Appetite for risk

Well, flash has been toying with the idea of some full tilt trading in the face of some extreme nervousness and volatility (VIX at multi-year highs, routine 3 -4% drops in the indices).

What gives him this view?

Well, the bailout looks like 80% a done deal. So there is likely to be some sort of relief rally. Data on how deep the piles of dodgy loans the banks are buried in is out there. We know a recession is coming, or is here - but how bad are things, really? Commodities are coming off fast (he made a packet shorting gold in the last couple of days), oil is coming down, and Flash thinks it could hit $75 a barrel within weeks. Flash has also made a good bit being long USD, and nothing has changed this view. All of these major transitional events - a reworking of the easy assumptions of the previous macro environment - (ie long commods, short USD, long inflation, short airlines, short financials, short consumer stocks). This changes the game for equities, despite some really nasty payroll data today, and more contraction to come. What Flash was surprised by was that the reaction to the data was much less violent than on previous payroll days - this reinforces his view that recession and unemployment is largely priced in. Earnings will be hit - of course - but how cheap can equities get? Answer - very cheap indeed, but Flash is working with small stakes and very large margins as a way of dampening off some of the volatility. And he's stlll, despite all the nastiness, way up on the year.

Rate cuts in europe, the UK and the US now look more likely than not. Credit markets are gummed up and liquidity is awful.

So Flash thinks the uniform short equity trade is overdone. Some of the financials look like they could be worth more in a year or two than now. Some of the more solid retail propositions will see their overheads coming down over the next few months. Flash observes that whilst the mood on the street is muted and nervous, it doesn't feel like a full on depressionary recessionary gloom like the early 1980s (although this could yet come...) And the defensive plays - utilities, infrastructure stocks look pretty attractively priced. However the resources stocks deserve more of a hammering and they've been what's been pulling down the indices more than anything else.

However, a relief rally could be a good point to get some longer-term long equity positions in place.

So for this reason, holding on to his hat and bracing himself for a kick up the arse, Flash has staked a bit on a couple of long Dow and S and P positions. He'll get stops underneath them if there is a relief rally, but really wants to try to hold them for a bit longer than a few hours. A high risk strategy, but at a time when all the retail investors seem to want to buy gold and put their cash in the safest place, Flash thinks the market could reward him for taking a risk.

And he has cumulatively added to his small long positions open in the following stocks over the last week or so: Scottish and Southern Energy, Firstgroup, Kingfisher, Marks and Spencer, Workspace Group, E*Trade, Morrisons Supermarkets, Cineworld Group, Game Group, Barclays. Plus he's holding on to his shares in Tribal Group, BA, HBOS and IG Group, despite them being underwater right now.

Stupid? Perhaps. But the rewards will be good if this view works. And the amount he's made shorting gold has covered some of the other indiscretions and recklessness. He stands by his forecast that gold will be back to $720 or below before too long.