Tuesday, 25 August 2009

tinkering tuesday

L: 105% S:105% G: 210% N: 1% ~ $D 0% $G 0% $V 0% $P 0.00%

Some interesting comment today out of PUB LN that they are on course to hit year end targets caused the Raven to review his numbers on the company. He understands partially why its trading where it is, it does represet an option on the underlying assets. This doesn't mean however that the option is in the money or should be trading at anywhere near the level that it is. A 10% fall in the value of their property assets and writing off their goodwill and its book value is zero, its still very levered ~9x which doesn't given them too much comfort room if the EBITDA doesn't match up to their targets. The Raven had been in and out of this as a short, well with the 10% pop in the stock today, he's getting short again, looking to scale into the position on the close.

He's also been playing around with simple valuations for the market as whole, on a mid p/e and using his earnings model the market does look fair, however if one does take into consideration the low treasury yield then its pretty easy to come up with a much higher valuation. Obviously QE and investor risk aversion make government bonds overvalued to stocks; the question that is still to be answered is what is going to happen to inflation/deflation, to answer that is far more tricky given how opaque chinese figures are and the amount of capacity that they have potentially added. In very simple terms the Raven belives that China has added a large amount of capacity and stock piled a lot of commodities, this should be a large deflationary force, he also doesn't believe that the monetary and fiscal stimilus are sufficient to create inflation given the vast reduction in money supply and velocity in general from the crisis. The curious question is what effect will deflation have on stock prices? and what about the USD?

The Raven has been keeping pretty close to shore and still taken a fairly heavy beating on his MCO short, he'd been covering it slowly over the last week, eating a lot of the pain on the way up, last nights price action indicated that perhaps its due a reversal and so he put a unit of risk back on the table, although he does remain cautious. He also put a unit of risk back in the EMC/SNDK pair trade - yes he does know that they're not really a hedge, but at least they're in the same index and have a reasonable correlation.

He's also looking a lot more at the M&A universe again, he reviewed the bottlers PAS and PBG, no dice.
JAVA - no dice there either, although he's hoping for a french exotics firm head if this deal does close before year end - in fact there would be nothing sweeter than picking off a 'granny robber' trying to make clever fat prices on exotics.

He also increased his CYCL position and is yet to understand why its trading where it is, even though it appears to be drifiting more like a true deal spread these days.

The Raven has also cast his eye back to MIR and NRG as they've drifted lower in this rally, they could get very interesting if they fall back a bit further.

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