December Performance - Up 8.5%

For December the balance increased 8.5%, after all fees and dividends received. The performance exceeded the increase in the SP 500, which increased 6.5%. By the end of the month I moved to a more conservative portfolio with almost 30% in cash. For the quarter the value of my IRA increased 13.4% relative to the 10.3% increase in the SP 500.

The largest position remains the inverse 20+ year Treasury ETF (ticker TBT) at 14%. Commodities also account for a significant portion of the portfolio, with the agricultural market basket (ticker DBA) at over 11% and palladium (ticker PALL) growing to 6%. The geographic positions each account for over 4%, with Matthews China Fund (ticker MCHFX) at 9%, Chile (ticker ECH) at just under 5%, and Hong Kong (ticker EWH) at just over 4%. For individual stocks the largest position is Citigroup (ticker C) at just over 4%. The weightings highlight an on-going belief that debt costs likely continue to rise in the U.S., benefiting banks, and commodities and inexpensive manufacturing likely outperform the market, in general.

Every position but two increased during the month, highlighting the breadth of the market rally during the month. GT Solar (ticker SOLR) bounced back after a weak November, increasing 33% up until I sold the position on December 22. American Axle and Manufacturing (ticker AXL) and MKSI Instruments (ticker MKSI) both increased almost 20%.

My positions focused on China underperformed during the month, which I believe is largely due to concerns about a rising interest rate environment. While a short-term concern, I remain confident these positions should perform well due to healthy trends in the Chinese economy and increasing pressure to allow further appreciation in the yuan relative to the dollar.

After such a strong run in December and spotty U.S. economic indicators (notably housing and unemployment causing concern), I expect somewhat of a pullback in the market in the first half of January. I plan to use this anticipated pullback to re-enter positions at more attractive prices.

		31-Dec	Dec.
Name	Ticker	% Portfolio	Chg
RF MICRO DEVICES INC	RFMD	0.0%	11.3%
KULICKE and SOFFA INDS INC	KLIC	0.0%	12.1%
HUNTSMAN CORP	HUN	0.0%	1.3%
FREEPORT MCMORAN COPPER and GOLD INC.	FCX	0.0%	15.9%
GT SOLAR INTL INC COM	SOLR	0.0%	33.3%
DUOYUAN GLOBAL WATER INC SPONS ADR	DGW	1.4%	2.1%
JEFFERIES GROUP INC NEW	JEF	2.9%	10.3%
CA INC COM	CA	1.8%	6.8%
LYONDELLBASELL INDUSTRIES N V COM CLASS A	LYB	2.6%	17.8%
CHINA GERUI ADVANCED MATERIALS	CHOP	3.5%	5.4%
PERKINELMER INC	PKI	1.9%	10.8%
AMERICAN AXLE and MFTING	AXL	0.0%	19.5%
CITIGROUP	C	4.3%	7.7%
EXCEED COMPANY	EDS	3.1%	(7.8)%
MKS INSTRUMENTS	MKSI	2.8%	20.3%
MULTI SECTOR COMMODITY TR PWR DB AGR	DBA	9.7%	11.2%
ETFS PALLADIUM TR SH BEN INT	PALL	6.0%	14.5%
PROSHARES ULTRASHRT LEH BROS 20+ YR TREAS	TBT	13.9%	6.5%
ISHARES INC MCSI CHILE INVESTABLE MKT INDEX	ECH	4.5%	3.9%
ISHARES INC MSCI HONG KONG INDEX FD	EWH	4.3%	0.2%
MATTHEWS CHINA FUND	MCHFX	9.0%	(2.1)%

Sold Positions in Conservative Shift

Sold all of the following positions (performance from purchase):

AXL @ $12.95 (+ 34%)
FCX @ $116.49 (+ 17%)
HUN @ $15.79 (+ 36%)
KLIC @ $7.46 (+ 24%)
RFMD @ $7.81 (+ 21%)
SOLR @ $8.92 (+11%)

Each of these stocks are relatively high beta and have performed well. Given the recent strength of the market I am looking to shift to a more conservative portfolio into the beginning of next year and re-evaluate some weightings.

I continue to have significant exposure to commodities, inverse treasuries, and China. For now, I expect to leave these positions in place. I may establish a position in a volatility-related ETF since the VIX is near a record low. I believe the market may be positioned for a brief reversal since companies are taking hard hits, like Nike ticker NKE, after reporting strong results.

Note: Nike's stock has dropped because of "only" 11% growth in future orders, in my view. Exceed Company, ticker EDS, reported a 25% increase in 2011 wholesale orders.

November Performance - Up 1.5%

Performance Overview
In November my IRA account balance increased 1.5%, which is after all expenses and fees. The S P 500 was essentially flat. November was a wild ride as the portfolio raced up about 5% in the first half of the month before settling back.

During the month I entered a few more positions, reducing the percentage of cash in the account to about 10%. Domestic equities account for 38%, international equities 23%, commodities 15%, and inverse bond 14%. Within the equity positions, hardware is now the largest position followed by industrial materials. This weighting, coupled with the commodities positions, continues to highlight my opinion that deeper in the economy's supply chain, where I believe inflation is building, is a better place to position investments. In addition, it highlights a large weighting towards international with a large portion of revenue for domestic companies coming from overseas, specifically China and Asia. This weighting reflects my view that inflation, in the form of asset prices, likely continues to grow in this region for the foreseeable future. It also reflects my view that the yuan likely appreciates against the dollar as the Chinese government is forced to loosen the exchange rate in order to lessen inflationary pressures.

The largest drivers of growth in the account came from American Axle and Mfting (ticker: AXL), Kulicke and Soffa (ticker: KLIC), Huntsman (ticker: HUN) and ETFS Palladium (ticker: PALL). Each are positions greater than 4% and were up 11%, 11%, 12% and 8%, respectively. The reasons for the increases in AXL and KLIC, in my view, include relatively low expectations coupled with a brightening fundamental outlook. For AXL it appears as though car and truck sales have stabilized and 2011 should provide modest growth within the U.S. and international markets remain bullish. For KLIC the business is quite volatile but the U.S. economy continues to improve and the secular driver of the adoption of more copper components should drive business in 2011. For PALL the improving U.S. economy and robust growth in Asia is driving demand for Palladium.

The worst performances came from GT Solar (ticker: SOLR), MKS Instruments (ticker: MKSI), and China Gerui Adv Materials (ticker: CHOP), which were down 19%, 6% and 4% respectively. GT Solar has suffered from estimate cuts as analysts have fretted over supply growth outpacing demand, especially as government subsidies for solar likely come under pressure. I don't argue against the possible weakening of fundamentals as supply increases, however I believe the demand may prove more robust than expected and a weakening dollar should help the company. SOLR is trading under 6x the lowered consensus EPS estimate for C2011, suggesting a healthy risk/reward. MKSI is trading under 8x the consensus calendar C11EPS estimate, and thus my belief that the economy is improving should prove this valuation conservative. I do expect CHOP to begin to move upward, at the latest, when either production comes on-line mid-2011 or investors' risk appetite increases.

Proshares Ultrashort 20+ Yr Treasuries (ticker: TBT) has moved sideways during the quarter. An interesting tug-of-war is occurring in which Fed Treasury purchases, European contagion fears, and political unrest on the Korean peninsula are raising prices. Alternatively, healthy holiday demand trends thus far by U.S. consumers and rising inflationary concerns in Asia and in the U.S. are pushing prices down. I see the forces pushing the prices up and yields down as temporary in nature, and therefore I expect TBT to perform quite well during 2011.

Summary
The following is a summary of my positions and their performance during November:

Name	Ticker	% Portfolio	Chg
RF MICRO DEVICES INC	RFMD	2.1%	(3.8)%
KULICKE and SOFFA INDS INC	KLIC	4.4%	10.8%
HUNTSMAN CORP	HUN	4.8%	11.7%
FREEPORT MCMORAN COPPER and GOLD INC.	FCX	4.1%	6.9%
GT SOLAR INTL INC COM	SOLR	3.4%	(18.9)%
DUOYUAN GLOBAL WATER INC SPONS ADR	DGW	1.5%	0.0%
JEFFERIES GROUP INC NEW	JEF	2.9%	0.9%
CA INC COM	CA	1.9%	(1.3)%
LYONDELLBASELL INDUSTRIES N V COM CLASS A	LYB	2.4%	8.7%
CHINA GERUI ADVANCED MATERIALS	CHOP	3.6%	(4.3)%
PERKINELMER INC	PKI	1.9%	(0.6)%
AMERICAN AXLE and MFTING	AXL	6.6%	10.9%
MKS INSTRUMENTS	MKSI	2.5%	(5.9)%
MULTI SECTOR COMMODITY TR PWR DB AGR	DBA	9.5%	(2.1)%
ETFS PALLADIUM TR SH BEN INT	PALL	5.6%	8.1%
PROSHARES ULTRASHRT LEH BROS 20+ YR TREAS	TBT	14.3%	2.3%
ISHARES INC MCSI CHILE INVESTABLE MKT INDEX	ECH	4.7%	1.0%
ISHARES INC MSCI HONG KONG INDEX FD	EWH	4.6%	0.9%
MATTHEWS CHINA FUND	MCHFX	10.0%	0.5%

Kulicke and Soffa (ticker KLIC) - At 2x EV-EBITDA, Buying More

Expanded my position in Kulicke and Soffa (KLIC $6.00) to ~4% from ~2% because:

(1) Secular Driver
Secular trend of its semi customers converting from gold to copper with less than 20% complete. Both Siliconware Precision Industries (SPIL $5.15) and ASE Inc. (ASX $4.55) have voiced their intent to continue their migration to copper from gold. They expect to have about 20% of their product migrated to copper by the end of this year and increase this percentage to over 40% by the end of 2011. This planned migration, in addition to other players investments, should provide a healthy tailwind for the company next year. While other companies are entering the market with copper solutions, the company should maintain a lead in bringing the performance of copper up to that of gold. (backlog up 500% y/y).

(2) Improved Visibility
No secret the business is a roller coaster with the current period fairly uncertain as to whether the business slides backward or continues to grow. That said, the backlog increased 500% y/y last quarter to $252 million and only about 25% of the backlog is expected to be used in the December quarter. I understand why investors are nervous since historically the business has slowed materially after a good year. However, I believe the secular trends and unusual business recovery (more elongated and shallow than normal) should enable the company to produce a stronger -than-expected 2011.

(3) Low Valuation
Low valuation of under 5x the estimated updated consensus F2011 EPS of $1.30. Assuming a healthy cash collection from A/R during the December quarter, the net cash balance should reach ~$100-$120 million, or around $1.50 per share. Assuming an EBITDA of $20 million in the December quarter, slightly lower on a y/y basis, the EV-to-C10 EBITDA is less than 2x. At the very least, at these prices the company should attract some interested strategic buyers.

Kulicke and Soffa (ticker KLIC) - Is December Q the Bottom?

News Summary
Kulicke and Soffa (KLIC $6.37, down to $6.00 in the aftermarket) reported September quarter financial results of revenue of $259 million and non-GAAP EPS of $0.78 (non-GAAP was $0.89), versus the consensus estimates of $260 million and $0.82 for GAAP. FY10 actual GAAP EPS was $1.92.

Management had pre-announced on October 7 that revenue would be near $260 million. Guidance for the December quarter was revenue between $125 and $135 million (flat y/y), relative to the consensus estimates of $215 million. Management had made comments on October 7 that the revenue in the December quarter would be "significantly below" the September quarter due to softness in demand. Based on management's comments, I expect the December quarter GAAP EPS consensus estimate to move to around $0.20 and non-GAAP to move to around $0.28, both relatively flat y/y. The consensus GAAP EPS estimate for December is $0.55.

Currently the consensus revenue and GAAP EPS estimates for F11 are $756 million and $1.69, flat revenue growth and a 12% decline in EPS. We'll have to wait until the morning to hear any hints into how management foresees F2011 playing out. That said, the press release alluded to expected strengthening demand in the December quarter and unless the consensus FY11 EPS estimate drops below $0.60 (unlikely, in my view), KLIC will be trading on a single-digit P/E.

Investment Call
The morning conference call likely determines how weak the stock is tomorrow. That said, I will watch for signs that this may be a bottom for the stock.

Teradyne, Inc. (Ticker: TER)

Sold ~2% position in Teradyne, Inc. (Ticker TER) at $11.01 for a realized loss of 5.4%.

Quarter was fine but the outlook for the December quarter was more bearish than I had anticipated:

"Guidance for the fourth quarter of 2010 is revenue of $300 million to $325 million, with non-GAAP net income per diluted share of $0.21 to $0.28 and GAAP net income per diluted share of $0.14 to $0.20." The consensus revenue and non-GAAP EPS estimates were $447 million and $0.59.


I expect to continue to watch on the stock, see where it settles, and potentially re-enter a position once I have a better insight into the likely 2011 trends. I expect the street and market to become overly bearish on the stock, which should provide an attractive entry point should the outlook for 2011 brighten.

The December outlook by Teradyne does give me some pause about my ~2% position in KLIC since they have similar customer bases.

Kulicke and Soffa Industries, Inc. (Ticker: KLIC)

Entered into a 2% position of Kulicke and Soffa Industries, Inc. (Ticker: KLIC) at $5.90.

I enter into this position with my eyes open, drawn to the potential upside but wary of the risks. Only one analyst has a Buy on it, with Jefferies downgrading it after management's December outlook. That said, I generally like contrarian positions.

Reasons for Buying: Low single digit P/E, potential upside to estimates, growing net cash position, significant operating and EPS leverage, attractive secular trends to drive business, and my expectation of improving economic conditions.

Risks: Volatile orders, high fixed costs, new CEO, warned last week of weaker December revenue.

Recent Weaker Management Outlook Gives Pause. Management provided revenue guidance of around $255-260 million for the September quarter, and also lowered expectations for the December quarter on October 7. Not surprisingly this announcement caused weakness in the stock. The announcement coincided with a change in CEO as the previous CEO retired after over 30 years in the position. My take is the lowered expectations for December are a combination of requested delays in delivery dates by customers during August and September, and the new CEO "lowering the bar" to ease his first quarter at the helm. Intel (Ticker: INTC), one of the companies larger customers, had warned in August of weaker PC demand. Yesterday, Intel reported healthy earnings, provided a more bullish outlook for the industry, and maintained full year capital spending expectations of $5.2 billion, +/- $200 million.

Valuation is hard to ignore. The current FY 2011 (FYE Sept) EPS consensus is $1.58, down from the FY 2010 consensus estimate of $2.09. The low estimates for 2010 and 2011 are $1.93 and $1.05, respectively. I find these estimates fairly conservative given my expectation of healthy real economic growth in developing countries, strengthening nominal economic growth in developed growth over the next 6-12 months, and potential secular drivers. Using the low-end 2011 estimate the stock is trading at under 6x, despite improving returns, healthy balance sheet with net cash, and potential upside to estimates. If my thesis is even partially correct the company should produce growing earnings next year, implying EPS over $2.00 next year. If EPS grows next year the P/E multiple should expand, especially if returns continue to improve and remain at the high-end of the industry.

Secular Trends Healthy, albeit Order Volume Volatile. The semiconductor industry likely continues to convert to greater use of copper in circuits, requiring new machinery that K&S provides. K&S's largest customer, ASE Global (Ticker: ASX), is building a large new manufacturing facility that is expected to open later in 2011, likely producing large orders for K&S. Amkor Technology (Ticker: AMKR), the company's second largest customer, is also expanding its manufacturing capacity due to healthy growth trends. The company has entered the LED market, which is expected to produce a CAGR of 30% over the next few years.

Weakening dollar offers mixed dynamics. Company has been re-locating assets to Asia, from Israel and Switzerland, in order to reflect demand trends and lower costs of labor. Majority of business transacted in U.S. dollars, and therefore a decline in the dollar can help boost sales. However, sourcing of commodities and supplies in dollars can produce weaker margins when the dollar weakens. Therefore, currency fluctuations are somewhat mixed.

Top 10 customers in F09:

1.	Advanced Semiconductor Engineering (>10% revenue)

2.

Amkor Technology Inc. (>10% revenue)

3.

Siliconware Precision Industries, Ltd.

4.

Texas Instruments, Inc.

5.

First Technology China, Ltd.

6.

Techno Alpha Co.

7.

ST Microelectronics

8.

Samsung

9.

Micron Technology Incorporated

10.

Intel Corporation