Sand Spring Advisors LLC

Lost in Space:
Varied 2005 Macro Views & More Definitive Astro Path

by,

Barclay T. Leib

February 20, 2005

Over the past several days, I have read through a plethora of monthly and annual
commentary from some of the smartest macro hedge fund managers around. I was looking for
cogent thoughts and comments that seemed reasonable common themes consistent (or even
justifiably at odds) with my own more technical view of the world. But my basic conclusion
from this reading session ended up being that the dispersion of opinion about 2005 is as wide as I
have ever seen it. Everyone has a preferred path, and there are many lucid observations and
views, but the perspectives on potential outcomes are quite different.

Below is a rough sampling (paraphrased in certain spots, and left in generic format
without specific manager attribution for confidentiality reasons). Trust me, each of these
managers is very smart, but whether they will be correct or not about 2005 obviously remains to
be seen.

Manager 1 – Credit bubble to pop -- buy gold.

“Is gold the right place to be in 2005? We answer unequivocally, ‘yes.’ With total credit market
debt of $36 trillion atop an economy measuring $11.8 trillion in nominal GDP, and with absolute
debt now expanding five times faster than GDP, growth is no longer a viable option for resolving
imbalances in the U.S. credit system…The productivity of capital is collapsing in the United
States…If paper represents a call on societal output, how long can we create five times as much
paper as output?…The decline in real yields during the past 20 years has continuously
manipulated the global economy away from a day of reckoning, but monetary policy has become
less and less effective. Each successive round of monetary stimulus has required lower real rates.
Partly because of this, foreign private direct investment into the U.S. has fallen consistently over
the past five years, requiring central bankers to pick up the slack by buying a huge amount of
U.S. Treasuries over the past two years. Anyone choosing to interpret this situation as ‘balanced’
has their head in the sand. As Warren Buffet has previously warned us: ‘As foreign ownership of
our assets grows, so will the annual net investment income flowing out of this country. That will
leave us paying ever-increasing dividends and interest to the world rather than being a net
receiver of them, as in the past. We have entered the world of negative compounding – goodbye
pleasure, hello pain.’

“Default or debasement are the inevitable alternatives. The Chinese already realize this, and have
started to aggressively trade out of paper and into ‘stuff’ to diversify out of U.S. dollars. As
recently as July 2003, China was recycling 41% of its foreign-exchange reserves into Treasuries.
In recent months, that percentage has cascaded to only 11%. Meanwhile, Japan may have bought
a huge amount of Treasuries in 2002-2003, but they have actually net sold $6.4 billion of
Treasuries over the past three months. In a recent survey of central banks, zero percent reported
intensions to increase the percentage of reserves dedicated to U.S. dollar-denominated assts in
future years. Zero percent!

“Because gold can neither default nor be debased, we anticipate an increasing percentage of the
world’s $100 trillion in financial assets to gravitate toward gold. At roughly $575 billion today,
the stock of “investable” gold is tiny in comparison to the stock of global financial assets.
Consequently, each one-tenth-of-one percent swing in investment demand will dramatically
affect gold’s clearing price. We ultimately anticipate a foreign exchange preference for gold
versus all fiat currencies.”

This manager goes on to quote former Dallas Fed President Robert McTeer, who before
resigning from the Fed last fall, said with some candor:

‘Nothing bad has happened so far. But the current account deficit is going to cause
problems, but we just don’t know when. Flows will turn against us and there will be a
crisis that will result in rapidly rising interest rates and a rapidly depreciating dollar that
will be very disruptive. But I don’t know what to do about it.”

This manager then lists all of the world’s various imbalances via a quotation from John
Hathaway, portfolio manager of the Tocqueville Gold Fund:

‘This misdirection of capital flows in the current global economy is illustrated by the U.S.
trade deficit, the US budget deficit, the 46% holding of U.S. treasuries by foreign
investors, the lack of any credible attempt to deal with future entitlement claims, the
pattern of aberrant behavior in housing finance and the resulting bubble in housing prices,
the disconnect between shrinking bond yields and rising commodity prices, negative real
interest rates, the overweighting of financial stocks in the S&P (20.1%), the bloated 38%
share of total after tax profits generated by financial firms, multi-year interest-free new
car loans, the reckless pursuit of yield in the junk bond market, the continued
overvaluation of equity markets, the inundation of the hedge fund sector by capital flows
desperately seeking returns, over ulitilization of convergence strategies, the paucity of
returns for investment strategies across the board, the buildup of corporate cash, the
excessive indebtedness of the American consumer, and the glut of golf courses, casinos,
and SUVs.’

The manager finishes by quoting Morgan Stanley economist Steve Roach with the words:
‘In the end, denial is usual the only thing left…that’s pretty much the case today in world
financial markets.’ “There is no more glaring example of the wishful thinking ruling Wall Street
than the cognitive dissonance with which employment numbers are analyzed. In the first 47
months of Bush’s first term, the U.S. lost a net of 122,000 jobs. Only the 133,000 payrolls
‘created’ in December 2004 spared Bush from being the first president since Hoover to preside
over a net loss of jobs during a presidential term. Never mind that the U.S. population grew by
some 12 million people during the same period! Or that the vast majority of jobs being created
were low-quality, low-paying jobs in leisure, hospitality, retailing, social services and
government. Through January 2005, the current cycle has produced 9.7 million fewer jobs than
the 38-month average of the prior five recoveries, and 4.2 million fewer than the very worst of the
prior recoveries (1991).”

So Manager 1 is pretty “doom and gloomy.” But perhaps it is realistic to always expect
one such view of the world from some source. Let us move on to other views.

Manager 2 – Large caps over small caps as consumer spending is likely squeezed
lower.

“The death of the U.S. consumer has been repeatedly forecast, and grossly exaggerated, over the
last three decades. Nonetheless, in 2005 – the third year of an economic recovery – U.S.
consumption is in fact poised to slow as excess global manufacturing capacity and excess
leverage in the domestic consumer sector could converge. While we expect to see some new job
formation in 2005, it will likely not be enough to provide any broad new stimulus to consumer
spending. Mergers and Acquisitions are likely to be strong in 2005 due to corporations putting
some cash to work and the fact that U.S. assets look particularly attractive to foreign acquirers
due to the 18% decline in the U.S. dollar trade weighted index over the past three years. But we
don’t see any huge labor hiring binge. M&A activity may even result in more cost
containment/consolidation. That could read layoffs. Absent a significant drop in the oil price, the
low-end consumer will almost surely face further pressure. The household monetization of rising
real estate values is also long-in-the-tooth, and should property markets flatten or reverse,
consumer spending could be hit even harder. Lower consumer spending is typically a precursor
of slower GDP growth. At best, this will leave the U.S. stock market as a stock picker’s market,
with large-cap high-quality stocks likely outperforming more speculative small caps for a
change.”

Manager 3 – Bond bear market is upon us as demand-push inflation increases and

past productivity gains diminish.

“Contrary to consensus, capacity utilization is tighter than realized (with the exception of
technology). This should eventually result in a return in corporate pricing power. The cost of oil
and all other commodities will continue to rise as global growth strains limited inventories. In
addition, the productivity gains of the past decade are not repeatable since a central driver of
recent productivity gains has been the rising ratio of experienced workers to inexperienced
workers from 1987 to 2005. This ratio, driven by the Baby Boomer generation moving through
its 40’s and early 50’s, has already delivered the majority of its benefits to productivity growth
and will no longer be a major factor. The combination of higher economic growth, declining
productivity, and demand-push commodity inflation leave a U.S. bond market set to fall. The
low long-term-rate conundrum that Mr. Greenspan recently spoke about has been driven by the
relative profitability of the leveraged ‘carry trade’ to other investment opportunities at a time that
the global economy has not absorbed excess capital. This is now changing. Economic growth
will result in higher inflation, spread margins, and translate into labor increases and higher labor
costs. Growth in China will continue to make commodity markets tight. Shorting U.S. fixed
income on any strength is the single most compelling trade for 2005.”

Manager 4 – Benign world that is actually still quite accommodative; buy equities.

“We have maintained our net long equity exposure on the view that extremely accommodative
financial conditions continue to drive demand, and these supports will keep growth stable in the
coming months. In fact, since the Fed started tightening in June 2004, financia l conditions have
actually eased. The Goldman Financial Conditions Index is 70 bp easier, which is a first during
any tightening cycle since 1970. This contradictory state coupled with our view that a
deceleration in inflation will cause market participants to re-examine the aggressiveness of the
Fed, and helps lead to our conclusion that U.S. and global equity prices will trade higher.”

Manager 5 – Low labor participation helping keep inflation low; sell TIPS vs.
Treasuries. Buy Asia and Asian currencies.

“Last May we concluded that there were many people who can’t find work dropping out of the
official labor force, and that this low ‘labor participation rate’ would keep unemployment above
the rate which contributes to accelerating inflation, moderating Fed interest rate hikes. Since
then, labor participation has fallen to a 16-year low. January’s unemployment rate would have
been 6.6% if participation hadn’t fallen .9% since the recession ended. Although the Fed
continues to make hawkish noises, in reality, they will raise rates only moderately. They know
that the economy is weaker than the headline numbers. As consumer spending and labor growth
limp along, we expect inflation will be lower in the next 10 years than it has been in the past. We
like selling TIPS vs. Treasuries as a bet on breakeven inflation. Elsewhere, there remain
significant asset inflows into non-Japan Asia. We continue to believe that select Asian countries
will achieve strong growth due to low real interest rates and competitively positioned formal and
informal currency pegs to the dollar. Those Asian currencies which do float should strengthen
both vis a vis the U.S. dollar and against the Euro.”

Manager 6 – Refi activity petering out; inflation to stay low; the surprise may be to
the upside in U.S. fixed income.

“The risk of an economic slowdown in the U.S. due to policy errors is high given the reliance of
the domestic sector on home price appreciation and GDP growth fueled by further domestic credit
expansion. Moreover, because consumer spending did not falter during the economic slowdown
of the past few years, there is little available pent-up demand. Therefore, the Fed will stop raising
interest rates sooner than the markets expect. This follows from our expectations for slower
growth in the U.S. in 2005. In our opinion, a weak employment number in January helped seal
the argument that the Fed should stay put in the 2.5% to 3% area. While the market may face
some stronger than expected inflation numbers in the second quarter, we believe that because of
the relatively weak U.S. employment situation, wage growth will be contained and overall
inflation will be weaker than expected. The surprise for 2005 may easily be that too much
tightening has been priced into the front-end of the U.S. fixed income curve.”

Manager 7 – “Muddle –Through” view likely not synonymous with Fed tightening
cycle; Buy equity volatility for when the U.S. economy falls off of tightrope.

“As Mr. Greenspan recently admitted, the rapid growth of home mortgage debt over the
past five years has been driven ‘largely by equity extraction’ via cash-out refinancing. Again per
Mr. Greenspan, ‘Approximately half of equity extraction shows up in additional household
expenditures, reducing savings commensurately and thereby presumably contributing to the
current account deficit.’ But while most people expect that the resulting macro tensions can be
defused gently in a ‘muddle -through’ scenario of some sort, I am not so sure. If it is a ‘muddle -
through’ type of situation, it will have to be orchestrated on a tightrope. After all, Fed tightening
cycles and financial crises (of one form or another) have generally gone hand in hand over the
past 50 years. For my investment dollar, I think buying equity market volatility currently near
11-year lows is an attractive risk-reward situation. If the muddle -through scenario starts to
unravel, equity markets – currently priced for perfection and unrealistic profit growth
expectations – could yield some swift jump moves to the downside.”

As we warned at the outset, the dispersion of views expressed by these seven managers is
wide – particularly the views regarding U.S. fixed income. But there are various commonalities.
First – not one manager bothered to even talk about Mr. Bush’s social security reform/tax code
change economic agenda, nor the Iraq War. Most seem to simply consider Mr. Bush’s proposals
to be a non-event – dead on arrival. Second, all of these managers basically agree that the world
macro situation is very unbalanced. While the managers may disagree on how these imbalances
will resolve themselves, there is no “pie -in-the-sky” nirvana talk that one might hear from mutual
fund managers or other CNBC prognosticators. Indeed, the large majority of the above macro
managers would likely concur with the following summary assertions:

1) The U.S. consumer – particularly the low end consumer -- is increasingly in a

corner;
2) Asian markets will be stronger than U.S. markets since more imbalances exist in the
latter;
3) Asian currencies will likely be stronger than the U.S dollar and the euro;
4) The charts below are real and scary. As such, there is at least the possibility that the
U.S. macro situation will become embarrassingly acute over the next two years.
Source: courtesy of Bridgewater Associates
From our perspective, we would extrapolate out from these views into two more
assertions:

1) If one started with money and assets in 2002, the asset price inflation of the past few
years (bonds, stocks, and real estate) has given one a false sense of happiness and
security. Few Americans realize that the large majority of these domestic gains have in
reality been wiped out by the huge decline in the currency in which these assets are
denominated – U.S. dollars. We call this the American “illusion of false prosperity.” If
domestic asset price inflation subsides or reverses, sentiment amidst the wealthier classes
of American society will likely become testy and nasty very quickly.

2) The poor in America – who didn’t start with very many assets, and thus have not
benefited as much as the rich from recent asset price appreciation -- are currently getting
squeezed by increased general living costs (gas, oil, food, healthcare costs, etc). Because
of this cost-push situation, we believe that increased social unrest, strikes, and riots
unfortunately reside in America’s future. And as social unrest increases, America’s
perception of itself – already somewhat shaken by events in Iraq – may face an Icarus-
like decline. People could easily wake up one day to see current rah-rah “America is
Number #1” nationalism supplanted by the realization that the dream world of the 1980’s
and 1990’s was exactly that – a dream world induced by debt-laden overspending finally
facing a serious comeuppance.

Is Sandspring.com being too dour? Perhaps we should lighten up and listen to the
recommendation of some by following a mantra of “Don’t worry; be happy.” But consider our
August 3, 2001 prognostication about corporate leadership in America (note bolded portion in
particular):

“Let's pause for a moment to take this little quiz as we revert back to the boom year of
1923.

1) Do you know who was the president of the largest steel company in that year
and what subsequently happened to him?
2) How about the president of the largest gas company?
3) Or how about the president of the New York Stock Exchange?
4) What happened to the greatest wheat speculator of that era?
5) Or how about the President of the Bank of International Settlements back in
1923?
The answer to our short quiz:
1) The president of the largest steel company, Charles Schwab, died a pauper.
2) The president of the largest gas company, Edward Hopson, went insane.
3) The president of the NYSE, Richard Whitney, went to jail.
4) The greatest wheat speculator of the era, Arthur Cooger, died abroad,
penniless.
5) The president of the Bank of International Settlements shot himself.
Our quiz is of course stacked. Many prominent people doing well in their career in 1923
survived the 1931-1938 period to go on to great success. But the point is that some
current industry titans like our current Carly Fiorina of HP or Lew Gerstner of IBM
could easily end up looking far more villainous than they do today.

What a pity I did not use Bernie Ebbers or Kenneth Lay in my example, but the point is
still not lost. Circa 2001, few people saw corporate leadership in America as potentially
problematic at all. We did. Circa 2005, it is of course a different story – Carly Fiorina having
recently been shown the door.

Another Perspective

But the 2005 macro themes -- as gleaned from our hedge fund macro managers -- are still
somewhat unsatisfying. It is almost as if the world is so stressed and unstable that even the
smartest minds can’t quite pinpoint the path to redemption by the U.S. economy. Many seem
almost fatalistic that no such path to redemption may even exist.

As a second part of this paper therefore, we thought that it might be useful and interesting
exercise to take an entirely different perspective, and see if it possible to lay out a more precise
forecast for 2005 using Astro-analysis of the financial markets. Sand Spring Advisors LLC itself
is not itself an “Astro-expert” by any means. Yet we have noted over the years the persistent and
almost uncanny overlap in many of our pi cycle dates with Astro events as laid out to us by men
such as Arch Crawford (Crawford Perspectives), Manfred Zimmel (www.Amanita.at), and Henry
Weingarten (www.afund.com).

Along these lines, the overall view for 2005 espoused by these men is actually pretty
similar, and can perhaps be summarized in the words of Crawford speaking this past January in
New York:

“Much risk exists in the stock market through the first quarter of 2005. A Bradley rally
high is due Feb 15th , but after that, it could be hard down into March-May at the tail end
of the Mars-Uranus Cycle. The end of March would also be my idealized time to look
for a high in oil and gold. An equity rally period may then transpire into September; but
by the 4th quarter, it will be ugly again. All in all, I cannot tell you for sure whether
stocks will be higher or lower by the end of 2005, but I suspect at least that they may
easily be lower.”
As Crawford mentions above, he has long followed the combination of astrological
influences known the Bradley Siderograph Cycle, shown below for 2005. While he always warns
that the cycle can invert and that the magnitude of anticipated moves can easily disappoint, the
actual turning point dates remain very significant in his mind. At present, Crawford believes that
we are about to get a hard-down move into March 2005. Our own analysis is in synch with this,
with perhaps a secondary low into the May 11th PEI cycle date. Crawford points toward a key
conjunction on May 15th, 2005 with the words “After the conjunction, the cycle is supposed to be
up.” Thus from Mid-May onward, we will have to be attentive to another vault higher, but the
Bradley chart then suggests much nastiness again into latter part of 2005 -- specifically starting
around August 30, 2005.

Astro analyst Manfred Zimmel of www.Amanita.at (who’s chart we borrow above to show the
Bradley Cycle) largely concurs with Crawford, stating:

“Every 72 years brings a key president who will make a lasting impact:
1788: George Washington
1860: Abraham Lincoln
1932: Franklin Roosevelt
2004: George W. Bush

But in the case of George W. Bush, the charts for his second inauguration call for
mounting national difficulties and ongoing war.”
In a study Zimmel released last November, he called for a December 2004 high in stocks,
a March 2005 low for stocks and high for oil; a late June to August high for stocks, and a mid-
December 2005 low for stocks.

He further expects the year to be dominated by Scorpio companies which he interprets to

mean “dirty and hard” ones like oil driller Burlington Resources (BR), metal processors like
Oregon Steel Mills (OS), utilities like Exelon (EXC), and oilfield service providers like Hydril
(HYDL).

Interestingly enough, the year-to-date performance of these four companies currently

stands as follows:

BR: +18.8%
OS +29.4%
EXC + 0.8%
HYDL +41.7%

Not bad for an equity market that has been a bit rocky since Jan 1, 2005.

Whether Zimmel’s Scorpio companies continue to shine or not, it is interesting that his
overall market analysis largely is in synch with Crawford’s, and also largely fits our own pi cycle
analysis. Already, we appear to have obtained more precision in our views than all the
commentary from the macro managers was able to offer.

But let’s add the analysis of other astro-prognosticators. Late last year Henry Weingarten
of the Astrologer’s Fund posted his 2005 forecast publicly at www.Afund.com. In Weingarten’s
piece, and in further comments he made recently at a lecture held by the Society for Investigating
Recurring Events (SIRE), we spy similar themes to Crawford and Zimmel. Weingarten’s views
are summarized below:

“The fifth year of each decade has tended to be been positive since 1881. However, we
believe we are still within a larger secular bear market cycle. Jupiter is waning square to
Saturn Dec 17, 2005 (with subsequent passes June 22 and October 25, 2006). This
remains suggestive of a choppy difficult year in 2005 that will start to get worse into the
4th Quarter. 2006 is when I see real equity market ugliness. The fact that Bush took his
inaugural oath 2.5 minutes early this past January locks in a very difficult chart for his
second presidency. Overall, 2006 and 2007 will be very tough years. 2008 should be up.
Then 2009-2012 are difficult again.

“For 2005 itself, though, things are mixed. Jupiter and Venus influences are generally
positive, but Saturn remains in Cancer until July and its impact on housing should be very
negative. Saturn influences typically come late in its transit of a sign, and I will be very
surprised if we don’t see a real crack in housing before the end of this passage mid-year.
When Saturn moves into Leo July 16th , difficulties will then slowly start shifting toward
entertainment and media for the next two years.

“In terms of the equity market in general, we believe that the early January high was a
significant one. It should currently be hard down into March 15th . The new 21st century
pattern seems to be: March 2000 High, March 2002 low, March 2002 high, March 2003
low, March 2004 high, and now an expected March 2005 low. Technically we think 1160
is possible. March 15th itself will be a big down day, and March 16th a big up day. IRA
capital flows will likely then support the market into April 8-15th , with a down move into
May thereafter. Then the summertime will be benign before a nasty end of the year.
Over the year, The Dow will outperform the S&P.

“Along this path, we would not be surprised to see a Chinese revaluation of the yuan
within one month of the April 8th Solar eclipse. The dollar will break its recent lows and
gold will be firm. If the Canadian dollar falls in the short-term to around .7850 (approx.
1.2738 spot) it will be a great buy for a .8500 (1.1765) upside target later in the year.
Gold should see $475 sometime this year. Since last September 24th , 2004, Jupiter has
been in Libra supporting the art market as well as being supportive of mega-
mergers/lawyers. As Jupiter moves into Scorpio as of October 26, 2005, it will be good
for healthcare, nano-technology, and mining. The astro-alignment is also supportive of
Japan this year, especially in the 4th Quarter on a relative basis to other global markets.”

So once again, via Weingarten, we hear many of the same themes as Crawford and
Zimmel. The only real difference is that Weingarten is perhaps just a tad more bullish on gold for
a longer portion of the year, whereas Crawford and Zimmel expect gold and oil to peak in the
early spring.

How does all this astrology stuff work, you ask? As previously stated, we are not experts
at all, but as a “cheat sheet” to try to learn, here is what we understand:

Jupiter is responsible for providing stability, growth and prosperity to markets;

Mars, responsible for war, is also responsible for triggering volatility in markets;
Saturn is responsible for value of money and often introduces fear into markets;
Uranus is responsible for innovation and strategy;
Neptune is responsible for chaos and dissolution;
Pluto, like Mars, can cause abrupt changes and wild fluctuations in markets.
Mercury and Venus can destabilize markets for a week or two, albeit Venus is also the
planet of prosperity and love.

Meanwhile the 12 zodiac signs through which the planets pass have been categorized as
productive, infertile, and moderate. The relationship of each planet to each other in terms of
alignment is also of great importance.

At present Jupiter is approaching its first square to Saturn since May 2000. This is what
Weingarten is talking about when he refers to “Jupiter-Saturn squares being important,”
and the series of three that transpire between Dec. 2005 and Oct. 2006 represents the first triplet
of squares since 1945-1946 – the beginning of the Cold War with Russia. Another website
www.Astropro.com states:

“There is another Cold War brewing again, now that the triple waxing Jupiter-Saturn
square has returned: an uneasy, probing confrontation…a clash of civilizations. Any
Jupiter-Saturn square represents a critical moment of social, cultural and political change.
It’s a time when ideology and reality are so out of balance that a readjustment is not only
inevitable, but almost easy – even if the medicine tastes awful going down.”

Most immediately, as we move into March and the April 8th solar eclipse, yet another
web forecasting company, www.Astroprofile.com sees Saturn being under stress during this
period, perhaps indicative of “sharp inflation, trade problems, or a grab for oil.” Astroprofile also
says that the mid-March to April alignments would be consistent with important religious leaders
retiring or dieing.
The good news about 2005 from some astro-analysts is that Venus – representative of
prosperity – is still extra near the Earth this year, albeit not as strong as when the Earth-Sun-
Venus alignment saw Venus pass across the face of the Sun in 2004.

But also close to the Earth in 2005 is Mars – planet of war, and its aspects get worse
toward year-end. Mars and the Earth approach each other every two years, the last two times
being a few months before the 9/11/01 World Trade Center attack and again in 2003 when post-
invasion insurgency in Iraq started to get messy. Mars specifically retrogrades through Taurus
between October 1 and December 9th 2005 while it opposes the Sun. With regard to this period,
Astropro.com states:

“This suggests that 2005 will make 2004 look relatively calm and peaceful, which is to
say that warfare, terror attacks, military confrontation and the like will be even more
abundant than last year – if that can be believed. The Mars retrograde period in the fall
will be about goals, ideals, actions and limits, resistance, and ego, dealing with fixed
attitudes and unrealistic spending. The government is likely to initiate some kind of tax
reform or corporate regulation during this period, but the motives are questionable. Fears
about the economy or financial markets should be rampant at this time. Concerns about
oil supplies are also likely to be front and center.”

Another astro-analyst Vivian Carol states:

“When the god of war [Mars] is retrograde, it is generally wiser not to attack or even
make an aggressive move. Time has shown that initiatives taken while Mars is
retrograde generally prove to be very costly, with little return for the effort. It is best to
be still and respond, if need be, to outside forces.”
And what of this year’s two periods of eclipse action – first in April (Solar eclipse April
8 and Lunar eclipse April 24th ) and then in October (Solar eclipse Oct. 3rd and Lunar Oct. 17th )?
th

Per several website, these eclipse periods are likely to bring severe storms and potential seismic
activity in April and an equally active Earth with significant seismic stress in October.

The April 8th eclipse is specifically the 51st eclipse in an 18.03 year Saros Series 129
which began in year 1103. (N.B. -- Discussion of the Saros Series cycle whereby a given eclipse
precisely repeats itself every 18.03 years will perhaps be a full topic of some future
Sandspring.com missive, but it is too complex to delve into here). As further discussed at
Astropro.com, the year 1103 was not remembered fondly in the Anglo-Saxon Chronicle: “This
was a very calamitous year in this land, through manifold impositions, and through murrain
[pestilent disease] of cattle, and deficiency of produce, not only in corn, but in every kind of
fruit.”
Perhaps one should thus have an eye on buying new crop soybean futures, particularly
given the knowledge that a dangerous Latin American “Rust Fungus” blew into the southern U.S.
during last fall’s hurricane season.
Meanwhile the October 3rd annual solar eclipse happens just hours after the Moon crosses
the celestial equator, and would thereby suggest a seismic stress window for several days on
either side of it. This eclipse if of Saros Series 134 which started in June 1248 – time of the
Seventh Crusade (which ended in defeat after 6 futile years of fighting), and a time when the
Spanish were fighting with Muslim occupiers in Seville. How fitting then that in 2005 we see
another seemingly futile and difficult clash of civilizations between the Western and Muslim
worlds.

Last among the eclipses is the Lunar one on October 17th , belonging to Saros Series 146
which began in July 1843. 1843 was one of the more seismically active years in modern history
when Pointe-a-Pitre in Guadeloupe had a major explosion, and other volcanic and earthquake
activity was prevalent around the world. 2005 started of course with headlines of the great
Sumatra earthquake and Tsunami. But was that event simply the beginning of a far more active
year-to-come of seismic activity?

Please don’t get us wrong – we believe at heart that markets exhibit a mathematical
rhythm tied to increments of pi, the Fibonacci sequence (inclusive of the Golden Mean), and
perhaps as well to some elements of Pythagorean geometry. But in so far as our solar system and
universe are also filled with mathematical relationships and alignments, we do not know for sure
from where the mathematical rhythm of the markets may originally emanate. We suspect – but
cannot come close to proving -- that these rhythms may start from above.

In any case, compared to our hedge fund macro thinkers who were more or less all over
the map in terms of 2005 views (albeit all worried about severe macro imbalances), we find it
noteworthy that the Astro forecasters are far more clustered around the following concepts:

- a weak 1st quarter and then a very weak 4th quarter, separated by a more benign mid-
May to late August period, within a choppy overall year for equities;
- First half of year pressure on real estate and housing before Saturn in Cancer ends;
- a period overall of war and of intense political and international pressure/change,
particularly between Oct 1 and Dec 9th. 2005;
- potential seismic and weather anomalies – particularly in April and October – that
could potentially impact crop production;
- general strength in oil and gold at least through March, but perhaps longer.
- Potential strength to “dirty and hard” industries like oil exploration, oilfield services,
steel fabrication, and utilities.

Now after reading all of this, if some people want to still be long-only investors with a
“don’t worry, be happy” mantra, I wish them the best of luck.

For our own investment dollar, we will be trying to nimbly trade the anticipated swings
with a long volatility bias within our positioning -- particularly during the first quarter and the
last.

All contents are Copyright © 2005 by Sand Spring Advisors, LLC, Morristown, NJ

Send us your comments at [email protected].

AN IMPORTANT DISCLOSURE
Sand Spring Advisors provides information and analysis from sources and using methods it believes
reliable, but cannot accept responsibility for any trading losses that may be incurred as a result of our
analysis. Our advice should be deemed our personal opinion and not a recommendation to invest.
Individuals should consult with their broker and personal financial advisors before engaging in any trading
activities, and should always trade at a position size level well within their financial condition. Principals of
Sand Spring Advisors may carry positions in securities or futures discussed, but as a matter of policy we
will always so disclose this fact if it is indeed the case. We will also specifically not trade in any described
security or futures for a period 5 business days prior to or subsequent to a commentary being released on a
given security or futures contract. Principals of Sand Spring Advisors LLC currently hold equity index
related positions that will benefit from a U.S. equity market decline.

Past performance can never be deemed indicative of future returns.