Thursday, 18 June 2009


L: 23% S:91% G: 114% N: -68%

Basically Swervin' Mervyn wants to limit the size of banks and split investment banks from retail banks a la glass-stiegel type law. Although this is going to be popular with the public it really misses the real point. The problem of "too big to fail" isn't going to be addressed by this sort of finger wagging nonsense, frankly Mervyn suffers from Trichet-itus, he's arrogant and likes to preach, he failed to control the money supply in the UK, did nothing about the housing bubble, was happy to manipulate inflation, was blind to the systematic risk, ignored IMF warnings on wholesale funding in the UK, wants to blame bankers with big salaries and a bonus culture (coming from a man with a cadillac pension, 100% job security and a large salary its pretty rich), failed to take action when Bernanke was busy making a real difference, dithered with NR so that we saw a run on a bank (how much that shook consumer confidence is anyone's guess!), all of this even when Blanchflower was being cassandra'd.

Bubbles will form, regulators won't spot them, its part of a cycle. Blathering about moral hazard isn't going to change human nature and credit cycles. There are some sensible changes to be made however:
1) increased capital requirements AFTER, with subordinate reverse convertible debt
2) removal of all restrictions by institutions on assets held by ratings
3) public sector pension reform, closure of all final salary schemes immediately
4) increased market to market requirements, detailed publications of assumptions on tier3 assets and a sensitivity report
5) no off balance sheet vehicles, all potential liabilities and funding commitments detailed and brought on balance sheet
6) encouragement (rather than legislation) of a CDS exchange
7) give shareholders more teeth, make it easier to remove board members (ie TGT Akman) in proxy battles, give shareholders a vote on pay, where a majority need to approve the plan
8) pension funds should give a clear accounting of fees, public education and awareness of the agency problem
9) wholesale reform of the health service in the UK, partial privatisation just makes Doctors rich without improving service
10) abolish the 50% higher education target, introduce a real apprentice program, get rid of nonsense qualifications and all funding of them, get rid of nonsense GCSE qualifications and 'hybrids' like GNVQs etc.
11) Cut the number of MPs to 100, quadruple their pay and remove all expenses.
12) publically flog Bob Crow, sack every tube driver, and employ all of those on the 2yr waiting list for the position on market terms and extend service hours on the tube.
13) give the olympics to Paris
14) remove the need for the executive to be run directly by politicians, Mr Darling is no economist and clearly neither was Crash Gordon.

Of more interest however is the change in the portfolio numbers for the Raven. He's become a lot more bearish, its summer and quiet in the market and the price of assets doesn't compensate the investor for the illiquidity risk. He's also done a little work on Punch Taverns (PUB LN), it raised ~£375mm in a share placement, knocking the shares down to ~107p, this is three legged dog with flees, and the more he looks at the business it appears the flees have flees. Just looking at a liquidation value of the business and marking the assets to a Raven estimate of fair market price means the stock is worthless, on an omptimistic valuation perhaps worth 10p for the optionality. The underlying business also faces a secular headwind in the decline of the public house, and this trend shows no sign of reversing any time soon.

The Raven likes RIO as a business, the BHP deal looks smart for both of them, although it removes the ability of any other party to come in and take them out. The rights issue should/could knock the shares off a little further, so its beady eye time rather than foot on the floor time.

He got nailed in the TNote10yr position yesterday from some not too clever trading, he's still long, with a chunky position but not feeling quite as clever.

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