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.