AUTO ELECTRIFICATION PORTFOLIO

September 30, 2009

RECOMMENDATION AND SUMMARY

             Auto electrification is burning up the market. This should continue, fueled by the follow-ing drivers and rollout events. Aggressive representation, including the above, continues to be recommended.

THE DRIVERS:

            1. Electrification triples “well (or mine) to wheel” efficiency--including out-of vehicle fuel use:

             2. Electrification will cut U.S. gasoline demand, net of other fuels used, by two-thirds, from 9.2mm b/d now (48% of U.S. oil consumption) to 3mm b/d; and world gasoline demand of 26.4mm b/d (31% of world oil consumption) to 8.8mm b/d—a world savings of 17.6mm b/d.

            2. Peak Oil is here, and will boost oil prices steadily to new highs over time, especially
as it presses against the growth in developing world economies and demand:

            3. GM and the “big three” are gone, and together with electrification, the industry is
reconfiguring. For decades GM and the “big three” vehemently and insidiously opposed all technological change, including “introducing” a vehicle and then withdrawing cars. Examples span many decades: compact cars for two years in the 50s-60s to combat small car imports; the electric car, designed to fail and withdrawn; the hydrogen fuel cell initiative.

            Business cycle downturns are regenerative, by cleaning out the inefficient and making room for the new. This one was fortuitous in eliminating the largest roadblock to auto change and electrification. Ushered in in place of the “big three” is a proliferation of many car compan-ies, in a virtual repeat of the early 1900s—the last time the industry had technological change!

THE ROLLOUT:

            1. Hybrids, plug-ins, and all-electrics will rise tenfold in four years, from 0.5mm to 4-6mm by ’13—up to 10% of 60mm vehicle auto demand worldwide—the fastest technological rollout since 1900.

            2. Toyota alone plans 1mm Priuses worldwide by ’10. The Prius has 62.5 lbs of rare earth elements (REEs), typical of pre-lithium ion battery vehicles (10-15 lbs more than conventional cars after lithium ion), beyond ‘15.

            3. Renault just unveiled four models for ’11, using its model of leasing batteries with quick changes at charging and exchange station networks. (City parking lots will soon offer to recharge cars, in return offering backup and auxiliary power to commercial buildings, for the ultimate in energy storage and load leveling.)

            4. BMW, Audi, and Mercedes just unveiled luxury battery cars.

            5. A123 just went public, rising 50%. The expected decline in lithium ion battery costs is expected to make this go mainstream beyond ’15, propelling electrification the final leg.

            6. The power for this auto industry transformation will add to the pedestrian 1-3% demand growth for electricity (as recognized by even pre-election Obama), driving demand for clean and short lead-time gas turbines near term, and nuclear power long term. Carbon legislation will work its way through, to support clean auto electrification, and its shadow will boost these clean fuel generating orders nearer term. The market is just starting to see this!

            7. Natural gas and uranium stocks should begin outperforming, with the former and gas prices already starting toward expected $6-7/mcf average prices in ’10, and our 2-3 year target of $15/mcf. Shale gas supplies will level gas prices there, while Peak Oil propels oil to new highs.

CONCLUSION

            For institutions requiring size, our shale gas and other leveraged E&P stocks should strongly outperform from here. REE plays continue to offer the greatest potentials in smaller cap size. Overweighting of portfolios, using the above, is strongly recommended.

David G. Snow                                                                                                             September 30, 2009

The information contained in this report has been derived from sources we believe to be reliable, but we do not guarantee the accuracy or completeness of such information. This report is for informational purposes only and is not intended to be an offer to buy or sell the securities mentioned herein. David G. Snow, the President of Energy Equities, Inc., has positions in GWMGF and QSURF, may have positions in the other securities mentioned herein and may buy or sell such securities at any time. All rights reserved. This report may not be reproduced or distributed without prior written consent.