Estimated net returns at XYZ Capital (name changed) were -1.42% for the month of May, while the S&P 500 was up 5.31%. Net exposure averaged about neutral during the month. Average daily gross exposure increased slightly to 53% from the previous month at approximately 48%. We will continue to increase gross exposure as stocks exhibit more reasonable dispersion and lower correlation.

Software was particularly unprofitable. One large long position in semiconductors saw a loss following a confusing and disappointing earnings announcement. We reduced our position size in May, following our normal risk discipline process, and the stock rebounded in the month of June. We have since exited the position.

Correlation has recently declined, generating a healthier investment environment. We have increased gross exposure to approximately 75% as of the middle of June. Position sizes have been increased and new positions added to the portfolio. Investment themes we have been following for some time include next generation networks, smartphones and touch technologies. Investments in the portfolio that benefit from the adoption of smartphones include ARM Holdings (ARMH), NetLogic Microsystems (NETL), and Triquint Semiconductor (TQNT). We view these trends as strong secular forces that will inevitably play out.

Another theme that we have been studying over the years is the change in the semiconductor supplier environment for cellular handsets. Nokia, the largest handset maker, is shifting from reliance on Texas Instruments to a more open supplier sourcing model. Beneficiaries include ST Micro (STM), Broadcom (BRCM) and Infineon (IFX). Note that these three vendors all license digital signal processing technology from CEVA (CEVA), one of our long term core holdings. We have written for two years about this approaching wave, as Nokia shifts hundreds of millions of units to these vendors. CEVA is paid royalties on each unit that IFX, STM and BRCM ship to Nokia, Samsung, Sony-Ericsson, Apple and other handset makers. CEVA also has a strong product offering for 4G/LTE that will be a revenue driver in the coming years. We believe CEVA has earnings power of over $1.00 in the coming years, and with $4.30 per share in cash, we believe the stock remains undervalued.

Cypress Semiconductor (CY) is a new name in our portfolio. We believe CY has a number of positive product cycles to drive growth. Their Programmable System-on-Chip (PSoC) product combines digital and analog technologies on a single chip, which can be custom configured in software. By allowing customers to configure hardware blocks at the software level, PSoC can drive a lower-cost and faster time to market for OEMs. PSoC has strong capabilities for touch screen applications, an area that will see very strong growth for CY. PSoC is currently driving the touch-screen capabilities of the Palm Pre, and our checks indicate other tier-one handset OEMs and a broad range of customers are designing products around PSoC.

CY also has interesting opportunities in the SRAM market that investors may be overlooking. A handful of suppliers dominate this market, with Samsung and CY the largest players with roughly 30% market share each. Samsung has indicated they would like to exit the SRAM market over time as they focus on higher growth business lines with even greater potential. After conversations with distributors and customers, we believe major SRAM customers will be shifting from Samsung to CY sooner than investors anticipate and within the second half of 2009. CY will benefit from revenue growth, higher utilization of their fabrication plants, and firm pricing. We believe PSoC and SRAM product cycles make CY an attractive investment. We made CY a large position in May.

Rambus (RMBS) presents a unique investing opportunity within the semiconductor sector. The company has developed technologies for memory and memory controller chips. Some years ago the ajor memory makers began producing Rambus technology-based DRAM but quickly moved back to DRAM technologies that did not require royalties for Rambus. Rambus believes there exists substantial evidence that the memory makers conspired to deprive Rambus of royalties while breaking anti-trust laws. The anti-trust trials will begin in September and if Rambus prevails, damages are likely to be in the billions and will automatically be trebled. The potential dollar amount is several times RMBS’ market cap. Either a pre-trial settlement agreement or a win in court will drive RMBS substantially higher. With a positive expected return profile, we added RMBS to the portfolio during the month.

During this difficult economic environment we have deliberately chosen to strategically invest in high quality individuals and have significantly enhanced our operational and research teams. ...

How Wall Street looks after itself -- NOT you. Wall Street management can pay itself bonuses, or leave something for its shareholders, i.e. you. That's the big conflict when an investment banker lists its shares for the public to feast on. I have always avoided these shares because the public typically gets screwed. I was amused to read this piece in yesterday's Wall Street Journal. I added the graphs.

Mean Street: KKR’s Coming Sucker Punch

You should never count Wall Street out.

Sure, back in March, it looked like it was all over. But what a comeback! The TARP money is repaid. The fat two-year bonus guarantee is back. And now, Henry Kravis has rope-a-doped his way back to a KKR listing on the New York Stock Exchange.

Earlier today, my colleague Peter Lattman reported that KKR will float shares on the Euronext exchange via a complex merger with its KPE affiliate. In time, you can expect a NYSE listing.

If you are an intelligent investor, this is your cue to run from the ring, as far from a “new” share of KKR as you can get.

It isn’t that I have anything against KKR. But I approach its listing with the same caution I had over the Blackstone Group, Och-Ziff and Fortress Investment Group IPOs.

As I said last year: “Stephen Schwarzman, Dan Och and Wes Edens (their respective CEOs) are not idiots. Their businesses don’t need your capital. If they want to share their good fortune with the public, they build libraries.”

Those three CEOs have delivered losses of 64% to 82% to IPO investors who are still hanging on to shares. Plenty of their investors have dumped shares with losses north of 90%.

Blackstone went IPO at $31

Och-Zif went public at $18.50

Fortress went public at $32

So, why should you trust Henry Kravis or expect a share in “new” KKR to produce riches?

KKR will argue that Kravis and his fellow execs aren’t cashing out–that the Euronext and NYSE listings are merely a mechanism to provide liquidity to existing KPE investors. It will argue that public shareholders will end up owning the majority of the carried interest in the “new” KKR. And it will argue that it is far along on its strategy of building one of the world’s leading “alternative asset investment firms.”

Don’t be fooled. The endgame of the KKR listing is for Kravis and his fellow partners to monetize their stakes in KKR. It may take another year or so, but that’s where it’s going. And if Kravis is to be selling, why should you be buying?

Of course, in going through all the reams of details you might convince yourself that you are “getting into KKR cheap,” as opposed to those who bought into Blackstone. But your concern should be less about price than about what it is you are buying: an estate-management tool for Henry Kravis and George Roberts.

KKR’s business is “alternative-asset management”–and that can be a viable strategy. But in the case of Blackstone, Fortress and many hedge funds, top managers have frequently gotten rich at the expense of public shareholders or limited partners or both.

And investors have finally started to get the joke. That’s why the tide of institutional capital is moving from hedge fund and other active managers that charge big fees toward cheaper indexing.

Just look at the recent deal by BlackRock to pick up Barclays Global Investors and its $1.3 trillion in ETF and index-fund assets. Or look at a recent survey noting that 20% of institutional investors are taking money away from active managers and putting it to indexing.

Of course, plenty of money will stick with hedge funds. But just what is KKR’s true expertise in “alternative-asset management?” Sure, it ran a fantastic private-equity business for many years, but those days of easy-money LBOs are over.

And that is why KKR has branched into new businesses like distressed debt that so far are unproven. Correct that. Two of its most recent ventures, KPE and KFN are actually proven disasters.

KPE shares have fallen 77% since its listing in 2006–and it is now serving as the vehicle for Henry Kravis and KKR to eventually list on the NYSE and finally deliver their big sucker punch.

Remember yesterday's photos of 90% off Sales and Closing retail stores? Guess what I found yesterday in New York? A retail store with a half-hour wait to buy a hot new product.

Yup. You got it. These people are waiting half an hour to buy the new iPhone 3Gs.

New, old profession for trying times. There's a wonderful exhibit at New York's Jewish Museum, Mayer Kirshenblatt's "Painted Memories of Jewish childhood in Poland before the Holocaust." Two paintings caught my eye. Their caption read:

When a person was very sick and all hope was gone, the professional wailers would run to the synagogue or house of stufy to force open the gates of heaven. These wailers were called platschkes in Yiddish. They would rush up the stairs leading to the Holy Ark, open the curtain, and fling open the doors to expose the Torah scrolls. Crying and screaming into the Ark, where the spirit of the Almighty is believed to reside, they would beseed him to save this very sick person from death. When we saw this performance, we knew there would be a funeral the next day.

It's time to bring back professional wailers. How about we start with the economy and move onto the stockmarket? I think I'll open a school for professional wailers. Anyone want to sign up?

This is a test. Click here.

Wimbledon Tennis TV Schedule.

Thursday, June 26, 2008
ESPN2
7 a.m.-2:30 p.m. (live) - Day 4
Tennis Channel
7 p.m. (highlights) - Prime Time

Friday, June 27, 2008
ESPN2
7 a.m.-5 p.m. (live) - Day 5
Tennis Channel
7 p.m. (highlights) - Prime Time

Saturday, June 28, 2008
ESPN2
8 a.m.-noon (live); 3-7 p.m. (tape) - Day 6
NBC
12-3 p.m. (live) - Day 6
Tennis Channel
7 p.m. (highlights) - Prime Time

Sunday, June 29, 2008
ESPN2
3-6 p.m. (tape) - Highlights Week 1
NBC
12-3 p.m. (tape) - Highlights Week 1
Tennis Channel
7 p.m. (highlights) - Prime Time

Monday, June 30, 2008
ESPN2
7-10 a.m. (live); 1-6 p.m. (live/replay) - Fourth Round
NBC
10 a.m.-1 p.m. (live) - Fourth Round
Tennis Channel
7 p.m. (replay) - Fourth Round

Tuesday, July 1, 2008
ESPN2
7-10 a.m. (live); 1-5 p.m. (live/replay) - Women's Quarterfinals
NBC
10 a.m.-1 p.m. (live) - Women's Quarterfinals
Tennis Channel
7 p.m. (replay) - Prime Time

Wednesday, July 2, 2008
ESPN2
7-10 a.m. (live); 1-5 p.m. (live/replay)- Men's Quarterfinals
NBC
10 a.m.-1 p.m. (live) - Men's Quarterfinals
Tennis Channel
7 p.m. (replay) - Prime Time

Thursday, July 3, 2008
ESPN2
7-12 p.m. (live); 8-10 p.m. (highlights) - Women's Semifinals
NBC
12-5 p.m. (in all time zones) - Women's Semifinals
Tennis Channel
8-10 p.m. (replay) - Prime Time

Friday, July 4, 2008
ESPN2
7-12 p.m. (live); 12-3 a.m. (highlights) - Men's Semifinals
NBC
12-5 p.m. (in all time zones) - Men's Semifinals

Saturday, July 5, 2008
NBC
9 a.m.-2 p.m. (live) - Women's Final
ESPN2
2-3 p.m. (highlights) - Women's Final

Sunday, July 6, 2008
NBC
9 a.m.-3 p.m. (live) - Men's Final
ESPN2
3-4 p.m. (highlights) - Men's Final

A photo like this just doesn't come along every day!

One of the reasons Mummy wont let him be king

The Muslim Quarterback
The coach had put together the perfect team for the Detroit Lions. The only thing that was missing was a good quarterback.

He had scouted all the colleges and even the Canadian and European Leagues, but he couldn't find a ringer who could ensure a Super Bowl win.

Then one night while watching CNN he saw a war-zone scene in Afghanistan.  In one corner of the background, he spotted a young Afghan Muslim soldier with a truly incredible arm. He threw a hand-grenade straight into a 15th story window 100 yards away.

KABOOM!

He threw another hand-grenade 75 yards away, right into a chimney.

KA-BLOOEY!

Then he threw another at a passing car going 90 mph.

BULLS-EYE!

"I've got to get this guy!" Coach said to himself. "He has the perfect arm!"

So, he brings him to the States and teaches him the great game of football.  And the Lions go on to win the Super Bowl. The young Afghan is hailed as the greatest hero of football, and when the coach asks him what he wants, all the young man wants is to call his mother.

"Mom," he says into the phone, "I just won the Super Bowl!"

I don't want to talk to you, the old Muslim woman says.

"You deserted us. You are not my son!"

"I don't think you understand,

Mother," the young man pleads. "I've just won the  greatest sporting event in the world. I'm here among thousands of my adoring  fans."

"No! Let me tell you!" his mother retorts. "At this very moment, there are gunshots all around us. The neighborhood is a pile of rubble. Your two brothers were beaten within an inch of their lives last week, and I have to keep your sister in the house so she doesn't get raped!"

The old lady pauses, and then tearfully says, "I will never forgive you for making us  move to Detroit!"

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads on this site. Thus I cannot endorse, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Michael's business school tuition. Read more about Google AdSense, click here and here.