Thursday, 23 July 2009

better than a pich from president Obama

L: 146% S:93% G: 239% N: 52% ~ $D -51% $G 74% $V 2% $P 2%

Well that SNDK ECM 'spread' worked an effing blinder, even if the Raven does say so himself - SNDK fell >10% and EMC rose more than 5%, I think the septics would call that knocking the cover off the ball, thats enough yanky hubris for one day. It has put the Raven in a very good mood for his holiday as he plans to leave the crow's nest tomorrow. Historically there has been a spooky correlation with the Raven's planned holidays and a general market meltdown, 8 out of 8, none the less its for more sanguine reasons that his portfolio greeks have come back to life. We've had a big melt up today in stocks, with people also buying vol that means there isn't that much confidence out there (which could be taken as a positive if you read the chicken entrails that way). The Raven doesn't like to sleep badly on holiday and he feels that he might given the 146% long in his portfolio is pretty concentrated and so he's going to pay away some theta rather than sell a core long, he did the numbers and its cheaper to trade the vol and pay the theta than pay for the transaction costs of getting in and out and losing a weeks worth of alpha potential.

He also has one little thing to add before he flies off, MCO - so even the sage of Omaha has turned seller aka Warren Buffet. It makes sense to the Raven and quite pleases him to have chucked back on a cheeky little short at the days highs today. There is plenty more downside for this stock especially given the negative press S&P managed to generate with their MBS downgrade then upgrade when the heavies turned up from "the squid". Ratings agencies are a dead business model, structured finance is not going to be done for ratings and capital adequacy arb in the long term. MCO should never have been putting ratings on correlation rather than corporate credit and in so doing lost any credibility they do have, especially when they seem to watch market prices of corporate spreads as an input into their decision, it makes a whole mockery of the idea that they can add value.

its definitely the anglo-saxon model of capitalism thats at fault!


its absolutely laughable that its banks in the USA and the UK and all those nasty hedgefunds that are to blame for everything. This is a perfect example of a management that took huge risks, shafted shareholders and very little skin in the game, at least Jimmy Cayne and Dick Fuld lost everything, these clowns got paid out in cold hard cash and a fixed percentage on a one year profit, wow talking about writing free calls. The Raven has ZERO sympathy, Porsche manipulated and cornered the market in VOW shares. He didn't feel sorry for the hedgies that got stiffed as it was a pretty obvious play however that doesn't justify the ridiculous schadenfreude in the media or the hypocracy of the act. Had the newspaper headlines been reversed the German government would have jumped in, ripped up the rule book and had a tantrum.

He also saw this and did have to chuckle:
That really is a terrible throw, lets just say you'd have got beaten up at school for throwing like that.

L: 174% S:49% G: 223% N: 125% ~ $D 0% $G 0% $V 0% $P 0%
The Raven sold a sliver of NRG, but that was more of an intraday trade.
He also added a new spread position, he's long EMC and short SNDK, they're not technically a pair as they are in very different sectors, however they are both in the growth universe and certainley looked at by similar analysts and tech investors, however SNDK is far more commoditized and consumer dependant. EMC on the other hand is far more of a b2b (business to business) play, its also wrapping up its market position by overpaying for its latest aquisition - perhaps the 'value' guys would like this moat building move. He also thinks that its a better business with much higher quality earnings. SNDK reported numbers last night, it beats 09Q2 expectations, actually making a profit! it did bring down forecast for H2 revenue. Its made a profit by cost cutting and an improvement in pricing: he can't see much more room on that front to drive profitability and he doesn't see the pricing getting much better, in which case the huge run up in the stock in the last couple of weeks seems overdone.

The Raven is in a nicely pessimistic cynical move today so he's going to have a look at the airlines Continental and United just to cheer him up...

Wednesday, 22 July 2009

what a difference a day makes....

L: 151% S:11% G: 162% N: 140% ~ $D 0% $G 0% $V 0% $P 0%

thats a huge swing in net and gross exposure for the Raven since yesterdays post. NRG traded down hard on the open of the US market, the Raven took this as an opportunity to dramatically increase his position. At the same time MCO opened up slightly, whereas the Raven's charts said it was a screaming sell so he dramatically increased his short position. Both of these events were remarkably fortunate given the price action which followed; NRG trading up 7% from the Raven's purchase price in the matter of an hour and MCO falling 5%, which put a nice chunk of profit on the table for the day, month and year for that matter. In response to this the Raven covered his short in MCO and will look to scale back into a small short if it opens up today. On the other hand he decided to let his bet ride with NRG, technicals look good and the stock still looks cheap, its a good thing that the vulture like bid from EXC was rejected by shareholders. There are some worries in the back of his head with some counter arguments; management don't have their feet to the fire so perhaps won't feel the pressure to perform, or perhaps they've been distracted and now have the opportunity to refocus on operations. The Raven thinks managements been focussed so perhaps there is room for them to slip. Its still in the mixer.

The Raven is also looking at other EXC targets and power generation assets, at the moment he's looking at MIR, he doesn't think its a fit for EXC - but it looks optically cheap so is worth a poke at least.

Tuesday, 21 July 2009

"if you don't know where you going, any road will take you there"
Should be the focus today. Bernanke has done a great job in very difficult circumstances, he's been responsive to the situation in the early stages of the crisis and now appears to be on the front foot treading a tight rope from here; making clear how and that he will remove the monetary stimulus measures but also that he's not going to do it too early and only when the threat of deflation is clearly been avoided. He doesn't get any of the media and political backing that he deserves, perhaps that because he doesn't spend so much time posturing like those lurking the the wings in Washington or that tool in the ECB, JCT.

L: 72% S:268% G: 340% N: -195% ~ $D 0% $G 0% $V 0% $P 0%
The Raven has increased his short positions and cut some longs. Yesterday was interesting, his longs lagged the market down 14bps on the day, yet his shorts took a relative beating down 180bps. He's looking at the way the different sectors are trading and trying to read something from it, but struggling to take much away from it other than a big punt on China and the system being restarted.

The Raven thinks NRG shareholders vote on EXC today, he's been a bit surprised and hurt by the sell off into this vote, but he thinks thats a lot more to do with the natural gas market and how important that is to demand for NRG. He's going to look to put another couple of clips on at these levels with the view that the stock is oversold, that shareholders will see more value than in the EXC deal and hence reject it (this isn't the best short term outcome as the uncertainty on what EXC comes back and does will weigh on the stock as nobody likes uncertainty) or they'll accept it and push NRG's board into talking - in which case the wide spread should close. Either way there's a short road and a long road, although both head in the right direction.

Monday, 20 July 2009

some more thoughts

The Raven has noted that other market participants have poured cold water on the idea that CIT averting bankrupcy proceedings is really a positive given that it hardly shook the market at all when there were fears they'd go into chapter 11. The Raven thinks thats a little disingenuous, the reason to cheer this piece of news is the fact that its a private solution and doesn't involve government intervention and taxpayer capital. That's positive on two fronts; firstly that private capital is prepared to take risk again of this sort and scale (not huge really but still it wouldn't have been there six months ago) and secondly because it means that private capital is not being crowded out by government intervention.


L: 111% S:181% G: 292% N: -70% ~ $D 0% $G 0% $V 0% $P 0%

It looks like we're in a classic short squeeze as the melt down failed to materialize last week. There is still a lot of talk of the failed head and shoulders sell off. That really increases the probability that we follow the path of maximum pain after that failure, a rapid spike up hitting stops and getting shorts covered, some panic buying, etc. Then we grind lower back to original levels, hence the current large amount of risk in the Raven's portfolio. He's also looking at VIX and the skew in general, it does appear that insurance seems a bit cheap given the amount of pain and potential pain out there.

Oh and purely on a customer satisfaction point of view he's looking at shorting toshiba, nokia and france telecom.

He's also quite surprised again by the Economist's discussion of the efficient market hypothesis, maybe he's been reading the wrong textbooks but surely they see that the EMH hasn't ever been that the current market price is a perfect predictor of the future value of cashflows, but it is a reflection on average of the whole markets knowledge and assumptions, ie. we shouldn't be able to make a better predicition a priori. He really doesn't understand why this principle is so difficult for journos to get? He thinks its a common misconception to compare a prediction with reality and not take into account the information held before hand, the range and probability of the outcomes before deciding whether we should have been able to do any better. He fails to see how a bunch of academics and failed businessmen will increase forecasting accuracy.

Wednesday, 15 July 2009

small changes

After this mornings rant the Raven has few constructive points to add. Yes we're in earnings week now, yes we've rallied , but it still feels very much like summer time.

L: 60% S:35% G: 95% N: 25% ~ $D 0% $G 0% $V 0% $P 0%

The Raven covered his Moody short yesterday, but put it back on right at the close to hedge out his increased position in NRG, he thinks there is upside risk with us approaching the 252dma. He also covered/got stopped out of his pubs shorts to some extent yesterday, but is putting them back on again today at better levels - although trying to stay beta neutral-ish.

He did some more work on the miners yesterday and has started to change his views a little. BHP Bilitons looks better and better to him, its not particularly sexy though, he's kicking the tires at the moment, before he gets to price target as management seems to be a strong differentiating factor between the stocks, thats before he looks at the technicals.

The Raven continues to be baffled as to why GB isn't doing more about this. There seems to be a fundamental question that remains largely unasked and definitely unanswered: "What benefit will this regulation bring?". The French and German thrust for regulation seems predicated on a notion that anything not controlled by the state is both dangerous and a threat to 'stability', from the bankrupcy proceedings of Eurotunnel and their "champagne quaffing" investors to the German's "locust" private equity investors we see arguments thick with rhetorical yet no substance. The Raven will make the same point he's made many times before, but how many hedgefunds have been bailed out? How many have required emergency funding? ZERO. Which institutions are the most regulated in the US, ah insurers like AIG.

If politicians and the popular press weren't so pig ignorant when it came to hedgefunds, private equity, derivates and short selling (or any other buzz word they like to chuck into a conversation to try and sound like they have a clue what they're talking about) they wouldn't spend so much time point fingers with their knickers in a twist. Company CEOs who blamed short sellers should be ashamed of themselves, they're either so thick they believe that drivel or they're cynical coke-bottle-shouldered buck-passers, neither of which deserve to be looking after shareholders capital. The cash flows don't lie in the long term, RBS was buggered and its shareprice was reflecting that, rather than the shareprice buggering up RBS. The Raven fails to see how shorting homebuilders and CDOs like John Paulson did caused the subprime problem? surely his actions would have made mortgages more expensive and hence reduced the scale of the problem. The facts are pretty clear unregulated capital has nothing to do with the crisis.

Now the Raven imagines a stammering politico would point to the Madoff scandal as a reason that HFs should be regulated. Sorry to disappoint but this is a case of an investment advisor, technically different, but lets ignore that for the moment, lets just ask who suffered - wealthy private investors were defrauded. 'Sophisticated' investors are supposed to be capable of doing their own due diligence, he fails to see how a limit on leverage, a limit on which funds can operate where or having a register of names and strategies would do to prevent a Madoff type case?! He finds it incredible that dim witted EU politicians think that the private investors just handed over their cash to a US investment advisor without knowing their name, what leverage they were running, what strategy they were using, etc??? What protection will these rules provide? about as much as a cocktail umbrella in a hurricane.

So why propose such a stupid idea? Well for the politician it isn't such a silly idea when their own sly motives are taken into account - expanding government departments and independant regulators is seen as action - and we've all seen how much people like GB like to wear their underpants over the trousers, whack on a cape and pose like they're a grinning demented half brother to Wonder Woman. All these independant regulators also provide a useful excuse when things do go wrong, after all its always useful to have someone else to blame. Then you have the kicker that an expanded state gives you as a politician more power and you're not the sucker that has to pay for it. So, who's the mug? The Raven is clearly in the wrong game.

Tuesday, 14 July 2009

tick, tick, tick, tick....

and the Anglo-Saxon capitalist model is the one that's broken?? FFS! French workers threatened to blow up a plant unless each of the works were given EUR33k each in redundancy? riiight, sack them on the spot and then charge them.

The markets ripped higher yesterday, it appeared as if the rally was driven by Ms. Whitney's "BUY" note on Goldman, the Raven heard quite a few funny comments to the effect that she was a one hit wonder by a few bears licking their wounds, he's waiting for the announcement today that her new firm is getting bought out by GS in an all stock deal.

On that move the Raven quickly reduced his short positions, although he's still hurting from his PUB and ETI shorts today as some of his longs lagged the market rally.

The Raven covered his Northgate short yesterday, its a dog of a company that clearly is in need of some cash, he's just more shocked that shareholders are prepaired to respond to this cash calls, he know's he wouldn't double down on this business model.

Plenty of earnings this week so hard hats all round...

L: 49% S:17% G: 66% N: 32% ~ $D 0% $G 0% $V 0% $P 0%

Monday, 13 July 2009

tinfoil hat time?

The Raven is nothing short of amazed at the press coverage of this open letter to Paul Volker. He is inclined to think that the media attention has something to do with the renewal of Bernanke's tenure at the Fed pretty soon and the positioning of Volker as a replacement. The characterisation of QE as money printing by the media has been reckless and far from the truth, sound bite journalism prevails, even at the FT.

The letter calls for the Fed to mint gold coins for every bond holder that would want to redeem their bonds for gold has received in some unlimited fashion (uhm how?). The arguments in the letter are motivated by the fact that the gold forward price is lower than the current spot price, this apparently is evidence for there not being enough "paper gold" ie physical in the current market for end investor needs, harking back to the paradice lost that was the 70s halycon days when he was young and senile perhaps coinciding with the peak in the gold basis.

The Raven knows not a jot as to the long term trend in the cost of carrying gold, he does know storage is going to be relatively expensive as its going to need insurance from theft, security, etc. which would all other things being equal raise the forward price, he also knows that interest rates are pretty low and that too would be a good reason for forward prices to be lower. The biggest unknown for the Raven is the question of how much an institution could get for lending their gold out like a stock holder does with their equity. The higher this lending rate the lower the forward. The Raven would point out however that the spread on secured lending might be higher over the last year because of fear of counterparty and systematic risk, rather than any specific demand for physical gold.

The Raven is also a little intrigued as to where the Fed is going to get these gold reserves from to mint an unlimited amount of coins, he thought the thing that attracted goldbugs was that it was strictly limited?

Fiat currencies have value as citizens are able to pay their taxes, does this mean we will see a return of tax collectors with large Robin Hood style purses collecting gold coins?

BAC cheek

Ken Lewis is doing BAC shareholders absolutely no favours. Firstly he does the CFC deal looking to be an empire building hero, then he doubles down with MER, then he implies that the Fed stopped him telling his shareholders the truth and now this? Just because you don't claim on an insurance policy doesn't mean you don't have to pay for it. This guy is just a liability, he's intellectually lazy and appears to be more than a little liberal with the truth, I wouldn't let him use scissors on his own, let alone look after a balance sheet the size of BAC.

a slow start

L: 66% S:59% G: 125% N: 8% ~ $D 0% $G 0% $V 0% $P 0%

The Raven has a small trading long this morning, however remains very cautious given the amount of company numbers reporting this week. Interesting to see Ms. Whitney aka BankSlayer has stuck a BUY rating on GS, he's not seen the note, but he's sure that GS numbers will be pretty good, he's however looked at the stock and can't get comfortable with sticking a value on it.

The Economist this week seems to be on a similar track to the Raven with regard to public sector pensions, it tosses a 30% of salary figure into the ring. They also mention the rise in quangos and the real functionality they bring to the party, ie. shouldering responsibility for decisions rather than politicians. They also bring up the SDR issue and China's attempts to encourage Yuan usuage for trade; again just nonsensical noise.

The Raven has been looking at EMC again over the weekend. Its in an interesting sector and it really does have the potential for some massive growth, however he's no tech trader and its not entirely clear how much "cloud computing" solutions could come to be seen as competition for EMC type products in the long term, althought this may just indicate his fundamental lack of understanding of the whole sector.

He's increased his shorts in the UK pubs, shorting some more PUB and Enterprise, their assets still look overvalued, they still have tough operating environments and the balance sheet doesn't look too sexy in either case.

XTA/AAL looks interesting from all the chatter of the weekend. The Raven fails to see what a new chairman really brings to the table for AAL, he's heard rumours today of XTA bumping in a cash term to the deal as a sweetner, however he's not entirely sure how much sense that would really make. On the other hand AAL does look absolutely cheap even on a risk adjusted basis, he's less convinced and still working on XTA.

Northgate is another short - but more on that later...

Friday, 10 July 2009

more dollar drivel
China wanting someone else to eat the currency risk that they've built up, well pull the other one, they've dominated manufacturing and protected their economy, manipulated their currency, restricted capital flows, had a dubious track record of investment in Africa and they still want the West to bear the financial risk of their dollar assets? wtf?

Looking at the vol surface a bit closer today, the Raven has completely changed his mind, he'd like to sell 1by2 put spreads and maybe buy some back months selling front month - but more work on this today.

He's also looking at EMC again, they've won their M&A battle, the whole segment is very *HOT* at the moment, he also notes that Bill Ackman likes EMC and he's seen other hedgies getting involved, which means its too late. Saying that the stock has been technically a dog recently.

The Raven also refreshed his Enterprise Inns model, still doesn't like the stock, its a buy at 30p and then only maybe, its currently at 125p ish and he's going to short it on weakness.

L: 141% S:182% G: 323% N: -40% ~ $D 0% $G 0% $V 0% $P 0%

As you can see the leverage has been chocked up yesterday, this reflects greater intraday trading thats being carried overnight.

Thursday, 9 July 2009

public sector final salary pension schemes

As its been a little quiet this afternoon and the Raven has been short of things to model recently he decided to look at the real cost of Public Sector final salary pension schemes. He's used current market RPI linked annuity rates to price the final salary side of the deal, historical real (as in nominal - inflation) rates and a typical public sector pay scale, with reasonable promotion and career path assumptions based on government statistics. Given this he was truly shocked to see that the value of this final salary scheme was worth about 40% of salary. Looking at ONS data the median level of full time pay in the public sector was £523 pw in April 2008 whereas in private sector it was £460 pw. Once we then add in this 40% pay kicker we get to annual figures of ~ £38k for the public sector compared to £23k for the private sector, WOW, a 65% difference!

It doesn't take a genius to work out that the UK government needs to massively slash spending, it would appear that there is plenty of room to do this!! The Government should immediately close all final salary schemes, and stop workers purchasing further years through work, switching to a defined contribution scheme, it could even increase wages by 10% to grease the unions, with the aim to holding them flat for the next 10yrs, it could also start by chopping funding for every quango and dramatically reducing government on every level.


L: 30% S:33% G: 63% N: -4% ~ $D 0% $G 0% $V 0% $P 0%

Brown and Sarkozy the Socialist (or whatever's currently appears to be a popular trend in politics) come the the rescue. What a bunch of useless w*nkers, they truly don't seem to know their arse from their elbow. Do they honestly think that more "co-ordination between OPEC and other energy agencies" to develop "a shared analysis of future demand and supply trends" is going to make a jot of difference. Perhaps these great institutions would have been able to forecast the huge demand destruction the global economy faced over the last 6 months? or the demand surge in the years before that?

Its typical Brown politics (in more way than one) - ah lets throw more beaurocrats and organisations at the problem, that way we can employ more failed civil servants to sit around and talk about things they know nothing about, write papers and advice for the government which Mr Darling will then proudly ignore. They should stop pretending to have any real power and influence and control the things upon which they do, ie. the huge liabilty of public sector pensions! rather than trying to stamp out natural volatility. (no amount of regulation will stop natural economic cycles, and percieved uncertainty as to forward demand and supply). Why don't they try some Nixon price fixing - we saw how well that worked out, then they can just print money to pay off their union paymasters; perhaps Obama is truly leading the way, they can just steal money from secured bondholders and give companies away like they did at Government Motors, sorrry ahem General Motors. Just had a few thoughts after reading this article. These SDRs are nothing special, its just like making a market in a basket of currencies, but it just made the Raven twig, the Chinese are angling to make the US take the FX risk on these, he's speachless, truly gobsmacked, how does that work?!?! That's like buying a house and renting it out and then asking the former owners to make up any value in the price falls in the house.

The Raven has been doing some more work on NRG, he thinks its really too cheap and is dramatically increasing his size in this position. The management seem pretty keen on avoiding EXC and are making a good case for it. They've increased the share buyback from 5% to ~9% of the market cap (he's not too keen on the leverage increase - but that should at least provide some kicker to the stock short term). Its trading at a decent discount to EXC's offer, it looks cheap, its leveraged to natural gas prices in Texas long term, its held its technical levels in the up channel, its not being talked about too much by his fellow traders, oh and it cheap like a cage of discount canaries. Its also got funding for only one of four nuclear deals, EXC didn't get this. The stocks ~$23, he thinks fair value is more like $40, EXC is offering ~$27 - pfffffff. Anyway its obviously got some risks fundamentally to the business from the macro picture and its geographical position, however at this level its risk reward looks good enough for a swing of the bat.

Wednesday, 8 July 2009

earnings season

L: 53% S:73% G: 126% N: -20% ~ $D 0% $G 0% $V 0% $P 0%

The VIX still looks like its at an interesting level, the Raven is looking at perhaps picking up some put spreads and then pushing the rest of the book to flat delta.

Interesting article in the Times today from Vince Cable, he's basically saying that because we now own RBS, NR, etc we should be making them increase lending to help the economy and for some reason his implication is that by being state owned these banks are now safe and that these loans would be riskless? He's also very populist and doesn't mention any of the real causes of the crises, but then he is a politician so the Raven doesn't really expect any more.

Interesting to see that we didn't hold the support levels in the SPX, however we've failed to see any real follow through and the volume picture remains puzzling, it is "summer" after all. (just look at the weather in London). Its also the first day of the Ashes, which the Raven still thinks the Aussies have a great chance of holding on to, its also the start of the US earnings season; and where they'll be is anyone's guess, as to how the market will read them, well the Raven feels that investors are more likely to be disappointed that positively surprised, so he's happy to remain short with the price action backing him up. He's also happy to be long USD right now.

Tuesday, 7 July 2009


L: 18% S:36% G: 54% N: -17% ~ $D 0% $G 0% $V 0% $P 0%

The Raven has been relatively quiet (on the posting front), but relatively busy on the short term trading front. The 888 level in the SPX looks like a pretty key resistance level, the Raven is betting on it not holding. He's mainly short MCO, as going forward the business model doesn't make sense, the stocks been all over the place today, is still up on the day, but thanks to short term vol he's still up a decent amount.

EXC has sweetened it terms for NRG. The Raven notes that NRG has government backing and cash for nuclear participation, whereas EXC doesn't, he thinks that NRG is very undervalued, whereas EXC is marginally cheap, he's long NRG and looking to increase his position if it comes to his level, he definitely wouldn't be accepting the EXC deal, even though its offering an ok-ish merger arb spread. He thinks management have done a pretty decent job, hopes they keep their eyes on business execution and smart shareholders value the business correctly.

He covered the majority of his PUB short yesterday, thats just trading around the position, he was tempted to put it back on as it was up 4% today, which is a dead cat bounce in the Raven's eyes. He's still in the double dip camp, and all this talk about property bouncing is just nonsense, its still overvalued and no amount of rah rah rubbish from Foxton branded tits is going to change how expensive property still is, how much rents could still fall from unemployment.

PFE/WYE still looks interesting, especially the PFE leg as a long, he's sniffing.

He also traded some miners last night, liquidity provision as such, flipping them today. They're interesting and certainley worth picking over, perhaps for some relative value.

He's also doing a lot of work on optimal positioning and balance sheet optionality in a "quiet" summer time...