Profit taking

Well, the short commodities bet doesn't look like quite such a sure fire thing - it's been a good run and so Flash has reduced his exposure to short gold quite a bit, just leaving a small short running. And with a spike back up in oil and gold the old spectre of short financials/retailers/long commodities has returned with something of a vengeance over the last couple of days, leaving the Dow longs looking a bit less healthy. But Flash is persisting with this theme, seeing the current turbulence more as a shakeout than another decisive move downwards. He does, for now, have a hedging short position on the dow in place from 11800 which in hindsight proved to be an even better idea than it seemed at the time.

Flash has, however, increased his exposure to short EUR/USD. He thinks that sterling's collapse yesterday could easily be followed through today in EUR/USD when attention is drawn to eurozone economic data. He's pared back the NZD/USD and AUD/USD shorts; if commodities are on the rise and more horrible US data comes out the dollar is probably due for a little bounce. On the other hand the antipodean central banks are actively talking about cutting rates which has forced a small defacto currency devaluation there, and the sense is that a lot of dealers have been abandoning the carry trade, which has propped up demand for these currencies. It's hard to see how the UK and te ECB could put rates up unless they want to crash the whole of europe into deep recession. On the other hand there may perhaps be some scope in the US for some rate increases later this year and into 09, making the USD a more attractive prospect. A further more alarming consequence is possibly, at least according to Flash Rabbit's rudimentary brain, that declining central currencies against the dollar will have some inflationary effects at home - they will make imports more expensive and make everyone feel less rich. On the other hand the dollar is, in a longer term view, probably somewhat oversold - it's had more than 2 years of rapid decline and some big corrections are necessary. And if the dollar strengthens then commodity prices drop, which in turn takes some inflationary pressure out.

Equities aren't looking so happy. Kingfisher spectacularly collapsed in the wake of the BoE's comments about recession and the dire inflation data; all the financials have taken a hammering; and BA has dropped back a lot in the wake of higher oil. However, ever contrarian, Flash has been adding some long equity positions - he's bought more of Barclays and Lloyds TSB; bought a bit of BSkyB, and some of Cadbury - who will gain from the drop back in food and raw material costs - if it persists. He's been making sure there's plenty of margin on all these positions given how unpleasant and volatile trading has been over the last couple of days. He's pulled out some cash from the trades and is racking his brains to find a new angle - he's beginning to think that going back short on the airlines and anything to do with expensive consumer discretionary spending might be a good idea if oil continues to head up above 120 a barrel. But perhaps if it stabilises between 112 and 116 - he's been targeting a drop back to the 100 mark - things won't look quite so bad - and a strengthening dollar will also put some downward pressure on oil and gold. And there's no evidence that the slowdown in consumer spending and demand has reached anything like a bottom, especially in europe. Which means that on balance he's still short commodities, long equities, and long USD.