Thursday, 28 May 2009


The Raven very much agrees with Einhorn about WYE and PFE, the Raven has his largest position in WYE, its a cheap version of PFE given the merger. PFE looks cheap given EPS of $2 and a stock of $15 for a good quality company. Not sure what the catalyst is for owning PFE so the Raven prefers WYE as its going to carry better.

is this the same as a UK prepackaged bankrupcy?

If its anything like that then the Raven really isn't very impressed. How will the asset prices be determined? will there be an open auction? (doubt it!!!) how will the proceeds of the sale be handled by the bankrupcy court? what does that mean for the union contracts? who will own the new equity capital and provide financing? to the Raven this stinks, it sounds like a way to bend over the bondholders and sidestep contract law, funny what was it that the President Obama studied?

Intraday vol is pretty interesting here, the Raven feels like his performance is well hedged even though the greeks look like he's long.

Einhorn likes buying gold, he's a smart cookie and the Raven will probably be eating his words, but he doesn't buy the inflation story. The amount of wealth and capital sucked out of the system added to the excess capacity that's been build over the last couple of years and is still coming on line just doesn't make an inflationary environment. Saying this the Raven believes that the dollar vs RMB does have to revalue, so consumer price inflation may well rise in the US as chinese goods become more expensive and US exports become cheaper. If its a backdoor short of the USD then it makes sense. It adds a little more to the EUR/USD story.

Wednesday, 27 May 2009

some interesting numbers

L: 83% S:37% G: 120% N: 46% ~ $D -37% $G 16% $V 0% $P 2%
In this article the Raven thought it was particularly interesting to look at the size and scale of the medicare and social security nettles that future tax payers will have to grasp. These numbers are enormous, as are the pension liabilities that the public sector has built up in the UK, there needs to be radical reform ASAP. These numbers look even more worrying given that ~100% debt to GDP ratio in the UK and the worry as to what an increasing tax burden will do to long term growth rates in the West.

Interesting to watch the turnaround from yesterday's consumer confidence numbers continue today. As expected with the rally vol has come off a little and some of the higher beta names have outperformed. The Raven remains cautiously invested at this point and is again paying away theta, with the risks in the portfolio minimal at present, in fact the Raven thinks the portfolio doesn't have enough money making potential and so is looking for new ideas today.

The Raven would make a bet that its Fiat that ends up with Opel, but not in a particular rush, the German's don't really want to deal with this issue before the election, especially if there are any ugly job cut details that would have to be public. Shock! GM bondholders didn't accept a 10% stake in the company, funny that!

On the world political stage its important not to overplay the importance of N. Korea, they are isolated and the Raven is sure that the Chinese won't let them throw their toys out of the cot too much right now. Ok the threat is scary and very real within the region, but it shouldn't be too much of a demand shock for the rest of the world to deal with given the export driven nature of the SK economy.

Tuesday, 26 May 2009

turnaround tuesday

L: 78% S:43% G: 121% N: 34% ~ $D -43% $G 14% $V 0% $P 2%

Very interesting to watch the markets complete turn around on the back of the consumer confidence numbers, going from being down 1% to up 1% today in very short order.

Interesting as well to see the EUR SPX correlation return today, although still at a distended level.

The Raven bought some VOD today, although a boring defensive and with a reduction in revenue going forward because of roaming charges, it still looks cheap enough and at a decent technical level to make it a small trading position.

Friday, 22 May 2009

they cannot be serious

The Raven really shouldn't be shocked at this, but he is. Does the Treasury honestly believe their own bullshit? Saying that you won't release stress test results because they'll increase instability is perhaps the stupidest thing he's ever heard!! A statement like that is panic enducing at the very least, perhaps these idiots should be honest with themselves and the public. We don't want to release the results because we're afraid that it would show exactly what state the UK banks are in (the Raven thinks that the results would show that the banks are in an ok position *pure speculation*), but would also make it chrystal clear that the Goverment has lost a bucket load on their "investments" and would be a rod for the opposition to beat their raw backsides with.

The bond sell off yesterday should really increase the demand for the USD not decrease it, there's something wrong with the Raven's thinking. hmmm.

EUR/USD and SPX correlation

The Raven is looking for reasons for a breakdown in this correlation, more on that later.

Interesting to see the UK moved to watch negative for its government debt rating yesterday and speculation that it could lose its AAA status as debt/GDP approaches 100%, this has triggered speculationt that the US would lose its AAA status at some undefined point in the future (big effing deal - of course one day the US will lose that status, but if thats in 1000 or 200yrs makes little difference to us today).
what a surprise, Geitner and the muppet show couldn't value or trade against a tiny bank even though they have the ability to retroactively change the law.

Thursday, 21 May 2009

unintended consequences

L: 78% S:49% G: 126% N: 29% ~ $D -49% $G 12% $V 0% $P 3%

The Raven has to very much agree with the sentiments expressed in this piece by Schultze. The Obama administration in its lust for "change" has crossed the line and set a dangerous precedent, much as the UK government did in calling for Goodwin to give back his pension, the congress in the US did with asking AIG employees to give back their bonuses, etc. Politicians have to respect the rules of the game, just because their jobs are pathetically reliant on short term populism and the lowest common denominator of the electorates intelligence does not mean that they can tear up the law whenever they chose and impose retrospective measures.

The cost for this sort of action is much higher than their inability to honestly file expense claims. It is simple game theory and rational expectations, if a player doesn't know what the rules of the game are going to be, but realizes that when special interests are threatened then their private property will be stolen to bribe and payback favours then they will have to have a much higher investment threshhold. Additionally they will appropriately have to reduce their lending to reflect the much higher loss potential from each loan. Its disgusting that the unions who have no capital to lose, who's unreasonable demands and legacy costs have destroyed so much value, who were offered equity in the firm the LAST time it was restructured and bailed out by the government are going to be the main beneficiary again?!?! WTF!! The electorate moans and castigates private capital when it attempts to influence the political process, yet unions that destroy firms and jobs in the long term enjoy a priveledged status?

The Raven is never going to invest long term in any business with legacy costs or any rotten union, not even in terms of liquidity provision, arb trades, etc.

Wednesday, 20 May 2009

some new positions

L: 92% S:0% G: 92% N: 92% ~ $D 0% $G 0% $V 0% $P 0%

based on some of the work that the Raven did yesterday, he's put on some new positions that he likes, although this is skewing the portfolio rather heavily to the long side, especially as we appear to be approaching the top of the SPXs trading range. Given that vol has crunched so much on this slowing rally, he's going to look at some put spreads as a way to increase his protection on the downside as its more than plausible that we have a retest. The optionality and liquidity that the downside puts give the portfolio, although costly over the last month enable the Raven to trade around the portfolio without losing too much focus on overall market direction.

He's annoyed that he didn't put on his PG vs JNJ spread that he looked at on Monday as its moved back towards fair value on his technical model.

Still more work to do in terms of research and he'd also like to have a quick review of his start of year predictions, as well as making some new ones.

Its also interesting to have heard Jack Welch's comments with regard to the Chrystler bankrupcy. The Raven has said this before, but he'll say it again, its clear that the Obama administration don't understand fiduciary duty at all. Secured creditors didn't get funded by the unions in a presidential election, so why should they give up 55% of the company when they are SECURED CREDITORS? Joe Biden even said 'we owe you' to the unions, and boy!! have they paid them back. If this was any special interest group representing a business interest the liberal media would be calling for a march on Washinton with pitch forks.

Tuesday, 19 May 2009

start of the summer?

The Raven's not made a trade since the last post, apart from being stopped out on the EUR position as it had a very tight stop.

He's been working on a couple of things although he's nowhere close to pulling the trigger;
1) Mastercard and Visa are interesting businesses, but the Raven really isn't sure what's a fair multiple, especially in this market
2) AYE looks very interesting from a fundamental view point - but he's really behind on the news flow in this situation
3) NRG-EXC, a very interesting situation, he's now on top of the deal news, management dynamics and that score, he's not so down with the valuations of the firms and the fundamentals of the business
4) TGT - he gets BAs (Bill Akman's) ideas i)management haven't done a great job ii)RE (real estate) doesn't look like its valued iii) TGT management ballsed up the credit card part of the business, however, he's not sure how well his proposals will actually be received. He's spot on in terms on incentives and his letter is very persuasive when he compares his 5 independant board nominees to the encumbents ie a) 30yrs of grocery experience vs marketing b) 30yrs of building a credit card business to banker who botched managing firms funding risk c) commercial real estate manager vs aussy telco exec??? d) 7% owner of the firm vs 0.1% LBO chap e)Prof of Law and Business at Stanford and Columbia. Saying that RiskMetrics came out in support of BA. The Raven still wants to do some more work himself, but it does look interesting.
5) IGT looks ok as well so far.

Oh and he wouldn't mind an general election being called in the UK. He's got a small punt on that there'll be one called before the end of the year at pretty decent odds, even though he thinks its only a small chance. He can see several ways that this comes about, Labour get smashed in the EU elections, the party chuck out Brown, new leader comes in and he's got to call an election as two PMs not elected in a row would just be unbelievable. He also thinks that the speaker resigning has taken a little bit of the sting out of the expenses scandal but not enough to make this go away - he still thinks this could just fester on to the point where it becomes essential for the government to call an election.

Other than that and the mountain of research he's trying to do the Raven has been very quiet, he can't see the macro picture changing too much with the bank holiday weekend coming up in the UK and the US, vol's getting crushed and thats probably fair as we've entered a bit of a range trading market, although he's noticed a pick up in his residuals momentums.

Monday, 18 May 2009

L: 58% S:0% G: 58% N: 58% ~ $D 0% $G 0% $V 0% $P 0%

Very little change in positioning of the portfolio, the Raven has increased the short EUR position, but is also keeping an eye on JAVA and WYE as they look at attractive levels still and he'd be happy to increase his position if market risk got sold off aggressively.

Its also interesting to see this: which is not only embarressing but also makes one wonder about the independance of the organisation?

Oh and the Raven would like to add one to the current forecast for unemployment by the end of the week as Michael Martin joins the queue at job centre plus.

Wednesday, 13 May 2009

L: 58% S:0% G: 58% N: 58% ~ $D 0% $P 0%

The Raven has trimmed some of his positions and had a decent day being rather short EUR/USD, he's increased the WYE/PFE spread to a 42% position for the portfolio, but with a hard stop of 10% max loss on the position so a portfolio loss of 4.2%, which remains below the max 5% loss on a single position hard limit. The portfolio numbers above don't represent real beta as the portfolio is almost exclusively in M&A cash deals and special sits with little to zero beta, given the EUR/USD correlation to the SPX and the way the portfolio is 'quacking' right now the Raven believes he's slightly short but by his own stats approx net 10%. The market feels soft, there doesn't seem to be too much talk of a reversal and the financials seem to be leading the move lower so the Raven might look to put on some beta shorts if this move picks up momentum given his natural conviction that we'll have a retest of the lows. And to be fair, 'tis May, sell and go away and all that...

It was good to see that the Ford stock sale got done yesterday, although at a lower price $4.75 vs what the $6 target, the stocks trading up today (to be expected given the size and profile of the deal).

Cameron just made himself the Prime Minister of the next government in the UK yesterday, it represents a real change in perception by the public, from being a 'caring conservative' who's a bit too wet and wants to hug hoodies they can now picture him as a leader taking action rather than asking for another committee and year long enquiry, blaiming the system and trying to say the expense were a global crisis, oh sorry they've used that excuse for something else already.

Tuesday, 12 May 2009

life jackets

oh what a shock, GM board selling all the stock their own. schimples. 10% for bond holders? gee thanks guys...

EU stress tests?

L: 58% S:0% G: 58% N: 58% ~ $D 0% $P 0%

The IMF is looking to the EU to stress test the whole of the banking system, rather than individuals. This sounds like a VERY stupid idea to the Raven, its the opposite of the US idea and would only have a negative result. The US at least structured this as an idea not to pass or fail banks, but to work out how much each bank needed in capital to top it up and already had a back stop plan as to the fact that the government would do it if it wasn't done with private capital. Who would play this back stop role in the EU, politcally that just doesn't fly in Germany and the French don't look like they're going to play that role either, the UK can't, etc.

The Raven has put on the JAVA m&a spread at this level, it looks pretty decent at 24% pa, although it might soften up some more, he's still got powder dry to triple the position if it gets more juicy.

He's taken off a little risk in DB1 after it outperformed on numbers.

Interesting that Ford is selling stock today, it'll be interesting to see how that trades going forward, they're still in a good relative position, its also good to see the UAW not getting a chunk of stock as well.

TGT is on the Raven's focus list and he's been picking over Bill Ackman's comments.

Macro wise he's bearish the EUR, but is waiting for price action before he puts the trade on. Interesting to see the SPX correl as well.

Monday, 11 May 2009


Interesting to watch the JAVA m&a spread trade. Friday JAVA opened down big time on because they'd 'may have broken a law prohibiting US companies from bribing foreign officials', Oracle came out and said that they knew this before they agreed to the merger, so Friday the stock opened as low as 8.77 (annualized spread of ~35%), then traded all the way back up to close at 9.14 ~15% a.s. Its interesting to the Raven as the price action looks a little weak this morning in early trading. Its at 9.06ish now, which is at the return threshold for the Raven, given that JAVA picked ORCL because of their ability to move quickly, get the deal done because they knew the firm, this would indicate that its not really new news as such and perhaps the price action and rumour knocked out a few weak hands that stuffed the rest of the market with a chunk of paper? it'd be nice to have a look at the merger agreement in more detail and see whether this is explicitly excluded from the MAC clause, particularly if one thinks that the market could well have a sell off from here and that a spiv might want to renegociate the price down (the Raven doesn't think that's really Larry Ellison's form though).
L: 49% S:0% G: 49% N: 49% ~ $D 0% $P 0%

The Raven has a couple of interesting price points, it looks as if the EUR has run out of steam and could have a decent reversal, with a similar price action developing in the SPX.

Its rather ridiculous that banks are raising money to pay back TARP funds, given the FDIC insurance that they will still receive for their debt, they should forgoe those guarantees if they are paying back TARP. To be fair to these banks, if it wasn't for the retrospective action of the Geithner and chums then it'd be a much clearer stable situation.

Happy Birthday Bill Ackman, he was on CNBC today talking about TGT, he came across as very reasonable and his proposal to put up 5 new board directors seems sensible and in the interest of the shareholder. His proposal for Fannie and Freddie also seemed like a really good idea, all in all the Raven rated him as sharp cookie.

Wednesday, 6 May 2009

back in the saddle

L: 98% S:7% G: 106% N: 91% ~ $D -7% $P 0%

The Raven is back in the saddle after the long weekend, with a quick update to the portfolio, he's added some risk in the form of Deutsche Boerse, EMC, Ladbrokes and IP2IPO. He's not added to his collection of worthless downside puts as he's 'invested' enough premium in those for the last couple of weeks. It does however feel as if at least the market has run out of a little steam.

He's also been picking over the M&A space, the Wyeth deal looks attractive enough at a 20% IRR for the position, he's put on a small position and is doing some more work on the deal, but at first glance it looks attractive enough. He's also sure that he's making some sort of mistake with the PepsiCo bottling deals, they seem to be trading for a bump? not sure how that one works, given the size of the stake that PEP already owns and that the company is doing this opportunistically it doesn't make sense that they would entertain raising their offer or being strong armed? he's not got the stones to short the deal as the upside isn't there given the kind of event risk & he's got a feeling that he must have the deal terms wrong.