Monday, 26 January 2009

in the CAT house?

CAT numbers today were worse than expected, forgetting its status as a bellweather, the 20k job losses on a day were the total was greater than 50k of announced job losses is stomach turning. The interesting point to note for the Raven is how much the market cared?!? +2% in the SPX on a small change in VERY seasonally adjusted housing data really does say something. (adding to this is clearly that the market doesn't like these results for THIS stock, its down 7%)

Geithner gets done today and there seems to be more of a focus on the trilllllllion bucks about to be showered on the economy on "infrastructure". The real question to ask is whether these 'investments' are actually going to be that prudent? or are they going to be Japanese style bridges to nowhere? we've seen how poorly the US public invested their cash in housing and consumer spending, how can anyone think that the government is going to do a better job.

The Raven felt the pain on this gold rally, he's still a bear, although is hiding in the woods. His birds eye perspective and relative valuation still holds:
1) its "rich" in a regression to oil
2) what was the price action in october to panic? pfff. its therefore trading as an inflation bet - well then why is oil at 40 and other real assets trading like crap?
3) central banks still hold huge reserves
4) you still can't eat it, live in it, make cars out of it, etc.
The Raven would much rather own stocks like RIO, OXY and CVX rather than bars of gold in a vault. That doesn't negate the argument for holding onto jewellery or the like for the end of the world scenario trade.

The Raven has several questions that are bugging him:
1) when is the RMB going to appreciate?
2) how far will trade barriers and competitive devaluation go? is that in the price of the dollar?
3) what is the effect of the swiss central bank saying they'll do what it takes to knock off the swissy? BOJ doesn't look like its going to do the same?
4) when is Trichet going to shove that compass where the sun doesn't shine and start looking through the windshield and not the rear view mirror?

Thursday, 15 January 2009

Trichet and his compass

The current expectation is a 50bps cut by the ECB today. Is this the right move?

We've seen Chinese exports drop rapidly, US import AND exports fall dramatically, DBK with a horrible set of results and poor comments from JPM, Citi's carve up in place, all of this is a marked difference from the first week of the year. The Raven finds it pretty hard to imagine that we don't see price deflation in the Eurozone, so we've seen the ECB miss the inflation target on the upside and now in all likelihood on the downside, (yes that is a sounds of a long slow sarcastic clapping). With the German economy so export driven and dependant on the auto industry the Raven finds it hard to imagine that the Euro provides much value against GBP or the USD, given the expected rise in unemployment.

Interesting to see that the UK press has seen an increase in calls for "buying British", this is frightening when put into the context of Hawley-Smoot, it would be a disaster for an increase in trade barriers globally - the Raven wonders what the long term political consequences would be for the Chinese - USA relationship if they fell into a trade war?

The other "interesting" chatter thats been swirling for the last couple of months is the prospect of the UK joining the Euro, not only is this idea a political non-starter but justn't square economically.

Friday, 9 January 2009


Yesterday's price action around the rate announcement and its subsequent reversal are pretty interesting, the factors effecting the price at the moment as Raven sees it are:
1) Big number attractor effect ie Parity.
2) The perception that the UK economy is going to be more effected because of the greater proportion of GDP coming from finance, the higher consumer leverage and the higher proportion of house ownership.
3) Given #2 is well known and has been confirmed by a large price move, we must assume that this is priced is. On the other hand the market doesn't seem to be pricing in that much of a rise in German unemployment - given its reliance on exports and the car industry. Is this because people believe the ECB will be slow/reluctant/too arrogant to act? or they are just looking at the same 'compass' as Trichet?
4) 0.9 is another important level, given it was the previous high for the D-Mark against GBP and that has been broken.
5) GBP 10Y yields are too low currently, whereas the yield on Bund looks more fair.

With so much short term volatility the Raven is for the time being just watching...

Thursday, 8 January 2009

Forecasts for 2009

2009 Forecasts:
1) UK houseprices will fall by a futher 15% in 2009: i) valuations remain high on a rental yield or a p/e ration (especially as we haven't seen a significant rise in unemployment yet). (conviction: 10/10)
2) Gold will break through $700: i) gold remains high relative to crude oil on a historical basis ii) gold has failed to rally and react to middle east instability as it has in the past iii) what worse news financially are we going to see in the next year?
3) SPX will trade through 1400: i) valuations based on averages of long terms eps, (excluding the financials) show the a significant cheapness ii) Rates are at zero, QE should reduce risk premiums and provide easier credit and narrow the valuation discount iii) mutual funds and hedge funds have cash and have been bearish, fatigued?
4) Liverpool will not win the Premiership.
5) Australia will retain the ashes.
6) EUR/GBP will trade through parity (perhaps through 1.1) then trade back to 0.9 as Europe lags during the recovery.
7) Gordon Brown will call an election (I think the poll will be before the end of June), the Conservatives will win with a margin of ~80 seat majority, the Lib Dems will lose seats.
8) USD/JPY will rally significantly, there is no way that the BOJ will raise rates this year. I expect the USA to lead the market rally as they've been consistently further along the curve than the rest of the world.

9) Oil will not break $55 for the first 6months of the year.
10) the VIX won't trade above 65 this year.

Stock Picks:
Long: TSCO, CVX, small in GS
Short: CSCO, small in JPM
watching closely: MSFT, WMT