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.
Monday, 12 April 2010
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.
$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.
Friday, 26 March 2010
is that a bail out?
It appears that the Greeks have been given a deal by the EU, where Germany have agreed to a package rumoured to be up to €25bn of support if the IMF comes in on the deal. Now it appears to the Raven from looking at the IMF website and doing his maths that the IMF will be able to lend €10bn at a blended rate of 2.7% (below where Germany could borrow). One would imagine that the Germans would be canny enough to argue that they (and France) should lend the remaining capital at a higher rate, say 4%? which would give Greece an average cost on €25bn of 3.48%.
The Raven thinks this is a ridiculous plan, which only serves to increase moral hazard and does nothing to either clear up the problem or to really stop the risk of contagion.
First lets but €25bn in context, thats pretty much the debt that Greece needs to roll over in the coming two months, and is ~8% of the total government debt.
Secondly it doesn't solve what really is becoming a solvency issue. Greece has moaned very loudly that is having to pay 6%, one has to wonder really whether they are good for the money they've borrowed already if they can't deal with a 6% interest rate. Its entirely irrelevant what what interest rate other EU governments have to pay on theirs.
The Economist had some numbers this morning that highlighted that the percent of GDP that would be taken up with interest payments will grow from 5% to 8.4% from 2009 tp 2014. They also highlight that government debt will be ~ 350bn which as a % of today's GDP is 147%. As a long term investor the Raven really doesn't think that the Greeks will ever be able to pay that back or grow their economy quickly enough to shrink that number relatively.
http://www.economist.com/business-finance/displaystory.cfm?story_id=15772801&source=hptextfeature
The structure of this "support" from the EU appears to be that they will step in when Greece can't borrow from the market. Surely Sarkozy can see that this encourages speculation? The real question is if this package is big enough and scary enough to make the market feel that Greek paper is safe and that you'll be bailed out if you buy it, in which case Sarko won't be firing his bazooka just yet.
Personally the Raven thinks this announcement will cause a small rally in Greek paper, but the market will come back and push the hand of the EU, either on Greece or another one of the UPIIGS.
The Raven thinks this is a ridiculous plan, which only serves to increase moral hazard and does nothing to either clear up the problem or to really stop the risk of contagion.
First lets but €25bn in context, thats pretty much the debt that Greece needs to roll over in the coming two months, and is ~8% of the total government debt.
Secondly it doesn't solve what really is becoming a solvency issue. Greece has moaned very loudly that is having to pay 6%, one has to wonder really whether they are good for the money they've borrowed already if they can't deal with a 6% interest rate. Its entirely irrelevant what what interest rate other EU governments have to pay on theirs.
The Economist had some numbers this morning that highlighted that the percent of GDP that would be taken up with interest payments will grow from 5% to 8.4% from 2009 tp 2014. They also highlight that government debt will be ~ 350bn which as a % of today's GDP is 147%. As a long term investor the Raven really doesn't think that the Greeks will ever be able to pay that back or grow their economy quickly enough to shrink that number relatively.
http://www.economist.com/business-finance/displaystory.cfm?story_id=15772801&source=hptextfeature
The structure of this "support" from the EU appears to be that they will step in when Greece can't borrow from the market. Surely Sarkozy can see that this encourages speculation? The real question is if this package is big enough and scary enough to make the market feel that Greek paper is safe and that you'll be bailed out if you buy it, in which case Sarko won't be firing his bazooka just yet.
Personally the Raven thinks this announcement will cause a small rally in Greek paper, but the market will come back and push the hand of the EU, either on Greece or another one of the UPIIGS.
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