Tuesday, 6 July 2010

a couple of long weekend thoughts

Lubrizol popped up on a screen over the weekend, it looks ok from a valuation perspective, its been touted as a aquisition target. The Raven remains rather skeptical of that potential outcome, for sure speciality chems is a consolidating sector, however its not clear to the Raven whether Lubrizol really fits as 'bolt on aquisitiong' for the diversified big players. It does look relatively cheap given the recent operating improvements. Chart looks fine, but its more of a case of waiting for the right entry point rather than just buying a "cheap" lottery ticket at the moment. From a valuation perspective it appears to be >30% cheap, however as with all companies in this sector its very hard to strip out the cyclicality in the earnings and cashflow, so a lot more work to do on this puppy..


Interesting to watch it squeezing higher at the moment as the Raven thought it might, but before he crows, its interesting to look at the current newsflow and how that might change. Currently it appears that the market is reacting to small positive stories, such as the story yesterday that Libya basically thinks its an interesting investment, other stories have focused on SWF's buying more stock. At the same time there have been pieces highlighting that the actual costs have already hit $3bn, the stock is UP, so it does say which way the market is positioned perhaps? The Raven gets the feeling that the market would react far more positively to news that the well is capped than it would on news of additional liabilities.

As much as he would castigate himself for his dog leg forecast, but it does appear that the short term trend is up and that longer term it could be much lower.


The Raven is lagging behind in these longs to their hedges at the moment, he's not too concerned although he's keeping a close eye on things. It does appear that tech and financials are driving a lot of the index volatility at the moment, but that is the nature of the beast in a low volume summer period with lots of macro tid bits.


"Interesting" that Trichet was making comments on fiscal responsibility this weekend. The Raven has to admit that he has thought that budget cuts in the UK were positive, however the implicit support of these budget cuts from Merve the Swerve and Tichet have really made him question their wisdom, the case that belief in these measures restoring confidence was shown to be hollow in the Great Depression seems a lot more compelling now. It is however interesting to see the EUR's reaction over the last week to a good liquidity auction, a good Spanish bond auction, Trichets comment... but in reality is it anything more than a well flagged short squeeze? and more of a USD sell off, given the weak data coming out of the US and perhaps a realization that the US isn't that much ahead of the curve. Especially when one looks at the way some of the other crosses have traded.

$GS vs $XLF

Without too much of a view this is a chart the Raven likes to look at, the residual performance of GS versus the financial sector ETF. Its interesting to see the GS seems to be losing its rerated premium that it earned during the financial crisis. Perhaps part of that is the unwelcome government attention (certainley not all of the derating as the process had already started before the SEC came out with anything), or perhaps the interpretation of the effects of the Volker Rule (which seems very unlikely given how watered down it has become). Just something to think about.

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