Thursday 28 August 2008

Buying back the banks

So, a couple of good days for the fund. Flash has been steadily buying into quite a large portion of financials - he's bought more Barclays, a load more HBOS, all at below 290p which has been an excellent trade so far, even Lehman Brothers at 1321 (which has proven to be very lucrative, and is comfortably in profit with a stop there to guard against reversals). Perhaps some of the bounce upwards in the financial sector can be attributed to a good amount of short covering, so whether the financials' rapid ascendancy is completely sustainable may be open to question - especially if/when Lehman/Morgan Stan/Citigroup etc unveil their widely trailed writedowns, but it's possible that the market may ignore the writedowns altogether if other indicators look positive. Flash has increased his long position in bond insurer AMBAC, which went mental today and jumped up 40%. Flash has also added to his long Dow and S and P 500 positions with the result that the balance on his trading fund is now looking very healthy.

The rationale for all this is that perhaps the recessionary gloom is overbought - the GDP figure coming out of the US today certainly seemed to confirm it, even though everyone agrees it won't be repeated in Q3 and Q4; the disinflationary call seems to be working through, hurricanes notwithstanding. Gold has been madly volatile but Flash has picked up a few quid still trying to be short - but he's closed out the big short from 977 as it doesn't seem to want to drop much below $830 an ounce. The dollar long trade has also lost a bit of its shine but USD has certainly found a new trading range. Flash made plenty on the way up, and Flash still thinks that sterling and the euro are even more vulnerable than USD. He's missed out on the last couple of days of sterling's demise but will have no problem banging on another short USDGBP trade when he finds a decent level to go in at - he went back short EUR/USD from 14790 once the fallout from the GDP figure had settled and that's worked well this evening.

Flash is now trading on some sort of disinflationary recovery - suddenly costs start to decline and profit margins therefore increase, even if demand is a bit slack - and some sort of bottom in the housing market - hence now quite a large long position in HBOS and an even larger long position in Kingfisher. British Airways has also been pretty kind to Flash. It's interesting that the oil price spike hasn't taken the wind out of BA's sails - which Flash sees as a strong sign of some kind of stabilisation in the share price.

Crocs, Blacks Group, Ford and GM are united in their mediocrity. However Flash bought a couple of new stocks to add to his ever expanding portfolio of small long positions - Cineworld group at 110, which is showing a little profit, and some Marks and Spencer. In general, financials and consumer stocks with a bit of technology and some strange small caps are his main call. He thinks that there are lots of bargains to be had and if he can manage to hold this line through the inevitable choppiness and volatility there could be some very big wins. He's still, along with plenty of the hedge funds, interested in Scottish and Southern Energy but he has enough on his plate at the moment and no spare cash so is sticking to his winning call. He's scaled back his exposure to currencies a lot and has piled most of his fund into equities, where he's planning to stay for a few months, if he can manage it. As he is also managing to hold down a full time job he's trying to get into some positions that he can just hold rather than being in and out of some of the more volatile markets, particularly the currencies and commodities.

PS - couldn't resist, following news of one of the UK's MPC members calling for an urgent rate cut - sold GBP/USD again at 18300.

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