Q2 LETTER TO PARTNERS 2009
Green Shoots or Brown Shoots?
We are pleased to report that Contrarian Value Investments, LP returned 21.05% for the first sixmonths of the year versus the S&P 500 which returned 3.16%.While it hasn’t been surprising to us, the first six months of 2009 have been extremely volatile. Thegood news is that this volatility continues to create extraordinary opportunity. During the first quarter we witnessed the DJIA drop to the mid 6000’s along with a decrease of 24% for the S&P500 driven by legitimate concerns we could be headed into an economic depression. The only thingwe have been a little surprised by is the recent 40% rally off the March lows, considering wethought the market had it right in March.Investor sentiment has improved significantly as investors seem to be sending an “all clear” signal.The volatility index (VIX) has dropped considerably, trading at “pre-Lehman” levels and thegovernment continues to spend money on anything and everything.We are still extremely concerned about the state of the economy and the domestic equity markets.This recent 40% rally has been dominated by second and third tier companies that have ralliedsignificantly more than the underlying indices. This is not a bad thing because it has created somevery exciting opportunities to short companies that appear to be vulnerable. Currently, ourresearch and models are generating 10 short candidates for every long. This bearish bias hascaused us to raise cash levels and the number of shorts significantly as we remain laser focused onrisk management. To be clear, if the market rally’s significantly we will likely underperform but if the market declines we will likely outperform.Small business owners are still having difficulty raising capital, major concerns exist within thecredit card industry, and the commercial real estate market is clearly struggling and possiblyheaded for disaster. There is still a massive housing inventory overhang that continues to loom out there. As we have said in the past “this crisis started with housing and needs to end with a housingrecovery.”(See below)
*Source:HopeNow
Q2 2009
Q1 2009
2009 YTD Prior 12 Months
Contrarian Value Investments, LP
7.37%
12.75%
21.05%
9.45%
Rady Opportunistic Strategy
20.47%
4.16%
25.48%
4.37%
Standard and Poor's 500 Index
15.93%
-11.01%
3.16%
-26.21%
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