Thursday, 20 August 2009

back from a break.

Its been a while since the Raven felt in need of posting, however yesterday's market action reminded him of the need for the discipline that marshalling of thoughts in a daily post brings.

He's increased his MCO short position, technically it appears the stock is bouncing off the 23's level for the third time, but rallying by smaller amounts, usually this is a good indicator that the stock will break that resistance level. He's felt a bit of pain from being too agressive too early and fighting the trend, which he's been really trying to avoid with his other trades. He's also a bit annoyed at that mistake with MCO, hence the public confession for making that stupid mistake and a resolve to correct it and be more rational going forward.

On the long side of the book he put on a new position in CYCL, which is being aquired by AT&T. It appears that the stock has sold off on the belief that this deal takes even longer to complete or that T decides it wants to renegociate for a lower deal price - which he doesn't think they'd get away with doing. He bought the stock down ~10% from its deal price, which would give a 20% IRR in a 6month deal completion (which he'd wager will happen, or it'll at least have broken).

He's added a couple of UK small caps to the watch list but is pretty far away from being able to pull the trigger.

Other longs in the book are some of the catastrophy reinsurers, they look to be pretty cheaply priced vs other financials, they've also been looking to consolidate as an added kicker, hence the Raven adding IPCR. (small positions in PTP and Aspen as well). He's also looking at some of the emerging market banks - specifically Turkey, although he's done a comp. with SA banks, which are pretty tightly priced given all their risks.

Macro thoughts otherwise remain limited, FX momentum continues to be a weak trade. He still thinks we'll see deflationary forces for a long time to come due to the huge excess capacity that is left in the system and the rebuilding of the consumer balance sheet constraining any bounce back in consumption - hence the feeling that the huge bounce in China is perhaps a little overdone. He's placing a small bet that libor spreads rise in the UK while remaining in the long US 10yr treasuries, although thats a micro sized trade.

L: 150% S:145% G: 295% N: 5% ~ $D 25% $G -7% $V 0% $P -1.09%

He's also sold some short term downside puts, the 1000 level seems to be a magnet for the market, he doesn't expect it to go anywhere for a while and is happy to try and make some money collecting theta, he also thinks that his longs will have very little beta on the downside whereas the beta on his shorts could very well explode if there is a sell off.

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