January 2009 Daniel Ahn

Speculation and Commodity Prices

Anatomy of a quasi-bubble from 2006 to 2008

Confidential Presentation

Speculation and Commodity Prices

A commodity price boom

WTI peaked up 93.4% and HH natural gas up 141.2% in July 2008. Corn peaked up 124.1% and Soybeans 185.8% in June.
Price Behavior of six selected commodities since Sep-07
Sep-07=100 240 WTI 220 Soybeans NatGas Aluminum Corn Copper

200

180

160

140

120

100

80 Sep-07

Oct-07

Nov-07

Dec-07

Jan-08

Feb-08

Mar-08

Apr-08

May-08

Jun-08

Jul-08

Aug-08

Sep-08

or a speculative bubble?
The coincidence of a broad commodity price appreciation and large financial index inflows have raised questions about causality

Commodities as an asset class The stellar return performance of commodities as other traditional asset classes, such as equities and bonds, have wilted, has attracted a large number of purely financial investors into commodities markets. In particular, index funds have emerged as a primary channel for strategic allocation by large institutional investors. Indices typically operate via total return swap agreements between the investor and the counterparty financial institution, often banks. By engaging through a financial intermediary using swaps, these indices exploit the socalled swap loophole that exempts these investments from speculative position limits imposed by the CFTC.

Estimates of large index flows in commodities have coincided with dramatic increases and decreases in the price. Many market commentators and lawmakers have taken this as prima facie evidence for the role of speculative activity in driving up commodity prices, notably for crude oil. AUM and Cumulative Inflow since 2006 Index Inflow into WTI and WTI prices
$/bbl 150
AU M minus Inflow Cumulative Inflow

$Bn 300 250 200 150 100 50 Jan-06 M ay-06 Sep-06

$bn WTI Front Prices Cumulative Index Investment into WTI 35 30 25 20 15 10 5 -

140 130 120 110 100 90 80 70 60 50 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08

Jan-07 M ay-07 Sep-07

Jan-08 M ay-08 Sep-08

Speculation and Commodity Prices

Despite simplified ideological extremes, the topic is highly complex and requires careful and nuanced analysis Cost analysis and oil price forecasting

Political constituents in the US, frustrated by record high food and energy prices, have blamed speculators and pressured Congress to crack down on financial activity. But speculators play an essential role in providing liquidity and information in markets so commercial participants can conduct effective risk management, bringing business costs and ultimately prices down. Many market observers and academics have also argued against the ability of purely financial actors to affect a futures price linked to physical markets. One commonly cited folk wisdom is that every buyer needs a seller. But a more nuanced analysis is necessary before passing judgment.

The Financialization of Commodity Markets

Daily trading volume on NYMEX crudes is over 6 times total global consumption; Trading volume on ICE crudes is over 5 times total global consumption.
Daily Trading Volume in WTI and Brent Crude Oil on NYMEX and ICE vs. World Oil Consumption m bbl/d 700

600 500 400 300 200 100

Trading Volume on NYMEX World Crude Oil Consumption

Trading Volume on ICE

Add OTC trading and the daily trading volume may be >20 times global production

0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
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A Discussion on Financial Activity and Prices

While theory starts from perfectly efficient markets, reality allows financial activity to impact price behavior. Theoretical Ideal and Imperfect Reality

Academic literature has a benchmark view of perfectly efficient markets:

Prices perfectly and instantaneously reflect all available information Financial supply and demand curves are vertical

Short-term liquidity constraints determine a bid-ask spread and sloped short-run supply curve
Hence, large orders can move along this curve and cause intraday price shifts

Also, market participants continuously update expectations from inflow of public and private information. Opinions not unanimous, but differing beliefs are formed. Trading activity, on top of its short-term liquidity effect, can also impact expectations by signaling superior information.

A Discussion on Financial Activity and Prices (contd)

Commodity markets are inelastic with respond to price and suffer from informational opacity. Physical markets and financial prices are weakly linked

Skeptics argue that if speculators drive market prices above equilibrium, consumers would demand less than producers are supplying, and the excess supply must appear in inventories. But data on inventories is available only for the US and a few other OECD countries, not the entire world. Also, these numbers are subject to noise and microeconomic shocks, such as credit. Also, physical markets are weakly responsive to financial prices. Estimates of elasticities are low, as a large physical response requires high upfront fixed costs, e.g. to open a new producing basin or upgrade efficiency of equipment. This causes a nonlinear kinked reaction curve and an immediate inventory response will be weak.

Kinked Supply and Demand Curves

Large fixed costs required for a substantial physical response from consumers and producers drive extreme short-run inelasticity to price.
Kinked supply and demand curves

P Supply

Within price band, supply and demand inelastic

Nonlinear kinks in the supply and demand curve can arise due to the sunk costs required for a large supply or demand response

Demand

A Discussion on Financial Activity and Prices (contd)

Commodity markets are prone to market herding and clustering due to informational imperfections and illiquidity. Informational opacity and herding behavior

Fundamentals of commodity markets can be opaque. More than 2/3 of proven reserves of crude oil are held by non-transparent national oil companies (NOCs). No credible data available on key aspects of global balance, such as Saudi spare capacity or Chinese inventories. Hence, market participants look to the behavior of others for guidance. While individually rational, this results in herding behavior. They also cluster around the handful of available signals, such as US inventories, even if they may not reflect global reality. Herding creates an opportunity for less-informed noise traders to distort expectations. A large order that drives prices can be misinterpreted as a bullish statement by a trader with superior information. Prices move to a new sunspot equilibrium.
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Commodity Index Flows and Price Behavior

Index flows, by being large and idiosyncratic, can impact both returns and volatility in the short-term Index flows and price behavior

Index investors are:

Large in size and thus have substantial liquidity impact Are almost entirely long-biased Hold little new information not already known to traders

They generally invest in commodities at idiosyncratic times for broader strategic exposure, hence are noise traders. (Because of this, they are the closest one has to exogenous inflow into markets.) But anonymous markets makes traders misinterpret an index inflow as a bullish statement by a trader with superior information. Index inflows can thus impact both prices and volatility.

Financially-driven over- and undershooting

Herding behavior can cause prices to deviate from true long-run equilibrium
Lehman Brothers Global Supply and Demand Balance

Inventory build I due to market imbalance small due to price inelasticity

Market price Pmkt

Markets can only observe small I + large error e due to imperfect Information and model uncertainty. Hence, conditional expectation Pmkt E[Ptrue| I + e ] volatile and can persistently deviate from Ptrue.

True long-run equilibrium price Ptrue Supply

Demand

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How large are index investors?

Refined estimation methodology based on CFTC supplementary reports on Commodity Index Trading (CIT)
How large are index investors?

Our refined methodology allows us to estimate the total Assets Under Management (AUM) in commodity indices. (Details of the methodology are in the Commodities Special Report, Index Inflows and Commodity Price Behavior). We estimate AUM rose from a negligible amount in 2002, to $77bn in Jan-06, to peak at $297bn in Jul-08. Of this increase, about $97bn was additional financial inflow. But since Jul-08 to Sep-08, AUM has decreased to $187bn, of which $52bn was financial outflow.
Estimated AUM and cumulative inflow into commodity indices
$Bn 300
AU M minus Inflow CumulativeInflow

250

200

150

100

M ay-06 Sep-06 Jan-07 M ay-07 Sep-07 Jan-08 ________________ Source: CFTC, Bloomberg, Lehman Brothers Commodities Research

50 Jan-06

M ay-08

Sep-08

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How large are index investors? (contd)

Index investment, at its peak, accounted for roughly a quarter of all long interest in WTI paper oil.
AUM and long-biased flow in WTI

For WTI crude oil, we estimate there has been a cumulative index inflow of $33bn into a total WTI AUM of about $93bn in Jun-08. To put in perspective, the entire market capitalization of all WTI open interest on the NYMEX exchange is about $380bn. Hence, index investment accounted for about a quarter of all long interest in paper oil. Furthermore, index investment is almost purely long positions. The bottom right hand figure shows the breakdown of long/short positions of soybeans by category of investor.
History of Index Net Inflows
$Bn 12 10 8 6 4 2 0 -2 -4 -6 -8 -10 -12 Mar-06 Jan-06 Jun-06 Dec-06 Feb-07 Sep-06

Index investment is long-biased

Mn Contracts 1.2

Significant Inflows

Turning poin

1.0 0.8 0.6 0.4

M assive outflows May-07 Nov-07 Aug-07 Dec-08 Apr-08 Oct-08 Jan-08 Jul-08

0.2 0.0 2006 Long Index Non Commercial Spreading 2006 Short 2008 Long 2008 Short

________________ Source: CFTC and Lehman Brothers Commodities Research

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Non Commercial Long/Short Commercial

Relative size of index investors

While the commodity index investment has grown dramatically in absolute terms, its relative growth compared to the overall market is less impressive.
Relative size of index investors

We have seen how AUM in commodity indices have grown dramatically in absolute size. However, our discussion above suggests we must understand this in the context of explosive growth of overall market. As a percentage of the overall size of the market and relative to non-index noncommercial traders, relative index sizes remain generally flat with only scattered increases in some commodities.
Breakdown of Open Interest in Cocoa
100% 80% 60% 40% 20% 0% Jul-06 Oct-06 Jan-06 Jan-07 Jul-07 Oct-07 Jan-08 Apr-06 Apr-07 Apr-08 100% 80% 60% 40% 20% 0% Jul-06 Oct-06 Jan-06 Jul-07 Oct-07 Jan-07 Apr-06 Apr-07 Jan-08 Apr-08

Breakdown of Open Interest in Wheat

________________ Source: CFTC and Lehman Brothers Commodities Research

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Index

Commercial

Non Commercial

Non Reporting

Index

Commercial

Non Commercial

Non Reporting

Individual trading size of index investors

While the relative size of index investors remained flat, index investors are still the largest individual traders by average position size.
Individual size of index investors

But from an individual perspective, index investors are the elephants in the trading pits. Given there are only a handful of index vehicles making large strategic portfolio allocations on behalf of large index investors, it is not surprising the average position size of index investors surpasses both commercial and non-commercial. In fact, they are so large that they can exceed the speculative position limit imposed by the CFTC on non-commercial traders.
Average open interest size by category
Contracts 6000 5000 4000 3000 2000 1000 0 Jan-06 Open Interests per Index Trader Open Interests per Commercial Trader Open Interests per Non Commercial Trader

Average size as % of speculative limit

180% 160% 140% 120% 100% 80% 60% 40% 20% Corn Wheat Sugar

________________ Source: CFTC and Lehman Brothers Commodities Research

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Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

0% Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

May-08

What drives index flows?

We observe both strategic diversification purposes, but also tactical momentum-trading in commodity index flows.
Individual size of index investors

Commodities have good diversification properties, and serve as excellent hedges against the dollar and equity weakness, and higher inflation. WTI is generally negatively correlated to dollar, uncorrelated with the S&P, and positively correlated with 5-year breakeven inflation (a common measure of inflation expectations) Commodities also deliver a short-term risk premium, though in the long-run, commodity prices are cyclical and weakly mean-reverting.
60-day correlation of WTI to dollar, S&P, inflation Inflation-adjusted WTI, S&P, Dow Jones, 1861-2007
Correlation to 5-yr Breakeven Inflation

Correlation to Dollar Correlation to S&P Returns 0.7 0.5 0.3 0.1 -0.1 -0.3 -0.5 -0.7 Mar-06

Jun-06

Sep-06 Dec-06 Mar-07

Jun-07

Sep-07 Dec-07 Mar-08

WTI, 1861=100; Dow , 1900=100; S&P, 1927=100 1,000 900 800 700 600 500 400 300 200 100 0 1861 1871 1881 1891 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 Jun-08 Crude Oil Spot Price Dow Jones 30 Stock Index S&P500 Stock Index

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What drives index flows? (contd)

Signs of tactical momentum-chasing is worrisome, as a key building block of an unsustainable asset bubble
Statistical drivers of index flow

However, strategic motivations have been blurred with tactical reasons, as investors turned off by weak performance of traditional asset classes have sought higher alpha. We search econometrically, and find that dollar weakness, higher breakeven inflation, weaker S&P returns, higher VIX levels (a measure of market risk aversion), and notably past performance of the commodity index drive positive inflow into indices, some with statistical significance. We account for autocorrelation with a one-period lag (chosen by AIC) and use NeweyWest HAC t-stats (details in report).
Causes of Index Inflows to GSCI and DJ-AIG
Coeff. -7.57 +3.98 -1.37 +0.30 +0.56 p-value 0.000 0.000 0.499 0.359 0.432 DJ-AIG Inflow (R2=11%) Dollar Returns Breakeven Inflation S&P Returns VIX levels DJ-AIG Past Performance Coeff. -6.48 +0.32 -0.54 +0.22 +3.14 p-value 0.000 0.678 0.698 0.324 0.000

GSCI Inflow (R2=9%) Dollar Returns Breakeven Inflation S&P Returns VIX levels GSCI Past Performance

Source : CFTC, S&P GSCI, DJ-AIG, Lehman Brothers estimates (Note: Bold represents statistical significance at the 1% level of confidence and italics at the 5% level of confidence.)

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What impact do index flows have on returns and volatility?

Using absolute measures of index flows, we generally find a positive and at times statistically significant impact of inflow on returns.
We find upon regressing our absolute measures of index flows, this predicts a positive and at times statistically significant impact on weekly returns. Again, use one-period lag and HAC t-stats. In words, this result can be restated as: A $100mn inflow into the soybean oil market by index investors within a week predicts a 2.11% increase in the weekly return of soybean oil prices. The largest magnitude effects occur in less liquid commodity markets such as soybean oil, silver, and coffee. Interestingly, the sign of the WTI crude oil coefficient is negative, though not statistically significant.
Regression on returns using absolute measures
Commodity Soybean Oil Corn Cocoa WTI Crude Oil Cotton Feeder Cattle Gold Heating Oil Coffee Kansas Wheat Live Cattle Lean Hogs Copper Natural Gas RBOB Gasoline Soybeans Sugar Silver Wheat Coeff. 21.12 4.86 4.97 -0.57 7.45 -6.96 6.17 4.70 10.68 4.13 0.54 1.61 3.39 -0.06 0.68 6.64 4.19 14.91 3.98 p-value 0.000 0.029 0.755 0.266 0.036 0.652 0.010 0.011 0.037 0.759 0.856 0.786 0.141 0.959 0.557 0.000 0.289 0.061 0.312

Source: CFTC, S&P GSCI, DJ-AIG, Bloomberg, Lehman Brothers estimates (Note: Bold and underlined represents statistical significance at the 1% level of confidence, bold at the 5% level of confidence, and italics at the 10% level of confidence.)

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Absolute flow measures and impact on price volatility

Studying the impact on volatility, we find even more consistently positive coefficients, also at times with statistical significance.
We find the absolute value of index flows predicts a positive and at times statistically significant impact on weekly volatility as well. Again, use one-period lag and HAC t-stats. In words, this result can be restated as: A $100mn inflow into the soybean oil market by index investors within a week predicts a 5.14% increase in the annualized volatility of soybean oil prices. Again, the large magnitudes occur in less liquid commodity markets such as soybean oil, cocoa.
Regression on volatility using absolute measures
Commodity Soybean Oil Corn Cocoa WTI Crude Oil Cotton Feeder Cattle Gold Heating Oil Coffee Kansas Wheat Live Cattle Lean Hogs Copper Natural Gas RBOB Gasoline Soybeans Sugar Silver Wheat Coeff. 54.17 10.20 117.83 2.82 26.67 34.63 -0.32 11.76 32.92 25.73 5.65 14.10 8.21 1.77 0.87 16.98 6.95 13.20 66.24 p-value 0.012 0.222 0.037 0.153 0.022 0.490 0.974 0.068 0.144 0.603 0.508 0.420 0.698 0.823 0.012 0.014 0.707 0.676 0.000

Source: CFTC, S&P GSCI, DJ-AIG, Bloomberg, Lehman Brothers estimates (Note: Bold and underlined represents statistical significance at the 1% level of confidence, bold at the 5% level of confidence, and italics at the 10% level of confidence.)

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Relative flow measures and impact on price returns

However, using relative measures to adjust for the liquidity effect returns a dramatic reversal of results
One might argue that the previous returns are to be expected, as the same $100mn inflow naturally has a larger impact on smaller and less liquid commodity markets. To adjust for this and eliminate this liquidity effect, we try using a relative measure, considering the flow not in absolute terms but as a percentage size of the total open interest in the market. Again, use one-period lag and HAC t-stats. When we do this, the results change dramatically. Most coefficients become negative. A one bp increase in the index share of total open interest in corn within a weak is associated with a 1.47% decrease in returns.
Regression on volatility using absolute measures
Commodity Soybean Oil Corn Cocoa WTI Crude Oil Cotton Feeder Cattle Gold Heating Oil Coffee Kansas Wheat Live Cattle Lean Hogs Copper Natural Gas RBOB Gasoline Soybeans Sugar Silver Wheat Coeff. -21.47 -146.96 -158.78 -47.96 -67.25 -2.17 -101.15 -17.65 -65.44 -40.47 -22.18 -45.17 -11.47 21.89 -5.30 -77.91 -29.11 -167.94 -82.89 p-value 0.458 0.002 0.003 0.181 0.001 0.857 0.000 0.338 0.031 0.282 0.098 0.078 0.542 0.841 0.325 0.002 0.349 0.001 0.003

Source: CFTC, S&P GSCI, DJ-AIG, Bloomberg, Lehman Brothers estimates (Note: Bold and underlined represents statistical significance at the 1% level of confidence, bold at the 5% level of confidence, and italics at the 10% level of confidence.)

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Relative flow measures and impact on price volatility

Using relative measures, the impact on volatility remains positive but statistical significance is lost
Regression on volatility using absolute measures

Unlike the results for price returns, the coefficients on the volatility impact generally remain positive. However, they are now rarely statistically significant (with no coefficient significant at the 1% level of confidence.) The only coefficient at the 5% confidence level is for corn, with a one basis point increase in the relative index share predicting a 4.44% increase in annualized price volatility

Commodity Soybean Oil Corn Cocoa WTI Crude Oil Cotton Feeder Cattle Gold Heating Oil Coffee Kansas Wheat Live Cattle Lean Hogs Copper Natural Gas RBOB Gasoline Soybeans Sugar Silver Wheat

Coeff. 104.30 444.20 198.54 127.99 81.93 56.97 86.20 145.13 -201.60 0.60 -1.06 -53.21 129.18 -68.96 13.64 61.18 149.60 344.57 19.03

p-value 0.360 0.011 0.369 0.434 0.230 0.169 0.507 0.057 0.229 0.997 0.982 0.563 0.215 0.886 0.437 0.599 0.317 0.165 0.862

Source: CFTC, S&P GSCI, DJ-AIG, Bloomberg, Lehman Brothers estimates (Note: Bold and underlined represents statistical significance at the 1% level of confidence, bold at the 5% level of confidence, and italics at the 10% level of confidence.)

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Potential flaws in the relative measure

While the relative size of index investors remained flat, index investors are still the largest individual traders by average position size.
Individual size of index investors

If we look at a history of this relative measure, the negative results are to be expected. For many commodities, the relative measure shrinks even as their absolute size and prices increase. This asymmetry occurs due to the exogenous maturation of commodity futures markets, as both commercial and non-commercial participants also increase exposure. In fact, the CFTC and other analysts point to the stable or declining relative measure as evidence against index investors having any relation to price movements.
Absolute and relative measure in corn
% 30 28 26 24 35 22 20 18 16 Jan-06 30 25 20 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08
20 15 Jan-06 25

Absolute and relative measure in WTI

Mn contracts
% 40 35 30 Index Net Length (rhs) Index Net Length as a Percentage of Total OI (lhs)

Percentage of Index Net Position

Index Net Open Interests

50 45 40

Mn Contracts 0.7 0.65 0.6 0.55 0.5 0.45 0.4 0.35 0.3 0.25 0.2 0.15

Apr-06

Aug-06

Nov-06

Feb-07

Jun-07

Sep-07

Jan-08

Apr-08

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Panel approach to price and volatility impact

By adopting a panel approach and studying cross-sectionally, we can use the relative measure and adjust for both the liquidity and exogenous growth effect
Panel approach to studying return and volatility impact

The exogenous growth in market size due to exogenous maturation of commodity futures markets poses problems to the relative measure. The previous absolute measure, while failing to adjust for liquidity, nevertheless captures the story of the increasing frequency and presence of large index buy orders in markets. We face a trade-off. The potential flaws in the relative measure encourage us to seek an alternative econometric approach. Happily, we can exploit the multiple commodity panel structure of the CIT data. Intuitively, rather than studying increased inflows over time and observing their impact on prices and volatility, we consider differences in index investment across commodities and try to statistically observe differences in return and volatility behavior.

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Panel approach to price and volatility impact (contd)

Signs of tactical momentum-chasing is worrisome, as a key building block of an unsustainable asset bubble
Statistical drivers of index flow

Because time trends are captured in time dummy variables, we can avoid spurious correlation of the increasing trend in returns and negative trends in the relative measure. By using the relative measure, we also have adjusted for the liquidity effect. However, the nature of panel regression precludes any commodity-specific analysis. We find positive and statistically significant coefficients on both returns and volatility, though the actual magnitudes are small. A 1% increase in relative index size predicts a 22bp increase in the weekly returns and a 54bp increase in annualized volatility.
Panel regression on price returns and volatility using relative measures

Model Returns Volatility

Coeff. 0.22 0.54

t-statistic 2.92 2.10

p-value 0.00 0.04

Source: CFTC, S&P GSCI, DJ-AIG, Bloomberg, Lehman Brothers estimates (Note: Bold and underlined represents statistical significance at the 1% level of confidence, bold at the 5% level of confidence, and italics at the 10% level of confidence.)
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Debate over speculation and commodity prices continue

Political tensions rose high in the debate over speculation and commodity prices
Debate over speculation and commodity prices continue

During the peak of the price surge, difficult questions were raised about any possible causality between index flows and energy and other commodity prices. This has become a very politically charged debate, with several testimonies in Congressional hearings arguing for a causal link. On the other side of the debate, many observers argued that there is no evidence, either empirical or theoretical, linking speculative activity to prices. On 6/26/08, the House passed legislation to curb excessive speculation in energy markets, which was subsequently stalled in the Senate. Regulators have also moved to close the London loophole, extending position limits on the ICE exchange. On 9/11/08, the CFTC released a study with recommendations on regulation, but with some dissent and concern over the quality and completeness of data. Among the recommendations, they suggested reviewing the bona fide hedge exemptions given to swap dealers.

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Debate over speculation and commodity prices continue

Political tensions rose high in the debate over speculation and commodity prices
Debate over speculation and commodity prices continue

Our analysis suggests reality is considerably more complex and does not align with either extreme of the debate. We feel while prices may ultimately reflect long-term fundamentals, imperfections due to illiquidity and asymmetric information allows financial activity to drive short-term deviations. The empirical evidence returns a mixed bag: Estimates of price impact depend on whether one uses relative or absolute measures of inflow Positive effect is concentrated in smaller agricultural and precious metals markets, not the energy markets which have received so much attention For volatility, picture more consistent but magnitudes small Debate clouded by short history and doubts about accuracy of available data. Weekly freq. may be too low to capture significant intra-day effects. Commodities markets are not theoretical ideals but imperfect human constructs. The complexity of issue warrants intelligent and judicious regulatory consideration.
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Concluding thoughts
Improvements in transparency can diminish distortions without affecting market ability to manage risk
Concluding thoughts on the debate over speculation and commodity prices

It is easier in hindsight to call a price trajectory a speculative bubble (and the recent dramatic fall in energy and other commodity prices is suggestive). But there is a thin line between an irrational bubble and an overshooting by rational but ill-informed markets with herding behavior. Even for the NASDAQ in the 1990s, considered by many to be a classic example of an asset bubble, economists have struggled to conclusively prove that speculators drove prices upwards cognizant that prices were unreflective of fundamental value. As commodity markets continue to mature, distortions from speculative activity and commercial hedging should diminish. The global economy and its consumers will reap accumulating benefits from improved risk management and efficient trade. However, in interim, devoting more thought and resources to improving transparency in commodity markets is required. Extending supplementary index reports to all commodities, not just agriculturals, is an excellent first step. On fundamental side, more transparency is required in critical but opaque regions, such as Saudi Arabia and China.
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Analyst Certification and Disclosures

Analyst Certification I, Daniel Ahn, hereby certify (1) that the views expressed in this research report accurately reflect my / our personal views about any or all of the subject securities or issuers referred to in this report and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. To the extent that any of the views expressed in this research report are based on the firms quantitative research model, Lehman Brothers hereby certify (1) that the views expressed in this research report accurately reflect the firms quantitative research model and (2) that no part of the firms compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. 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