The gods of the market smile at last

By 10am on Tuesday morning, Flash Rabbit was in a cold sweat watching his capital going up in smoke. He had learned enough from his previous mistakes not to chop around too much, even though the temptation was more than there; but when his last remaining hope, his Dow long from 11170 threatened to get snuffed out he started to resort to prayer and nail biting. But he has held his nerve and stuck to his guns. One by one, his long positions were being wiped out, but then something which felt a bit like a miracle happened - Merrill murkiness notwithstanding, the market sputtered into life as oil and gold tumbled. So from being white elephants, United Airlines, British Airways (thanks to merger mania) and Ford (just...) have moved back into the black. And the other long equity positions suddenly looked much more healthy too.

This is the kind of disinflationary call (and subsequent re-rating of stocks because commodity prices are reducing so fast?) that Flash has been holding out for, and within a matter of hours his account has lurched from hundreds of pounds of losses into hundreds of pounds of profit. One by one, all the trades that Flash has painstakingly been building up have moved into place. It's a lovely feeling when it all works. The anxiety and fear factor over the last few days have been pretty uncomfortable, and some of Flash's capital has been sacrificed to the gods of the market in unpleasant drawdowns, BUT the reward if this move holds will more than outweigh the drawdowns.

The currency trades have been spectacular; as the dollar finally made a significant move - short AUD/USD, NZD/USD and EUR/USD all massively in profit now, and Flash intends to run them for as long as possible. Short EUR/JPY has been a monster, and Flash thinks it's only just begun. It's hard to see how the euro can hold on to its elevated status when the data from europe just gets worse, worse, worse. EUR is going DOWN., which in Flash's opinion would be a good thing for everyone.

The cloud in the silver lining is of course the financials - if HBOS unleashes a Pandora's Box of losses tomorrow and oil/gold decide to spike, we could see a nasty reversal. A lot of people are heavily invested in the long commodities/short financials/short indices story (what Macro Man quite correctly has called equity market crack) but it can't go on for ever....Although, the european banks are behind everyone else in their disclosures..

Overall, Flash reckons that the high prices are choking off demand - who's spending anything right now? Camping holidays; fuel economy; energy efficiency; low consumption lifestyles are in the zeitgeist...and if demand slows right down then how can inflation spiral up? What has happened over the last year in the property market could now happen in the commodities markets. Which will kill some equities - Flash isn't investing in miners - but which will enable others to recover, particularly those with good cost control, low debt, which are providing basic goods and services, or which cater for niche markets.

The disinflationary call - long large cap equities, long Dow, short commodities, long dollar, short euro, seems to finally be playing out as planned.

Crocs has been a crock of a punt though - still you can't win everything can you?