By LM Lupo

Master Portfolio Update

After defeating the street for two consecutive quarters, our defensive master portfolio dropped unattractive results when comparing the Sharpe Ratios, and results versus the S&P 500 for the same time frame.  However, for the year and nine months out, the portfolio reveals a 1.5 Sharpe ratio while outperforming the overall market risk ratio, or Sortino ratio by a wide margin.

Bonds & Federal Reserve (Fed)

The bond market met intense selling pressure over the past few weeks driving the quarterly results for our largest position in the red.  As noted earlier, the panic selling was likely a climax rather than a new downtrend for the Treasury bond market.  For now, the Feds become the proverbial treed coon looking down upon the barking dog of a collateralized debt market debacle, growing teeth from a rapidly collapsing housing market.  We do not expect the Feds or interest rates to runaway with one of the economy's primary engines of growth sliding deleteriously lower.

Corn

The corn cash and futures market turned in dismal results as well despite the fact that the other grains, wheat and soybeans, respectively, rocketed to new highs.  Given that substitution is a well known commodity arbitrage mechanism, we do not foresee corn falling below our stops in the December contract at 330, thus we remain long and see supportive grain complex prices deep into the third quarter.

Goldcorp & QQQQ's

Neither Goldcorp, (GG) nor the QQQQ tracking index has made much ground since we introduced them to the portfolio in May.  For now, the QQQQ's remain in our short portfolio while GG remains a long.  The exit for the QQQQ's allows for a weekly close above $48.00 with a GG exit near $22.00.  The major U.S. indexes are extended and beginning to show significant signs of fundamental and technical weakness.  Nevertheless, a final blow-off run to new highs is not out of the question, thus the stops remain close to the exit door.  

Sinovac

The fundamentals continue to improve for Sinovac with their story beginning to take hold with some forward thinking institutional investors.  We expect this trend to only strengthen.  In addition, the new Chinese legislation allowing local investors overseas access will provide additional fuel for Sinovac's share prices.  Obviously, their visibility is much higher in China than here in the states.  Finally, as with many of the positions in the Financial Trader Master Portfolio, Sinovac currently flashes a strong technical buy signal based on our quantitative black box software, Watloosoft.  We remain bullish on Sinovac.

Euro FX

The Euro remains a long position in the portfolio and was one of the better performers for the second quarter, particularly when including the interest rate coupon differential.  The $US dollar is clearly in a multi-decade trend.  We believe the dollar will continue its abysmal descent as a banana republic currency until either the major multinationals domicile in other countries as Halliburton did recently, or wage parity is reached with developing nations.  And that should be awhile...

Portfolio Changes

We have added several new positions for the third quarter including gold futures, crude oil futures, and an equity, SunOpta (STKL), while reducing the overall T-Bill position of the portfolio by the same amount.  We'll follow up the new additions with brief reports, fundamental research, and our quantitative signals.  We expect quarter three to move the portfolio ahead of the street, yet again.

We make order out of market chaos©.

For the quarter ending 6.30.2007, Total Return Includes dividends and interest for Bonds and S&P 500.

*All positions but the short QQQQ's (added 5.18.2007) are net long.

** Gold, Crude Oil, and STKL are new positions of 5% added  6.30.2007.

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