or recessions in which case you would see sell-offs in the commodities market. So, I think the one thing to keep in mind if you are in this space is: you're going to always have to keep an eye on what's going on with central banks, what's going on with the yield curve, what's going on with inflation rates and interest rates, because at some point in time you'll have to reduce your overall portfolio or at least put in hedges to protect yourself from severe downturns caused by central bank policy changes.

TWST: So, you've incorporated a top-down macroeconomic aspect to your research process?

Mr. Puplava: Absolutely. We've got four or five models now that we incorporate on the macro level that tell us when we are going to have to reduce our positions or put in hedges, as well as when we should initiate or increase our positions.

TWST: That's all part of risk management. Do you want to add anything more about how you attempt to control risk at the portfolio or individual security level?

Mr. Puplava: I think once again, it's our overall macro assessment that tells us when to head back to safety and reduce our risk exposure, and when to add risk. Added to the macro environment, we have some proprietary technical indicators, both long-term and short-term, that we've incorporated into our model to help assist us in that process. I think that even though we are thematic in our view and we believe that this long-term secular bull market in commodities has much further to go-because once again the supply imbalances have still not resolved themselves-we are also very cognizant of the fact that macro factors, especially monitory policy, and technical factors also can play a very important role in risk management. We've incorporated those into our models in the way we manage portfolios today.

TWST: When I talked to you a year ago, you were heavily invested in cash. Have you been spending some of that on opportunities?

Mr. Puplava: Yes, we started redeploying our cash beginning in the second week of March and have been doing so steadily since. We're probably down to a 10% to 20% cash position, depending on the portfolio. We have an energy-only account that is almost 95% invested and our precious metals-only fund is about 95% invested. In our larger, diversified portfolios that are much more conservatively run, we're down to 10% to 15% cash positions.

TWST: What do you think gives your approach to the market its edge? What are you bringing to the table that other peer companies might not?

Mr. Puplava: The one thing I think we're bringing to the table that adds a dimension once again is to pick up on a long-term theme, thoroughly research that theme and then get on board that theme and ride it until it completes itself. We started investing in commodities in 2000 and 2001, and that has worked out rather well for us.

The other thing that I think that we tried to do is keep an open mind; we always try to ask ourselves: are we right in our assumptions?, and, what can go wrong? For example, one of the things that we learned throughout the past decade is that you could anticipate that 15% to 20% pullbacks in the energy sector were going to be common. We saw it after Katrina and Rita when the price of oil went from $50 to $75 in September 2005 and then back down to the low $50s in following month. The same thing was true with the mining space, where a 20% to 25% correction in the gold market was standard. What we've seen recently is that these pullbacks, while still occurring with regularity, are much more severe. Despite these steeper corrections, we've learned we can still hold our positions by hedging on the downside, which reduces the drawdowns as well as the volatility in the portfolios.

We're always adapting and learning, and we're always looking at the future and trying to pick up on trends in different spaces. So, we're always looking for that next opportunity. But I also think that it's the amount of research that we do and the strength of convictions that allows us to hold and maintain core positions and when it gets stormy during periods like what we saw last fall.

TWST: Tell us a bit about your firm, who your typical clients are and the overall performance of your portfolios over the years.

Mr. Puplava: I started my registered investment advisor firm, Puplava Financial Services, Inc. (PFS), in 1985. I originally started out as a financial planner in a partnership with another individual; we offered investment products through LPL. I recognized in the 1980s that the markets were changing from being bond-driven to stock-driven, which affected how I ran my business. I approached the founder of the LPL about starting a fee-based money management system so I could more effectively respond to this change. Over the years my business gradually evolved from a financial planning firm to a money management firm, working on a fee basis. In 1996 I formed my own broker/dealer, Puplava Securities, Inc. (PSI) (member FINRA, SIPC), to better meet the needs of my clients. Today we manage somewhere in the neighborhood of about $230 million to $240 million, depending on what's going in the market on a daily basis, in fee-based accounts, and then we manage another $60 to $65 million in brokerage accounts. Most of our customers are individuals. We do manage quite a bit of money for foundations and wealthy families, as well as for small businesses.

TWST: You are continuing to grow and find other areas of investments in your firm?

Mr. Puplava: We have had a lot of inquiries about starting a mutual fund; that's something we may look into in the future, especially in our areas of expertise where we have done very well in the natural resource space.

As for other areas of investment, it's surprising, but one of the areas that we do like is technology. It's a sector that's been beaten up tremendously this decade, especially after the TMT bust. But I think the technology we're interested in is a different technology. We are very much intrigued by technology as a solution to the to energy plight or technology as a solution to agriculture plight; in other words, technology that addresses the resource shortages over the coming decade.

Another thing I think that is promising is the build-out of infrastructure. Two things are driving infrastructure: one, once again, the developing world is building new cities, roads, power plants, waste treatment facilities, etc.; and two, the infrastructure of developed countries is severely dilapidated. This year the American Society of Civil Engineers (ASCE) gave America GPA of "D" in terms of our infrastructure; our "C+" in solid waste treatment was our highest "subject" grade. The ASCE also estimated that the necessary minimum five-year investment to improve our infrastructure is $2.2 trillion.

One of our least favorite areas is consumer discretionary spending-that's an area that we intend to avoid for the foreseeable future.

TWST: Is there anything you wish to add?

Mr. Puplava: I think that there are two takeaways from the interview we had last year. One is the awareness of macro models and hedging that are necessary if you are going to be in the natural resource space; and the second is, I know a lot of people have talked about commodities being in a bubble, which I strongly disagree with. The supply issues in commodities, whether you are looking at agriculture, base metals, precious metals, or energy, never got resolved. This is especially true in the energy sector; despite a 15-fold increase in the price of energy from 1998 to 2008, supply didn't really increase.

TWST: Thank you. (PS)

JAMES J. PUPLAVA

Puplava Financial Services, Inc

10809 Thornmint Rd

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San Diego, CA 92127

(858) 487-3939 or (888) 486-3939 Toll Free

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