US Economy Shows Stabalization

Portfolio Breakdown:
KFN - 83.2%
YRI - 4.0%
BAC - 4.3%
PRGN - 11.8%
APP - 10.2%
JPM - (5.5%)
CAD Cash - 1.6%
USD Cash - (9.6%)

Portfolio Performance:
Return Since Last Update - 13.16%
Return Since Inception - 79.41%
S&P 500 - 1010.48
S&P 500 Return (June 30) - 9.97%

USD/CAD - 1.0828

The Prior Week of Trading:
KFN has continued to outperform the market, running into the $3 range ahead of earnings; the company reported in-line EPS and a reasonable outlook for coming quarters and the stock sold off sharply. This appears to be an over-exaggerated snap based on profit taking as the stock has moved more than 5x off its lows; as long as expectations remain high and short term traders sell into big gains, I will gladly take the other side of this trade in the expectation that this deep value investment will reach my $4-5 target in the coming months.

I executed a pair trade going long BAC and short JPM; I still believe this is the right move, although I executed the trade very poorly. I like the growth that the Countrywide and Merrill Lynch acquisitions will add to BAC; the core businesses of mortgage origination and refinancing from Countrywide and investment banking and trading that Merrill Lynch bring to the table will be very strong as the economy and capital markets continue to rebound. JPM, at current levels, is only off 33% from its all time high of 64.15 in March of 2000 while it has de-levered its business model substantially and can not conceivably have the same EPS growth expectations as it had in the past. On the flip side, BAC should be adding to the bottom line as its acquisitions become fully accretive giving it a much more reasonable forward looking P/E.

I continue to believe in the rebounding US economy and thus believe PRGN and APP will be very well positioned with rebounding global trade and a strengthening consumer. YRI is held primarily as a means to lower my beta and protect against a weak US dollar. I sold off my PHM too early into this weeks rally, but am happy with the profit I made. Including my shorts, I am 102% invested; I am confident in the economy, but hesitant of having the market rally too far too fast. In the coming weeks, it is my expectation to add to my portfolio with pairs, so as to stay fully invested but have protection from the short side.