Monday, 12 April 2010

EU bailout part deux

He's just noticed that the last post of his was actually about the EU bailout of 3 weeks ago, and the Raven has a few hypothesesesese;

1) Greece is budgeting using a 3% funding rate, hence the reason they are moaning so much about 6% interest rates. That would mean that with their ~130% net debt to GDP they are going to see an additional budget deficit of ~ (6%-3%)*130% = 4%. Which if the Raven were to be right would be larger than the gains they've made from their "austerity" package. Obviously he's being a bit cynical and speculative with that comment, but its entirely possible.

2) The announcement of a €30bn @ 5% loan today actually includes the IMF funds that have been anticipated (€10bn @ 2.7%), that would mean that ... the EU is actually giving €20bn @ 6.15% which would fit more into line as to what Germany has been asking for.

3) These loans do nothing to change the fact that Greece would appear to be insolvent and is just kicking the can down the road. The Raven can't really see a point where they will start to run a surplus, or that staying with the EUR they will suddenly become competitive enough to grow their way out of the hole they're in.

4) That this still appears to be a backstop facility and that the EU haven't actually fired the bazooka, they've just told you how big and how much it cost.

5) The Raven is rather suspicious of France being so insistant that a deal is done, might it have something to do with the fact that its banks have been the biggest lenders to Greece?? non non non of course its just being a good EU neighbour, Sarko would never be so blatantly ridiculously opportunistic.

position notes

As the Raven is about to take a non market related holiday due to the arrival of a LO, he thought he'd summarize his views so that he's got something akin to position notes when he's back in the land of the living.

$EURUSD; well the Raven spunked some cash on some 1week puts on the EUR and on some put spreads, all pretty low strike and took off his EUR short. The options were certainley cheap as a vol trade and he doesn't doubt that if he'd be delta hedging it he would have made money on today's gap alone. But as he was actively trading his delta and taking a view he's wasted 2% of the fund, ye pays ye money, ye takes ye chances.

$GBPUSD; he's put on a bit of short position this morning (pre-waterfall). The bookmakers now show a fall in the probability of a Conservative majority from ~61% to 58%. Whereas GBP has rallied with the rest of the market. Its also interesting that the polls over the weekend didn't show a marked difference. Longer term he's bullish GBP because of the large event risk priced in.

Nedbank; he's been long and trading this around, selling at 141 and buying in again ~ 136 over the last two days. This still looks like a good longer term thesis, which again has suffered from some country specific news.

$FRX he's been looking at this stock and bought some after its large sell off on Thursday when it didn't get approval for a new drug. He thinks the market is placing an unfair discount on the drugs that have yet to roll off, its a small position and a small trading long.

Gartmore Group, the stock has dropped because of the suspension of one of the directors, its been stated that this is due to him directing trades to certain brokers in conflict to the firms rules, however the Raven thinks the market has mentally linked this to the insider trading that the FSA have been investigating, which the company have denied. At this price relative to other asset managers it looks like a decent punt, especially given that its bite size and he's got about 5% of the portfolio in it currently.

$UAUA yes its an airline, yes its got a unionized workforce, but its also got a lot of potential in the m&a space, the numbers don't look too bad and its definitely had some momentum, as much as he hates to admit it the Raven is bullish on this space and UAUA and BA look the best ways to play it. BA is a different case, because he thinks if Willy Walsh get the best of the UNITE union and introduces the staff savings that could be expected, if they wrap up and integrate iberia well, then the stock could easily be worth 700-800p, so at 240p that looks like a good enough bet. The Raven has been pretty long on its recent small move, but took a few chips off the table last week, partially because he's a chicken and partially because there were other trades to put on.

Pendragon is about 10% of the book as well, it looks like a good story at a good boring price, he's made the thesis before and is bored of it himself.

He's got a small long in oil and gold, oil because if tensions rise with Iran then this will benefit, if the Chinese do a reval then commods will rise as well, and it doesn't look like he's risking too much for both of those plays.

He's short $AA and $AXP as a hedge.