Partners,

 

Despite the rather sharp downturn in the markets this week, my conviction that this is the birth of a new Bull market is unhshaken.  I continue to believe that the majority of the damage has occurred, meaningful reform is on the way and the pent-up buying, deferred for over a year, will begin to manifest immediately.  Yes, unemployment will continue to inch up and more businesses and banks will announce failure but confidence is being restored and that will carry the day.

 

Our portfolio has fallen ^#@ % below the high-water mark set in May.  Most of the losses occurred on Monday and even the cynical public gets it right once in a while.  A return to the March lows is generally expected to occur because few can comprehend the substantial effects of the changes happening before their eyes.  A return to to the March lows will not happen.

 

On Wednesday the admistration brought forward wide-sweeping changes to the financial system; changes greatly needed to prevent the boom-bust cycle we're becoming accustomed to.  Although these proposals will make my life harder, they will prevent more charlatans from doing a "Madoff" or a "Stanford".  They include regulation of and closer monitoring of hedge funds, something I have written about as a necessary precaution.  They will compel the banking system to keep higher reserves, something essential when the economic tide goes out.  They will create a position to monitor national risk.  The game of large companies has been to push the limit, knowing that they would be bailed out.  That day is passing.  On the surface, these changes are what I would effect were I in a position to do such.  Hurray! 

 

The headlines will play a veritable game of ping pong during this recovery because the stakes could not be higher and we are legitimately bankrupt.  The deflation has felled millions of mortgages, thousands of small businesses, dozens of banks, and all but one US auto manufacturer; a decade of destruction.  Similarly, the reform unfolding is ten years worth.  Again, this has been a Depression and Recovery only in "Internet time".  Nothing like it has ever occurred before, that's why it's so difficult to understand and why the cynicism will persist.  The road higher will be filled with weeks like this, ugly, but we are far from the top.  This is a buying opportunity, hang on.

 

As announced last week, our assets finally enabled us to be listed in the difinitive hedge fund directory, www.hedgefund.net.  There are presently 7,285 funds (domestic and non-domestic) reporting and our year-to-date numbers place us at 263/7285, or the top 4%.  Thank you again for staying with me and making that accomplishment a reality.  I am not satisfied with my present ranking and will give you periodic reports on where we are relative to the rest of the industry. 

 

 

Thank you for your continuing confidence.

 

 

 

 

Partners,

 

We powered forward this first week of June and stand *# % above the May high-water mark of one week ago.  The year-to-date return in the fund is approaching *&^ %.  I see much more upside potential but the ride will be rough.

 

That this is a new Bull Market is very hard to comprehend when one can still see the arc of the baseball bat that clobbered him; but it is.  After hitting a 42-year low, Consumer Confidence took its biggest leap in 35 years.  Consumers, repressed in this Depression and buying down their debt at an astounding rate, will resume their consumption.  Their appetite will be  tempered, from our collective trip to the precipice, but they just won't stay down.  This summer will be a happier one for those businesses that survived.

 

Although it won't be officially announced for months, the recession is over.  We will now rebuild the American economy with some  fundamental changes and remain the best show on Earth.  Central to this Renaissance will be the reemergence of the American automobile.  Aided by "magically disconnected" high oil prices, Americans, yea the world, will be "convinced" to go green.  Therefore, oil prices will remain far above the supply/demand equilibrium price to facilitate the process.   I expect oil to bounce between $%^ and $*# for the next 18 to 24 months.

 

The portfolio remains fully invested and leveraged at about ^# to 1.  We are anticipating a rising market, one more fairly valued at Dow &^#*^.  Reinforcing the change in direction is a recent rise in interest rates.  Cheap mortgages are going away quickly and the Federal reserve will almost certainly raise interest rates before the end of the year.  The yield curve will flatten as a result and money will leave bonds to participate in stocks; that's a good thing.  I have increased our position as sellers of &^*# because deflation is over and inflation is at least 1.5 to 2.5 years away.  We should now experience a unique period of very low inflation while the economy is rebuilt.  Stocks will not retest their March lows and we will not see an opportunity like that again in our lifetimes.  We've taken pretty good advantage so far .

 

Our partnership has crested $ ####### and our returns will soon be posted on www.hedgefund.net.   

 

Thank you for your continuing confidence.

 

 

David Roskoph