Proceeding with Caution

Portfolio Breakdown:
KFN - 33.1%*
BAC - 3.1%
PRGN - 17.4%
APP - 2.1%
JPM - (3.8%)
BWR - 3.0%
HNU - 6.5%
CAD Cash - 26.5%
USD Cash - 12.2%


*sold equivalent total call contracts at $5 strike, Sept 2009 expiry

Portfolio Performance:
Return Since Last Update - 15.53%
Return Since Inception (June 30) - 165.40%
S&P 500 - 1016.40
S&P 500 Return (June 30) -10.61%

USD/CAD - 1.0852

The Prior Week of Trading:

The makeup of my portfolio has changed significantly in response to KFN reaching my short term price target of $4; in response, I sold off approximately 2/3 of my position and wrote front month calls on the remaining shares at the $5 strike. Although my short term price target was $4 (the main reason for the partial liquidation with the upside/risk relationship now smaller), I see intrinsic value at the $6 mark and plan to hold the remaining shares until that target is reached. I used the recent strength of gold as an opportunity to sell my entire position of YRI; I had bought into this stock with precisely this current scenario in mind and am happy to have made a profit (albeit a meager one). Gold has, over the past few months, moved towards the $1,000 level from its tight range around $900, with great haste only to quickly fall back from whence it came (see chart from http://www.futures.tradingcharts.com/). If gold could not maintain a push through $1,000 at the height of the economic crisis, I fail to see how it can do so under a recover scenario with no risk of inflation. If the US dollar can avoid a collapse (which I am betting on), then gold should quickly fall back to the low 900's once again.

APP has worried me of late, given the persistently weak consumer and the strong possibility of a back to school bust punishing discretionary retailers. I would like to say that APP has held up remarkably well, but under a market correction this stock could easily fall to the lower end of its short term trading range around $3. I don't think that the scandal and subsequent layoffs surrounding illegal migrant workers will hurt the company in the long run, although it may turn out to be a reason not to own it through a broad market correction; an event that may supply the opportunity to pick this retailer up in the future on the cheap. I decided to edge my way into Natural Gas (scary I know!) through the double long ETF: HNU. I have taken a relatively minor stake here purely looking for a morbidly dead, rigamortis infected, cat bounce. Natural Gas is no one's favorite right now, a reason that makes it at least interesting to me. I dont think Natural Gas can sustain a price well below $3 as producers try to add to reserve supply for the coming winter; a series of smaller than expected builds to inventory as production is idled due to its low cost may prove to be a buoy to prices back towards $3. My short term price target under this scenario puts HNU at around $2.50, the level which will be my exit.