Monday, 30 June 2008
Get Down
Flash Rabbit indulged in his usual bad habit of profit-taking too early last week, leaving what could have been really juicy shorts only marginally in the money before he cut them off. He came out of Barratt Developments, EasyJet, DSG International and Legal and General far too early - he's back in and short the lot of them again now but missed out on a big jump downwards. By far the most profitable has been a short in MBIA which plunged to an alltime low of 3.64 today before recovering - why anyone would want to invest in dodgy credit insurance is beyond the rabbit - on the other hand a number of institutional investors desperate to avoid the fallout from their insurer going bust might want to prop it up as best they can...but Flash remains resolutely short on both AMBAC and MBIA, although he took a bit of profit this afternoon. The biggest mistake was to take profit on the remaining Dow and FTSE short positions only to see both indices plummet - this was partly because the rabbit was too busy burrowing elsewhere to keep his eyes on the screen and so decided to bale out for the sake of safety. What a shame. He's been looking for another point to go short again but just keeps losing money in the process. The market hasn't quite got to a capitulation point but it's doing its best to avoid total destruction, although why $140 a barrel oil isn't enough of a warning it is impossible to tell. Perhaps Thursday will be another pivot point and lurch southwards...the data certainly doesn't look like it's going to get any better. Right now he continues to maintain that EasyJet, DSG, Barratt and - the biggest bet of all - Thomas Cook - which finally paid off today - are doomed. All exposed to weak consumer demand, high inflation, high oil, and all pitched at exactly the segment of the customer base which is in the most debt and in the most trouble. As the customer, so the company...
Friday, 20 June 2008
The cosmic void
One of the best days for quite some time for Flash Rabbit's fund - pretty well everything that Flash expected came to pass, although he had to give it all his full attention to squeeze the maximum juice out.
He put a quick short on MBIA and added to his short on AMBAC mid-morning, thinking that the banks' loan mess was on the verge of unravelling, and sure enough, they tumbled - particularly MBIA which Flash Rabbit thinks is stuffed in the medium term. And if they are stuffed, then so are most of the banks. Well, that's what the market seemed to think today, anyway.
He added to his FTSE and Dow shorts - if only he was less nervy then he would be sitting on an enormous pile of cash by now. As it is he made a lot but would have made much more if he'd kept his nerve and not kept dropping in and out. Some very simple errors made about remembering to let profits run and not jumping in at the wrong price point, not doubling up and then panicking when the market seemed to turn...as it was, it was as close to a straight line down as one is ever likely to see. And beneath the 5620 mark on the FTSE lies a gaping void with no support in sight...perhaps that might focus some attention on desparately trying to heave the index up from the abyss on Monday. Oil may be the key, but regardless of what happens with oil, the macro picture is still bad, bad, bad. It's great that China and India have begun to bring their fuel prices in line but that will only create even more inflationary pressure - it might reduce demand for oil there but it will also create wage pressure and increased manufacturing costs. So it's all a devil's bargain. Oil is the inflationary poison and that's why Flash is interested in post-oil economies and the people who are thinking about them. If he had the capital to be invested in solar power, and most forms of renewables, he would. He did take out a quick long in Scottish and Southern Energy at the end of the day - might or might not work, especially if the market tumbles further with more grim data next week, but he's going to give it a go.,
Flash's short position in HBOS (along with half the rest of the trading community, probably) has been the story of the week - took profit on that but has left one bit of it still running, because Flash thinks that in spite of any short term rebound, HBOS is in bad trouble. Any bank that uses the word 'resilient' in a trading statement makes him think that it must be feeling pretty beleaguered.
Flash waited for the housebuilders to rise - utterly illogically in his view - as no-one much has any chance of buying a house at the moment - and then banged on a quick short on Persimmon - a fast £40 profit and he'll probably reinstate the short when the market settles (if that's the right word) at the start of next week. He's kept a short in place on Barratt too. The banks might write off some of Barratt's debt but that's because of saving their bacon, not Barratt's...so no particular expectation of any improvement there. And if (when?) interest rates rise, all hell will break loose in the housing market. It's bad enough already...the only kinds of housebuilders Flash Rabbit is interested in are low carbon, low energy, low impact, intelligent ones. And there don't seem to be any of them in the FTSE 350 that he can spot.
What Flash Rabbit is now thinking is - what's the next phase once the bank meltdown has happened, we have a sense of the longer term direction of oil (vertically up or moderately horizontal?), once the housing market has unravelled - and what's the next toxic shock? Massive devaluation of the pound and the euro? Currency chaos? Mass unemployment? He will be pondering that over his copy of the FT during the weekend and trying to spot the next theme.
So he ends the week in good shape with virtually all his positions (bar Euribor) showing a healthy profit. Nice one.
Next week Flash will talk about his longs and his shorts.
He put a quick short on MBIA and added to his short on AMBAC mid-morning, thinking that the banks' loan mess was on the verge of unravelling, and sure enough, they tumbled - particularly MBIA which Flash Rabbit thinks is stuffed in the medium term. And if they are stuffed, then so are most of the banks. Well, that's what the market seemed to think today, anyway.
He added to his FTSE and Dow shorts - if only he was less nervy then he would be sitting on an enormous pile of cash by now. As it is he made a lot but would have made much more if he'd kept his nerve and not kept dropping in and out. Some very simple errors made about remembering to let profits run and not jumping in at the wrong price point, not doubling up and then panicking when the market seemed to turn...as it was, it was as close to a straight line down as one is ever likely to see. And beneath the 5620 mark on the FTSE lies a gaping void with no support in sight...perhaps that might focus some attention on desparately trying to heave the index up from the abyss on Monday. Oil may be the key, but regardless of what happens with oil, the macro picture is still bad, bad, bad. It's great that China and India have begun to bring their fuel prices in line but that will only create even more inflationary pressure - it might reduce demand for oil there but it will also create wage pressure and increased manufacturing costs. So it's all a devil's bargain. Oil is the inflationary poison and that's why Flash is interested in post-oil economies and the people who are thinking about them. If he had the capital to be invested in solar power, and most forms of renewables, he would. He did take out a quick long in Scottish and Southern Energy at the end of the day - might or might not work, especially if the market tumbles further with more grim data next week, but he's going to give it a go.,
Flash's short position in HBOS (along with half the rest of the trading community, probably) has been the story of the week - took profit on that but has left one bit of it still running, because Flash thinks that in spite of any short term rebound, HBOS is in bad trouble. Any bank that uses the word 'resilient' in a trading statement makes him think that it must be feeling pretty beleaguered.
Flash waited for the housebuilders to rise - utterly illogically in his view - as no-one much has any chance of buying a house at the moment - and then banged on a quick short on Persimmon - a fast £40 profit and he'll probably reinstate the short when the market settles (if that's the right word) at the start of next week. He's kept a short in place on Barratt too. The banks might write off some of Barratt's debt but that's because of saving their bacon, not Barratt's...so no particular expectation of any improvement there. And if (when?) interest rates rise, all hell will break loose in the housing market. It's bad enough already...the only kinds of housebuilders Flash Rabbit is interested in are low carbon, low energy, low impact, intelligent ones. And there don't seem to be any of them in the FTSE 350 that he can spot.
What Flash Rabbit is now thinking is - what's the next phase once the bank meltdown has happened, we have a sense of the longer term direction of oil (vertically up or moderately horizontal?), once the housing market has unravelled - and what's the next toxic shock? Massive devaluation of the pound and the euro? Currency chaos? Mass unemployment? He will be pondering that over his copy of the FT during the weekend and trying to spot the next theme.
So he ends the week in good shape with virtually all his positions (bar Euribor) showing a healthy profit. Nice one.
Next week Flash will talk about his longs and his shorts.
Thursday, 19 June 2008
Impatience - and overtrading
Being an impulsive and impatient sort of animal, Flash Rabbit has a propensity to overtrade. In between doing other, more lucrative, things he did that today and as a result didn't make very much money at all- although 90% of his calls proved to be correct, in all but 2 of them he got fed up waiting for them to work out and cut them off prematurely. The sensible thing to do would have just been to make one or two calls and let them work through. He failed to observe some golden rules of trading - 1. don't overtrade because every time you get into a position there is a cost and a risk/reward involved and 2. don't get frustrated - cool off and be technical and detached and 3. don't have too many positions at once, especially when you have very limited resources.
Today the market lurched back and forth - with a mixed to nasty bag of indicators but the fundamental grimness still very much intact. Flash Rabbit takes an extremely negative view of the current prospects - even if oil temporarily drops back, the inflationary drivers will still be there, and we haven't even seen the end of the beginning of the fallout from the current inflationary push; plus the banks aren't really doing much lending at the moment, and borrowers are defaulting all over the place, which will tighten the screws on the economy even more. Flash Rabbit's hunch is that the banks are in much the same condition as many of their overstretched customers, with devaluing mortgage books and a load of complex bonds/derivatives that they can neither sell on nor pay back, many of which are becoming totally worthless as the market unwinds. So they are hoarding money - scrimping and saving just like the householder - refusing to lend, and thus making things even more difficult, gumming up the supply of money even more. Add to this the impact on margins of inflation followed by the skidding screech of central banks raising interest rates, (and the banks nursing their losses from all their long positions in equities that got punked out), wherever and whenever that occurs, and the most almighty meltdown could ensue. The banks might be bankrupt. For this reason Flash Rabbit has taken out a long position on Euribor, even though in typical Flash rabbit style he isn't entirely certain what Euribor is, thinking that banks are inevitably going to want to make it more expensive to lend money to each other for the time being.
HBOS's {estimated?} £1 billion writedown is only the start of something much bigger. Flash Rabbit hates the banks because they merrily pumped up the inflationary balloon, lent out all their profits to increasingly dodgy propositions (or paid bank bosses very fat bonuses), and failed to look beyond the horizon to more uncertain times. With this in mind he put a quick short on AMBAC today - a little after the event but he doesn't expect their lives to get any easier this year and he expects plenty of shockers to come from the financial sector, and more dodgy CDOs to rear their ugly heads.
Flash Rabbit was planning to talk about his remaining long positions but there aren't many of them left. So that will have to wait until next week. Instead here's a rundown of his greatest hits and misses so far:
Flash Rabbit’s biggest hits
A long bet on Apple from 13700 to 15500 – if only he’d run his profits he’d have been an even more smug rabbit by now.
A bet on oil at 119 a barrel to rise at £1 a point – came out of this due to sheer nervousness and tight pants/sweaty armpits at £121 a barrel for a £200 gain but if only Flash Rabbit had let that one run he’d have made some very serious dosh, by his standards, by now.
Short FTSE from 5950 – a shame that he didn’t manage 6200 or thereabouts but that one is still running and looking very profitable indeed.
Flash Rabbit's biggest misses
Some crazy and stupid messing around with oil – dangerous and explosive stuff that has lost him over £300.
More recently, shorting the EUR/JPY cross only to see it soar up about 300 ticks. In fact Flash Rabbit wasn’t stopped out of that one (sensibly, he’d set a wide stop) but was so pissed off and frustrated that he closed the position for a major loss, only to see minutes later that the market dropped down by about 75 ticks. That was probably the stupidest thing Flash Rabbit has done to date as he might now be on the verge of seeing a profit from that trade, had he just left it alone.
Generally dealing in too many instruments and markets simultaneously only to fly into a blind panic when the market turns. That reveals his rank amateurism. However what is interesting about this trading business is that it is an interesting way to do self psychotherapy, provided that you are ruthlessly honest about exactly what is happening at any given moment. It's certainly taught Flash Rabbit a lesson or two about the consequences of impulsiveness and impatience.
Today the market lurched back and forth - with a mixed to nasty bag of indicators but the fundamental grimness still very much intact. Flash Rabbit takes an extremely negative view of the current prospects - even if oil temporarily drops back, the inflationary drivers will still be there, and we haven't even seen the end of the beginning of the fallout from the current inflationary push; plus the banks aren't really doing much lending at the moment, and borrowers are defaulting all over the place, which will tighten the screws on the economy even more. Flash Rabbit's hunch is that the banks are in much the same condition as many of their overstretched customers, with devaluing mortgage books and a load of complex bonds/derivatives that they can neither sell on nor pay back, many of which are becoming totally worthless as the market unwinds. So they are hoarding money - scrimping and saving just like the householder - refusing to lend, and thus making things even more difficult, gumming up the supply of money even more. Add to this the impact on margins of inflation followed by the skidding screech of central banks raising interest rates, (and the banks nursing their losses from all their long positions in equities that got punked out), wherever and whenever that occurs, and the most almighty meltdown could ensue. The banks might be bankrupt. For this reason Flash Rabbit has taken out a long position on Euribor, even though in typical Flash rabbit style he isn't entirely certain what Euribor is, thinking that banks are inevitably going to want to make it more expensive to lend money to each other for the time being.
HBOS's {estimated?} £1 billion writedown is only the start of something much bigger. Flash Rabbit hates the banks because they merrily pumped up the inflationary balloon, lent out all their profits to increasingly dodgy propositions (or paid bank bosses very fat bonuses), and failed to look beyond the horizon to more uncertain times. With this in mind he put a quick short on AMBAC today - a little after the event but he doesn't expect their lives to get any easier this year and he expects plenty of shockers to come from the financial sector, and more dodgy CDOs to rear their ugly heads.
Flash Rabbit was planning to talk about his remaining long positions but there aren't many of them left. So that will have to wait until next week. Instead here's a rundown of his greatest hits and misses so far:
Flash Rabbit’s biggest hits
A long bet on Apple from 13700 to 15500 – if only he’d run his profits he’d have been an even more smug rabbit by now.
A bet on oil at 119 a barrel to rise at £1 a point – came out of this due to sheer nervousness and tight pants/sweaty armpits at £121 a barrel for a £200 gain but if only Flash Rabbit had let that one run he’d have made some very serious dosh, by his standards, by now.
Short FTSE from 5950 – a shame that he didn’t manage 6200 or thereabouts but that one is still running and looking very profitable indeed.
Flash Rabbit's biggest misses
Some crazy and stupid messing around with oil – dangerous and explosive stuff that has lost him over £300.
More recently, shorting the EUR/JPY cross only to see it soar up about 300 ticks. In fact Flash Rabbit wasn’t stopped out of that one (sensibly, he’d set a wide stop) but was so pissed off and frustrated that he closed the position for a major loss, only to see minutes later that the market dropped down by about 75 ticks. That was probably the stupidest thing Flash Rabbit has done to date as he might now be on the verge of seeing a profit from that trade, had he just left it alone.
Generally dealing in too many instruments and markets simultaneously only to fly into a blind panic when the market turns. That reveals his rank amateurism. However what is interesting about this trading business is that it is an interesting way to do self psychotherapy, provided that you are ruthlessly honest about exactly what is happening at any given moment. It's certainly taught Flash Rabbit a lesson or two about the consequences of impulsiveness and impatience.
Stop Press - Red Alert
Having been away from the screens for a day, and looking at the carnage, and reading this, Flash Rabbit has no plans to buy any stocks for the forseeable future and will in almost all certainty close out all his remaining long positions and sell his remaining shares first thing tomorrow. His shorts, however, are doing just fine, and he's just added to them.
Wednesday, 18 June 2008
Liquidation
Last week Flash Rabbit sold off all his shares except for retained holdings in three small companies – one of which is IG Holdings plc, on the basis that if idiots like Flash Rabbit are getting into spread betting then their profits for this financial year must be astronomical. They have been opening 1000s of accounts and Flash Rabbit is willing to bet good money that a lot of people will have lost their shirts in the recent volatility. Hence he retains these shares, especially as he understands that IG is fully hedged against losses, and he thinks their business model is sound. He also has a very small holding in Man Group, one of the largest hedge funds, which he is currently considering cashing in for around 5% profit given that all of the financial institutions are taking a thrashing at the moment. The shares that Flash Rabbit sold were British Airways (although he is considering buying some again if the price drops back below the 200p mark, as he thinks that they have a much better chance of survival than most of the other airlines, and will therefore pick up market share over the longer term, plus they have less debt, better staff and more high value assets than most), Scottish and Southern Energy (for a £1 a share profit just before the price dropped back to January levels) and Vedanta Resources (he got rid of these two weeks ago), figuring that the commodity boom was about to become pretty choppy and volatile.. However he likes all of these companies and may yet buy back in once the market has dropped back by 2 or 300 more points (or more), which is what he expects it to do.
Flash Rabbit has three big investment themes – sustainability and energy efficiency, including renewable energy (hence his interest in Scottish and Southern Energy), trying to spot value propositions in media, technology and creative industries (although thus far he has failed at this, although he would have bought some Apple shares in late January if he could have afforded to) and shorting the hell out of basket cases in the financial sector and the retail sector given that global economic conditions are in such a disastrous state, and the banks have been utterly stupid in lending far too much money to people who can’t afford it, and then lent these loans to each other through some stupid debt instruments which they now can’t trade with anyone. Plus the banks’ one track investment strategy seems to have been to be long on energy, commodities and emerging markets, linked to a load of toxic mortgage lending on commercial and residential property, all of which are slithering around like mad at the moment. Flash Rabbit has a particular hatred of the banking sector given that they have taken so much money off him over the years and wants to fight back, which is clearly not a good emotional state for trading but thus far has been remarkably profitable, probably more because of timing and the credit crunch than anything to do with his particular insight or success. Of course he feels concern for all those people whose jobs are on the line, but has very little sympathy for the senior managers who steered these leaky vessels into this choppy mess.
The banking sector will rebound at some point, when investors decide that their shares are enough of a bargain, but Flash Rabbit agrees with a number of analysts that the banks will need to raise an awful lot more capital and take many many more losses before this crisis is over. He also thinks that a number of banks are probably concealing the extent of their panic and liquidity problems. Results for Q2 and Q3 will be particularly nasty as the economic slowdown works through. We haven’t yet seen the full horror of the combined impact of tightening credit, property deflation and soaring consumer price inflation. More on the banks another day.
He has also been partial to shorting airline shares. Flash Rabbit flies around a lot and so observes first hand how difficult things are getting for the aviation industry. US and European airlines are being hammered by rising oil prices, collapsing consumer demand, and a growing clamour of protest against the environmental impact of excessive flying. More on the airlines another day too.
Flash Rabbit, like some other rather more wise rabbits, is interested in big infrastructure projects as a long term investment theme –there is huge investment and development potential in energy efficiency, in efficient infrastructure like high speed rail, logistics and shipping/ports, and in renewable energy and solar power. Clearly emerging markets, particularly Latin America, Russia, India, China and South Africa are important too but with inflation running wild in these economies, the wage/price spiral going like a corkscrew in reverse, rising raw material costs and slowing Western demand for the goods that they produce, they too are in serious trouble. A counter-argument might be that rapid growth in emerging markets is fuelling consumer and infrastructure demand there and so there remain major opportunities, but as global trade flows unravel Flash Rabbit prefers to watch from the sidelines. In any case, right now he doesn’t have sufficient capital to take out major positions in any of these infrastructure markets, but he fully intends to at the appropriate time.
Flash Rabbit has three big investment themes – sustainability and energy efficiency, including renewable energy (hence his interest in Scottish and Southern Energy), trying to spot value propositions in media, technology and creative industries (although thus far he has failed at this, although he would have bought some Apple shares in late January if he could have afforded to) and shorting the hell out of basket cases in the financial sector and the retail sector given that global economic conditions are in such a disastrous state, and the banks have been utterly stupid in lending far too much money to people who can’t afford it, and then lent these loans to each other through some stupid debt instruments which they now can’t trade with anyone. Plus the banks’ one track investment strategy seems to have been to be long on energy, commodities and emerging markets, linked to a load of toxic mortgage lending on commercial and residential property, all of which are slithering around like mad at the moment. Flash Rabbit has a particular hatred of the banking sector given that they have taken so much money off him over the years and wants to fight back, which is clearly not a good emotional state for trading but thus far has been remarkably profitable, probably more because of timing and the credit crunch than anything to do with his particular insight or success. Of course he feels concern for all those people whose jobs are on the line, but has very little sympathy for the senior managers who steered these leaky vessels into this choppy mess.
The banking sector will rebound at some point, when investors decide that their shares are enough of a bargain, but Flash Rabbit agrees with a number of analysts that the banks will need to raise an awful lot more capital and take many many more losses before this crisis is over. He also thinks that a number of banks are probably concealing the extent of their panic and liquidity problems. Results for Q2 and Q3 will be particularly nasty as the economic slowdown works through. We haven’t yet seen the full horror of the combined impact of tightening credit, property deflation and soaring consumer price inflation. More on the banks another day.
He has also been partial to shorting airline shares. Flash Rabbit flies around a lot and so observes first hand how difficult things are getting for the aviation industry. US and European airlines are being hammered by rising oil prices, collapsing consumer demand, and a growing clamour of protest against the environmental impact of excessive flying. More on the airlines another day too.
Flash Rabbit, like some other rather more wise rabbits, is interested in big infrastructure projects as a long term investment theme –there is huge investment and development potential in energy efficiency, in efficient infrastructure like high speed rail, logistics and shipping/ports, and in renewable energy and solar power. Clearly emerging markets, particularly Latin America, Russia, India, China and South Africa are important too but with inflation running wild in these economies, the wage/price spiral going like a corkscrew in reverse, rising raw material costs and slowing Western demand for the goods that they produce, they too are in serious trouble. A counter-argument might be that rapid growth in emerging markets is fuelling consumer and infrastructure demand there and so there remain major opportunities, but as global trade flows unravel Flash Rabbit prefers to watch from the sidelines. In any case, right now he doesn’t have sufficient capital to take out major positions in any of these infrastructure markets, but he fully intends to at the appropriate time.
Flash Rabbit's Micro Macro Hedge Fund
Flash Rabbit runs a global macro micro hedge fund with an initial investment of £1200, which to which he has added nearly £900 since he began trading in February 2008. He is feeling perhaps unrealistically smug about this, which is why he has started to write this blog. He is a rank amateur trader who relies on hunches, a sense of longer term trends and only a limited grasp of macroeconomics to make his investment decisions. But so far, under the tutelage of far wiser rabbits than him, he has managed to steer clear of disaster. In fact he is up nearly 75% in four months. So that’s not a bad return, although it’s no guarantee that further disasters won’t happen. He makes very small investments and bets very small amounts as he doesn’t have the cash to do any more than that. However over the coming weeks he will reveal some of the more ambitious plans he has to achieve vast wealth and profits, and how he intends to plough this money back into the economy for the good of the world and future generations.
DISCLAIMER: you would be very unwise to take any of this as advice and Flash Rabbit takes no responsibility for any decisions you might take as a result of reading this blog. It's down to you!
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