Investment Letter: October 26, 2009

In our last update dated October 5th, we were bearish but expected the market
momentum to continue. On that day the Dow Jones opened at 9500 more or
less, today it is trading at about 1000, and we have a small short position in
equity, net of our long equity, gold and related positions. We still believe that the
Dow will attempt to reach the 10300-level as discussed in our last update, but we
have begun to deploy our short positions now. If the Dow reaches 10300 we will
likely look for a reversal to sell short.

Our thought is that the government, financial sector and the press, acting more or
less with the same agenda will manage to set the market up for a “good”
Christmas, in which expectations will be sufficiently low to further any market
rally; however, between now and the end of the year, we believe that there is
room for a correction of up to 10%. This would qualify as a trade-able correction
and we would not be surprised if it were very sharp and swift. The market
sentiment increasingly needs to be rebalanced, and any correction of 5% or more
would set the market up for a much stronger year-end rally.

At the same time, our hedges are interesting in that we are hedging a large
position in gold with equity put options, and there is always a possibility that in a
falling dollar environment, a decline in equity prices might result in a rally in gold.
If this were to happen we would benefit quite nicely, while if gold were to trade
down with the stock market we would be protected. Since a large portion of our
short position is in puts, this quantifies our risk, and allows for the portfolio to
generate positive returns even if the market rallies.

In addition, we have long exposure to the crude oil market, which has recently
broken out of a trading range banded by $75/barrel on the upside. Our exposure
is in the form of crude ETF options and stock in Conoco Phillips.

We have also initiated a small position short the US Treasury bonds, as we
anticipate that interest rates may begin to increase as the Fed runs out of money
to support the market.

As always, please feel free to call us with any questions or updates.

Thank you for your continued support.

Warm Regards,