Monday, 26 October 2009

a few things

L: 172% S:176% G: 348% N: -4% ~ $D 88% $G -3% $V 0% $P -1.45%

The Raven has flown a little closer to the sidelines. The market has had a great run since it bottomed in March, risky assets have flown out the door, the dollar price of almost everything is much higher and its certainly been a case of the trend being your friend. That said things are beginning to feel weaker, with an inability to make higher highs over the last month. He’s also heard that systematic high frequency space has been a lot quieter with a lot less money to be made, this does make him think that some of the easy money flowing into the market has slowed down, as the market doesn’t tend to change its efficiency that quickly.

The other element that fits this hypothesis is the reaction to earnings announcements, companies that have surprised with much higher earnings than analyst estimates haven’t had the follow through that the Raven would normally expect, but perhaps that is sample bias.
The FT weekend headline last month (or perhaps the month before) that there were more ‘day traders’ in the market now that at the top of the tech peak is again a bit of negative news, as it goes hand in hand with a rather large earnings multiple expansion that we are seeing.
The Raven is having a look at JAVA again today, he’s been following the stock closely since it became an M&A name, its been pretty volatile given the fact that ORCL marketed the deal as being a good idea because it should have got through regulatory hurdles easily, that said who’d have thought the EU would be SUCH a pain.

The Raven has changed his mind on SNDK, he was actually long over the earnings because there has been so little anticipation of good numbers in the build up and their customers had been talking about good sales so it seemed pretty obvious that they’d beat, although he wasn’t expecting it to be by so much, or that they’d have so much pricing power. The stock looks pretty decent here and has reacted strongly, he’s been holding a small long.

MCO has been very pleasing for the Raven, he noticed when the stock really broke down how much retail chatter there was in the name and how much the short interest had popped, he’d made a lot of money and it appeared a lot of people had got on the bandwagon in a short space of time, so he took his profits ($1 too early mind!) and has enjoyed watching the inevitable short squeeze. He’s looked to get small short the last couple of days as it appears to be technically turning.

The Raven’s performance has been rather patchy this month he up 7.91% (especially in comparison to last month), but that really should be a lot higher given how right he’s been, he needs to really focus on monetising his good ideas and has been doing a little work on trying to squeeze more out of them with a more systematic position management approach.

He hopes that there is another Royal Mail strike this week as well, and he hopes that the union get shown up for what they are, greedy. His thoughts on the unions are just reinforced everytime he sees the way they behave, and he’d love for it to become a privately listed company, because he’d short it until the cows come home, especially with those ridiculous public sector style pensions, just look how much BT is enjoying having those.

Wednesday, 21 October 2009

bounce back wednesday..

Mervyn King’s Speech in Edinburgh to Scottish business organisations.:

The second approach rejects the idea that some institutions should be allowed to become
“too important to fail”. Instead of asking who should perform what regulation, it asks
why we regulate banks. It draws a clear distinction between different activities that
banks undertake. The banking system provides two crucial services to the rest of the
economy: providing companies and households a ready means by which they can make
payments for goods and services and intermediating flows of savings to finance
investment. Those are the utility aspects of banking where we all have a common interest
in ensuring continuity of service. And for this reason they are quite different in nature
from some of the riskier financial activities that banks undertake, such as proprietary
In other industries we separate those functions that are utility in nature – and are
regulated – from those that can safely be left to the discipline of the market. The second
approach adapts those insights to the regulation of banking. At one end of the spectrum
is the proposal for “narrow banks”, recently revived by John Kay, which would separate
totally the provision of payments services from the creation of risky assets. In that way
deposits are guaranteed. At the other is the proposal in the G30 report by Paul Volcker,
former Chairman of the Federal Reserve, to separate proprietary trading from retail
banking. The common element is the aim of restricting government guarantees to utility
There are those who claim that such proposals are impractical. It is hard to see why.
Existing prudential regulation makes distinctions between different types of banking
activities when determining capital requirements. What does seem impractical, however,
are the current arrangements. Anyone who proposed giving government guarantees to
retail depositors and other creditors, and then suggested that such funding could be used
to finance highly risky and speculative activities, would be thought rather unworldly. But
that is where we now are.

The whole of this “gem” is here:
The elements that this speech neglects and brushes over are precisely the counterpoint that such regulation would be impractical. It doesn’t address the potential side effects. It seem truly “unworldly” to believe that a separation of deposit taking and financial intermediation from propriety trading is possible. The distinction between prop trading and intermediation is totally artificial, ultimately banks make a profit from taking a risk, whether that risk is whether a borrower defaults on a mortgage or GBP/USD realized vol is lower than implied is irrelevant.
Utility Banks would still have to take deposits and invest them, so the question remains in WHAT? They’d clearly still be able to invest them in risky assets, after all there is no such thing as a riskless asset that earns a return, even government bonds have some degree of risk. Let us for a moment assume that all deposits are to be held in government bonds, where would borrowers source their capital from? Neglect the fact savers would receive a far lower interest rate on their savings (which would in turn reduce the savings ratio that Mr. King wishes to increase, now??), it would simply mean that the government took the role of deciding who to extend credit to and this pundit finds it even more “unworldly” that the government would optimally allocate capital without a hugely partisan agenda.
Does anyone for a minute believe that the government in the UK wouldn’t have made enormous sub-prime loans in the UK to first time buyers when the property market was at its peak?
His speech fails to really address the reason that the state guarantees retail deposits at all, after all the people that were taking risk that got rewarded for their failure were retail depositors in institutions such as Northern Rock. They went after 1% more interest rate and got a government guarantee, perhaps the politicians should asking for a claw back of interest payments above the BoE benchmark rate?
Other economists (real economists, not wannabe but failed idiots sitting at the central bank) make the case clearly that depositors have to be bailed out otherwise there is a total breakdown in the velocity of money, that people essentially hoard their capital, refusing to spend or lend it, which clearly kills demand and creates a depression. So the question should really be, who benefits from not having a depression? Generally that’s going to be the taxpayer...