Going long, bigtime

After talking to some much wiser market players than him, Flash Rabbit has decided that the Fannie/Freddie bailout is unequivocally good news for the markets, because it removes so much uncertainty around the mortgage market and the debt guarantees market, and will restore a good measure of confidence to the financials - in the sense that they will not have to unload even more CDOs and that there will at least be the stability of the US Treasury bonds etc underpinning the US housing market rather than the crazy and schizoid world of the current 'free' market. Not great news for USD, putting it mildly so there will be a bit of a spike down, but Flash still thinks that the global macro picture is in USD's favour. Overall he thinks it's likely that the US trade deficit will continue to narrow and that the US economy is probably better placed to recover than most of the rest of the world. No serious long term player would want to buy Euros at this level - still pretty close to some of the historic highs against USD - even sterling looks more attractive than the euro, in Flash's opinion. Hence putting a short EUR/GBP position on when it hit its historic highs above the 0.81 mark earlier in the week.

Another interesting observation is that the rumours on Fannie and Freddie didn't particularly hammer the dollar, gold or oil on Friday afternoon - which again would suggest that the major, serious money will probably get back into the equities market. Where else is it going to go? Not into commodities, to get burned once again in the bonfire of demand destruction, unlikely to be seriously in currencies given that we've had such seismic shifts over the last 6 weeks, bonds are already overbought. So where else will it go? What looks the best value - i.e. where is the best risk/reward ratio at the moment? Equities, even if earnings weaken as expected. Particularly financials, large cap consumer stocks, infrastructure plays, big name retailers and certain niche small caps, particularly those operating in public sector services and in fast growing sectors e.g. creative industries.

For all of these reasons Flash is delighted that he's hung on to most of his long financials - particularly Lehman, AMBAC and HBOS. As the market got a sniff of the news on Friday afternoon there was a pretty strong rally out of the doldrums. Flash used this as an opportunity to restore a bunch of Dow, S & P and FTSE long positions, all of which are showing a profit, and he expects a pretty strong open overnight and tomorrow morning.If we do get a monster rally he'll shift the stops so he can't lose any money, but he'd love to have some Dow longs that he can run for the serious long term - 3 to 6 months. It's a pity that his long position in housebuilder DR Horton got stopped out in all the panic and volatility last week - he'll probably buy some more tomorrow if he gets a chance.

Most of the success of the last week's trading came in the currencies - clearly the long index positions got taken out one by one but judicious use of stops meant that Flash didn't lose much capital. Short EUR/JPY was a total monster and he's closed that one out now - probably has adjusted to a saner level and will trade in a new range now. Short AUD/USD, EUR/USD and GBP/USD also netted some excellent profits. He did get some of his short gold positions caned in the volatility, and missed out on the obvious opportunity to get some shorts in on the eurobanks during Trichet's press conference on Thursday - those old chestnuts Erstebank and Swedbank, very exposed to eastern european basket case economies, got hammered - Flash is keeping an eye on these and he thinks that Erstebank could have considerably further to fall, taking his cue from this prescient piece penned by a friend earlier in the year. But he's expecting all the financials to have something of a bounce up on the Fannie and Freddie news.

So, orders in place to buy more HBOS, and stops widened on the long dollar positions - he's trying to hold these for the long haul and may well treat a strengthening of EUR/USD as a further selling opportunity.

Plus on Friday he bought more UK equities - small long positions in Pearson and Scottish and Southern Energy to add to his existing long positions (list elsewhere in this blog, but some of his best performers have been British Airways, Tribal Group, Cineworld, Barclays, FirstGroup, Woolworths and Workspace Group).

All set for another torrid week! Bring it on!