71606233 Art Em is Capital CurrencyCSCM NOV2011 Final

8/3/2019 71606233 Art Em is Capital CurrencyCSCM NOV2011 Final

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ARTEMIS CAPITAL MANAGEMENT

Fall of the House of Money: Changes in Global Trade and Currency ExchangeCouncil of Supply Chain Management Professionals November 3, 2011

Christopher Cole, CFA

520 Broadway, Suite 350

Santa Monica, CA 90401

(310) 496-4526 phone

(310) 496-4527 fax

[email protected]

For Investment Professional Use. Not for Distribution


2/35

1.INTROD

UCTIONTOCURR

ENCYD

YNAMICS

1Source: istockphoto.com

Fall of the House ofMoney

Global currency regime will likely face significant changes in the ensuing decade

Self-reinforcing cycle between Debtor-Developed and Emerging-Creditornations 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


3/35

1.INTROD

UCTIONTOCURR

ENCYD

YNAMICS

2

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

Source: Federal Reserve & Shadow Government Statistics

45

55

65

75

85

95

105

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

FRB Trade Weighted Dollar Index

(1985 to Present)


4/35

1.INTROD

UCTIONTOCURR

ENCYD

YNAMICS

Global Currency Markets are like a Backwards Beauty Pageant

3

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

$USD to GB Pound

CHF (Swiss Franc) to Euro

$USD to Canadian Loony

Aussie to Japanese Yen

$USD to Mexican Peso

Chinese Renmembi to US Dollar

Examples of Currency Pairs


5/35

Economic Data

Monetary Policy

Interest Rates

International Trade Flows

1.INTROD

UCTIONTOCURR

ENCYD

YNAMICS

The value of a currency (in relationship to another) is driven by a variety of fundamental andspeculative factors including:

4

International Investment Flows

Political Stability/Rule of Law/Taxes

Geopolitical Events

Human Perception

+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

Strong Currency 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


6/35

2.WORLD

WARCURRE

NCY

WORLD WAR URRENCY

5

Countries are artificially devaluing their currencies to generate competitive trade

advantages or to finance deficits

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


7/35

3.GLOB

AL

TRADEIMB

ALA

N

CESAND

THECA

RRYTRADE

7

Debtor-developed countries

will need to DELEVERAGE

Emerging-creditor countries

maintain growth w/o currency pegs

despite slowdown in developed world

MASSIVE DEBT AND TRADE IMBALANCE

BETWEEN

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


8/35

3.GLOB

AL

TRADEIMB

ALA

N

CESAND

THECA

RRYTRADE

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

8Source: IMF World Economic Outlook Database, April 2009

Debtor-Developednations are net importers and Emerging-Creditor Nations

are net exporters


9/35

3.GLOB

AL

TRADEIMB

ALA

N

CESAND

THECA

RRYTRADE

Debtor-Developednations are massively OVERLEVERAGED

9

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

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

0

20

40

60

80

100

120

140

160

180

200

220

240

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

GovernmentDebtto

GDPRatio%

Government Debt to GDP %Developed Economies

United States

Japan

Greece

Germany

Euro area

OECD Countries


10/35

3.GLOB

AL

TRADEIMB

ALA

N

CESAND

THECA

RRYTRADE

Relationship between Developed-Debtor and Emerging-Creditor NationMechanics of Chinese Currency Peg

10

$1 USD = approx 6.35 Yuan

Estimated at 15-40% undervalued to $USD

Chinese manufactured goods bought by US consumer

$USD

Peoples Bank of China

print Yuan

buy $USDReinvest $3.2 tn excess reserves in:

US consumer buys


11/35

3.GLOB

AL

TRADEIMB

ALA

N

CESAND

THECA

RRYTRADE

Rates have nowhere to go but up

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

12

0%

5%

10%

15%

20%

25%

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

Yield%

Effective Federal Funds Rate

(1961 to Present)

2%

4%

6%

8%

10%

12%

14%

16%

18%

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

Yield(%)

10 Year US Treasury Yield

(1961 to Present)

Source: Federal Reserve


12/35

3.GLOB

AL

TRADEIMB

ALA

N

CESAND

THECA

RRYTRADE

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

End result is RISK-ON /RISK OFF dynamic

13

Developed World Risk Assets + Emerging Economies

Borrow at historically low

interest rates 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


13/35

3.GLOB

AL

TRADEIMB

ALA

N

CESAND

THECA

RRYTRADE

Basics of the Carry Trade

14

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

Japan

Yen = Safety CurrencyAustralia

Aussie Dollar = Risk Currency

borrow 8,115 Yen @ 0.20% Convert to 100 AUD andreinvest @ 5.60%

+ 5.40% of positive carry

1 AUD =

81.15Yen

Safety or Funding CurrenciesAppreciate During Economic Weakness

US Dollar

Japanese Yen

Swiss Franc (until recently)

Risk CurrenciesDepreciate During Economic Weakness

Australian Dollar

New Zealand Kiwi

Brazilian Real


14/35

3.GLOB

AL

TRADEIMB

ALA

N

CESAND

THECA

RRYTRADE

15

ASSET PRICE RISK = CURRENCY RISK

5

15

25

35

45

55

65

75

85

Feb-05

Jun-05

Oct-05

Feb-06

Jun-06

Oct-06

Feb-07

Jun-07

Oct-07

Feb-08

Jun-08

Oct-08

Feb-09

Jun-09

Oct-09

Feb-10

Jun-10

Oct-10

Feb-11

Jun-11

S&P500-21dayRollingCorrelationIndex Realized Correlation of 50 Largest Cap S&P 500 stocks(1 month rolling- 2005 to Present)

3338

43

48

53

58

63

68

73

78

Feb-07

May-07

Aug-07

Nov-07

Feb-08

May-08

Aug-08

Nov-08

Feb-09

May-09

Aug-09

Nov-09

Feb-10

May-10

Aug-10

Nov-10

Feb-11

May-11

Aug-11

S&P500IndexImpliedCorrelation

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

-80

-60

-40

-20

0

20

40

60

80

100

120

1 101 201 301 401 501 601 701 801 901 1001 1101 1201

21dayRealizedCorrelation

Ranking (Lowest to Highest)

Ranked 21 day Realized Correlations of 50 LargeCap Stocks in SPX

(2005 to Present)

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)

0.05

0.15

0.25

0.35

0.45

0.55

0.65

0.75

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

S&P 500 Sector Correlation

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Country ETF Correlation

Source: Ivolatility & Artemis Capital Management LLC

Excess global liquidity has arguably led to the mostcorrelatedperiod in the history of modernmarkets rendering diversification futile

(correlation measures the propensity for assets to move in-tandem)


15/35

3.GLOB

AL

TRADEIMB

ALA

N

CESAND

THECA

RRYTRADE

16

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)

The marriage of volatility and currency is a worrisome development because itimplies 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

0

20

40

60

80

100

1200

10

20

30

40

50

60

70

80

90

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

JPY/AUD

VIXindex%

VIX (lhs) vs. Japanese Yen/Aussie Dollar(rhs)

Correlation = 0.85 since September 2008

Stock market volatility

perfectly mimics the

appreciation of funding

to risk currency pairs


16/35

4.HE

GE

MONYOFTHEUSD

OLLAR

Hegemony of the US Dollar

17

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


17/35

40

50

60

70

80

90

100

110

2003 2004 2005 2006 2007 2008 2009 2010

$100USDinForeignCurrency

$100 USD translated into Foreign Currencies

2003 to Present

4.HE

GE

MONYOFTHEUSD

OLLAR

18Source: www.forexrate.co.uk

The dollar has lost approximately 30% of its value against a weighted basket of currencies since2003 and over 50% since 1985

US Dollar Currency Appeciation/Depreciation

Swiss Franc Australian Dollar Canadian Dollar Euro Composite

1 year -8.09% -2.41% 0.35% -0.22% -2.59%

2 years -12.56% -12.40% -5.96% 8.34% -5.65%

3 years -18.00% -16.05% -0.49% 8.15% -6.60%

5 years -31.20% -26.45% -8.29% -5.82% -17.94%

8 years -37.42% -36.46% -27.34% -14.66% -28.97%


18/35

4.HE

GE

MONYOFTHEUSD

OLLAR

RELATIONSHIP between US Dollar and Worldwide Shipping RatesUS dollar typicallystrengthens when shipping ratesfallconsistent with safe haven status

19

45

50

55

60

65

70

75

80

85

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Jan-00

Jun-00

Nov-00

Apr-01

Sep-01

Feb-02

Jul-02

Dec-02

May-03

Oct-03

Mar-04

Aug-04

Jan-05

Jun-05

Nov-05

Apr-06

Sep-06

Feb-07

Jul-07

Dec-07

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Jun-10

Nov-10

Apr-11

Sep-11

FRBTradeWeightedD

ollarIndex(1985=100)

BalticD

ryIndex

Baltic Dry Index (lhs) vs. FRB Trade Weighted Dollar Index (rhs)

-0.54 correlation since 2000

Baltic Dry Index

FRB Trade Weighted

Dollar Index


19/35

4.HE

GE

MONYOFTHEUSD

OLLAR

NO VIABLE ALTERNATIVES TO THE US DOLLAR

20

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

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

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


20/35

4.HE

GE

MONYOFTHEUSD

OLLAR

21

US debt to GDP continues to climb higherand these numbers do not even include the $7.9 trillion of unfunded Social Security and $22.9

trillion of unfunded Medicare obligations

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

0

20

40

60

80

100

120

0

2

4

6

8

10

12

14

16

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

DebttoGDP

Ratio(%)

GrossFederalDe

bt($trillions)

US Government Gross Federal Debt and Debt to GDP

(1970 to 2011)

Debt to GDP Ratio

Gross Federal Debt


21/35

4.HE

GE

MONYOFTHEUSD

OLLAR

22

US continues to run large government deficits as a percentage of GDP

.who is financing this?

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

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

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

2010

TotalGovernmentSurpl

us/Deficitas%ofGDP

Total US Government Surplus or Deficit as % of GDP

(1948 to 2010)


22/35

4.HE

GE

MONYOFTHEUSD

OLLAR

23

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

Source: Federal Reserve & US Treasury

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Federal Reserve /

USA

China Japan United Kingdom Oil Exporters Brazil Carribean Banking

HoldingsofISTreasur

yDebt($bn)

Largest Holders of US Treasury Debt


23/35

4.HE

GE

MONYOFTHEUSD

OLLAR

24

Can you fight deflation with more debt?

Source: Shadow Government Statistics

Policy Makers (e.g. Fed) are likely to counter further slowdowns with monetary stimulusbut 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?

-10%

-5%

0%

5%

10%

15%

20%

25%

0

0.5

1

1.5

2

2.5

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

M1Growth%(YOY)

M1MoneySupply(trillions)

US Money Supply(1970 to present)

M1 Growth (YOY)

M1

Highest YOY M1 growth


24/35

4.HE

GE

MONYOFTHEUSD

OLLAR

25Source: Economics of inflation by Constantino Bresciani-Turroni

Currency devaluation can create theillusion ofeconomic growth

1

10

100

1,000

10,000

100,000

1,000,000

10,000,000

100,000,000

1,000,000,000

10,000,000,000

100,000,000,000

1,000,000,000,000

10,000,000,000,000

100,000,000,000,000

0

20

40

60

80

100

120

January-18

April-18

July-18

October-18

January-19

April-19

July-19

October-19

January-20

April-20

July-20

October-20

January-21

April-21

July-21

October-21

January-22

April-22

July-22

October-22

January-23

April-23

July-23

October-23

Perfo

rmanceinpapermarks

Performanceadjustedforfixedrateofexchange

Performance of German Stock Market

during Weimar Republic Hyperinflaton

Adj. according to USD exchange rate

Adj. according to wholesale index numbers

In paper marks, Weimar

C d l i h ill i f i h


25/35

4.HE

GE

MONYOFTHEUSD

OLLAR

26

Currency devaluation can create theillusion ofeconomic growth

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)

Source: Yahoo Finance & Shadow Government Statistics

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

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

S&P 500 index performance adjusted by Dollar-Index

S&P 500 Index

S&P 500 Index Adjusted by FRB Trade Weighted Dollar-Index

Is monetary policy working?


26/35

4.HE

GE

MONYOFTHEUSD

OLLAR

27

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)

Source: Economic Cycle Research Institute

Is monetary policy working?

-40

-30

-20

-10

0

10

20

30

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

2011

ECRIUSWeeklyLeading

IndexGrowth9%)

ECRI Weekly Leading Index Growth & US Recessions

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

ECRI US Weekly Leading Index Growth

Recession (Peak to Trough)

?

QE2

by

FED

TARP/QE1


27/35

4.HE

GE

MONYOFTHEUSD

OLLAR

28

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

Commodities (e.g. Gold or Oil) typically climb when the dollar declines

Source: Bloomberg

0.45

0.95

1.45

1.95

2.45

2006 2007 2008 2009 2010 2011

Gold

$1 of Gold & Crude Oil vs. $USD Composite

Gold (GLD ETF)Crude Oil WTI - Cushing, Oklahoma

$USD Composite (CHF,AUD,EUR,CAD)


28/35

Description Denomination Metal Value

Nickel

1982 to 20115 cents 5.40574 cents

Penny

1909 to 1982

(95% copper)

1 cent 2.37117 cents

Penny1982 to 2011

(97.5% zinc)

1 cent 0.502486 cents

4.HE

GE

MONYOFTHEUSD

OLLAR

29

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

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


29/35

5.CONCLU

SIONS

30

Global currency regime will face significant changes in the ensuing decade

Self-reinforcing cycle between Debtor-Developed and Emerging-Creditornations 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. 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)

The Fall of the House of Money

How to protect yourself and your business


30/35

SOURCES AND ADD ITIONAL READING


31/35

6.SOURCE

SANDADD

ITIONALRE

AD

ING

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

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 2010http://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


32/35

7.B

IOGRAPHYOFFUNDMANAGE

R


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 volatilitycommentary 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 theArtemis Vega Fund LPfor 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 offuture 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 amanagement fee or performance allocation such as those to which the Fund is subject. Accordingly, the net returns presented above refle ct the deduction of (i) an investment management fee equal to 2% per annum of each investors capital account balance, chargedquarterly in arrears, and (ii) an annual p erformance allocation equal to 20% of all net profits allocated to each in vestor, subject to a high water mark. Detailed information on the verified performance history of the incubator fu nd is available upon reques t.

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TINFORMATION

Christopher Cole, CFA General Partner and Founder

Artemis Capital Management, L.L.C.520 Broadway, Suite 350

Santa Monica, CA 90401

(310) 496-4526 phone

(310) 496-4527 fax

[email protected]

www.artemiscm.com


Managing Partner

(310) 496-4526 phone

(310) 496-4527 fax(917) 434-0106 mobile

[email protected]

Contact InformationContact Information

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Contact Information


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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 QUALIFIEDIN 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 BEACCURATE, BUT WE CANNOT GUARANTEE THE ACCURACY OF SUCH INFORMATION.

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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 c lose 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.

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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71606233 Art Em is Capital CurrencyCSCM NOV2011 Final

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