June sees us up a modest 6% with gains in Silver and a small MTM loss on our CEDC position. Read on for more, including how we will be positioned as markets open tomorrow.
Promises are never thin on the ground with EU Summits, but rarely does the market believe them. Thursday/Friday deviated from the usual "Buy the rumour, Sell the fact" truism in that we did actually get a nice big policy-driven rally. For us, the key difference was a very subtle regime shift: Germany has agreed to let Spain be another "exception" (like Greece) to the rules and as a result, it is now more and more inbedded in the European psyche that German unsterilized bailouts will always be a fail-safe backstop.
In short, Merkel appears to have saved the day for Spanish banks with ESM cash underpinned by, at best, moderately punitive conditions.
SILVER
Clearly, our base case scenario for gains in Silver has materialised. Exposure to inflationary policy was one of the key drivers behind this high conviction long and the market has seen the ESM decision as just that. XAGUSD (Silver in USD) increased by 7% approximately from a low 26 handle to the high 27s.
We averaged in to our position down to 26.12 with an aggregate mean of 26.84, losing a few trades to stops as Silver plummeted - the speculating market was heavily net long above 28 and we saw a textbook 'squeeze and puke'. The technicals were firmly against us early last week and we downsized appropriately, noting also that Gold was still some way off its equivalent support level.
Hinsight is 20x20 - prudence should not be regretted.
Profits were taken after the news in decent size and we are left about 1/3 long Silver with unrealised profits of 2-3% MTM.
CEDC
We bought stock in this company at 3c with half of our allowable capital for a single name - we will buy more if the price creeps lower to our stop level of 1.90c (allowing for a possible round number bounce at 2c). The position is hedged vs S&P (post a comment for more details).
Trade rationale here is very simple indeed, it reflects our push for convex R/Rs:
The bonds popped 5pts on Monday after the "strategic alliance" with Russian
Standard was announced, easing immediate liquidity concerns. We expect further
upside as real money reassess the name and other banks turn credit positive.
Further Catalysts
- Management inadequacies have dogged this name in the last few years. The
addition of Roustam Tariko is a major positive given his success in developing
Russian standard into the number one premium vodka brand (50% mkt share).
- RS could own 28% of CEDC equity. Also, RS has a right of first refusal on
any proposed transfer >25% of stock owned by William Carey. Credit +ve as
may signal an eventual resignation of Carey and RS' appetite for more stock in
the co.
Much of the immediate strength in the name has arisen from the easing of
liquidity concerns as RS has injected cash to repay the 2013 convert. The only
players have been fast money (short covering) and the street (fading the rally).
Your table are too sword like to feature and relaxed to see.
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