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January 1, 2004

Buy Gold, Beat Bubble

By Kathryn M.Welling

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Trey Reik wears several hats around the headquarters of $2 billion value equities manager Carret & Company in New York City. In addition to managing $75 million in individual accounts, Trey, as managing director of Carret Securities LLC, oversees a proprietary research and brokerage effort catering to a well-heeled roster of hedge fund clients. And in February 2002, he launched Clapboard Hill Partners, a

long/short equity hedge fund. Clapboard's goal: to capitalize on investment opportunities outside the traditional purview of Carret's long-only mandate. Trey's focus on excessive domestic debt levels and the runaway creation, globally, of U.S. dollar credits first came to my attention via a "purloined" copy of one of his quarterly dissertations to clients. It was eye-opening, to say the least.

If there is any firm on the Street that I am surprised to find nurturing a hedge fund, it has to be Carret & Co. What would old Phil have said?

You're right, Clapboard Hill's strategy isn't directly in harmony with what we traditionally do here at Carret & Co. But in February of 2002, I decided that I was sufficiently concerned about the accumulation of debt in the U.S. economy and what I considered the over-printing of dollar credits, that it was time to focus some attention on a late-stage credit bubble strategy. So Clapboard Hill was born as a hedge fund. And since August 2002, the only long positions I've held in Clapboard Hill have been the equity securities of gold mining companies. On the short side, I have focused on what I consider to be ripe, late-credit-cycle-bubble stocks, those in areas distinguished by excessive leverage - or ones that sell products and services to customers with demonstrably excessive leverage.

But back to Clapboard Hill. It's still tiny, isn't it?

Yes, we started very small, with $2.2 million. Our hedge fund is still quite small, just under $15 million.

But its performance has been quite positive -

Thanks to a strong start. We were up 25.23 percent, net, in the first year. This year, so far, we are down 9.3 percent, despite the excellent performance of our gold stocks. Obviously, the performance of our shorts has not been excellent.

You're not reading that as a message that you're just totally out of step? Recent economic headlines-third quarter GDP, even the payroll numbers, if not the dollar-have occasioned cheers of "economic nirvana, here we come again."