Investment Letter May 10, 2009

This is a monthly update from Saddle Point Capital Partners, LP.

Currently the markets and growth trade is enjoying a nice cyclical bull market within a
larger secular bear trend. The current growth rally is clearly confirmed by the majority of
the key markets that we watch. The Canadian $, Euro, Crude Oil, Copper, Precious
Metals and the critical growth barometer, Global Equity, are all trading near multi month
highs, while the deflation beneficiaries are all trading near multi month lows: Treasury
Bonds, the US Dollar and to a lesser extent the Japanese Yen.

Some key points:

1) We do not believe this is a new bull market; we think it is a countertrend rally in
a primary bear market.

2) The rally could go further, but is likely closer to the end than the beginning.

3) Sharp rallies of this character in bear markets are common and are the rule rather
than the exception. Note the extent of the bear market rallies below:

4) What is much more unlikely is that a bear of this scope would be over after such a
short duration. Note the table below which shows the duration from peak to
trough of the primary bear markets in the Dow Jones from 1885 to 2008. Since
this table was created, the bear that commenced Oct 07 reached a new low at
about the 75 week mark, in early March, before this current rally started.

5) The sentiment and valuations have been all wrong for a bottom. There has never
been an ultimate market bottom when you have so much optimism and constant
attempts to make every new low into “the bottom”, volatility is way too high
historically, and multiples are too high. Prior bear market bottoms have been
characterized by a loss of interest in equity and very low multiples, well under 10.
Currently the market is trading at about 14x 2009 earnings.


Regarding credit spreads tightening, the fact is that the central banks are on both sides of
the trade helping tighten, by providing low cost funding and then essentially becoming
the guarantor of all counter parties. So it really makes sense that inter bank spreads would
be tight, the real issue is what is going to happen to the US Dollar, Treasury market and
interest rates as a result of this massive liquidity support.

We believe that the government is going to find it increasingly difficult to issue volumes
of Treasury Notes to pay for all of the deficit spending, and that this is going to have
negative consequences for the markets.

At this time, we have established a position in Gold and a smaller position in the GDX
diversified major gold/silver producers index. We are looking to establish short positions
in the equity market through put option positions on indexes or selected names with
expirations later in the year or early next year, and we are waiting for opportunities to
short the 30 year US Treasury Bond.

We are holding a substantial position in Money Market funds, but are looking at
diversifying into some of the raw material producing currencies, such as the Canadian $,
Australian $ and Brazilian Real.

Please feel free to contact Mike Terner or myself with any questions you may have, or for
a more detailed explanation of the topics discussed in this communication.