Flash Rabbit's Micro Macro Hedge Fund

Shell shocked bankers

2009-07-26T17:12:00.002+01:00

I guess most of this was shot between Jan and April. Despite all their faux anxiety (with a bit of genuine humility in there, I think); they've still got nice clothes and jobs - more than can be said for an awful lot of other people. Would be good to see some stuff from the other side of the tracks. Who's going to make the new 'Roger and Me'?

Cramer, Dykstra and Jon Stewart...

2009-07-16T10:13:00.000+01:00

Presented with no comment.

The Daily Show With Jon Stewart

Mon - Thurs 11p / 10c

www.thedailyshow.com

Daily Show
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Get more at the paddypower site

2009-03-06T22:38:00.002Z

Flash is now blogging over at the paddypowertrader site so to get his latest thoughts, should you be interested, you might as well click here. And a feed has been inserted for your cnvenience on the right hand page of this site. He'll update this blog periodically with other bits and pieces...

Jon Stewart deconstructs CNBC

2009-03-06T22:33:00.001Z

The Daily Show With Jon StewartM - Th 11p / 10c

CNBC Gives Financial Advice

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Joke of the Day

The Mayfair Set

2009-03-01T22:16:00.004Z

fascinating series of documentaries made the late 1990s about the influence of a loose network of 'entrepreneurs' who coalesced around the Clermont Club in the 1960s onwards...interestingly, no mention of spreadbetting king Stuart Wheeler, who as another member of this group, made the beginnings of his fortune with IG Index in the mid-1970s...charts the rise of Thatcherite market-worship which has landed us in our current predicament...certainly worth a watch

Blank Cheque

2009-02-13T23:37:00.002Z

Extract from interview between Sky News' Jeff Randall and Sir Victor Blank (Chairman of Lloyds Bank). - 19th January 2009

JR:

Why don't the banks come clean, why are they not telling us what's really going on?

VB:

Well this bank has come clean. We showed twelve months ago exactly what we had got in terms of any kinds of toxic assets.

JR:

Including HBOS?

VB:

We didn't own HBOS then.

JR:

But is everything out there now?

VB:

I believe that everything is out there as far as HBOS is concerned. They've made I think three or four statements over the course of the last year explaining exactly what their financial position is.

Peter Cummings: the loaded gun

2009-02-13T22:05:00.002Z

I might start a collection of quotations from the directors of various banks over the last year or two. To get the ball rolling, here's one from Peter Cummings, HBOS' former head of corporate finance. According to the Telegraph, "Mr Cummings received a £1.8m bonus last year on top of his salary and has built up a £5.97m pension pot that will pay him a retirement income of £344,000 a year from the age of 60." Another profile of the guy that won't have to worry about money, while the millions of people affected by this bubble go down like flies, is from the Guardian, here.

http://www.bankofscotland.co.uk/corporate/pdf/propertydealleader11.pdf
(see page 2)

Peter Cummings: The loaded gun

"At Bank of Scotland Corporate, we and our partners have been
deliberately prudent in our approach to commercial real estate in
contrast to the unrealistic top-of-the-cycle behaviours we’ve been
witnessing elsewhere.

We’ve seen enough of finance in the hands of amateurs in real estate in the last
two to three years. And that’s been dangerous. The loaded gun
we’re now giving the next generation of promising property
entrepreneurs will absolutely score – for them and for us."

Peter Cummings

"It was hard work for
a team of unfit bankers"
(from page 1)

Priceless.

(Don't) make me a trader

2009-01-15T23:00:00.001Z

Did anyone watch ‘Million Dollar Traders’ on BBC2 last night? If not, and you want a laugh, and you’re in the UK, it’s worth catching up with on the BBC iPlayer. Eight beginner traders with no previous experience were put in charge of $1m of someone else’s money, and left to get on with it after a two week induction programme.

I sat through it with bemusement and horror. Anyone who traded through the scary markets of summer 2008 will recognise some of the mistakes. One character bought British Gas – at 1204p – remember those prices? He did it just as the gas price peaked and then watched it lose 5% in about 5 minutes. Another decided to have a flutter on HBOS around the rights issue (a tactic I was guilty of) and then watched it collapse. Another bought Bradford and Bingley, about a month before they went to virtually zero. One had the (good) idea of shorting BA as the oil price spiked but only risked £2/ a point (or 200 shares) when her maximum trade size was up to £50/pt. It’s always good to start small and see what happens, but no-one seemed to suggest that if the trade was working she might want to add to her position.

On another morning everyone simultaneously went short and within 5 minutes they’d blown up 2 grand – not one person thought that having the odd long position to hedge their shorts might be a good idea.

And presiding over this fiasco was invisible, almost always absent hedge fund manager Lex Van Dam. There’s a name to conjure with. I think I should change my name to Lex Rabbit. He’d left a 29-year old sidekick in a glass office, who occasionally emerged to shout at the traders, particularly after Lex had got cross on the phone about how much of his money they were blowing up. There didn’t seem to be much ongoing coaching or support, nor did any of the traders seem to be discussing their ideas with the rest of the team. The guy who was in charge didn’t come round and chat to people about how they were getting on very much. And the traders mainly they sat around reading the FT, taking long lunches and staring at the screen in horror – now that’s something I can identify with. But it was a pretty scary idea to put 8 complete beginners in charge of $1m and let them loose in the worst bear market in 60 years.

They only seemed to be trading equities; no currencies, no indices, no commodities. It might have seemed to be a sensible strategy to limit the asset classes these novices were working with, and certainly made the world of trading more accessible to the viewer. But to be trying to run an equity-only fund, even if you could go short, in the summer of 2008 wouldn’t be a picnic for anyone. I’m amazed that Lex risked $1m of ‘his own money’ on this . It was less like Curtis Faith’s ‘Way of the Turtle’ and more like ‘Way of the Fool’ (I was going to say ‘idiot’ but I thought that would be a bit unfair and rude – it wasn’t those guys’ fault).

I don’t know really if the foolishness was more to do with Lex’s appetite for serious risk, or the lack of preparation the traders had. I’m sure some of them will come out in better shape than others. And it’s not a scenario I’d wish on anyone, although I’d had loved to have got my hands on some of Lex’s cash to trade with last year!

Everyone, except for Lex and his sidekick, seemed remarkably relaxed as the markets collapsed around their ears. Anyway it’s worth a look and most of you will recognise some of the scenarios all too well. A good lesson in ‘spot the mistakes’.

Trading Update

Talking of mistakes, I should probably have left those housebuilders and banks alone – Taylor Wimpey are sitting back roughly where I started, having had a round trip yesterday afternoon into more than £100 of profit and back again. I closed out most of the position and have left a small long in Barratt and Taylor Wimpey running. Apart from what I wrote earlier, the other reason for sticking with Taylor Wimpey (that is, if they survive) is that they have a US operation and may be one of the beneficiaries of an Obama housing stimulus package. But I won’t risk holding them below 18p a share. I’ve set wide stops on the banks (they’re just in at £2 a point) and I’m seeing them as a foolish hedge for the size of my short index position.

Game’s results were good but not good enough for the market, so that long has gone now too, and I closed out Activision yesterday for a £50 profit. I’ve kept my long DSG going for now, and I’m still short of Tesco.

The key thing I’ll be watching, when I get a chance, over the next few days, is the dollaryen and euroyen cross. If they spike up that may be a signal to close out my index and gold shorts and consider going long again. But for now, I’m happiest being mainly short, in small amounts. And my long dollar currency trades are galloping on, for now.

Don’t splash the cash, Flash

2009-01-13T02:08:00.003Z

I’m moving into a busy period at work, and this has coincided with a retrenchment in stocks, as more and more grim earnings and gloomy outlooks hit the headlines. So I’ve cut back my exposure on the long side, reducing the number of positions I’m running, so hopefully I don’t come home to nasty shocks. My overall position is ‘neutral’, – I have sufficient long equity positions left but I also have two short index positions running – short S&P from 910 and short FTSE from 4515, to which I added a Dow short on Monday evening.

Cutting the retailers down to size

I’ve taken profits on a lot of my retail longs except for Game Group and DSG – I’m waiting for results – Tuesday morning for Game and DSG. So no more Sainsburys for me at the moment. I’ve added to my short position in Tesco – it’s just a hunch. I’m not sure that their results, also due out on Tuesday morning, will hold up. I doubt they’ll hold market share. They’re already trading on a P/E ratio of 13.4, which looks a bit high to me, given that profits this year are likely to be heavily squeezed. On the other hand, wholesale prices will be tumbling so there are plenty of opportunities to offer good deals – I saw a 50p loaf of bread the other day. But Tesco are squeezed between the deep discounters and the more upmarket rivals, with a big overseas empire that is vulnerable to local competitors. And they have a lot of debt.

Leaving Gold in the cold

My long Gold trade got chucked out this morning for a loss of over £150. So I’m not trading back into that for the moment. The dollar is continuing to strengthen and I don’t fancy buying gold when the dollar looks so hot. I may revise my view if Gold gets back and holds above the 830 level; as I’ve argued before, I think there may be some case for buying gold on the grounds of countering currency debasement. If the purchasing power of money decreases because the government pumps money into the economy through quantitative easing, and borrowing is cheap, and demand goes up, then costs can escalate into hyperinflation, because money is effectively worth less. So in that scenario buying gold as a ‘store of value’ might make sense. But it depends on banks being willing to lend and I’m not sure I see a serious thaw in the credit markets. In the meantime businesses are laying off staff and going to the wall every day.

So if we continue to see a deflationary environment (and I’m sticking to a prediction of oil at $25 - $30 a barrel between now and the middle of the year, but haven’t quite managed to trade it), why would you buy any commodity futures? One could equally argue that there isn’t any reason for gold to stay so high, given how much all the other commodities have collapsed. So it’s a difficult call – deflation now, and inflation later, as governments print money?

In the meantime gold could drop back even further, tracking dollar strength and the falling oil price, so I put on a small short when it held below 826 this afternoon. Looking at the chart, if gold can’t regain and hold the 829 – 833 level then it could easily slide to 800 - 815 or below, and it’s made continuously ‘lower highs’ over the last nine months, which suggests, after today’s massive move, that a longer term downtrend is intact. One interpretation of that is in this chart.

The way the euro is dropping against the yen and the dollar tells me that cash is still king – traders are nervous and risk appetite is low. So I’m sticking with my short EURUSD and short EURGBP positions, which have made me a bundle already, and I see no reason to close them at the moment.

If we see signs of inflationary pressure, that might be a moment to begin to short the dollar. But right now I can’t find evidence for this view. Inflation would depend on people actually getting out, spending and lending money. In this environment cash preservation and debt reduction (deleveraging) seems to be the order of the day. In the UK, I can imagine that as lower interest rates work through, some sort of recovery in consumption might be on the cards by mid-year. That’s why I have some bullishness on some underperforming retailers like Debenhams, DSG and Topps Tiles who are still trading at dirt cheap levels – so if they can survive, they could be great buys, if you’re willing to gamble that in six to nine months the recession will bottom out and that they’ll make arrangements with their creditors to stay afloat in the meantime. But rising unemployment will be a real drag on spending, so consumer stocks are very risky to buy right now – and that’s reflected in their apparently cheap prices.

Keeping it small and simple

Because I’m not going to have so much time to trade over the next couple of weeks, I’m trying to keep it simple and scale back, running much less risk than I have been over the last few weeks.

I have, however, added to my longs in cheap housebuilders Barratt and Taylor Wimpey (who are due to give a trading update on Tuesday morning but who have been on the verge of restructuring their debt covenants). And I speculatively bought into a couple of UK banks on Monday morning. There’s a rumour doing the rounds that the government is on the verge of creating a ‘bad bank’ in which the banks’ bad assets can be chucked – which could be positive for lending and liquidity – so I’m expecting a bit of a bounce – and that could also be good for the housebuilders, particularly those that are trading at multi-year lows.

In general I’m taking cash off the trading table, and waiting to see how the earnings figures out of the US look over the next few days. I’d rather keep my money in reserve for now. If earnings look bad but not terminally bad I may switch round and go back long, particularly with the potential for a bit of Obama-inspired optimism over the next few weeks.

A lesson in trading discipline

2008-12-15T15:44:00.003Z

The latest missive for paddypowertrader:

In my first blog I wrote that one key indicator of risk appetite would be a reversal of fortune for the yen. That’s exactly what’s happened last Wednesday. Take a look at the Euroyen cross – it jumped out of a key downward trendline. Short Euroyen is a deflationary trade – it’s a sign that risk appetite is on the decline and that Japanese investors are selling their assets held overseas and bringing their cash home; it’s also a sign that the carry trade is breaking down. A reversal is very significant, especially when combined with the other bullish indicators as the indices push up above their 50-day moving averages. So I bought some EUR/JPY at 11942 and by Thursday evening it was comfortably trading above 12200. Nice trade. So I thought to myself that I’d need to watch it carefully but if it holds above the 12000 level that’s a further sign that we could have seen a bottom in equities, for now.

So I went to bed on Thursday night smugly looking at a growing three figure profit on the euroyen cross, thinking about all the nice Christmas presents I could buy with the proceeds, which in turn would keep the high street humming and my retail longs winning. But then the Senate voted down the auto bailout and EUR/JPY plummeted an hour to two to 200 points below where I went in, taking out the position. I’d put a stop at 11972 above where I went in so I made just £30 on that trade. And because my position size was so small (just £1/pt) I couldn’t do what Mr FT usually does on the currencies and take some profits when the trade was firmly in the black, just leaving a small long running. It was all or nothing. In my case, I got next to nothing.

Now here’s the really daft part. I was almost speechless when I found my P/L figure so unexpectedly reduced on Friday morning, even though most of the loss was down to the loss of that single EUR/JPY trade. So at 8am set about selling off half of my winning equity trades, in a panic about potentially losing even more profit. My retailers and other equities had fallen back a bit, but a lot of them were well off my stops, and as the news filtered through that some sort of TARP-inspired rescue would transpire, the markets recovered sharply during the day. So I compounded my panic by cutting back the risk, even going short on FTSE and the Dow momentarily before the indices bounced back.

All this is a tricky call. It’s easy to add risk – building up positions - when the market is moving in the direction you’d like, and the profits just appear to multiply. But the more risk you take on, the more pain and shock you feel when the inevitable reversal happens. But that’s exactly what stops are for and the trick is to be disciplined – if you’ve built up a position over time you can trail some stops near high points but leave others with wide margins so that the whole trade isn’t chucked out by the volatility. It’s also a lesson in the risks involved in leaving trades running overnight – and a warning about being too smug about having called a move correctly.

And having been stung I didn’t have the guts to buy back in to the EUR/JPY – look how quickly it bounced back! A sign that there’s still some desire out there to buy equities, I think. I might have another go at it later in the week.

Trading Update

This week I’m still running that long gold position from $777, and I’ve added to it a bit with additional longs from $789 and $803, all protected with stops; I’ve moved the stop on the main gold trade to $790. As far as I can tell, it’s dollar weakness that is pushing up gold, together with a bit of a revival in other precious and industrial metal prices on the back of that theme about infrastructure and automobile production. I still have a basket of equities that I’m long of, although my long positions in Barclays and Man Group hit their stops (above the entry point) in Friday’s volatility and I’m disinclined to buy back in. I’m also looking to see if the long EUR/GBP trade is going to get squeezed, particularly if the various bits of eurozone data due out are weak (I expect they will be). So I’ve set a small sell order in EUR/GBP below the current trading range at 8930, with a tight-ish stop just 40 points away at 8970. And I’ve got a long FTSE position from 4266 and a long Dow position from 8430, both with stops set just above their entry point.

Splashing cash and watching rabbit ears

2008-11-26T18:16:00.003Z

Flash's latest blog for paddypowertrader:

Splashing the cash and watching the rabbit ears

I’ve had a decent couple of trading days since the last blog. My risky retailers gamble paid off quicker and better than I expected; Darling’s VAT cut fuelled some speculative buying of beaten down shopkeepers, something I didn’t fully anticipate.

My thinking at the moment is that a combination of Christmas cheer, end of year relief, and Obama anticipation could be just enough to keep equities afloat into the New Year. So for the time being I’m happy to stay running with my equity longs, and I’ve been building them up a bit. In the retail sector, I have long positions in Kingfisher, Sainsburys, Marks and Spencer and Morrisons supermarkets, and at the start of Tuesday I added longs in Vedanta Resources, Game Group, Barclays and BT.

The Fed splashes out

Now that quantitative easing (a fancy term for printing money) has seriously taken hold, it’s led me to revise my opinion on gold. The Fed has been working the printing presses hard over the last few weeks. How do we know this? Well, they’re not issuing bonds as fast as they’re buying up assets, bailing out banks and underwriting bad debts. So rather than raising cash from the wider market they’re just pumping out dollars. An awful lot of dollars. This particular bailout is going to cost the US more than it cost them to do World War Two. One analyst says that it’s the biggest, most expensive programme of public spending in American history.

Going for gold

Set against the inflationary effect of printing money, credit remains tight and demand is muted, so this will have a restraining effect on prices. So I’m not expecting gold to go back to $1000 but there will continue to be some upward pressure if the dollar continues to weaken; and nervous investors are looking for somewhere, anywhere to put their money that might help it to retain its value. Commodity prices in general are likely to rise if the dollar weakens, which will also help gold.

So I’m staying long gold for now, with half my gains from my £2/pt long from $729 protected with a stop at $798, and I added to my position this morning by buying another £1 at $817, with a stop set at 798. This is because I’m anticipating a bit more downward slippage for the dollar, particularly against the yen and the euro, and because I think commodity prices in general are showing signs of firming up over the next few months.

Don’t believe the eurohype

I missed out on most of the currency moves; I was away from the screen for most of Friday and Monday, and so didn’t find a good point to get in. There were some great trading opportunities on offer in EUR/JPY and EUR/USD, but I just wasn’t there at a moment I felt confident to put the trade on. Despite the monster gains in the indices since last week, the dollar is continuing to weaken against the yen. My GBP/USD short was stopped out for a £500 gain at 1.53, and my EUR/GBP short is finished too – stopped out for around £50 of profit. But, looking ahead, I’m still inclined be bearish on the euro, even against sterling – bits of the eurozone are in such poor economic shape that even if France, Finland and bits of northern Europe only get ‘mild’ recession, other places – particularly eastern and southern Europe will have a seriously dragging effect. Unemployment, plummeting property prices and very weak demand will leave all currencies battered, but it’s hard to see how European Central Bank will be able to manage the very different needs of its constituent countries. These tensions are going to cause some structural problems for the eurozone, which might not be able to shake off recession as fast as the UK and the US. So I’m looking for an entry point to go short EUR/GBP again.

Is the dollar’s run done?

Does all this mean the dollar will weaken substantially? I’m not so sure. If credit wasn’t so tight, then we’d see huge capital flows into the economy, and soaraway inflation. But perhaps the money being printed is offsetting the money that has been blown up in the process of deleveraging. Trillions of dollars have drained away as share prices have collapsed, banks have written off assets and complex derivative bets have gone horribly wrong. There’s also the effect of ‘dollar repatriation’ where investors sell off risky assets overseas and stick their money back under the mattress at home. A lot of funds have been selling hard, because everyone wants their money back, partly to avoid defaulting on their debts. Everyone, Flash Rabbit included, is conserving as much cash as they can.

And a bit of inflation, in a period where demand is weak, could be a good thing. Inflation means that the value of debts go down quicker over time, relative to wider price rises; in times of inflation, basically debts ‘deflate’. Plus lower interest rates will work through. It’s going to get cheaper to borrow money, if you can find someone who’s willing to lend you some. Across the developed world, fiscal stimulus is temporarily putting a bit more cash in people’s pockets – much needed cash. As interest rates fall, households and businesses will find their debts easier to pay, with more disposable income trickling back into the economy.

Beware the ominous rabbit ears

But – just take a look at the long term chart on the S&P 500, which looks suspiciously like a classic ‘double top’ or pair of rabbit ears. We are back at the 800 levels of 2003 and 1997. Doesn’t look like it’s headed back up to 1500, does it? The best we can hope for is a sideways move or some sort of slow ‘slope of hope’. There’s some resistance at the 750 – 800 level but if we drop below this then we are a looking at 500, or much, much worse.

And yet – a lot of equities are still trading cheaply, even in relation to reduced future earnings. And governments are pumping out the policies and cranking the printing presses like there’s no tomorrow (because perhaps there isn’t).

By the end of January we could well see another 2000 point move on the Dow – and I’m not confident to say in which direction it’s likely to be. Remember the Dow was trading well above 10000 eight weeks ago! And it’s precisely the existence that ‘wall of worry’, that uncertainty and anxiety, that makes me think that this is a good opportunity to be cautiously bullish. If you can withstand the inevitable volatility, my view is that for a good number of large cap equities, the risk/reward ratio is to be found more to the upside than the downside, at least for the next couple of months.

Bargain basement or liquidation sale?

2008-11-20T16:15:00.001Z

This is Flash's latest blog over at paddypowertrader:

One of the equity sectors I’ve spent time trading profitably in and out of over the last few months is UK retail. UK retail, I hear you ask. Are you insane? Perhaps, but I’ve made a few bob on some long positions in big, unloved retailers over the last few months. Not by my usual ‘buy and hold’ strategy but by buying on dips and looking for peaks to sell.

Take DIY retailer Kingfisher, for instance. Since mid-June it’s been trading in a 96p – 140p range. By buying near the bottom of that range and selling when it gets up to the high 120s or 130s I’ve picked up £30 here, £40 there. Not too bad. Kingfisher is one of those unloved businesses that is likely to do well in a buoyant housing market and in a ‘Changing Rooms’ era when home improvement, paid for by borrowing and equity release is all the rage. Now that house prices are plummeting, just like companies that sell carpets and ‘big ticket’ furniture items like sofas, they’re not doing nearly so well, so the market has already priced in a considerable reduction in their profits.

Like half the rest of the spread betting community, I made a few bob shorting the likes of Topps Tiles, Land of Leather and DSG Group earlier this year. But Kingfisher is interesting because as well as mega-home improvement stuff, they also sell everyday stuff – tools, paint, plants, Christmas lights. The B&Q brand is solid and they’ve been offering some good deals recently to lure the punters in. And their shares have consistently bounced when they get down towards the bottom of the 96p range. So having sold my last lot of Kingfisher at about 110p, I bought some more this morning at 102p.

Another lot I’ve been watching are the supermarkets. When Morrisons got down towards their recent low of 225p I dived in and bought at £3 a point from 229p. In spite of all the carnage in the wider indices they’re still trading at around the 250p mark. Sainsbury’s is the same. Bought in mid-October about 250p, sitting at 270 to 280p. Now these aren’t big gains but so long as the price holds off the yearly lows there’s some money to be made. And if we do eventually see a bounce (which I have to say, I’m beginning to give up hope on), these are great levels to have got in at and bought some shares. And I’ve protected all these positions with stops so I can’t lose any money.

Retail stocks are a gamble at the best of times. There are so many factors that affect their price – fads and fashions, stocking levels, profit margins, whether they have the right buying policy (look at the mess that M&S made of food retail earlier this year); but there are also residual values, and there are dividends to be had. Retailers also have assets. And Marks and Spencer, according to some analysts, is trading at around the residual value of its property portfolio. Now if they can make some money by aggressively discounting (and judging by the number of M&S bags I saw on the train home this afternoon, they must be doing something right) to be buying into a massive blue chip global consumer brand at this level does begin to look like a bargain basement price.

And I’m watching Game Group (I’ll do another blog about why video games are worth keeping an eye on), Debenhams, and even that very unloved, almost unprofitable outfit French Connection. Mrs Rabbit says that their coats this season are exactly the right shape. In the US, I’m watching Wal*Mart and cheapo retailer Family Dollar.

Now, this is seriously contrarian. We know that the consumer is being hit hard by the downturn; unemployment is rising; disposable income contracting. But in a world in which commodity and energy prices could easily plummet another 25%, and in which ‘just in time’ delivery means that retailers don’t have to carry the same amount of stock that they used to, which means that overheads are rapidly falling, it would be a very poor retailer indeed who couldn’t still make some money in this period. And today’s retail sales figures, whilst a bit unbelievable (only a 0.1% decline in Oct?) might just suggest that there is more resilience in the high street than the consensus suggests.

So with a slightly churning feeling in the pit of my stomach, I went long of M&S today from 205p, and I’m considering buying a few hundred M&S shares for my ISA.

I have to say that it makes me feel anxious writing this, but if I was Warren Buffett (or even Philip Green) I’d be out with my cheque book buying up sackloads of high street brands in anticipation of better times in two or three years time. As it is, I’m just trickling in a few long positions (£1 here, £2 there) and seeing what happens. I’m not ready to bet anything on a rise in the wider indices though.

In wider trading, I’ve cut back. I’m still running a short EUR/GBP position, a short GBP/USD position, and that long gold trade from $129. I’ll keep you all posted about how I get on.

Meltup, and meltdown

2008-11-14T22:07:00.005Z

Total nightmare. At least Flash had the sense to buy some gold this morning. And is Citibank safe?

Reuters has this:

NEWS
- G20 leaders head to U.S. for summit to address worst financial crisis in 80 years
- Euro zone data shows bloc went into recession in Q3, first time since common European currency formed
- U.S. retail sales suffer record decline in October
- Citigroup Inc to shed 10 pct of global workforce. Sun Microsystems Inc cutting 5,000 to 6,000 jobs
- GM's Opel seeks 1 billion euros in German state aid, Western Europe car sales plunge 15.5 percent in October
- Freddie Mac reports record $25 billion quarterly loss, draws on $100 billion Treasury Department lifeline
- U.S. Fed Chairman Bernanke says central banks worldwide ready to do more to support faltering growth - U.S. Senate to take up auto bailout bill, unemployment on Monday
- U.S. banking regulator unveils plan to prevent about 1.5 million foreclosures, breaks ranks with Bush administration
- Pakistan asks International Monetary Fund for $9 billion bailout
MARKETS
- U.S. stocks fall, Dow <.DJI> slides 337.94 points, or 3.82 percent. Dow slides 5 percent for the week
- European stocks close higher as oil shares storm ahead
- Stock markets up in Asia <.N225>, but pare sharp gains by half
- Oil drops 2 percent as Euro zone enters recession
- Interbank lending rates for dollars up for second day
- Dollar rises against a basket of major currencies, falls against the yen
- Gold futures up more than 5 percent in heavy buying ahead of G20 summit
QUOTES
"By working together, I'm confident that with time we can overcome this crisis and return our economies to the path of growth and vitality." - U.S. President Bush in his weekly radio address to air on Saturday.
"The funds and guarantees that may be required would be invested in product development and manufacturing sites in Germany and would by no means be spent outside of Europe." - Opel statement.
"You'd have to be a brave investor to be a bargain hunter now. There are bargains out there, but you'd have to be prepared to hold them for a considerable amount of time." - Peter Dixon, an economist at Commerzbank in London.
"People are going to wait on the sidelines and see what comes out of (the G20 meeting) before they start to take a view with respect to what's going on next week." - Robert Blake, senior currency strategist at State Street Global Markets in Boston.
"Frankly, we at Dow are looking at an '09 that looks like a pretty protracted global recession, probably going into 2010." - Andrew Liveris, chief executive of Dow Chemical Co , the largest U.S. chemical maker.
EVENTS
Saturday, Nov 15
WASHINGTON - President George W. Bush and French President Nicolas Sarkozy are expected to meet world leaders at an international financial summit of G20 nations to examine ways to overhaul the financial system (Compiled by World Desk, Washington, +1 202 898 8457) Keywords: FINANCIAL/SNAPSHOT

Nassim Nicholas Taleb - angry with economists

2008-11-12T20:14:00.002Z

Rifkin on networks instead of markets

2008-11-12T00:47:00.002Z

His manner of delivery is a bit irritating, but his ideas are right on the money.

Jeremy Rifkin on energy networks

2008-11-12T00:43:00.002Z

Equities - quick update

2008-11-10T20:11:00.007Z

(image from LOLFED)

A decidedly mixed bag of trades over the last week or so. The crucial call is whether we are seeing the death throes of a fake bull market, or a determined effort to bottom out the market ahead of some sort of recovery, with determined government intervention designed to boost confidence and avoid financial armageddon. Flash favours the latter view, but the evidence is mixed and he needs to guard against too much optimism.

A wave of Obama-inspired euphoria flushed over the market at the end of last week, bouying up equities, but it's not been enough to offset the bleak, bleak outlook for mega US stocks like GM and AIG. And Fannie Mae unveiled another crock of shite today, enough to sour the mood and force traders into swift profit taking. Unfortunately Flash was out so he missed the chance to join that party, sacrificing a chunk of cash to the twin gods of misplaced optimism and smug complacency.

Flash bought into a bit of clean energy bounce on the back of Obama, buying into the Powershares Wilderhill Clean Energy ETF towards the end of last week- that trade climbed into profit but it's now back underwater. Flash has a stop and knows how much he'll lose if it plummets. Flash also bought some Johnson Controls shares, which were looking pretty cool, but as they're a major supplier to GM the contagion from GM has spread to them today and he got chucked out of that trade for a hundred quid loss. What is looking more positive are some of the large cap stocks that Flash bought into - British Airways is up nearly 40% from where he bought them at 115; Kingfisher is holding up from where he went in at 103; Firstgroup has been fantastic - up to the upper 400s from a purchase point of 412; BHP Billiton up around 25% from where he bought them at 828; M and S in the mid '60s from an entry point of 220; Game Group is working well.

Another blog to come about the screen economy - video games, cinema, and which stocks Flash favours in this sector. He's taking a close look at Pinewood Shepperton at the moment - the stronger dollar means that it'll be at least 20% cheaper than 2007 for Hollywood to come and shoot in the UK over the next 12 months, and there's always a James Bond-influenced bounce to consider.

Flash has long index positions firmly entrenched from - 3699 (FTSE); 8356 (Dow); 870 (S&P). He's added bits and pieces to them on the journey up and down, but not been as nimble as he should have been in getting the cash out of these calls.

So he's reasonably happy, but it's not getting any easier. Perhaps it would just be better to go back short?

Flash hits paddypower

2008-11-10T19:56:00.003Z

Flash has got a new guest spot on the paddypowertrader blogs, one of the sites that he stalks for information and ideas. You can read his first blog for them here.

A cautionary clip from 2006

2008-10-29T17:54:00.004Z

Other than the sexist comments at the end, Flash thinks this is very, very instructive.

Back in the water

2008-10-28T22:29:00.013Z

Well, Flash has been dipping his toes back into the market, and whilst he's not exactly striking off out to sea, he's waded in with some good calls over the last few days.

He was onto the turn in USD/JPY and followed it through with a couple of NZD/JPY longs today which have been delightful. He caught the big rally this evening in the Dow and S&P. He's shorted EUR/GBP and so far that's more than 100 pips on side. He thinks the euro ought to revert back down to the 0.70 mark against GBP and that's what he's gunning for. The weakness of the eurozone really hasn't hit home yet, whereas in the UK a lot of the doom is firmly out in the open.

Flash even bought some equities today. That might be a bit premature, but you never know. He's increased his long position in British Airways, and bought back into Morrisons Supermarkets, Game Group, BT and Cineworld. So far, except for BA, all up a bit. Perhaps a bit more in the morning. The logic (?) on BA is that they're now so cheap that they're vulnerable to an investor or two with deep pockets who wants to buy an airline swallowing them up. Iberia buys into BA, BA buys Iberia, AA ties up with BA, a kind of mating game for global domination. Look what happened on the Cathay Pacific rumour the other week. And they're now so cheap that he intends to hold them for a couple of years, even if they drop by a third. He's only got a few hundred shares - good for a 10% discount on flights which he'll make use of and make back his losses that way (someone said "It's like a discount travel card with unlimited upside"). In the long term Flash thinks the airline industry is pretty screwed, but there will still be winners and losers. And he thinks, perhaps irrationally, that BA is more likely to be a winner.

He even bought some BHP Billiton shares the other day - that's been a bit of a white knuckle ride, but they're in the black.

His reasoning on Billiton is that the resources stocks are oversold and sooner or later there will have to be some sort of reinflation. On the other hand the miners are very exposed to emerging markets which are going to be totally crunched. On balance though he thinks there's some long term value there. Particularly if the dollar devalues a bit. This is what is preoccupying him at the moment. He can see that EUR/USD could well be heading for parity, which he'd welcome, as he's short EUR/USD, and in which case cable would logically move down to the 1.40 - 1.50 mark. He thinks euro interest rates will have to come down pronto otherwise the gummed up markets will stay gummed up, and borrowers will be reaching for their suicide pills. A certain amount of dollar devaluation could actually be disinflationary for the rest of the planet - a bit of retracement could help balance things out - provided commodities don't go climbing mountains, which seems unlikely because there ain't much cash in corporate pockets left to buy stuff with, and what cash there is people are hoarding.

The consumer world outside of the USA hasn't completely felt the benefit of the collapse in commodity prices yet, because the dollar has simultaneously strengthened. A certain amount of weakening might be a good thing. Countries with high domestic inflation are going to get even more screwed as the dollar climbs, and their currency falls, and thus imported inflation kicks in. Look at Iceland. On the other hand, all of the big thematic trades, the carry trades, the long commodities bet, the Asian/Russian tiger bet, the emerging market infrastructure plays, have completely unravelled. And we're not allowed to short the financials any more, so they've taken even more of a hammering. So the dollar provides the flight to safety, and Flash thinks that's got further to go - plus people will be taking money out of more 'risky' emerging markets and putting their cash into the relative safety of US equities. And there could well be an Obama effect as the US digs itself out of its political pit which could boost equities some more. A more interventionist government will provide some fiscal stimulus and start spending on public infrastructure - schools, rail, roads, energy, that sort of thing. Once the spending tap gets turned on there will be some reinflation, particularly becuase the spending won't be financed by taxes, it'll be financed by borrowing. A New Deal of sorts, and the beginning of another reinflation bubble (and perhaps a journey southwards for the dollar?) So being long the Dow and S&P seems like the right call, although he's been trying to do this for months and has been totally caned. Caution is needed. Position sizes are small, stops are in place and he's watching carefully.

The big toxic call - and the next source of jarring volatility - will be what happens with emerging market currencies which are collapsing all over the place - Iceland, Hungary, Pakistan, Russia. One explanation for the vicious sell offs of the last few weeks is that anyone with assets has been selling them to raise cash - not just hedge funds, but insurance companies, pension funds, Russian oligarchs, retail investors, you name it. But particularly people with foreign currency debts - eastern european countries, but also the UK - as their currencies have plummeted have been forced to sell euro (and dollar) denominated assets to raise the cash to service these foreign currency debts, which have been getting more and more expensive by the day. So there's a self-reinforcing cycle of liquidation and deleveraging, made worse by the fact that the usual hedging strategies (the carry trade, shorting the dollar, buying commodities etc) have completely broken down. The easy pop, as usual, has been at hedge fund redemptions, and undoubtedly the hedgies will have had to get out of some painful trades which will have compounded the problem, but the real dealers here are the investment banks and the retail banks and their big corporate customers - they're locked into cycles of liquidation just to keep their cash flow afloat, especially when bad debts are on the rise and the cost of overnight borrowing is still pretty prohibitive. This might also partially account for the selloff in gold.

Most eastern european countries, with their swiss and euro denominated mortgages and loans are in the grip of utter panic now - this piece has a more lucid analysis than flash can manage at this time of night. That's why the Swedbanks etc exposed to another wave of sub-prime in eastern europe are looking at some big, big trouble - pointed out in this piece months back. So he's expecting the euro, but even more than the euro, the dollar to continue to appreciate against the emerging market currencies - difficult to see what can stop them, really. There's a self-reinforcing cycle there as EM countries have to sell their foreign exchange reserves in euros and dollars to prop up - buy back - their own currencies.

The gold short isn't working so well - whether this is a short term bounce or an indicator of some sort of inflationary pressure will no doubt reveal itself in the next couple of days. Flash thinks gold has further to go down but it hit his target of $720; but there's a lot of resistance to further falls in the $720 - 30 range; the dollar would need to make another move upwards for gold to resume its southwards drop, it seems. For now Flash is just running a small, lossmaking gold short from $744 and will watch and wait.

Marx and Spencer

2008-10-17T13:21:00.003+01:00

"Modern bourgeois society, with its relations of production, of exchange and of property, a society that has conjured up such gigantic means of production and of exchange, is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells. For many a decade past, the history of industry and commerce is but the history of the revolt of modern productive forces against modern conditions of production, against the property relations that are the conditions for the existence of the bourgeois and of its rule. It is enough to mention the commercial crises that, by their periodical return, put the existence of the entire bourgeois society on its trial, each time more threateningly. In these crises, a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity -- the epidemic of over-production. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation, had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed. And why? Because there is too much civilization, too much means of subsistence, too much industry, too much commerce. The productive forces at the disposal of society no longer tend to further the development of the conditions of bourgeois property; on the contrary, they have become too powerful for these conditions, by which they are fettered, and so soon as they overcome these fetters, they bring disorder into the whole of bourgeois society, endanger the existence of bourgeois property. The conditions of bourgeois society are too narrow to comprise the wealth created by them. And how does the bourgeoisie get over these crises? On the one hand, by enforced destruction of a mass of productive forces; on the other, by the conquest of new markets, and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented."

Marx and Spencer
1848

In Business

2008-10-09T20:56:00.004+01:00

Dow crashes....again. Gold up, unsurprisingly, but it'll come down...

Very useful BBC programme here on the prognosis for the next year, two years, five years. Flash almost completely totally agrees with John Kay.

Flash sells out...and buys in... yet again

2008-10-09T13:53:00.007+01:00

Will he ever learn?

Very nasty trading indeed but Flash is dropping in a few long equity positions.

He bought some BA at 115, some Game Group at 150, some Firstgroup at 490, some Royal Bank of Scotland at 100, and some more Kingfisher at 130. He also picked up some BT at 142. All, with the exception of RBS, showing a bit of a profit.

And yesterday evening, and again this morning he sold some gold and reinstated a EUR/USD short from around the 1.37 mark.

So far so good. Not trading the indices yet - he wants to see a more sustained rally before he burns any more cash there.

And, pasted below - here are his current thoughts on gold and USD as posted to the paddypowertrader blog (with acknowledgements to people in the know who have helped him think this through).

"Long term, broadly speaking, I’m still very bullish on USD, for the reason that a lot of emerging market economies have expanded on the basis of buying up cheap USD-denominated assets and using cheap dollars as a source of funds to expand lending. Now that liquidity/credit is tightening, and growth is rapidly slowing, they are selling off dollar denominated assets and scambling to call in lending- USD foreign exchange reserves held by overseas governments are falling. PLus EM currencies are tumbling all over the shop - partly because commodity prices are falling, demand for exports is slowing, and so their economies can’t make so much cash in real terms, so the prospects look really dire for them.

In this environment, and especially with a shrinking US trade deficit, my reading is that the dollar becomes stronger - remember that US weakness is RELATIVE to weakness everywhere else, and in my view, the weakness pretty well everywhere else (partly as a result of sub-prime etc in the US) is set to get worse. In the US however, taxpayer bailouts notwithstanding (and interestingly, everywhere else is now going down this road, so we;re all in the brown stuff) there are the beginnings in place for some sort of recovery, especially as inflation is going to go almost to zero in the next 12 months, because of recession/demand destruction/contraction in output.

So that then leads to gold. It’s hard to see how gold can go up, other than with short term panic bursts of trading like we’ve seen over the last week, when the rest of the commodity environment is so disinflationary. PLus if the dollar strengthens I agree that gold will become more expensive here relative to the dollar (and I expect sterling and euro to tank even more in the next few months as recession really bites), but that doesn’t mean that the PRICE of gold, denominated in USD will go up. In fact I’m expecting it to fall. A lot. So my view remains resolutely long USD, short gold, and then trickling in a bit of long equity over the next few weeks and months.

But of course I could be wrong…….

THe opposing view says that the bailouts are deeply inflationary. I’m not quite sure I buy that argument - I think the rate cuts signal a shift away from a single-track focus on inflation towards looking at the downside risks of outright recession. And I think that the downshift in house prices, commodity prices and even - likely real terms wages as the labour market becomes tighter and more competititve- should stave off some of the inflationary pressure. Demand is more than muted, it’s almost utterly destroyed. Of course the flipside of currency devauation against USD for EUR, GBP, and even more worrying places like Iceland and Russia will be deeply inflationary - but that in a way will just strengthen demand for ‘hard’ currency like the dollar. Hence dollars retain their value. And remember, if we take a historical view, gold is still trading near its recent mega highs and the dollar is not that far off some of its lows. I’m still gunning for EUR/USD parity, especially if the slowdown in Europe (especially southern and eastern europe) turns into something even nastier, which seems entirely possible to me.

And I can see that in an environment of outright bust gold would have an appeal - but I expect a slow, painful bottoming out rather than outright bust.

So this morning I sold some gold and reinstated a EUR/USD short. I wonder if I’ll be able to hold it through the volatility…"

The lights go out in New York City

2008-10-07T21:59:00.023+01:00

Well not literally, but if things carry on like this for another week or two the lights will be going out all over the world, at least in the trading rooms, and by extension in workplaces, factories, farms, schools and hospitals as the globalised version of the economy judders to a complete halt.

We are now looking at the S&P 500 heading down to 900, the dow heading down below 9000, and the FTSE headed below 4000. This an event building towards the scale of 1929 - which could lead to a medieval scale depression and bloodbath, followed by very unpleasant global conflicts over resources, particularly water, gas, food and oil. Taxes will have to rise to pay for the orgy of borrowing; there will be enormous demand destruction - it's essentially the end of the rampant consumer society that began in the 1960s and accellerated through the age of reagan, thatcher, the bushes, clinton and blair. Not such a bad thing perhaps. It points to an entirely different social and economic order - the banking system at least partially owned and guaranteed by the state, self-help and local community aid/mutualism will be essential - and one in which the economic assumptions that have prevailed over the last thirty years are completely unravelling. So Flash needs to do some more careful thinking. He actually thinks some of this could be quite a good thing. A monumental adjustment, or a monument to the massive expansion in credit and borrowing begun by Thatcher and Reagan. But one thing is sure, flash parties for the masses are over and we're heading into a more austere few years. For example, Heathrow Terminal 5, a monument to the millennium, is terminated. Flash was hanging around there on Saturday night and observed that the only people buying anything were in the pub that sold cheap beer. Austerity...

In pure capital destruction terms, this is carnage. It's beyond insane. Flash is out for the moment. He just can't risk any more cash in this crazy market. On the other hand he thinks that he ought to be buying equities aggressively but the volatility is so extreme that it's just impossible. He may make a couple of strategic equity purchases in the next couple of days - BA at 128p looks pretty darn cheap, BT at 154 likewise, similarly with some of the utilities and even the real estate stocks.

All the gold shorts stopped out, unsurprisingly; the dollar longs are what has kept him in the game over the last couple of days but in the wild swinging back and forth they too got stopped out. He made a pile of cash shorting EUR/JPY too. Flash thinks that going long gold for the next few days may actually be the right call now as the currency markets are just so messed up too - no liquidity - spreads widening - the whole international financial system going through its death agonies. It's likely that investors will continue to pile into gold. But Flash thinks that the outcome of this is likely to send gold tumbling as deflation accelerates, fuelled by dollar strength. In the final analysis, gold has to trade in line with the rest of the commodity complex.

In Flash's view, the dollar will continue to appreciate against all other currencies, particularly any emerging market ones which have been the beneficiaries of the cheap dollar over the last few years. A lot of emerging markets have pumped up their economies by buying cheap US assets denominated in dollars - and this trade is now unravelling (and thanks to a fried who runs a proper hedge fund for this insight. The US trade deficit will shrink. The Euro is toast. It could easily go back to parity with the dollar. Sterling will also get at least mildly toasted, as we could have just as big a mortgage meltdown here - especially if property prices halve in value, which looks entirely possible. People who are thinking that their 80% mortgage is comfortable will get nasty shocks if property prices drop another 15 - 20%, The banks aren't lending anyone anything, and most households are way over-extended, and unemployment/layoffs will kick in, making the gloom even worse. Wage inflation has been modest, and is likely to remain modest if the labour market contracts, as competition for jobs will push down what people can ask for.

States and whole countries are now going bankrupt. California is on the brink, Iceland is over the edge, and Indonesia looks badly messed up. China is going to have some severe challenges as demand for manufactured goods collapses. Its labour market will contract and the flow of cheap dollars is going to stop.

Governments are going to be under intense pressure. Tax revenues will be severely reduced; this will lead to pressure on public services; there will be pressure to control imported inflation but also to stimulate investment. Probably one of the only viable solutions is for government to keep up its investment in the public sector, and to borrow more to fund it. If government doesn't take a Keynesian turn then the prospects for those people that are not able to insulate themselves in highly skilled occupations are really bleak. Education, reskilling, retraining and keeping public services going will be crucial, otherwise we risk turning the country into a divided rathole like NYC in the 1970s.

Borrowing will push sterling down, and this may stoke inflation, but it'll make exports more competitive, not that there's much left to export as far as UK manufacturing is concerned. And the UK economy, built on services, is in a particularly vulnerable position. Flash thinks that the value plays, if and when the dust settles, would be infrastructure, engineering, manufacturing, educational services, utilities, and some value-based retailers. If he didn't thoroughly disapprove, he'd also be investing in security services, prisons and defence. But he won't do that. He's also still bullish on the potential of small scale creative industries, but they'll have real trouble accessing capital. So he expects a newly politicised, DIY ethos to take hold, fuelled by web, accessible media technologies and small scale platforms of all kinds, digital and physical. The web will be crucial but the big mass media institutions could well get absolutely stuffed. Major tech companies like Google and Apple could well continue to be winners, so this could be a great time to buy them; on the other hand their prices might fall another 30 - 40% from here given the action of the last few weeks.

Even with a global recession, the pace of technological change is unlikely to slow. Flash thinks that its ingenuity and innovation that is the only thing that will stop UK plc from going down fast. And in some ways he thinks it's pretty good for some of the smugger business grandees to get caned. But he also knows that the people who really get caned are those at the bottom of the pile. And that worries him a lot.

It's like a riot in which the traders are just smashing up everything in the city. Not unlike when the lights went out and the looters went on the rampage in New York in 1977. And it's very hard to see what will calm anything in this market. People that were outright short will be coining it; as readers of this blog will know, Flash has been in naive optimist mode, trying to call a bottom, for the last three months. He was wrong.

However, it's precisely because of this bleakness that Flash is looking for a bounce.

But Flash thinks he needs to see the dow up another 900 points and holding there, the S and P back to 1080 or 1090 before he trades again. Perhaps this is the grandmother of all corrections and stocks are just going to trade cheaper. After all, not that many folk are going to have much cash left once this riot unravels and a damage assessment can be done.

Appetite for risk

2008-10-03T13:45:00.007+01:00

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.

Diverse, inclusive, innovative, ambitious

2008-10-01T09:24:00.004+01:00

How wonderful. Flash wishes he'd got a job there. It looks like such a great place to work, so well managed.

Flash wishes all the former Lehman employees well but can't help the word hubris coming into his head.

I am the hedgeman...

2008-09-29T10:34:00.002+01:00

Another horrible morning dawns. However as Flash is long USD he's not too bothered. He was wondering when the people that put their faith in the euro were going to get a nasty surprise. Today's latest round of bank collapses and nationalisations seems to be it.

Anyway - Macro Man has more - and puts it better than Flash; and this, via FT Alphaville is pretty good too.

As the financial crisis deepens, jobs go and bailouts expand, the humour just seems to get more intense and - well, lyrical. In what we hope will be an occasional series, here’s today’s offering, from a Tokyo-based Beatles admirer known only as Mori (yes, a “hedgeman”…):

I am the Hedgeman
I screwed up as you screwed up as he screwed up
We’re in this mess together
see how they run from a money market fund
see how they fly
I’m crying
Sitting on some futures
Waiting for the bounce to come
Short duration T-bond, stupid bloody Dick Fuld man
You’ve been a naughty boy
You let the bank go down
I am the hedgeman (woo)
We are the hedgemen (woo)
I am the Paulson
Goo goo gajoob
Mr City Banker
Sitting pretty little bankers in a row
See the TED-spread fly, like Lehman in the sky
See how they run
I’m crying
I’m crying, I’m crying
CDO-squared custard
Dripping from a dead trader’s eye
Cram-a-lotta crap in
Pornographic lev’rage
Boy, you’ve been a naughty girl
You let your risk control down
I am the hedgeman (woo)
We are the hedgemen (woo)
I am the Paulson
Goo goo gajoob
Sitting in an English building society
waiting for that run
If the run don’t come you get a loss
When they nationalise the English way
I am the hedgeman (woo)
We are the hedgemen (woo)
I am the Paulson
Goo goo gajoob
Expert, texpert coked-up brokers
Don’t you think the credit analysts laugh at you (hee hee hee, ha ha ha)
See the bond guys smile like pigs in a sty
See the S&P slide
I’m crying
Securitised pilchard
Climbing up to triple A
Elementary screw-up, trillion dollar bail-out
Man, you should have seen them shorting
Those investment banks
I am the hedgeman
They are the hedgemen
I am the Paulson
Goo goo gajoob
G’goo goo gajoob
Goo goo gajoob
G’goo goo gajoob
G’goo

Paulson, the dollar and a bewildered rabbit (or, greed is bad)

2008-09-24T06:32:00.015+01:00

Flash is hardly trading at all - in part because most of his long positions have been wiped out, in part because he's busy with other stuff, and most importantly because he doesn't have the time to watch the screen - and when the intraday moves in the S&P 500 have been over 3% practically every day for the last week there's a lot of screen watching to do.

There seem to be two possible views about where the market has got to right now.

The orthodox view at the moment seems to be roughly as follows:

A central bank bailout of the toxic debts held by the banks radically weakens the dollar. On the back of this, sentiment has moved sharply against the dollar, gold went stratospheric (that's a move Flash would have liked to have got some quick and dirty profits from, but half the rest of the world got on that bandwagon), and commodity prices have pushed back up. The only reason for this that Flash can spot is that the dollar's weakness means prices need to increase, plus a sentimental flight to 'safety' of gold. But gold isn't worth anything if no-one has the cash to buy it. Nothing has changed on the commodity demand front. If anything, demand will be weakening. To some extent the inflationary pressure of oil heading back up for everywhere other than the US will have been somewhat dampened by the currency move. So all the signs point to more contraction and a drop in commodity prices.

OK - so what has driven the collapse in the dollar's value? The orthodox view says that a bailout increases the US national debt enormously. And Flash understands perfectly why politicians and citizens are furious about having to buy a ton of currently worthless junk debts off the greedy bankers. But there are some wider considerations.

If the entire wholesale credit market collapses then the entire US economy collapses. A lot of domestic value is held in property and if half the country goes into negative equity then the consequences for the banking system are severe. Perhaps this pain is a necessary adjustment - it's a pretty bleak thing for people who need to eat, sleep, live and look after each other - but for those people that like capitalism, deeply ironically it requires one of the the biggest state subsidies the world has ever seen. It would be interesting to know what the ultra free market libertarians make of this: Flash is guessing that the ones that bet big the banks would collapse are shouting 'bring it on', but ultimately no-one will gain if we're into a 21st century great depression.

Regardless of what happens there will be a continued contraction in available credit as the banks rebuild their battered balance sheets. And discretionary, risky lending has already reduced, but borrowing is just going to get more and more expensive in real terms; credit in emerging markets who have been dependent on a one trick cash cow - resources - is going to get even tighter.

And the cost to taxpayers of doing nothing needs to be considered too - mass unemployment, crime rate goes through the roof, millions made homeless, businesses failing. And remember that companies are taxpayers too - and perhaps taxes will have to rise to cover some of this, but in Flash's book that's not such a bad thing, and isn't the end of the world as we know it. The alternative probably is.

Now if the US goes for a bank bailout plus a fiscal stimulus package - new deal mark II, with some protection for homeowners - some sort of government trust which backs distressed equity, then the outlook looks rather more positive.

If the US goes for a rate cut then although it might weaken the dollar it might also accelerate growth - hence strengthening the US economy against the negative growth of the rest of the planet. Similarly in europe and in the antipodean world - rate cuts may help boost liquidity and that is sorely needed.

Now a second question is - how inflationary is this?

Common sense would suggest that injecting this much cash, and cutting rates would have an inflationary effect. But wait a minute. Is cash actually being injected into the system? Well, quite a bit went in last week, but not just in the US - it was a co-ordinated action across the globe. So it's more like an emergency blood transfusion than a flooding of the arteries.

Buying these bad debts is not necessarily a complete disaster for the USA – what would be a complete disaster is if nothing is done – mass unemployment, complete collapse of wholesale credit market, and thus business/consumer credit market. And the position of these toxic MBS only weakens if the housing market doesn't improve.

But perhaps there's a line to be drawn between the inflationary pressure of rate cuts and stimulus, and the drag on demand caused by the fact that most people have completely run out of money. No-one's buying anything much right now. And ultimately if the US recovers more quickly then that's good for the dollar. And it will take another year for any kind of confidence to return to the housing market. So this could be a great time to buy property if you're cash rich.

So, the second, perhaps counterintuitive view is as follows:

How sustainable is the rally in GBP, EUR, AUD, NZD etc against the dollar when arguably these economies, and thus currencies are even more vulnerable? Flash suspects that other governments will also have to commit funds to back up some of the toxic debts in their system too. Actually Flash thinks the UK might not come out of this as badly as others expect - the UK economy is more flexible than most, and Keynesian public sector investment is providing some ballast, despite the crazy property boom. Hence he is still long GBP/EUR, a trade that's actually worked over the last two months.

So it comes down to two views (and many thanks to some more intelligent economic commentators who have helped Flash build up enough of a picture in his thick head to write this).

View one (indefinite armageddon)

- because of the weakening dollar, commodity prices rise:
- gold, because of it’s ‘safe haven’ status carries on rising - but only as a hedge, and we all know what happened last time everyone tried to hedge their equity losses by going long commodities
- oil rises on the back of a weakening dollar

If inflationary pressures mount, then central banks can’t act to cut rates

- essentially stagflation/recession/late 1970s
- no stimulus
- massive bust
- house prices halve
- borrowing collapses
- liquidity and lending between banks collapses

...and then some sort of rescue plan is put in place, or else we all go back to barter/self-sufficiency/feudalism - aspects of which might not be a bad thing. So Flash is looking for companies that understand this new world - trouble is, not many of them seem to. And technological innovation/flexibility/responsiveness will still be important. But it means a total depression in the price of stocks. A total write off. Massive destruction of value. And even cash loses its value because inflation is totally out of control. But it would be a good time to be in venture capital. Funding start-ups which understand this new world. And perhaps buying companies involved in public services, prisons, policing/security, healthcare, water, rail, energy efficiency, transport. Or pawnbrokers?

View 2 (some sort of bottoming out)

A ‘new deal’ stimulus, particularly under a democratic administration could give the US a huge rebound over an 18 - 24 month period:

- The US trade deficit shrinks because import demand is dropping so fast in the US. US labour costs and wage growth falls because competition for jobs is more fierce.
- Dollars become more scarce, hence more expensive because there are fewer of them around...perhaps?
- The rest of the world goes into an even steeper downturn than the US
- US leads a recovery - not rapid but not slow either. By spring next year there are signs of recovery in the housing market, by which time it will be a bit late to buy into the housebuilders.
- Inflation poses even bigger a threat to emerging economy growth than the developed world and if demand for all the goods the developed world produces falls off, then those economies go into steep decline too.
- On the other hand, petrodollars are plentiful but if prices rise then demand falls off even more – so Flash is looking for a bigger correction – oil down to $75, even if production slows
- China is in trouble because it's fuelled by demand for manufactured goods and cheap overheads - but demand is falling off and overheads have massively increased. Hence food riots, higher infrastructure development costs, falling property values and a creeping problem of growing unemployment, linked to political discontent and the collapse of the consumerist dream.
- Emerging market banks and BRICs sell off foreign reserves to stay liquid, and credit growth in emerging markets collapses, emerging market growth therefore slows.
- Demand destruction pushes down commodity prices
- Self-sufficiency and energy efficiency become even more important and we probably see an increase in protectionism. The end of breathless millennial Free Trade. The break up of the WTO. But commodity prices fall because demand drops off rapidly.

For this reason, Flash is looking to be bullish on some US-consumer facing equities, particularly those which have been heavily sold – housebuilders, some of the financials, large cap retailers, infrastructure – rail, water, roads, some technology stocks – he just bought back into Apple.

Flash will sell down some of the resource stocks if a rescue plan is agreed.

Flash is looking for an entry point to go long USD, short gold, short oil. He sold EUR/USD on the manufacturing PMI figures out yesterday. Other economies also likely to need to do bank bailouts – the contagion isn’t limited to the US.

He does have one dow long running from 10687 but came within a hairbreadth of closing it out yesterday to recover some of his losses on some of the other long equity positions he'd been trying to hold.

But this is just a view. Trying to piece it together. For now, he's very, very cautious and just wishes some of those index shorts had been left alone.

In these markets you seem to get caned whatever you try to do.

Meltdown

2008-09-18T02:36:00.005+01:00

Not much to say really, except that HBOS proved to be a dog of a buy, 90% of Flash's stops have been triggered, at least 50% for losses, and he's left holding a handful of anaemic looking equities showing some anaemic profits. And what's really shocking is that one of the UK's largest banks can say one day "our funding position is adequate' and the next agree to be bought up for virtually any price because they can't raise enough cash to keep the UK's biggest mortgage and retail deposit book afloat. This really is a monster of a disaster. And the leverage maniacs that brought us to this position ought to be held to account - perhaps it is indeed all of us, but some people have more responsibilities than others.

Lybos indeed. And who is going to want to write mortgages when the property market could slump another 10 - 15%? And cash doesn't cut it either. It's a total unravelling. And if the solution is for central banks to print money for bailouts then the inflation monster will be back with a vengeance.

All the long USD currency positions have been closed down and Flash just wishes he'd left some of the many index shorts he'd established to run their course properly. One little sideline might be to short some eastern european currencies - demo-trading buying GBPvsHUF has been pretty spectacular. Shame he didn't do it in reality.

Gold going from 777 to a high of 893 in 24 hours is pretty unbelievable too. Flight to safety? Capital flight out of the market, full stop. And most of Flash's trades in the last 3 days have been in the wrong direction.

Time for a breather and some reflection on the next move.

For light relief, this morning's FT Alphaville live blog was a cracker (especially some of the comments).

What a carve up

2008-09-14T20:53:00.005+01:00

Well, the clock sits at two minutes to midnight on Lehman and Flash is frankly bewildered about how to trade this one.

Perhaps it would be better not to trade it at all. Trouble is, Flash has some decent long Dow and S and P positions sitting comfortably in three figure profits. But if the wider market decides to take this as a signal to go into full blown panic, then Flash will have to just cut them.

On balance he thinks he will cut the Dow long position in half when the futures indices open at 10.30pm tonight (if it's not cut in half for him) and put some hedging short equity positions on pronto.

Flash still stands by his view though that perhaps this isn't quite armageddon because so much is known - what may well not be known is the extent of all the other banks' exposure to Lehman (or ToxInc as FT Alphaville coined their 'bad bank' on Friday) - and that could have serious repercussions. So if there's even so much of a flicker on the price, as inevitably there will, the HBOS and Barclays long positions will go first thing tomorrow - and the same will probably be true for plenty of other much bigger fish. It's hard to see how most of the financials couldn't be heavily exposed to Lehman, unless they'd already got some damn good hedging in place ahead of this. (The hedging in all probability consists of heavy-duty short positions in their competitor institutions). Hence a mega selloff of bank shares?

Nouriel Roubini has this scary paragraph:

It is now clear that we are again – as we were in mid- March at the time of the Bear Stearns collapse – an epsilon away from a generalized run on most of the shadow banking system, especially the other major independent broker dealers (Lehman, Merrill Lynch, Morgan Stanley, Goldman Sachs). If Lehman does not find a buyer over the weekend and the counterparties of Lehman withdraw their credit lines on Monday (as they all will in the absence of a deal) you will have not only a collapse of Lehman but also the beginning of a run on the other independent broker dealers (Merrill Lynch first but also in sequence Goldman Sachs and Morgan Stanley and possibly even those broker dealers that are part of a larger commercial bank, I.e. JP Morgan and Citigroup). Then this run would lead to a massive systemic meltdown of the financial system. That is the reason why the Fed has convened in emergency meetings the heads of all major Wall Street firms on Friday and again today to convince them not to pull the plug on Lehman and maintain their exposure to this distressed broker dealer.

So tomorrow will not be a good day for the banks, unless some unctuous calming anti-panic lotion is administered by Uncle Ben or his acolytes before midnight. Not good at all. The end of tomorrow might be good day to do some financial bottom fishing if you've got a long line (of credit??). Nasty, nasty.

It also depends if Lehman's liquidation is orderly or disorderly. Perhaps at the very least an orderly liquidation might enable some sense of rationality to prevail. It would be in all the banks' interest for this to happen, and Flash expects an unctuous statement to this effect before the night is out.

If a deal - or at least a clear 'road map' to dissolution - isn't forthcoming then it won't be much fun out there at all. Or perhaps this is just the final shakeout, the Big Capitulation. Or perhaps (for the reasons outlined in the last blog, not). Flash is watching and waiting, and pleased that he's reduced his risk and has a fair chunk of the fund sitting in cash right now.

Piecing it together

2008-09-11T22:13:00.008+01:00

Around lunchtime today Flash started to get an interesting feeling in the pit of his stomach. He spent some of the morning trying to get the measure of the market - it was lurching around and heading down towards new lows, and Flash was beginning to think that going short bigtime was the only way he was going to keep his P/L in the positive zone.

But then he stopped and had a think.

Why was it that his large cap stocks weren't caving in as fast as the financials? Unilever, Scottish and Southern, Firstgroup and BA were all holding it together fairly well. HBOS and Kingfisher were coming off really fast on the back of nasty figures from Home Retail Group and Merv's grim comments on the UK economic outlook, but the whole market didn't look like it was going into a catatonic bust, even though it's not been far off yearly lows. Plus his small caps were actually outperforming the market - Cineworld and Workspace were actually up a bit today. If it was a total bust we were looking at (and Flash had been worrying that it was, especially when around 40% of his gains have been wiped out in the first 3 days of this week), then how come some of his positions were actually doing alright?

Why was it that USD was still rallying against EUR and GBP; why was it that EUR was in rapid decline against JPY and GBP, and gold and oil were still coming down - making the deflationary call even more obvious. And with deflation comes a whole new economic picture - input prices lower, overheads lower, less pressure on household spending, increased margins and a whole new picture on interest rates/currencies which actually could enable an economy to come back into growth quite fast. And some gossip about the Fed cutting rates - well, OK, but Flash thinks that rate cuts will come faster in the UK and in Europe if the disinflationary trend holds.

Lehman had tanked down to $4 a share. So everyone now knows they are bust - either they find a buyer or what? They'll find a buyer, even if they sell at 50c a share. It's the end of the line and the market knows all of this. And if they find a buyer then the market rallies in relief.

And then some interesting figures came out of the US. Import price inflation had tanked; the trade deficit had narrowed; mortage rates were down, and initial unemployment claims were marginally lower. This combined with mortgage applications being up doesn't say that the US has turned the corner, but it does say that the decline isn't as rapid as it has been for the last few months. It also says that things may not be quite so bad as everyone says. And as Flash has been saying for months, it may be bad in the US but it's way worse in parts of Europe, particularly eastern and southern Europe. That's one of the reasons for the strength of the dollar. And there may well need to be eurozone interest rate cuts pretty rapidly. And everyone (except perhaps those with petrodollars) is running out of cash, because it's all been burned servicing debts and buying goods at overinflated prices.

And then Flash thought some more. If the consensus view is to be utterly bearish on equities, what is there to be bullish on? if the long commodities/short financials trade is over there will be a lot of big money geezers feeling quite a bit of pain. They'll have felt plenty of pain from the rally over the weekend and will have wanted to sell that off pretty fast; they'll have been looking for a reversal in USD's fortunes because they've been invested in short USD for the last 3 years, and got caned on that trade over the last 6 weeks; they'll have had not just their fingers but their arms burnt off trying to buy back into gold and the other commods only to see their positions turned to toast within hours of putting them on; they've pumped their cash into oil and commodities and other exotic debt based securities, and absolutely hammered equities and the financials partly as a response to covering some of the losses of the last few months. So the ride down in equities has been as desperate and testosterone fuelled as the ride up was in commodities.

But this is a big adjustment. And if it's a big adjustment then there will be some fast and furious short covering happening. In all the talk about the Fed printing money and taking on all the housing debt of the country, a couple of things have been overlooked. They may be nationalising Fannie and Freddie but they're also putting a backstop on the housing market. There's a big guarantee there. Sure, if the housing market tanks they will be taking on trillions of debt, but if it recovers, it becomes an asset not a total liability. And if everyone gets a bit more cautious about lending money, that's probably a pretty solid adjustment. And everyone is so invested in the short financials trade, the question is - how much shorter can we all be on financials? Isn't this actually the perfect time to be buying some banks? Not necessarily all of them, but there's no way all of them can go bust, can they?

So Flash went long. If he'd had more capital (having burned an awful lot of it in the last three days), he'd have gone heavily long. But he went as long as he could afford on the Dow and the SandP, and then went long on FTSE as well when it hit 5325. And he bought even more HBOS, even more Scottish and Southern, more British Airways and more Kingfisher. He even bought some Morrisons - deeply discounted at 250p - their results actually really weren't that bad, he thinks.

Then he left the screen alone for a few hours, and logged back in at 8pm to find an absolute monster of a 350 pt rally in progress.

There may be some chatter this evening about Bank of America hoovering up Lehman which has helped a rally; there may well have been some boosterist buying, and it may well come off a bit tomorrow, but Flash is as confident about this call as he has been on any other of his big winning trades this year. He's got stops locked in on all the core positions; he may not make as much as he'd like but he won't be losing so much in the next few days as he has in the last few, that's for sure.

Rethinking risk

2008-09-11T10:26:00.004+01:00

After the agonising drawdowns of the last couple of days, Flash is stepping back and reassessing his view.

A few problems.

The disinflationary call has worked out perfectly - gold plummeting, dollar strengthening, and it's only really these trades that have kept his P/L afloat. Flash has been short EUR since way back when and reintroduced short EUR/JPY back to his fund late yesterday - now showing a nice profit, and EUR/USD broke through the 1.40 mark and now is headed down - Flash is looking for 1.25/1.30 as the next call (unless the Fed decides that an emergency rate cut is needed to stop the markets from tanking). Gold likewise - $720 an intermediate target but Flash thinks $600, with oil at about $85, would signal a real depression/recession.

But the second part of the call - that this should lead to a rally in equities, specifically some of the banks and large cap consumer stocks has eluded him. Shocking results today from Home Retail Group (and more to come, no doubt) have hammered Kingfisher, one of the stars of his portfolio since he got in there at 96p, and HBOS has taken a beating in the last couple of days. Stops are there to lock in some measly profits, but it ain't looking great for any of the financials or the retailers, or most of the other FTSE 100 stocks that Flash impulsively picked up on Friday afternoon - Unilever, Pearson, Scottish and Southern Energy and Marks and Spencer. Way too much trading, way too little assessment of the potential downside.

The Lehman raffle ticket got stopped out for a derisory gain of £2 - enough for a packet of chips which is probably all the bank may be worth. Flash was tempted to buy back in but he thought the better of it - he did however buy some more AMbac which again may prove to be a costly mistake.

Being impulsive and naive, Flash closed out his Dow short from 11500 when the market looked like bouncing early yesterday afternoon - for a while he thought he'd done exactly the right thing but this morning he's wishing he'd left it alone. Nothing now on the dow chart really to stop it retesting the 10900 level, or going for an almighty bust below 10000.

And yet - and yet - being bearish on equities has become such a consensus trade that Flash can't help wondering if there's some value in doing some buying. But in this market you need major confidence or deep pockets - and Flash's confidence has been ebbing away over the last 48 hours, along with a sizeable chunk of the cash in his pockets. On balance he is still more bullish than bearish about the USA - the UK he's becoming more circumspect about by the day. Very, very difficult markets to call, but it ain't looking good for the FTSE 100. Not at all.

Flash has quite a bit of his fund in small caps too - and there's been no spectacular action in these; on the other hand, the small caps he's invested in have largely flatlined in a really volatile market which gives him some hope that they were the right call - Tribal Group has held it's own all the way through the volatility of the last six months, and Workspace Group, in spite of its threatened relegation, has really done rather well - up to 140ish from where he bought them at 118. Cineworld holding up well too, Axeon crashed through his stop at 40p yesterday and he took a serious writedown - 5% of the fund - on that one. So much for energy efficiency and innovation. (What the hell were you doing putting 5% of the fund in an obscure small cap, I hear you say? Well, 5% of the fund were just the accumulated losses on what started out as a smallish position when he bought them at 80p. Another crap trade).

It's a dangerous market - and for this reason Flash has reintroduced that FTSE short and will look for a Dow short entry point this morning as a hedge against all his longs. It's only gold and the currencies that are keeping him in the money, but the fund has blown up badly in the last couple of days - too much risk, not enough margin - gave up a lot of his gains from the bounce over the weekend.

Less is more - so he's paring back his positions, putting on his tin hat, and holding off from trading. Like most of the rest of the world, unless they're selling. Which means that some serious downside could still be in front of us.

Careful with that margin, Eugene

2008-09-09T23:30:00.005+01:00

The last 24 hours of trading have been a perfect lesson to Flash Rabbit in how NOT to apply the principles of 'less is more'. It hasn't been an unmitigated disaster, by any means, but to set it in context, by the end of Monday Flash's fund was 400% up from the February start and by the end of today it was back to under 300%. A 28% drawdown in less than 24 hours. Ouch.

Surely a sign that

a) the fund is overleveraged and
b) Flash is overtrading.
c) in these markets, it doesn't pay to take anything for granted.

A few examples.

Flash caught the upward rally in the dollar mid-morning on Monday perfectly but didn't have the confidence to run the position in EUR/USD, GBP/USD, and sacrificed around £400 of potential profit. No loss, but not nearly the gain that could have been. He did get AUD/USD on the nail and picked up a nice £350 from that trade.

Flash had Dow, S and P and FTSE longs in place from excellent levels (put in late afternoon on Friday) and caught pretty well all of the spectacular bounce in equities. However, instead of leaving them alone, and take some profits, Flash greedily decided to leverage up his position by moving some of the stops and trading on margin, adding new S and P longs at 1240, 1250 and even (arrogant idiot!) 1270. Well, that's great when the market appears to be going up (and Flash was out for most of Monday, so he didn't really experience the seasick yo-yo signals which are a sure sign of some nasty action to follow), but when the market decides to tumble hard, as it did today, and you're way overleveraged, it just eats up your capital even faster. And Flash, being flash, decided he knew better until he started to feel sick, and took some of the initial dip this afternoon as a buying opportunity for UK equities, which will probably leave his P/L even more painfully reduced when the UK 'adjusts' to the US' action tomorrow.

Flash had an excellent long position in AMBAC from around the 550 mark. Again, instead of just leaving it alone, he nicked some of the margin from this successful trade and leveraged it up. So when AMBAC tumbled from its highs around 880 to around 750 (which in theory should still give plenty of room for maneouvre on a 550 long), Flash was caught with his trousers down - the two extra positions he'd added at 780 and 800 were stopped out fractionally above break-even (ie zero gain) and the tasty AMBAC long turned to toast as AMBAC hit the stop at 720. OK so he had another couple of hundred quid to add to his trading capital but the greedy rabbit had already spent that opening up new longs in his ragtag bag of equities, which in the light of today's events are pretty appalingly judged. Of course, the financials could be in for even more blood letting, in which case it'll be great he got out of Ambac when he did, but Flash's big picture macro call is that we have to see some sort of proper recovery for at least some of the financials or otherwise we are heading into 1929.

Lehman went to pieces too. Flash hadn't leveraged that one so at least he just put it in his pocket - a quick £60 gain as the stock crashed through his stop at $14.00. He's opened up another blind Lehman punt just before close of trade today for a tiny 30p a point from around 770 - no prob if it goes to slash and burn, but nice bonus if some sort of rescue operation is mounted.

Flash has been eyeing Scottish and Southern Energy for months now - he's seduced by windmills and hydro, and because he's made a pretty big pile of cash, by his standards, he pumped a bit in to Scottish and Southern this morning from 1390ish, only to to see the dam break and the reservoir empty as the price plummeted to 1365. Something to do with Darling not ruling out the windfall tax for the comrades at the TUC, coupled with tumbling wholesale energy prices? He's set a stop at 1310 (roughly where resistance is on the chart) and will try to hold this one for the long term.

On the positive side, gold behaved exactly as Flash expected today - he's been watching it hovering around the 800 mark for some days and as oil slid, gold went south - great stuff - shorts running towards a four figure profit on gold now (for the second time this year), and Flash is targeting a crash down now for gold to around the $720 mark or even lower. He can't see any reason why it needs to be any higher - unless that is we have the mother of all market meltdowns in which case it might represent some sort of flight to safety - but see this piece which has persuaded him that the gold bulls are wrong. The disinflationary trend is just too well established now, plus so much cash has been burned going long on commods as they've tumbled, that Flash thinks gold can only go lower. On the evidence of the last 3 days worth of trades, where he has been cautious where he should have been confident, and confident where he should have been much more cautious, he'll probably be overconfident and wrong on this call too.

Flash had the foresight to at least bang on a quick Dow short around the 15000 mark and that has offset a fraction of the pain and damage caused to his long view by the nervousness

So, from the outright long call of the weekend, we are now back into hedging/check and balance/risk reduction territory. Stops moved on 3/4 of the HBOS position up to 290. Can't lose but may not be onto such a winner as he thought.

If things carry on like this, Flash will be forced to become much less flash and much more cautious. Even though his Templeton antennae are saying buy, buy, buy. Fine if you're a billon dollar hedge leaping thoroughbred, but the problem for micro macro rabbit market jockeys is that if you don't have the margin to ride the volatility, you just get chucked off the horse. Right now quite a bit of his margin is being used to prop up some badly judged FTSE long positions around the 5450 and 5500 mark. And another chunk of it was eaten by the market gods as a sacrifice to overconfidence and overleveraging on the S&P 500.

Perhaps the action today was just everyone getting out before the whole thing goes to pieces. In which case a short in gold and a short Dow position won't shelter Flash's fund and he'll give up another 10% before he can hit the 'sell' button tomorrow morning.

So can gold save the day? If deflation goes faster and deeper than everyone thinks, then what are the implications for equities? Flash thinks a massive rally for large cap consumer stocks. Or perhaps it's not so much deflation, it's just a total liquidity crisis - everyone, including the banks and the Fed, run out of cash, so no-one can buy anything, so all the prices drop like a stone? Answers please!

PS Apparently Lehman is revealing its skeletons tomorrow. That will be a relief, whatever the outcome, but we can expect a nasty, nervous market early doors. As a precaution Flash is considering taking the loss on all but one of the FTSE longs and opening up a short position in FTSE before he hits the sack tonight.

Going long, bigtime

2008-09-07T18:09:00.011+01:00

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!

Margins, errors and unknowns

2008-08-31T23:22:00.005+01:00

Trading plan for this week - try to stay cool calm and collected even as the hurricane batters the Gulf of Mexico and oil perhaps spikes though the roof. On the evidence of a late Sunday night, the currency markets seem to be shrugging off the oil spike and USD/GBP, EUR/USD and EUR/JPY are behaving perfectly, from Flash's point of view, i.e. euro down, sterling down, dollar up, yen up. And if the hurricane isn't quite as bad as expected Flash is perfectly poised to take advantage of any bounce of relief when normal trading resumes on Tuesday.

Flash has Dow longs in place from 11180, 11365, 11378 and 11428 and he is hoping to hold onto them through thick and thin this week - if not there are stops in place which will ensure he doesn't lose any money. Everything in his fund is broadly unchanged except that he's bought even more HBOS and Barclays, and has dipped a toe in the housebuilding market with a purchase of a long position in distressed US housebuilder DR Horton. He might also buy some Taylor Wimpey tomorrow. On Friday he bought more Ambac, BT and Lehman as well...He's hoping that there is enough margin in most of his positions to ride out the volatility. The accuracy of the currency bets is offsetting the dampening of profit on the long indices - but flash remains long on FTSE, S&P and the Dow, and is hoping to stay long for at least a couple of weeks.

One anxiety is that his fund is totally underexposed to the opposite view - that the banks and housebuilders are fucked and that the dollar is as much of a basket case as any other currency, that demand exceeds supply in commodities - energy especially - and that the price of oil and gas could be headed back into the stratosphere again if supply gets seriously disrupted either by acts of natural or political/diplomatic violence. Of course, if energy prices do rise further and inflationary pressure builds back again it's hard to see how any of the world's economies will have anything other than a serious crash landing. Flash thinks that if oil goes sky high again then demand will be choked off even more, meaning that it will correct back downward because everywhere will be plunged into deep, deep recession. So the disinflationary call from a macro perspective remains valid, whether the disinflation takes 3 months or a year or more to work through. The other bit of Flash's view is that everyone KNOWS that the banks and housebuilders are fucked and therefore they are a total bargain at the prices they are trading at. Most of his long financial positions have sufficient profit and stops to make sure that he can't lose on them, so the risk/reward of taking his view seems pretty solid.

And even if we have even grimmer data/terrible results to come, it's the overbought commodity and resources stocks, and the other traditionally defensive plays that are likely to come down harder. Well, that's what Flash is betting on anyway, and he has stops and margins in place in case a major rethink proves necessary.

PS As a hedge against some of this inflationary uncertainty Flash has broken the habit of the last couple of months and taken out a small long position on the Gold Dec future from 838. It's purely a hedge - if the rest of his view falls into place then he will take a small loss, but given that oil is likely to be nasty this week, Flash is willing to take this risk.

Buying back the banks

2008-08-28T23:05:00.008+01:00

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.

You win some, you lose some

2008-08-21T12:15:00.004+01:00

It was a big mistake to go to work on Monday and leave most of the positions from Friday intact. Some nasty drawdowns. In particular Flash's confidence in the financials has proven to be expensively misplaced. he's decided that trying to be long financials through spread betting is a bit of a mug's game at the moment. The Barclay's long from 261 remains, but the Lloyds and HBOS longs spectacularly failed - very bad timing for those trades. Likewise BT. So Flash has bought some physical BT shares at 162 and some physical HBOS shares at 280. He thinks that even if they go down further he will still have the asset, whereas having to put enough margin in to keep the trade safe is just killing his capital.

The Dow longs - well, there were stops on those so he didn't lose anything; he still has two dow long positions intact - one from 11180 , another from 11321. S and P, FTSE and Nasdaq longs all stopped out for small - no, tiny - profits.

So the 'calmer, light touch, trading strategy' expounded in the last blog has proven to be expensive - very expensive - Flash gave up 25% of his gains in a single day on Monday as the market panicked about the dreadful credit mess.

The currency trades are still happy though. But even gold has considerably strengthened and Flash is beginning to consider closing out his short from 977. He hasn't got that much time to watch the market so it might prove to be the sensible thing to do.

So as of today, here's Flash's portfolio:

Antofagasta - short from 552 (running a small loss)
Axeon Holdings - long from 77p - this has been a disaster but Flash lives in hope
Avis - long from 12p - in deficit
British Airways - long from 221
Barclays - long from 261
Black's Leisure - long from 102 (in deficit)
BT - long from 162
Crocs - long from 460 - had a lift as high as 530 but now in deficit
D1 Oils - long from 17p - a nice winner
Firstgroup - long from 515 - a big success
Ford - long from 504 (in deficit)
General Motors - long from 1050 (in deficit)
HBOS - long from 281
Kingfisher - long from 96p - this has been very good
Lonhro - long from 26p (in deficit)
Powershares Global Water Portfolio - long from 2120 (in deficit)
Stanelco - long from 0.55p - looking hopeful
Tribal Group - long from 131p - fine if bland
Woolworths - long from 0.59p - pretty good so far
Workspace Group - long from 118p - so far, so good

Reading through the list there are quite a few pretty distressed equities there. Hmmmm. Maybe not such a balanced portfolio. But Flash will persist for now, because in spite of the volatility, he remains fairly confident about some sort of rebound in equities, particularly large cap consumer stocks and some specialist small caps. However, the currency and index positions have been much kinder to him than the equities. The financials have been utterly horrible. Providing he can keep the margin to run all the losing positions Flash remains reasonably relaxed. He's trying to think in a longer timeframe than day-to-day. But even intraday the volatility has been hideous and very, very nasty.

Watching the currencies closely. May blog about those tomorrow. The question is, has the dollar found a new trading range, or are we halfway through a bigger commodity/resources correction? Flash hopes for the latter but fears the former, particularly if a massive financial car crash is about to break in the USA, or the Russians decide to turn off some of the energy supplies to the West. EUR/JPY short just keeps going. Very good, and Flash thinks that bodes well for the disinflationary theme that he is trying to stick to.

PS. It also occurs to Flash Rabbit that if Fannie, Freddie and Lehman (or one of the other big investment banks) go to the wall, and the oil/commodity prices continue on their way northwards, it could trigger off a 1929-ish selloff in stocks. Very nasty indeed. So he may just bang on a hedging short position on the Dow and FTSE.

Burnout

2008-08-18T23:08:00.004+01:00

There's a video game called 'Burnout' where the object is to race at incredible speed around a track, smash into as many other cars from the rear as possible, avoid crashes but smash up other players, but generally avoid going up in smoke yourself as much as possible.

At the end of last week Flash sat down and did a fairly systematic analysis of all of his recent trades. He made the following observations:

- a tendency to panic when the market gets really volatile and cut or destroy even the winning positions
- a tendency to get very nervous when he hits a negative balance or things appear not to be working, even when the longer term logic of the trade remains intact
- a tendency to take profits way too soon and not to let really winning positions run their course
- some really shrewd trades which because of anxiety, nervousness and neurosis he didn't get anything like the maximum value from.

All perfectly usual behaviours for the novice trader. And at least he hasn't completely imploded.

Now it strikes Flash Rabbit that much of his recent trading has been a bit like the video game 'Burnout'. He's been dodging in and out of positions, racing round, switching in and out of different markets, sectors and indices very fast, and generally overdoing all of the trading. In some ways he shouldn't be complaining. He's way up - he's tripled his initial capital - but the burnout syndrome has meant that he's also destroyed perfectly good positions when he's hit greasy patches of volatility. He's also burned up quite a bit of money on the way - for example, early this morning he cut half his dow longs for smallish losses, waited ten minutes, then changed his mind and put them back on again, only to return to find them destroyed when he got home. Had he left everything alone - the stops, set in the upper 13000s, were perfectly wide enough - he would be several hundred pounds richer. As for the gold trade - he's done really well on that but if he'd just left most of the shorts alone he would have been up fivefold by now.

So for the next few weeks he's going to try a different approach. He's kept everything in place but has widened the margin on as many of his positions as he can afford. He is going to run this set-up without chopping in and out, unless there is some almighty catastrophe that causes him to revise his view. He may add a little more risk if he feels the market is moving in a direction he likes, but basically he's going to keep everything calm and simple. This is partly expediency - he's back at work full time and doesn't have time to watch the screen - but it's partly also a result of experience. And - extending the automotive theme a little - he's put a couple of tiddling long positions on General Motors and Ford.

And Crocs went up by 15% today, Woolworths by 10%. Now that's not bad.

Banks, tanks and crocks of gold

2008-08-16T01:53:00.004+01:00

Well the collapse in gold proved to be as spectacular as predicted. Extreme volatility as the commodity bulls battled it out with the sellers - the FTSE jarred by a massive selloff of miners, otherwise it might have been up 50 pts. What a day! Flash is too tired to post a proper blog but in lieu of that here's quite an amusing exchange - if you follow the sequence of events and posts as Thursday unfolded. Flash's fund is now up 300% from February. Not a bad return at all. He's cut back the risk in his portfolio and is running just a few dow longs, a couple of S and P longs, a Nasdaq long and most of the aforementioned equities (although Workspace group collapsed today, he's planning to buy some more shares while they're cheap), and the short EUR/USD, short GBP/USD and short EUR/JPY trades. And still short gold from 977!!! Picked up some bank shares today - HBOS - risky, Lloyds TSB and more Barclays. Gold at $720? Possible. Perhaps even $650. Getting very bullish on equities, particularly large cap, resilient big retail brands which look pretty cheap. Even Woolworths! The only things (and they're big things) that might stop the Dow is, in Flash's view, yet another major financials car crash or more middle-east/caucasus trouble. But with inflation the top news headline and recession splashed all across the papers, Flash's attention is turned more to what happens post-slowdown. That's why he's buying as many equities as he can lay his grubby paws on. Even Crocs went up today. So that's some sort of a sign.

Profit taking

2008-08-14T07:00:00.005+01:00

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.

Overnite sensation...and a nasty hangover

2008-08-12T21:58:00.003+01:00

Flash Rabbit couldn't believe his eyes when he woke up this morning. The dollar had strengthened even more and gold had collapsed. He's now seriously in the money and has left things pretty well as before, but took the pause in gold as an opportunity to move some stops and do some profit-taking. However the gold collapse shows no sign of abating - Flash's next target for gold is around the $720 mark - if it can do -$150 in a couple of weeks he doesn't see any reason why it couldn't do more. So most of the short positions remain firmly intact, although he took a grand out to pay some of the bills.

It's been a pretty thrilling couple of days and Flash has been exploiting leverage to the full which has led to some pretty dramatic moves in his account - he nipped out for half an hour around lunchtime and came back to a 40% pullback as the indices and currencies gyrated which was a bit of a shocker - but fortunately he's learnt the lesson of keeping enough margin and didn't blow up any money. He's getting pretty nifty at using some of the margin from the more profitable trades to set up some leverage. And he's keeping those currency trades going - has taken a bit of profit on the EUR/USD short but otherwise they are all running well. He's expecting a bit of a fightback from the dollar bears but thinks that momentum is with the dollar (and also, in its own way, the yen). Especially when the full depth of horror of the economic data coming out of europe hits home.

What Flash can't figure out is that even with all the chaos and anxiety in Georgia that energy and gold still managed to keep their descent, but it all went a bit screwy today even as the Russians pulled out. Precisely the opposite of what one might have expected - but it became a bit clearer watching Bush late last night that the USA had no intention of starting World War 3. Today's turbulence must have had something to do with another forecast of higher oil prices and the bad guys coming out to play the short financials/long energy trade - they just can't keep off it...He had a nailbiting day yesterday when he was full on short gold and long dow, but holding the view - and taking the risk of holding some heavily leveraged currency positions overnight - really paid off. He takes this as a sign that there is a major structural adjustment in progress, and thus is sticking to his guns.

A few regrets - not hanging on to the UAL Corp long - they're up a ridiculous amount from when Flash bought them at 693, and he wishes he hadn't jettisoned them in all the turbulence; but the BA long and Barclays long have made up for that. The equity positions are all looking pretty positive; he's still holding on to that long Dow, and has added bits to it along the way; he's also long FTSE, S & P and now Nasdaq as well. Even with today's heavy financials sell-off he thinks there's tons of value still to be found in equities, especially in some very underpriced retail and property stocks - so he's added to his long positions in Workspace Group, Woolworths, Kingfisher and Blacks Leisure. D1 Oils has also been excellent - sitting at 40p and he bought them at 17p. He bought a bit of Cadbury and currently has enough profit on that trade to buy around 2 bars of Dairy Milk - not so impressive; He's keeping on that too, and has even added to his long in Crocs! We'll see.

Generally - it's the usual problem - too many choppy trades, and not holding his nerve and his view for long enough. But he is learning, and the cash is now flowing in. Just as well because he hasn't got any cash coming in from anywhere else right now. Very risky. But very rewarding.

Big Time

2008-08-08T08:41:00.010+01:00

Wow. A swift overnight move in currencies has left Flash Rabbit with a very big grin on his fat, greedy face. It's been a rocky couple of days - if the market is preparing for some seismic shifts there are bound to be earth tremors but the payoff from this earthquake looks set to be very significant indeed.

Flash's fund is now up 175%. That's right, 175% from a February start. I wonder if any of the major hedge funds have managed that rate of return? OK, Flash is only trading in pennies but this just shows what is possible...

Interestingly it's been in the currency trades where Flash has had the most success. His conviction call - that the euro is headed for a fall and that the dollar is poised for a comeback - worked beautifully, especially after he spotted what seemed like a top in EUR/JPY and it tumbled spectacularly during Trichet's press conference yesterday, and hasn't looked back...

The 'what ifs': -

what if he'd stayed up just an hour later last night, spotted the big currency moves gathering pace, and doubled up his currency positions? He'd probably have been up 300% by now.

what if he'd held his nerve on some of his earlier calls, rather than chickening out at the first sign of trouble - for had he held the original short GBP/USD position at a mere £1 a point from 19995 or thereabouts he would be £600 better off by now. As for EUR/USD, well...from 15700 to here would be a total monster.

It's not been comfortable - when this happens:

or this happens and you're on the wrong side of the trade (Flash was on the right side, being short EUR/JPY, but got the shock of his life, having just doubled up on short AUD/USD when this happened - however he recovered his composure and held it together...).

And if the markets do manage a sustainable bounce (hence being long of both FTSE and Dow - positions which he doubled up this morning, and added an S and P long) then Flash sees no reason for these macro trends to continue on the back of a downward adjustment in commodity prices as the developed world heads if not for outright recession, at least a considerable slow-down. And a slowdown, in Flash's book at least = reduced demand, reduced consumption and some cooling in the commodities bubble. Add to that a general drive for energy efficiency/waste reduction and you have a considerable challenge for the commodity bulls. Hence Gold's spectacular fall from grace. And if some of the hot money comes out of oil the test for it will come at around 100 a barrel, where Flash's guess is that there will be a pile of hedging and it might signal a bit of a leg back up for commodities. That's the point he will close down all but a small short gold position. But the dollar's rise will take some of the pressure out of the oil price too.

Shares going remarkably well too. Currently Flash is long of Workspace Group, Lonrho and Tribal (all making a comeback?); Woolworths (up 15% in the last two days!); Intel (a big winner over the last couple of weeks); Kingfisher (a play on some recovery in retail and a bottoming out of the property market?) - up from 119 to around 132 in a couple of weeks); Barclays from 261 (this has been a monster); BA - up around 30%; D1 Oils - has doubled from Flash's entry point of 17p. Plus the two Powershares Global Water and Water Resources ETFs.

The wobbly shares - Crocs (what was he thinking?); Axeon Holdings; Blacks Leisure Group; Man Group (has ridden out the dips well but is now dipping just as the rest of the market seems to be recovering); BT; Stanelco.

The plan is to hold just like this; and to ride this out. It's a big adjustment - especially in currencies - and if the euro goes, his guess is that it will go in style, all the way back down to dollar parity or thereabouts. And that would signal a complete realignment - but that's about right given how bad the economic news coming out of europe is at the moment.

Drawdowns and margins

2008-08-05T00:21:00.004+01:00

Another day, another set of small drawdowns, brought on by the usual cardinal sin of adding too many positions with not enough margin. When will Flash Rabbit ever learn to hold his bets for long enough to allow them to do their work, and give them enough leeway not to get killed by turbulence? Getting spooked by the dow is one thing but the basic view remains correct - short gold (more success), long USD against EUR, GBP, NZD and AUD, and long the various equities detailed below. EUR/JPY short and NZD/JPY shorts both stopped out today - the former for a moderate profit and the latter for a moderate loss - but they'll get reinstated in the fullness of time.

I love you just the way you are

2008-08-01T16:56:00.006+01:00

Flash Rabbit has done absolutely nothing today. Niente. Nada. All positions completely unchanged, payroll jitters and GM's gorefest notwithstanding. And it's paid off beautifully so far. He's refusing to be punked by the volatility and is holding his view. So far up £200 since yesterday. Not bad for no work.

Actually that's a small lie. He added a sneaky NZD/JPY short in the middle of the night, and doubled up on his NZD/USD short. Those and short Gold, short EUR/JPY, have been his best trades ever this year. And he's moved the stops so he can't lose any money. Pretty simple.

The plan is to hold this view, wait and see.

Chopped by the changes

2008-08-01T00:34:00.009+01:00

Well, the headline trades - short gold from 977 and long Dow from 11180 are still firmly in the money, but under the surface of this apparently smart profit Flash has been burning cash, chopping and changing way too much.

The last 24 hours have been an object lesson in bad risk management and over-trading. If Flash hadn't been greedily moving stops and merrily adding long equity positions, nicked from his margin, thinking how smart he was and how right he was, he would have about 10% more of his meagre fund still in play rather than giving it up to the gods of market arrogance. A few lessons to remember:

- run smaller positions over longer time frames - i.e. had he not taken profit on a good chunk of the gold position when it hit 926 earlier in the week, and opened up new ones from the 920s, which he left open smugly thinking it would go down in a straight line, only to have them smashed to bits when the market went into cataclysm mode, then he would have a chunk more cash by now.

- don't try to second guess the market. watch, observe, set a predetermined entry point and then act if the conditions look right. Trying to put a covering short early evening on Weds on the Dow at 11480 (roughly today's pivot point) proved to be a total disaster because Flash hadn't put the margin in place. With a big margin it could have been a good little trade - partly because Flash had at the back of his mind that the Dow was getting a little overbought given how awful some of the data is - but instead it just lurched into profit, out of profit, and then got stopped out for a loss before the whole edifice came whizzing down in seconds at 1.30. And then to cap it all Flash decided, late on in the morning, that he'd not made enough cash (as if 20% up in 2 days wasn't enough) added another Dow long from 15600, and that got killed in seconds as well. Stupid. Poor judgement.

- stick to your guns if the trades are going well, even if the market suddenly moves. With the canyon in the dollar brought on by what Flash thought was a wild over-reaction to - by recent standards - some fairly modest figures - (omens of things to come tomorrow?) it was inevitable that the GBP/USD position and the EUR/USD positions were going to get taken out by stops, for the sake of preserving capital, but Flash went into full blown panic mode and shut down his very profitable AUS/USD and EUR/JPY shorts. He's back in them now but at the cost of the spread and with a much reduced margin for spikes, having been caned by the volatilty. EUR/JPY hardly moved at 1.30 but flash took out his fantastic short from 16900 - a complete over-reaction. It's back in now but from 16866 - not nearly such a good level..

None of this helped by the fact that the SB company servers were overloaded, the connection was ropey (Kids downloading Dr Who on the iPlayer next door) so everything looked and felt like a slow motion car crash for a while. Rank amateur, crap trading.

However, the shares are, for now, nearly all doing fairly well. D1 Oils sprang into life today on positive cash forecasts and better focus, BA has been a dream (however, results tomorrow may cause some wobbles), Barclays is behaving itself and even Crocs hardly moved downwards amidst the volatility. Flash can't help thinking that this afternoon's sell off was a ludicrous over-reaction - he understands profit taking but this was a herd of crazy bears. On what basis? The crack pipe of short equities, long commodities? As Macro Trader says - a classic case of lurching between disinflation and inflationary bust.

And all the while the dollar was strengthening and oil was coming back down. So what the hell was going on is completely beyond him.

Flash has cut the Ford long as it's just too much effort. Likewise UAL Corp. In their place he has discovered two ETFs that he's taken out a long position in - the PowerShares Global Water Portfolio and the PowerShares Water Resources Portfolio. Both showing a modest profit in 2 days.

He's planning to leave everything alone as much as possible tomorrow, go out, and let things work through - that's what stops are for, isn't it?

The gods of the market smile at last

2008-07-30T02:16:00.006+01:00

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?

Ouch...but patience is a virtue

2008-07-25T18:03:00.003+01:00

Flash was glad that he took some profit on his Ford position ahead of yesterday's car crash. His GM position got stopped out for a £2 profit too. He made the mistake of going even more long the Dow just before it decided to turn tail, for a whopping loss, and some more of his more recent gold shorts got stopped out for losses overnight too.

However, nothing he's seen (Australian bank writedowns and grim, grim data on housing notwithstanding) have changed his fundamental view and today's action has borne that out well. In spite of being slightly underwater once again (from a monster profit at one point yesterday morning) flash is sticking to his guns and doing his best to hold his nerve. So he's still very short gold and broadly long consumer-based equities - took a hit with scottish and southern energy but it's recovered today as he expected; and Stanelco sputtered into life today somewhat surprisingly so he took the opportunity to buy some more. The spectacular meltdown in Crocs has also puzzled Flash: yes their results were crap but they're exactly the kind of cheap, cheerful, funky gear that recessionary shoppers are likely to go for. So he bought a few shares at $4.80 and thus far they are showing a modest profit. Flash's other intelligent act was to go long on United Airlines right at the bottom, late on yesterday, when they were trading below 700; as of late this afternoon they're healthily sitting at the 820 mark. A decent call. So long as oil continues to descend (and he is ever-alert to the possibility that it won't but he can't see any reason why it shouldn't), Flash will maintain his long equity view so he has kept the older long Dow and long FTSE positions in place, despite the fact that they went almost to zero yesterday.

The currency calls are working fine too - short AUD/USD, short EUR/USD, short NZD/USD and - a bit more ropey but he's convinced it's the right long term view (although he may well get stopped out before he's proved right or wrong) - long GBP/EUR.

So - a quick summary of positions at close of play today: Long the following stocks, all on December or March futures: Avis from 12, British Airways from 225, Barclays from 261, Crocs from 499, long D1 oils from 18.3, long Ford from 480, long Intel from 2018 (he wants to buy more of this but hasn't got the cash right now), long Kingfisher from 96, UAL Corp from 698.

The ones that are still underwater, but he's hanging on in there - ASOS, Axeon Holdings, China Eastern Airlines, Lonrho, Stanelco, Scottish and Southern Energy, Workspace Group.

Playing with currency monsters

2008-07-23T23:36:00.004+01:00

Over the last 24 hours Flash has turned his attention to currencies. The short gold trade has been a monster and Flash increased his risk substantially on this at 8am which turned out to be exactly the right call. At one point in the day he was up to 25% short gold - right now he has 15% of the fund short gold and will keep it that way unless oil decides to rear upwards - a few wobbly moments as expected today, but if oil breaks down below 125 then he can't see any reason why gold won't tumble too. He also noticed a Bloomberg report somewhere about plentiful gold supply and takes that into account too.

So today, despite all the froth and a thrilling rally that fizzled out this afternoon, was not really a day for equities, although all the equity positions are looking marginally more healthy than yesterday, with the exception of GM which went wobbly after some very unpleasant data on the weakness of the US economy. Given all of that, Flash may take some profits on some of the equities (he halved his GM, Citigroup and Ford position this evening) depending on how things pan out. However he's put a cheeky long order in place on China Eastern Airlines and will wait with interest to see if that particular stock will continue to do what BA and UAL have done over the last couple of days. On UK equities his longs have made steady progress rather than spectacular gains but he's sticking with them for now. He was tempted to bash a couple of speculative shorts on the FTSE and the Dow at various points in the day, just to cover the long, but couldn't quite bring himself to do it: something he might just come to regret in the next couple of days.

No, the real action today has been in currencies. First off this morning Flash increased his short EUR/USD position, and initiated three more - short AUD/USD, short NZD/USD and long GBP/EUR. All have been excellent. NZD helped along by the bank of new zealand lowering interest rates and suggesting that they could go further too. Another possible signal that inflationary pressure may have peaked? And he sees no particular reason to exit these trades right now - plenty of margin for any bounces. His overall call - that the European economy is in even deeper shit than the US - means that he thinks the Euro is way, way overvalued. So if he can just hold out he thinks there are some big opportunities to be short the euro against virtually anything. And if the BoE does increase interest rates, god help the housing market, but it'll be another nail in the coffin for the euro too.

Holding the line

2008-07-22T17:43:00.006+01:00

If the rally holds, Flash Rabbit will be very happy indeed. Here's a breakdown of his current situation. As usual, lots of little bets in small amounts - far too much - does his head in when things start to go pear-shaped - but it's still working, so he's not stopping for now. His fund is up around 20% so far today so he's not complaining.

Gold

Very short from 977/975 on both spot and Aug and Oct futures - this has been extremely profitable this afternoon - thus far gold has broken back down below the 950 mark and Flash thinks that it could have much further to go - if it's going to keep pace with the rest of the commodity complex. Of course there could well be some more nasty results/energy crises/hurricanes/unexpected resource shortages to push the market into a screaming reversal but on the evidence of today's reaction to Wachovia, which would probably have triggered a meltdown a month ago, Flash is beginning to think that these sort of issues are already priced in. On the other hand he would prefer to have the comfort of a few short equity positions but hasn't managed to hold any of them for long enough to be worth it (he had the usual go at Thomas Cook, Dexia and HBOS at the tail end of last week, made a few quid, but pulled out when they threatened to fight back). Right now his plan is to try to hold his view long enough to build up some room for manouevre rather than just chopping in and out in his usual impulsive way.

FTSE and Dow

Both long and holding up well despite some wobbles when the Wachovia car crash was revealed. As for Apple, well, if Flash had any cash he'd buy some at a price of 150 a share or thereabouts - people may be greedy for even more profit but he can't see any reason why the shares should have got that cheap. Amex was a short he should have seen coming.

Equities

Long and firmly in the money on BA (up10%), Citigroup (a risky one this, but hey! up 10%), Barclays (up 18% from 261) Black's Leisure (tents and camping - up 3%), Firstgroup (up 5%), Ford (up 20%), Intel (up 5%), Kingfisher (up 18%), Scottish and Southern Energy (up 3%). narrowly missed out on a killer trade in United Airlines (UAL corp) today - took it up to 600 and then decided he'd had enough of a punt only to see them soar on to 730. Oh well.

Long and still not in the money on ASOS (down but off recent lows), BT (jumping around the 195 mark), D1 Oils (flat), Axeon (bumping around and not doing much), Stanelco (Flash is beginning to give up hope), Lonrho (not doing a lot) and Workspace Group (an outside shot at London's commercial/SME/creative industries property market).

Currencies

Although he's been punked out of these trades numerous times, Flash just can't say no. Short EUR/USD and short EUR/JPY. Today has been a monster but he will have to wait to see if the dollar can hold this level. The question he wants answered - can anyone enlighten him? - is why on earth is the euro staying so high? And what caused the breakdown in the euro today? Just a little hint from the Fed that interest rates might rise plus oil pulling back and the dollar goes wild? If so he thinks there's a hell of a lot more mileage here.

But Flash is ever alert to the possibility that there will be a screaming reversal. For now though he's holding out for a longer rally. With every day that passes his margins get a little bit safer and his nerves become a little bit calmer.

Turning worms...on thin ice

2008-07-16T12:24:00.013+01:00

With the banks absolutely in the doldrums (RBS heading for a price under £1 a share and HBOS bombing by 30p so far today) Flash is still stuck to his long equity position, despite the unpleasantness. There are some positive signs (he hopes..). Yesterday's long position in Intel looks like exactly the right call; Ford is bearing up well; BA's losses have been stemmed by the breakdown in oil; we all knew that inflation was going to be high but perhaps it is the case that the inflationary pressure has peaked, hence the tumbling commodity market as people come out of their long positions - momentum that could rapidly accelerate if there is a break to the upside in equities (although the oil companies and the miners which are such a mainstay of the indices could also be adding to downward pressure as people sell them off).

The one highlight - and a trade that has actually worked brilliantly - has been to short the euroyen cross - which has finally begun to break down significantly. As the euro weakens generally Flash thinks this momentum will accelerate. The yen has strengthened significantly and thus in spite of yesterday's gyrations Flash is sticking to his net long dollar, short euro view. He's currently in the money with a short EUR/USD. Plus his short gold position is beginning to look rather more prescient, but he remains anxious about spikes in oil and the supposed psychological security of gold - but there ain't much psychological security in buying in right at the top, especially if all the other metal and commodity indicators are heading for the downside. So he might just add to his short gold position as events unfold today.

Some regrets - not sticking with the short HBOS, short Dexia view - and generally not keeping enough short positions in place, particularly on the indices. Plain stupidity and impatience as caused him to totally cock up what could have been massive short wins- which would hedge the considerable pain that being long is causing right now.

However it's because of the learning from these past regrets that Flash remains long in a selected bunch of equities, although for now he's on the sidelines as far as trading any of the indices are concerned. On the other hand, this may well be clutching at rather too many straws because his screen is still a sea of red - wriggling downward worms on the thin ice of not really enough margin. But he's still in the game. So - as of 1pm - he is long Ford, Intel, BA, BT, Scottish and Southern Energy, ASOS, Workspace Group, D1 Oils, Lonhro, Firstgroup, Avis, Northern Foods, and his old companions Stanelco and Axeon Holdings. All underwater, but some considerably more than others.He also hasn't yet flogged off his remaining equities - Man Group, IG Holdings, and Tribal - from which he got a very welcome and unexpected dividend this morning. And if - when? - there is a rally he will be very pleased indeed. For the moment, Atkins and Game Group have drowned. As ever he admits to the greedy charge of trading far too many positions at once - but the amounts are small and the margins are as big as he can afford.

Grinding through the agony

2008-07-15T20:09:00.002+01:00

(written earlier on today...)

Flash Rabbit is now seriously underwater and has had a number of his long positions totally caned. Some, like WS Atkins and one of the BT positions, have fallen by the wayside, and, as of 8.20am this morning, most of the others are hanging on by their fingernails. Flash took some profit on his 11100 Dow long but gave it back mis-timing new long positions – evidently the bottom has not yet arrived, and that’s hardly surprising given the grimness of the news. But it’s precisely because of the volume of the grimness that Flash is clinging to his long equities, short commodities view.

The one set of trades that have worked out reasonably well are the currency trades – Flash pretty successfully has been in and out of short EUR/USD and short EUR/JPY. Flash’s basic view is that while a lot of the attention has been on the unravelling of the debt crisis in the US, the omens for a deflationary bust are piling up in Europe and the value of the euro is looking increasingly untenable. Trouble is, the value of the dollar is also looking about right given what a dire state the US economy is in. But there must be an adjustment and Flash remains of the view that being long the dollar is the correct medium term call. However his long dollar positions are being stretched to the limit right now, but isn’t that the point of markets – to stretch tolerance to the limit?

It’s interesting that whilst nearly all other commodity prices have fallen over the last couple of days, oil and gold have stuck to their massive highs – and in the case of gold, as investors look for something – anything – that might go up in value – a huge spike in the price. But Flash thinks that this is underpinned by a quest for security rather than anything more substantial- if the price does begin to drop, it will drop very fast as the market gets flooded with gold and positions unravel. And if the rest of the commodity complex begins to drop as demand slows and inflation bites, it’s very hard to see why gold wouldn’t follow suit. For this reason he has opened up a short position in gold from around 972 (although he has been trying to short gold since about 945 and been caned in the process). Once again, he wishes he hadn’t closed out the gold longs that he put in place around 860. Flash, being impetuous and impatient, has once again failed to observe one of the golden rules of trading – of letting profits run. However he is learning about this the hard way as he sees his money going up in smoke.

Flash added to his short position in Thomas Cook yesterday – which helped to hedge some of the long losses, and he also went back short Allied Capital. He took a quick profit from his Starbucks short and tried to go short of Lehman Brothers but mistimed the entry and the exit points, being distracted by something else altogether. As ever, he wished he’d kept the erstwhile shorts in place. He doesn’t have any index shorts at all and would feel a lot more comfortable if they were there. This is deeply ironic because he has correctly called nearly all the key drops in the indices and made quite a bit on the way down, but just hasn’t managed to keep faith in his longer view that the market was heading for a very, very, nasty patch. Which is strange psychology really because he was absolutely convinced that it was the case. Right now he has a nasty feeling in the pit of his stomach but is trying to muster the courage to see his view through. If there is even a modest bounce he will have a lot to celebrate. There’s a lot at stake – perhaps rather too much – and if the next couple of days prove to be as difficult as the last few, Flash will seriously scale back his exposure. Locking the stable door after the horse has bolted? (Sealing the bank vault after the robbers have taken the lot?) Absolutely. But it’s a mistake he will never make again.

Queasy but not so sleazy

2008-07-10T08:18:00.007+01:00

Another unpleasant day yesterday as buyers headed for the emergency exit once again. Flash Rabbit is still in a buying mood but the herd over on Wall Street put paid to most of his gains as they headed for the vomit bucket on more bad vibes about debt, banks, recession and, that old nemesis of Uncle Sam, middle eastern militancy. Looking at the weekly chart on the Dow, it's still in a relentlessly downward spiral but Flash Rabbit can't help thinking that blue chip stocks are becoming ridiculously cheap. Cheap to the point of bargain basement discounts in the case of companies like General Motors, Intel and Ford. Interestingly the Asian and European markets haven't melted down in quite such spectacular fashion which leads Flash Rabbit to believe that there may be some kind of a bounce on the cards. On the other hand yesterday he lost such a lot of money trying to be long while the rest of the planet continued to be short that he is beginning to get a very edgy and nervous feeling in the pit of his stomach. How much more cash can he afford to risk? And if he, the tiny minnow micro trader is feeling that, how are the big whales and sharks feeling?

By about 5pm yesterday Flash had had enough. He kept trying to find an entry point to go long on the Dow and every time he did it his position got wiped out for nasty losses. So he stuck a short position on, cut his S and P long, went out for a curry, and came back with a satisfied stomach to find the day's losses returned. So now he's doing the bi-trade thing with a short Dow in place from 11300ish and a long Dec future from around 11000. Win win. (or at least no lose -lose).

Of course if oil does spike back up (and Flash Rabbit thinks that it probably will at some point, but not before it's adjusted down a bit, and the economy buys some time to make some adjustments for a post-oil world) all bets are off, as clearly not enough will have been done to curb the commodity bubble, which is feeding through to agony for companies and households everywhere.

Flash Rabbit has also been trying for days now to short the euroyen cross but it seems that those Japanese people just can't buy enough euros, and they hate their own currency. Why on earth anyone would want to buy euros right now is completely beyond Flash Rabbit - it seems to him that the European economy is on the cusp of an even bigger recession than the US and the UK as it has real structural problems, higher unemployment and is way over exposed to out of control property values and bad, bad debts. At some point the euro has to reduce in value otherwise inflation will put an end to any kind of recovery...In the same vein Flash Rabbit thinks that the pound and the euro are still ridiculously overvalued in relation to the dollar...but the market seems to think otherwise and for the time being, if his last current attempt to sell the pound against the dollar bombs for the umpteenth time, Flash Rabbit will retire from the currency trade.

So like his friend and mentor, Flash Rabbit is treating this, with a slightly nervous feeling in the pit of his stomach, as a buying opportunity. However he has hedged his buying with the usual sleazy shorts in Thomas Cook, Starbucks and Dexia, all of which are paying off handsomely. He would prefer to make money by supporting companies but he just can't afford to lose more cash.

Essentially Flash Rabbit is trying to do the decent thing and be optimistic in the face of such overwhelming pessimism- surely there are opportunities out there. On reflection, he has never been so long. A big risk. Currently he is long (in small amounts with big stops) ASOS, Avis, WS Atkins, Axeon Holdings, D1 Oils, Ford, British Airways, BT, Scottish and Southern Energy, Game Group, Workspace Group, Lonhro, Northern Foods, Stanelco, and public transport operator FirstGroup. And - a cheeky and risky one - but unbelievably cheap joke - Bradford and Bingley. 60% which are still showing gains. Which he sees as a positive omen. He's prepared for the worst but hoping for the best. And if he can muster up any more cash he might just buy into a long Intel position later this afternoon, depending on how things go.

Burrowing out of a hole

2008-07-08T12:00:00.005+01:00

Yesterday was a particularly unpleasant day, as too-easy assumptions unravelled and the dow plunged mid-afternoon. Flash Rabbit had been smugly sitting back and incrementally adding long positions in various equities, congratulating himself on being ahead of the crowd (probably along with half the rest of the trading community) when carnage broke out as financial shares in the US furiously sold off. Within half an hour all the day's gains and more had been wiped out. And his carefully honed dollar long positions were taken almost back to zero but for quick paws on various buttons.

The only saving grace was - continued short positions in Allied Capital (which nosedived), Dexia and Starbucks - and a quick short for a few quid profit in MBIA. But the AMBAC short tanked- and then bombed back down...and most of the sneaky long equity positions got hammered. Result - losses, mitigated only by 60 points of Dow that Flash Rabbit managed to guess the direction of correctly. However he resisted the temptation to shut everything down and sat watching it through with a slightly queasy feeling in his stomach, wondering if when he woke up this morning he would find all his money had been stolen by the evil bears.

This morning hasn't been quite as bad - so far- as he thought it would be. Whether the market continues to hold back from the brink or lurch off another cliff is not clear. He is trying to be optimistic but given his pessimism about banks and debt he thinks there may well be more nasty shocks on the way.

What hasn't worked

Long positions in Axeon Holdings, ASOS, and Stanelco - all looking like a car crash - not quite stopped out but it looks almost inevitable that they will be. Flash can't work out why the market hates these stocks quite so much - to him they all look like a good prospect, but he's not going to throw any more money at them. D1 Oils was looking OK but then the G8 ministers decided to have a go at biofuels, combined with a tumbilng oil price, which knocked them back a fair bit.

Trying to find a point to go long FTSE and Dow Jones - although alertness has avoided carnage there. This morning Flash has long positions from 11110 and Dec 08 FTSE at 5450. So far so good, but the panic button is in place if the indices plunge when Wall Street opens this afternoon.

What has worked - just about (so far)

Long positions in Scottish and Southern Energy, Game Group, Firstgroup, and from yesterday - British Airways.

A big short position in Allied Capital, Thomas Cook and some smaller shorts in Dexia and Starbucks. The easyjet short was abandoned when they produced better than expected passenger numbers and oil began to ease back.

At the time of writing, the european markets have perked up a bit - but Flash will probably hedge his longs with a sell on one or other of the US futures before Wall St opens. One of his biggest regrets is closing out his S and P, FTSE and Dow shorts at the end of last week - he would be much more relaxed if they were still there.

He is still short EUR/USD and short GBP/USD (although vigilance is required); long Dec 08 and Jun 09 Euribor, but if the US markets continue to tumble and the dollar softens, then he might begin to think about abandoning the currency bets.

How to be long when everyone else is short

2008-07-04T19:26:00.009+01:00

The main thing preoccupying Flash Rabbit is what to buy that offers some value. So he now has a shortlist of four or five stocks that he's roadtesting with small long positions. They are:

Scottish and Southern Energy - very profitable, large customer base, making strategic acquistions, with large expertise and capacity in renewables and therefore less vulnerable to oil - also a possible acquisition target for one of the larger global players

Game Group - released interim trading statement this week, and for no apparent reason the price dropped - sales are good, profits likely to be up, and we all know that even in a proto-recession demand for entertainment and computer games is insatiable, and teenagers like to spend money...

ASOS - innovative online fashion retailing - price/value conscious - likely to do well with the 21st century consumer - trading well even in this marketplace

Workspace Group - affordable low cost workspace for start-ups and SMEs in London, sitting on a ton of great, affordable real estate that will be even more valuable as 2012 approaches, notwithstanding everything else that's happening in the property market

D1 Oils - lots of people have had their fingers badly burnt with this stock, but anything that's an alternative to oil - particularly the jatropha proposition - looks interesting. And at this price even if it goes down further the rabbit won't lose much money. Thus far he is marginally in profit.

Of course all of these - particularly the retailers - might be wildly optimistic calls but Flash Rabbit thinks that while the rest of the herd is short it might be a good moment to try out a few long positions. He's fully prepared to be proved expensively wrong and for now has kept his short FTSE and Dow positions in place as some sort of hedge.

Other calls are trying to find companies that deal with environmental crisis - reclamation, dams, pollution clean up, that sort of thing, and anything to do with bicycles, high speed rail and public transport infrastructure - for this reason Flash Rabbit is taking a close look at WS Atkins and is hanging on by his fingernails to his long positions in Stanelco (bioplastics) and Axeon (innovative battery technology, but struggling this week after a very promising month).

Plus long the dollar against the pound (and, probably from next week, the euro), and long euribor (which proved yesterday to be exactly the right call). There will be more shocks to come but perhaps (and according to this wise rabbit) we should be now expecting something of a bounce, especially if inflationary pressure has peaked? Well, yes, but we need to keep close account of what happens to oil. Flash Rabbit can't see any reason why the oil price might drop soon - unless, that is, demand drops, which is possible given that energy efficiency has finally gone mainstream and the price is nightmarishly high already...

Still way short on the aforementioned banks, but may take some profits depending on what happens at the start of next week.

New shorts

2008-07-02T22:46:00.009+01:00

Another day, another lurch downwards. The trouble is, at least half the market must be thinking short by now so this could be the perfect time for a rally. On the other hand oil is soaring and Flash agrees (even though he's a speculator) that fundamentally it's not speculation that's driving up the market - it's stagnant supply and soaring demand, coupled with the low dollar and high political anxiety in the Middle East and elsewhere.

With a recession now the No1 news headline, Flash is half tempted to buy some equities but it's pretty difficult to figure out which might offer some value, especially in his price range, given that he can't afford expensive resources stocks or specialist infrastructure or engineering firms. He's eyeing some retailers and even - shock horror - some banks, but still thinks that there's way more downside to come for the banks - after all they haven't even declared their losses for this quarter yet - so is keeping away from them for the moment. His short in Barclays continues to work. As for retailers, well, today he went back in long on Game Group (given that Nintendo hit an all time high recently and teenagers continue to get pocket money even in a recession) only to see the price plummet as the FTSE crashed down this afternoon. He has still got a long position in Scottish and Southern Energy and - a new one from yesterday - ASOS - which may or may not get stopped out tomorrow. His other longs - Axeon Holdings and Stanelco - are both looking pretty anaemic too, although D1 Oils is holding up.

So with this in mind Flash decided to put a bunch more shorts on today. He increased his short position in MBIA, Allied Capital and vulnerable Eurobank Dexia; he upped his short position in EasyJet just in time for it to plummet as oil surged; he also upped his short in Thomas Cook. Persimmon also did exactly what he expected them to do today. A new one today is Starbucks - with the US consumer staring at the prospect of $10 gasoline (welcome to the real world, guys!) the last thing they'll be doing is driving to the mall to buy a $4 cappuccino. Plus with coffee futures hitting new highs and everyone feeling the inflationary pinch, Flash doesn't think that discretionary corporate croissants and lattes will be flavour of the month for some time to come. He realises that Starbucks has historically been wildly profitable (and in Flash Rabbit's opinion, pretty mediocre and evil with it), but he thinks that the value adjustment needed to restructure the business will drive the share price lower before things start to look up.

Short Dow, Short SPX, Short FTSE. All substantially in profit with stops in place should there be an unexpected bounce. But Flash thinks that's pretty unlikely over the next few days.

Get Down

2008-06-30T22:46:00.002+01:00

Flash Rabbit indulged in his usual bad habit of profit-taking too early last week, leaving what could have been really juicy shorts only marginally in the money before he cut them off. He came out of Barratt Developments, EasyJet, DSG International and Legal and General far too early - he's back in and short the lot of them again now but missed out on a big jump downwards. By far the most profitable has been a short in MBIA which plunged to an alltime low of 3.64 today before recovering - why anyone would want to invest in dodgy credit insurance is beyond the rabbit - on the other hand a number of institutional investors desperate to avoid the fallout from their insurer going bust might want to prop it up as best they can...but Flash remains resolutely short on both AMBAC and MBIA, although he took a bit of profit this afternoon. The biggest mistake was to take profit on the remaining Dow and FTSE short positions only to see both indices plummet - this was partly because the rabbit was too busy burrowing elsewhere to keep his eyes on the screen and so decided to bale out for the sake of safety. What a shame. He's been looking for another point to go short again but just keeps losing money in the process. The market hasn't quite got to a capitulation point but it's doing its best to avoid total destruction, although why $140 a barrel oil isn't enough of a warning it is impossible to tell. Perhaps Thursday will be another pivot point and lurch southwards...the data certainly doesn't look like it's going to get any better. Right now he continues to maintain that EasyJet, DSG, Barratt and - the biggest bet of all - Thomas Cook - which finally paid off today - are doomed. All exposed to weak consumer demand, high inflation, high oil, and all pitched at exactly the segment of the customer base which is in the most debt and in the most trouble. As the customer, so the company...

The cosmic void

2008-06-20T23:09:00.008+01:00

One of the best days for quite some time for Flash Rabbit's fund - pretty well everything that Flash expected came to pass, although he had to give it all his full attention to squeeze the maximum juice out.

He put a quick short on MBIA and added to his short on AMBAC mid-morning, thinking that the banks' loan mess was on the verge of unravelling, and sure enough, they tumbled - particularly MBIA which Flash Rabbit thinks is stuffed in the medium term. And if they are stuffed, then so are most of the banks. Well, that's what the market seemed to think today, anyway.

He added to his FTSE and Dow shorts - if only he was less nervy then he would be sitting on an enormous pile of cash by now. As it is he made a lot but would have made much more if he'd kept his nerve and not kept dropping in and out. Some very simple errors made about remembering to let profits run and not jumping in at the wrong price point, not doubling up and then panicking when the market seemed to turn...as it was, it was as close to a straight line down as one is ever likely to see. And beneath the 5620 mark on the FTSE lies a gaping void with no support in sight...perhaps that might focus some attention on desparately trying to heave the index up from the abyss on Monday. Oil may be the key, but regardless of what happens with oil, the macro picture is still bad, bad, bad. It's great that China and India have begun to bring their fuel prices in line but that will only create even more inflationary pressure - it might reduce demand for oil there but it will also create wage pressure and increased manufacturing costs. So it's all a devil's bargain. Oil is the inflationary poison and that's why Flash is interested in post-oil economies and the people who are thinking about them. If he had the capital to be invested in solar power, and most forms of renewables, he would. He did take out a quick long in Scottish and Southern Energy at the end of the day - might or might not work, especially if the market tumbles further with more grim data next week, but he's going to give it a go.,

Flash's short position in HBOS (along with half the rest of the trading community, probably) has been the story of the week - took profit on that but has left one bit of it still running, because Flash thinks that in spite of any short term rebound, HBOS is in bad trouble. Any bank that uses the word 'resilient' in a trading statement makes him think that it must be feeling pretty beleaguered.

Flash waited for the housebuilders to rise - utterly illogically in his view - as no-one much has any chance of buying a house at the moment - and then banged on a quick short on Persimmon - a fast £40 profit and he'll probably reinstate the short when the market settles (if that's the right word) at the start of next week. He's kept a short in place on Barratt too. The banks might write off some of Barratt's debt but that's because of saving their bacon, not Barratt's...so no particular expectation of any improvement there. And if (when?) interest rates rise, all hell will break loose in the housing market. It's bad enough already...the only kinds of housebuilders Flash Rabbit is interested in are low carbon, low energy, low impact, intelligent ones. And there don't seem to be any of them in the FTSE 350 that he can spot.

What Flash Rabbit is now thinking is - what's the next phase once the bank meltdown has happened, we have a sense of the longer term direction of oil (vertically up or moderately horizontal?), once the housing market has unravelled - and what's the next toxic shock? Massive devaluation of the pound and the euro? Currency chaos? Mass unemployment? He will be pondering that over his copy of the FT during the weekend and trying to spot the next theme.

So he ends the week in good shape with virtually all his positions (bar Euribor) showing a healthy profit. Nice one.

Next week Flash will talk about his longs and his shorts.

Impatience - and overtrading

2008-06-19T23:48:00.009+01:00

Being an impulsive and impatient sort of animal, Flash Rabbit has a propensity to overtrade. In between doing other, more lucrative, things he did that today and as a result didn't make very much money at all- although 90% of his calls proved to be correct, in all but 2 of them he got fed up waiting for them to work out and cut them off prematurely. The sensible thing to do would have just been to make one or two calls and let them work through. He failed to observe some golden rules of trading - 1. don't overtrade because every time you get into a position there is a cost and a risk/reward involved and 2. don't get frustrated - cool off and be technical and detached and 3. don't have too many positions at once, especially when you have very limited resources.

Today the market lurched back and forth - with a mixed to nasty bag of indicators but the fundamental grimness still very much intact. Flash Rabbit takes an extremely negative view of the current prospects - even if oil temporarily drops back, the inflationary drivers will still be there, and we haven't even seen the end of the beginning of the fallout from the current inflationary push; plus the banks aren't really doing much lending at the moment, and borrowers are defaulting all over the place, which will tighten the screws on the economy even more. Flash Rabbit's hunch is that the banks are in much the same condition as many of their overstretched customers, with devaluing mortgage books and a load of complex bonds/derivatives that they can neither sell on nor pay back, many of which are becoming totally worthless as the market unwinds. So they are hoarding money - scrimping and saving just like the householder - refusing to lend, and thus making things even more difficult, gumming up the supply of money even more. Add to this the impact on margins of inflation followed by the skidding screech of central banks raising interest rates, (and the banks nursing their losses from all their long positions in equities that got punked out), wherever and whenever that occurs, and the most almighty meltdown could ensue. The banks might be bankrupt. For this reason Flash Rabbit has taken out a long position on Euribor, even though in typical Flash rabbit style he isn't entirely certain what Euribor is, thinking that banks are inevitably going to want to make it more expensive to lend money to each other for the time being.

HBOS's {estimated?} £1 billion writedown is only the start of something much bigger. Flash Rabbit hates the banks because they merrily pumped up the inflationary balloon, lent out all their profits to increasingly dodgy propositions (or paid bank bosses very fat bonuses), and failed to look beyond the horizon to more uncertain times. With this in mind he put a quick short on AMBAC today - a little after the event but he doesn't expect their lives to get any easier this year and he expects plenty of shockers to come from the financial sector, and more dodgy CDOs to rear their ugly heads.

Flash Rabbit was planning to talk about his remaining long positions but there aren't many of them left. So that will have to wait until next week. Instead here's a rundown of his greatest hits and misses so far:

Flash Rabbit’s biggest hits

A long bet on Apple from 13700 to 15500 – if only he’d run his profits he’d have been an even more smug rabbit by now.

A bet on oil at 119 a barrel to rise at £1 a point – came out of this due to sheer nervousness and tight pants/sweaty armpits at £121 a barrel for a £200 gain but if only Flash Rabbit had let that one run he’d have made some very serious dosh, by his standards, by now.

Short FTSE from 5950 – a shame that he didn’t manage 6200 or thereabouts but that one is still running and looking very profitable indeed.

Flash Rabbit's biggest misses

Some crazy and stupid messing around with oil – dangerous and explosive stuff that has lost him over £300.

More recently, shorting the EUR/JPY cross only to see it soar up about 300 ticks. In fact Flash Rabbit wasn’t stopped out of that one (sensibly, he’d set a wide stop) but was so pissed off and frustrated that he closed the position for a major loss, only to see minutes later that the market dropped down by about 75 ticks. That was probably the stupidest thing Flash Rabbit has done to date as he might now be on the verge of seeing a profit from that trade, had he just left it alone.

Generally dealing in too many instruments and markets simultaneously only to fly into a blind panic when the market turns. That reveals his rank amateurism. However what is interesting about this trading business is that it is an interesting way to do self psychotherapy, provided that you are ruthlessly honest about exactly what is happening at any given moment. It's certainly taught Flash Rabbit a lesson or two about the consequences of impulsiveness and impatience.

Stop Press - Red Alert

2008-06-19T01:09:00.001+01:00

Having been away from the screens for a day, and looking at the carnage, and reading this, Flash Rabbit has no plans to buy any stocks for the forseeable future and will in almost all certainty close out all his remaining long positions and sell his remaining shares first thing tomorrow. His shorts, however, are doing just fine, and he's just added to them.

Liquidation

2008-06-18T23:00:00.001+01:00

Last week Flash Rabbit sold off all his shares except for retained holdings in three small companies – one of which is IG Holdings plc, on the basis that if idiots like Flash Rabbit are getting into spread betting then their profits for this financial year must be astronomical. They have been opening 1000s of accounts and Flash Rabbit is willing to bet good money that a lot of people will have lost their shirts in the recent volatility. Hence he retains these shares, especially as he understands that IG is fully hedged against losses, and he thinks their business model is sound. He also has a very small holding in Man Group, one of the largest hedge funds, which he is currently considering cashing in for around 5% profit given that all of the financial institutions are taking a thrashing at the moment. The shares that Flash Rabbit sold were British Airways (although he is considering buying some again if the price drops back below the 200p mark, as he thinks that they have a much better chance of survival than most of the other airlines, and will therefore pick up market share over the longer term, plus they have less debt, better staff and more high value assets than most), Scottish and Southern Energy (for a £1 a share profit just before the price dropped back to January levels) and Vedanta Resources (he got rid of these two weeks ago), figuring that the commodity boom was about to become pretty choppy and volatile.. However he likes all of these companies and may yet buy back in once the market has dropped back by 2 or 300 more points (or more), which is what he expects it to do.

Flash Rabbit has three big investment themes – sustainability and energy efficiency, including renewable energy (hence his interest in Scottish and Southern Energy), trying to spot value propositions in media, technology and creative industries (although thus far he has failed at this, although he would have bought some Apple shares in late January if he could have afforded to) and shorting the hell out of basket cases in the financial sector and the retail sector given that global economic conditions are in such a disastrous state, and the banks have been utterly stupid in lending far too much money to people who can’t afford it, and then lent these loans to each other through some stupid debt instruments which they now can’t trade with anyone. Plus the banks’ one track investment strategy seems to have been to be long on energy, commodities and emerging markets, linked to a load of toxic mortgage lending on commercial and residential property, all of which are slithering around like mad at the moment. Flash Rabbit has a particular hatred of the banking sector given that they have taken so much money off him over the years and wants to fight back, which is clearly not a good emotional state for trading but thus far has been remarkably profitable, probably more because of timing and the credit crunch than anything to do with his particular insight or success. Of course he feels concern for all those people whose jobs are on the line, but has very little sympathy for the senior managers who steered these leaky vessels into this choppy mess.

The banking sector will rebound at some point, when investors decide that their shares are enough of a bargain, but Flash Rabbit agrees with a number of analysts that the banks will need to raise an awful lot more capital and take many many more losses before this crisis is over. He also thinks that a number of banks are probably concealing the extent of their panic and liquidity problems. Results for Q2 and Q3 will be particularly nasty as the economic slowdown works through. We haven’t yet seen the full horror of the combined impact of tightening credit, property deflation and soaring consumer price inflation. More on the banks another day.

He has also been partial to shorting airline shares. Flash Rabbit flies around a lot and so observes first hand how difficult things are getting for the aviation industry. US and European airlines are being hammered by rising oil prices, collapsing consumer demand, and a growing clamour of protest against the environmental impact of excessive flying. More on the airlines another day too.

Flash Rabbit, like some other rather more wise rabbits, is interested in big infrastructure projects as a long term investment theme –there is huge investment and development potential in energy efficiency, in efficient infrastructure like high speed rail, logistics and shipping/ports, and in renewable energy and solar power. Clearly emerging markets, particularly Latin America, Russia, India, China and South Africa are important too but with inflation running wild in these economies, the wage/price spiral going like a corkscrew in reverse, rising raw material costs and slowing Western demand for the goods that they produce, they too are in serious trouble. A counter-argument might be that rapid growth in emerging markets is fuelling consumer and infrastructure demand there and so there remain major opportunities, but as global trade flows unravel Flash Rabbit prefers to watch from the sidelines. In any case, right now he doesn’t have sufficient capital to take out major positions in any of these infrastructure markets, but he fully intends to at the appropriate time.

Flash Rabbit's Micro Macro Hedge Fund

2008-06-18T22:43:00.000+01:00

Flash Rabbit runs a global macro micro hedge fund with an initial investment of £1200, which to which he has added nearly £900 since he began trading in February 2008. He is feeling perhaps unrealistically smug about this, which is why he has started to write this blog. He is a rank amateur trader who relies on hunches, a sense of longer term trends and only a limited grasp of macroeconomics to make his investment decisions. But so far, under the tutelage of far wiser rabbits than him, he has managed to steer clear of disaster. In fact he is up nearly 75% in four months. So that’s not a bad return, although it’s no guarantee that further disasters won’t happen. He makes very small investments and bets very small amounts as he doesn’t have the cash to do any more than that. However over the coming weeks he will reveal some of the more ambitious plans he has to achieve vast wealth and profits, and how he intends to plough this money back into the economy for the good of the world and future generations.

DISCLAIMER: you would be very unwise to take any of this as advice and Flash Rabbit takes no responsibility for any decisions you might take as a result of reading this blog. It's down to you!