Tuesday, 17 February 2009

golden tuesday...

L: 59% S:48% G: 107% N: 10% ~ $D 0% $G 0% $V 0% $P 0%

Gold's at $960 and there are plenty of calls for a retest of the ~$1000 highs of last year, yuck, he's glad not to be involved.

The Raven has been picking over the UK banks this morning. There is a large amount of uncertainty coming from the continual for nationalisation of the UK banking sector and the horrible news coming out of European banks exposures to Central and Eastern Europe. Barclays does appear to look like decent value to Crispin Odey (who incidentally was short UK banks for all of last year). The Raven does like BARC as well, the value of its asset management and wealth businesses are substantial, it seems to the Raven that it appears a cheap call option on the value of credit, speculative, but worth a small gamble at these price levels.

He's also increased his longside exposure to JPM this morning, which was trading down ~10% with the rest of the US banks. At these price and fear levels (VIX~50) the Raven is forcing himself to increase his risk appetite, bad economic data is only confirming what the market price has done for the last 6 months.

EUR/GBP looks interesting, at least GBP seems to have most of its problems out in the open and the panic and fear is priced in, King at least appears to have woken up at the wheel, Trichet is going to go down in history as a fiddler and a fool.

Thursday, 12 February 2009

thursday thoughts

L: 26% S:24% G: 50% N: 2% ~ $D 2% $G 6% $V 0% $P 0%

The Raven has been relatively uncertain and has been putting on trades and cutting them half an hour later, paying the b/o spread and commish and thats about it.

The portfolio is theoretically net 2% long, Raven thinks its more like 10-15% as he's long JPM after the 4% fall this morning, against this is his favourite short. Jamie came across very well yesterday and it appears that the memembers of the house were a little more careful when questioning him, especially when you compare his q&a with that of Ken Lewis. Given transparency for the small investor remains opaque the Raven likes JPM vs the rest of the market because:
1) Dimon seems in control, respected, determined and made good decisions going into this crisis. The purchase of BSC with the FED backstop doesn't look that bad, the FED take the risk of losses from the assets and JPM get the building, the PB business and some useful IB desks, thats not a bad trade.
2) I think they have one of the stronger balance sheets in the USA
3) They seem to be truly diversified rather than Citi.

Oil's taken a beating and the Raven has been lucky to avoid the oil majors and E&P companies, they have been flashing up as the cheapest stocks in his non-financials universe. The reason for avoiding them has been simple, the trend in oil has been very negative and there is no need to be a hero, its not like he's going to need to buy $bns of stocks, so he can be nimble (sometimes he wishes he'd remember this lesson for all stocks a little better!), but also that oil has tracked Chinese demand and the real US economy very closely, whereas the stock market has been a leading indicator oil has been concurrent. Thus the Raven feels the point to buy oil stocks will come when the market as a whole really starts to rally and they get left behind somewhat.

The Raven has missed out a couple of good shorts this last week because he's been nervous of a strong rally or exogenous news flow. This has been irrational as he's bought his upside 'protection' and should treat is as such. In general he thinks that vol is probably a touch too low given where stocks are.

Wednesday, 11 February 2009


L: 18% S:0% G: 18% N: 18% ~ $D 11% $G 220% $V 1% $P 0%

Its been a day of grandstanding both sides of the pond. The politicians make me sick, to sit there and lecture Dimon and Co. about what rate they should be charging on credit cards is crazy. For a memember of the house to ask CEOs to take "suck it up" and take losses just doesn't make sense, these are institutions owned by shareholders, which in turn on individuals, pension funds, mutual funds, etc. The Raven finds it ridiculous that the politicians don't understand how on earth a bank is supposed to deal with 1) writedowns of loans 2) increased economic risk, liquidity risk, etc 3) increase in capital requirements and THEN increase their lending? its impossible! not only that but the fact that the CEOs are getting bashed for taking public money means they are going to be a lot more cautious, there is no way any of them will want to take anymore money if they do make losses, so why shouldn't they be cautious? argh!

The Raven picked up a couple of small European longs on the close, although he remains very cautious he prefers to be long rather than short at these levels, but with optionality rather than pure outright longs.

Tuesday, 10 February 2009

Geithner fluffs it

L: 21% S:0% G: 21% N: 21% ~ $D 21% $G 111% $V 1% $P 0%

Given that the market was looking forward to the creation of an aggregator (big bad bank) or at least a detailed plan. The market got absolutely none of this, it sounds like the plan is to lend money to hedgefunds and private equity firms, and to give them backstops if they go and buy these bad assets. The reasoning behind this is that the private capital will stop the government overpaying. pffff sounds like a cop out. They've also said the they are still working the mechanism, its also hilarious that he came out and started pointing fingers at the previous administrations actions, if Raven rememebers it correctly he was involved and it was the democrats and Obama who were calling the shots, but hey its only "bankers" that are at fault for anything and only they have to say sorry and beg forgiveness of the public. The plan of involving private capital is pretty dim to me, you're basically selling a free call option to a hedge fund to buy these assets, sheesh the Raven would love to be offered that deal, its a great structure - they are going to be able to rip the face off the public and look like a hero - "I'd 'ave some of that, MINE, your size is my size"! He also feels really very sorry for Bernanke, the House Financial Service Committee is financially illerate, they don't have questions or even a clue as to what they are doing. We've just had a Republican being critical of Bernanke for not following Milton Friedman's thoughts as to how to stop a depression, eh what? does the guy even get what is going on? did he read Friedman and Schwartz? The Raven can only shake his head.

The market reaction to Geithner was fair, a ~4% sell off, he's covered his shorts and had sold out his longs at the beginning of the day, neither at great levels, but it does take most of the chips off the table. Total risk on the whole portfolio is now ~30bps.

The Raven is keeping his eyes on a couple of potential longs if we panic a bit more perhaps: CSCO, DB1, JPM and GS. The one thought that doesn't sit very nicely is passing comment that he heard that Obama hadn't quashed the rumour that Summers would take over from Bernanke and that he'd been conspicuous in his lack of praise for Bernanke. Guess the scape goating and witch hunting will continue.

Monday, 9 February 2009

"feels like a FED day"

L: 102% S:50% G: 153% N: 52% ~ $D 60% $G 18% $V 0% $P 3%
(I've added my greeks to the header $D - is the dollar delta as a % of the portfolio, $G - dollar gamma, $V dollar vega, $P is dollar prem)

The Raven has reduced dollar delta by selling some of his upside calls, this is more of a risk reduction than a view. He still likes the position as it enables him to trade the range and not to panic buy the squeezes.

DB1 doesn't look like its been able to break its resistance, again the Raven has reduced risk by halving his position.

BARC results look interesting, it has been noted that their derivative exposures increased dramatically, they also took a large gain from the negative goodwill from their purchase of LEH's North American (which makes sense to the Raven - given they didn't take a boat load of crappy assets like JPM did with BSC and BOA with MER). This ultimately fits with the very simplistic view he has of bank valuation being split into two parts: 1) having a "real net book value" and 2) a black box valuation of the services they sell which generate pnl. The Raven is always trying to look for zero cost bets in a change in perception and the good banks seem to offer that, imagine the reaction of the market to a quartetly update when the mtm of their assets is actually up? Saying this the market traded down to 102 in Barc this morning before rallying and closing ~118. Bob Diamond was also on telly saying that they'd had a good start to the year, that fits with what Citadel and DBK have been saying (and what the Raven has been feeling in his own PnL).

Gietner has postponed the banking plan until tomorrow; the market seems prepared to wait and see until then leaving today as a big nothing done.

Sunday, 8 February 2009

What a difference a weekend makes...

L: 142%
S: 50%
G: 192%
N: 92%

The Raven has been enjoying the British countryside this weekend and can confirm that the world isn't falling apart, there were no riots in the streets and burning villages.

The Raven is a little disappointed with Friday and has to confess to having fluffed a good opportunity to make some more benji's and has been very conservative. In aggregate he's missed 5% in both of the bank share positions he's owned, made a pig's ear of RIO and topped and tailed himself in LAD. Saying all that its been a good week - phew isn't it nice to own up to your mistakes and shortcomings - now all we need is Gordo and RBS to fully fess up and we'll ALL be feeling a lot better.

Although the Raven would have really loved a huge positive jobs number on a more selfish note he'd have preffered a very very ugly number, on which it would have been great to see a rally. In this case we saw a worse than "consensus" number, yet better than the whisper on the street he'd been hearing. The reaction was a mild positive, although JPMs huge move was uhm interesting as he only participated for the first 4.8%, wooos. The Raven thinks that there was a lot of speculation as to a Bad Bank plan being announced over the weekend. Tax dodging Geitner is Santa with a sack of coal as far as the Raven is concerned, mortgage modifications is not the medicine the banks were looking forward to. As always the devil is in the detail but he still fails to see how this is a real positive for the banking system. (he still likes JPM long term, but with this volatility he likes trading the range and being enough of a coward to live another day).

BARC numbers tomorrow - which should be interesting considering the huge difference between managements open letter and the numbers that Moody came out with during the ratings downgrade. The Raven suspects perhaps both parties are right, BARC is going to announce great earnings - but also large downgrades, the question is what the net result will be? The proof will be in the pudding, and we'll see whether the management were talking up the stock.

Its pretty hard to trade the shorts right now as the market is obviously getting quite scared of being short, witnessed by his upside calls actually richening in vola levels as the market has risen (that is definitely an atypical move). The current delta on the book suggests to the Raven that he should continue to be a coward (as it feels like the hardest thing to do) and start to sell delta into rallies as it seems impossible to hedge it with profitable short ideas.

Its a blank slate for Monday - apart from the fact he still hates gold.

Friday, 6 February 2009

L: 111%
S: 48%
G: 160%
N: 63%

Interesting to see the JPY/$ move yesterday, we're now above 90 - The Raven still doesn't have any real colour as to what has driven this movement, perhaps the markets just 'sold out'? It rapidly got priced into US financials; GS broke its recent resistance easily, Raven picked up some JPM that was down 2% for the day, it closed up ~4% where he halved the position.

The Raven increased his position in LAD, its still very cheap and he remains convinced that its profit should hold up well in the recession, he also thinks that long term the brand grow well over the internet and into the rest of Europe if it opens up and frankly at this price its worth being involved, its divy yield alone is pretty sweet. The Raven reads the recent strength in the market has been a signal to increase the position, its a small stock so perhaps its actually got some new friends, after all it does often a good IRR for a PE firm if they had courage, and its been a sector they have been comfortable buying into before. The risk is its debt level, although the Raven thinks that the cash flow is stable enough to support it it remains his biggest worry.

The Raven closed out all his EUR/GBP positions in January and frankly just doesn't have a good feel on where fair value is or sentiment, he's steering well clear, after all there are old pilots and there a bold pilots....

Jobs numbers in the USA today, Obama indicated they were going to be awful, he's sure they will be (although the Raven doesn't quite get why people care so much when the revisions are often larger than the range of expectations and it gets revised twice!!) its a good test of the trading sentiment in the market, his hunch is that the bad news is priced in and that we dribble into the numbers and rally out of them - it'll be good to see either way.

The economic numbers and charts on Brad Setsers blog have given the Raven pause for thought, they show that industrial production is a lot lower than where we should be given when the recession started, we should be at a point of inflexion, the chart clearly has a very negative gradient still, argh - is that priced into equities? This doesn't fit with his other feeling this morning that the credit assets on the US banks books are probably marked too low - what would the market reaction be to an income statement with write ups??

He's still working on his Deutsche Boerse research - but he likes what he's seen so far and has been buying a little more this morning.

The Raven is still scratching his head in terms of shorts, he'd like to short gold - but that isn't going to be a hedge and he's been a bit more cautious after he heard Einhorn had bought some miner stocks and some physical. Perhaps the utilities that are trading like bonds might be a good place to look? He's also been looking for good academic alphas on the short side, his particular favourite is the CEO house purchase indicator...

Thursday, 5 February 2009

just to keep me honest as of this morning

L: 119%
S: 24%
G: 144%
N: 95%

a left field idea

The Raven has been trying to think of consequences of this crisis that will result in changes in long term behaviour that have not already been priced in. Ashamed as he is to have flicked on CNBC a couple of days ago he watched an interview with the CEO of the CME (Chicago Merc Exchange). It strikes the Raven as a little odd that there isn't more interest in the stock exchanges that have derivative capability, surely regulators will want OTC contracts to come onto the exchange? its in the banks interest as well to reduce their counterparty risk as well. The Raven is still doing his work and kicking the tires - but he's got put on tiny slivers of Deutsche Boerse and LSE (the relationship between these two is pretty interesting given Hohn's actions).

Wednesday, 4 February 2009

deaf from the noise...

The buzz today has all been reflation cheer leading (not a pretty thought of workers in the square mile wearing those outfits). RIO up 10% today! Oil looks pretty steady, gold has had a decent range over the last couple of days.

The Raven dumped his GS today (don't blame him for the short termism - that will happen when a stock moves 10% in 24hrs), he's now flat financials. MSFT still remains very interesting, its not been as 'frothy' and there is far less chatter in the stock.

To replace his delta the Raven has been buying 1-2M upside calls, they look like a cheap way to make sure you participate in the rally and don't have to panic buy every short squeeze, although the daily move breakevens don't look too clever the premium in the upside wing is cheap relative to the real risk of a rapid move, especially as credit seems to be improving and long term treasuries are weaker.

The Raven has been a little slack on monitoring his portfolio level risks, which is sloppy and he's given himself a slap on the wrist, lucky the market didn't do it for him! So just for discipline he's going to post his Long, Short, Net and Gross numbers to keep him honest:
L: 68%
S: 53%
N: 14%
G: 121%
As he can see, there is not a lot of risk on at the moment, more work to be done! as there is a real battle going on mentally.

Tuesday, 3 February 2009

Snowed under

Its been an interesting week with a lot of volatility, consequentley there are a lot of random thoughts bouncing around with plenty of work to be done:

1) Great article in the Economist last week mentioning that the change in US accounting rules that means companies have to make changes to goodwill impairments fits well with my hatred for acquisative companies and has been a one of my favourite trading themes (ie. looking for leveraged firms with lots of goodwill on their balance sheets that have seen high growth in ebitda enable >7x leverage).

2) Protectionism is on the rise, frankly the 'xenophobic undertones' to the current strikes in the UK are frightening and deeply disturbing.

3) The Raven thinks that buying some upside vol on the SPX looks to be a very decent risk reward trade at this vol and spot level, the market feels relatively calm with decreasing intraday ranges - this sort of ghostly silence puts the Raven off buying the market outright. Downside put spreads also look like a potentially good place to insure.

4) Gold - ugh. 920 being the current high has been painful to the portfolio, the Raven still doesn't get it; the market seems to be pricing this instrument as both the inflation and deflation hedge, wtf?

5) Interesting to see MSFT lead techs higher, after terrible results this looked cheap all of last week and consequentley the Raven took a large trading positiong that was trimmed a little into the close, the Raven still remains long. Interesting that on the same methodology CVX looks cheap, although after BP's numbers today it seems far more of a gamble, the risk reward ratio just looks all wrong.

6) The Raven has to crow over flipping his short JPM to a long, although he's trimmed it right back he thinks that it remains a decent long term play, although its always nice to have room to play the range. There appear to be a few big winners that emerge from this banking crisis and he believes the market is now starting to price this in; GS, JPM and WFC (not exactly in the same space), HSBC, Barclays, LLoyds should come out this with a higher market share, sure the pie is a lot smaller - but its about the absolute slice of the long term pie. The risk of over regulation also appears a bit more remote as we have seen how slow the governments appear to be to actually do anything positive in terms of bailouts, it doesn't appear feasible that they'll react in a hurry on regulation. Oh and Jamie Dimmon bought a boat load of stock ~$22...

7) DOW chemicals, shock horror, after dumping its M&A deal, with the hint of them not being able to get the financing done. est eps was -.06 actual was -0.66, now that ain't got no alibi...

8) The Raven currently looking to find some smart ways to express the central macro theme of declining trade, he tried and made a pig's ear of RIO last week, so its back to the drawing board.