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Thursday, November 25, 2010

ECB repudiated by British representative

This is an interesting excerpt from the last meeting of the European Central Bank, where the British representative Nigel Farrage MEP gave a stinging rebuke to the ECB model. I am curious exactly does he think the 'markets are going to deliver justice to these central bankers when the Japanese and Americans are only too pleased to debase their currency in the pursuit of moral relativism or moral scepticism, depending on your 'relativist' apathy. He is a politician....supposedly a 'moral agent', so where was he over the last 10 years when the ECB, Fed and Bank of England were enabling their governments to blow out their tax-payer funded hides. What a hypocrite!

Andrew Sheldon

Wednesday, October 20, 2010

EUR and JPY weakness to outpace USD debasement

I actually expect the debasement of the EUR and Japanese Yen to outpace the USD debasement, so we can expect a relatively strong USD. All these currencies will of course be weak against the commodity currencies and emerging markets. See my article about the Fed and Asian property.
The interesting aspect is the impact on the commodity producing countries like Australia, Canada, South Africa, Chile, Brazil; as well as the emerging markets like China, Korea, Thailand, Indonesia and the Philippines.
We can expect these countries to be strong. It is interesting of course because the Fed and EU are blaming the Chinese for the strong Yuan; but partially the reason for the strong Yuan is that the US and European Central Bank (ECB) are debasing their currencies. True, the Chinese are funding the US deficits, and that has artificially raised the USD, but that is with the support of the US government.
We might well expect emerging markets to survive this currency crisis fine this time; largely I think because they can expect a lot of property investment by Western fund managers. Expect a property boom in Asia, particularly the Philippines, China, Vietnam and Thailand. Small Western players are better off in the Philippines because of favourable language (i.e. English), familiar legal system, generous visa rules, and good yields of 8% on high-end apartments.

So what about the commodity producing countries? Australia, NZ, Canada, Brazil and Argentina rely greatly on commodity exports. The problem of course is that mineral commodities do not price at parity with agricultural commodities. This is has to result in these countries sabotaging their currencies with debasement, or more likely we can expect the stronger foodstuff prices to continue. This development makes investment in countries like the Philippines more attractive, or other countries which might have cheaper agricultural land. I know the Philippines does have marginal land as cheap as PHP10-20/m2 (USD0.20/metre2), however you could probably do better elsewhere. Certain higher value crops like coffee are better in the Philippines. Nestle certainly produces a lot. Some of the mountain provinces are also suitable to growing more temperature foodstuffs. e.g. Baguio City is a food basket for the Philippines. It is one of the few cities with malls in the cool mountains...aside from Tagaytay, south of Manila. Anyway, the Philippines is a distraction from the currency strength that is gripping these commodity and emerging markets. So expect stronger commodities as the central banks debase currencies with more 'quantitative easing'.
Andrew Sheldon

Sunday, October 10, 2010

The Yen set to fall against the Philippines peso

Whilst I am looking at exchange rate action, its noteworthy for Japanese people and Western expats living in Japan that they ought to consider buying property in the Philippines. Why? Well...the Yen is about to fall, so it would be a good idea to remit money before the currency collapses. Property yields in Japan are about 12-13% now, compared to 8% in the Philippines. The difference however is that Philippines population growth is 2% per annum, whilst Japan's is negative, and does little better than 1.5% in certain districts of the major cities.
The Philippines is attracting a lot of investment from Taiwan, China and Korea in tourism, and also a lot of business from US, Australian and NZ call centres. Aside from that, it also has a healthy exposure to expat remittances and domestic commodity production. In recent years the Philippines has been growing at 7-8%, and there is no reason why that will not be sustained.
Andrew Sheldon

The AUD play with a Japanese property twist

The AUD-JPY is not a currency I have been giving much attention to of late because my focus has been on the commodities (AUD-USD) rather than property. Though since I have an interest in Japanese (foreclosed) property, I was interested to look at the implications for the property market....which is offering yields of 12-13%.
We can see from the chart that the AUD might be strong against the USD, but against the Yen, the AUD has actually been a bit lacklustre. That is about to change. The Japanese yen is going to come under a bit of pressure as the govt there debases its currency. You can expect this to lead to a strong AUD against the yen. In fact I am expecting the AUD to rise to the previous high of Y107. This is a good long term currency trade, as you will never earn more spread interest than on this trade. With the unemployment rate 5.1% in Australia, there is actually scope for more rate increases as well. Stimulus in the Eurozone and Japan can only help Australian commodities demand.
The implication is that there is a good opportunity to trade AUD-JPY and then use your profits to buy a holiday house in Japan. Don't forget to get your Japan Rail Pass! God, I should be selling the things...I'd told so many people about them. I love trains. :) I take GPS coordinates for every station I stop at. That's right...I don't have a life. Glad you could join me though.

Australian dollar going to $1.15

The AUD is just about to reach parity with the USD. Followers of the currency price action might have reflected on the trends in the other currency. In this era of currency realignment, you might be thinking that the prospects for a strong USD will mean a weak AUD. I would challenge this point of view. In the short term, I would not be surprised to see the AUD find resistance at parity, but I do believe that we are looking at a stronger AUD currency in the future as a result of currency (i.e. economic) relativism. Yep, economic relativism is about debasing your currency faster than the competition. Countries like Australia have relatively hard currencies in these periods, so we can expect a sustained strong currency. I don't expect significant weakness in China. It will happily keep prospering along for decades to come. So long as there is a high household debt in Australia, we can expect measured increases in interest rates, but also a great deal of sensitivity to those rises. We will not be able to afford interest rate expect a strong currency. That is alright....all other commodity based currencies will be strong as well, so expect stronger commodity prices across the board.
I actually am expecting to see the AUD reach $1.15-1.20 in the next few years.
Andrew Sheldon

Currency market realignment coming - JPY:USD

Just as we are going to see a turnaround in the EUR, we can also expect a turnaround in the USD against the Yen. Japan has been complaining of late about its reduced export competitiveness. Of course this is just justification for printing Yen to repay the debt which is denominated in Yen. i.e. The Japanese have to debase the currency in order to inflate asset prices, in order to stimulate some spending in the Japanese economy. They will want to expand the economy in order to increase taxes (i.e. GST increase), and they will want to pay off that debt. Reforms will be easier if there is stronger economic activity.
The USD against the Yen is about to reach a yet level of 80yen. The yen has not reached this level for decades, so it will be an important achievement. For reasons already stated above, I am not expecting this support to be breached, as there is just too many reasons for the Japanese to weaken their currency. Its a case of who can be the biggest currency debaser. Unfortunately I have not got the history back to the 1970s on this chart...I just remember the forecast I made last year that it would reach this its finally happened.
Andrew Sheldon

Currency market realignment coming - EUR:USD

There are some important developments occurring in the currency market. We are about to see a change from a weak USD to a strong one. Not yet, but we are close. The justification is going to be:
1. Stimulus measures in Japan which will weaken its currency
2. Stimulus measures in the EU, which will refinance Greek/Spanish debts, but also expect some broader-based stimulus.

A turnaround in the USD will of course reduce the appeal of the Dow, as competitiveness will shrink, but not considerably if the later countries are dolling out most of the stimulus. The target value is 1.45 USD for the EUR.
Andrew Sheldon

Sunday, October 03, 2010

Nobel Prize winning economist states the bleeding obvious

Joseph Stiglitz, the former chief economist of the World Bank and Nobel Prize winner, has come out and said that he thinks Germany ought to break off the Euro currency. I made more profound statements 5 years ago....When do I get my Nobel Prize? In my Global Market Commentary blog I suggested Spain, Italy and Portugal, given there different cultural values, ought to be on a different currency. I guess my Nobel Prize is in the mail :)
This particular dumb-nut economist is suggesting that 'Keynesian stimulus' might be necessary. In the interests of global peace was he also one of the World Bank, govt-funded economists who supported the stimulus that made the 'extra stimulus' necessary in 2008, or did he back away from that stimulus. Maybe he didn't turn up for that office meeting. Read more in this NZ Herald article.

I am a bigger genius than I thought....I actually said the same thing 5 years here. There you go!
Andrew Sheldon

Wednesday, September 15, 2010

Outlook for Australia dollar (AUD)

The Australia dollar is charging ahead in recent trading. The AUD was always destined to be a strong or 'hard' currency given its outlook. This outlook is inextricably tied to the success of China and India, which largely rests on the 'small government', 'selective government' and irrelevance of government. Basically, in China the government is incidental. Rule of law is inoperative, so market rules, albeit with little integrity. If you are expecting China to become a market paradise, think again. China is only going to develop coherent market values if the West does, and sadly ideas don't have much sway in the West either. We are in a scientific era to be sure, but science is the product of a small (2-3% minority), and under our democratic tradition, the idiots retain power.
So let's get back to China. China has a huge population. This means that farmers will be flooding into the cities in order to get higher paying factory jobs. This is great news for Chinese productivity, wealth creation, and it keeps inflation in check around the world. They get cheap raw materials from Australia, Russia and Mongolia. Fears of a Chinese melt down or ci
vil unrest are misplaced. In fact, China has a great deal of mineral resources in the outer provinces, so those areas are likely to become future centres of output....perhaps the food basket for China as we extort higher prices for agricultural products in the seaborne market place.
China will be like this for at least another 20 years, which means that it will have an insatiable demand for food and minerals for the next 20 years. The implication is that Australia will be in a strong position to benefit from exports of ores. Both strong growth in export volumes and high prices are assured. Of course there will be competition at the margin from China and Russia. It remains to be seen whether India will play a significant role. This will depend I think on political reform in that country. Representative democracy is not the 'god-send' it is supposed to be. India can only flourish, like the West, when the recognise that, and identify consensus
based democracy as a better mode of governance. It is the only way to end the tyranny of the majority, who are idiots. In India's case, uneducated idiots; and in Australia's case, morally skeptical idiots too accustomed to not paying the consequences for their actions, i.e. Not thinking. And I have yet to speak of the 'enablers', whether corporate CEOs, parents or politicians.
Anyway, back to Australia.
Australia really has no problem in future. More capital is going to flood into this coun
try than you can imagine, funding mines and energy projects mostly. A huge wealth effect for what is a very small population. Of course we might expect two things:
1. A materialistic splurge as people buy more houses, etc
2. Governments staking more of this wealth threw resource rent taxes
3. Decadence of all sorts resulting in greater crime, drugs and rock n roll. Yep, may
be even a sexual revolution. Let's hope, I missed the last one :) I was born in 1968.
Looking at the chart, its apparent that the AUD is just about to reach its 6mth high of 0.93 USD. We might expect a sell-off at this point, however its probably likely to continue to its 2-year high of 0.96, set back in July 2008.
At such times the currency has a tendency to fall back because spending gets out of control. Is that going to happen this time? Hmmm...that will depend. I suggest 'No' for the following reasons:
1. An overheating Australian economy is going to place pressure on the Reserve Bank to raise interest rates, so you will be able to spend less on consumerism, and you will be forced to pay more off your debt. You ought to already be doing this, or buying gold stocks.
2. Australia household debt levels are high, so this monetary policy will be very effective
3. The Australian govt will prefer to allow the AUD to rise rather than raising interest rates, because its constituency is the poor households rather than rich farmers and miners. You might expect the 'farmer-friendly' Independents to make a difference, but I doubt it, because I don't think they even know what monetary policy is.
What does all this mean? It means strong AUD for a while now - either way. More likely there will be a balance of interest rate rises to temper a strong economy. We need to consider the 'flow on' of that trade balance. Will it translate into benefits for Australian households? Yep, in terms of lower interest rates than otherwise, and low price pressures from imports.
4. We might expect a lot of Australians to be holidaying in the USA. We are not accustomed to being on par with Americans
5. The big caveat is how the Labor govt behaves. They are inclined to sabotage the economy of late, and the Independents do not inspire confidence.
Andrew Sheldon

Sunday, August 22, 2010

USD set to strengthen against the Yen

These are indeed interesting times. We can see from the following chart that the USD is close to reaching its historic low of 81.86 against the Japanese Yen. It seems destined to reach this level in order to give traders some sense of upside. It is a fait compli that the USD is going to weaken. Why?
Well the Japanese economy is not exactly in a strong position either. We can expect some stimulus in Japan to come in the form of mass-printing of Yen. This will of course stimulate some domestic demand, and probably even stronger property prices. It will not contribute to the real economy, however it will allow the government to balance its fiscal debt, which is of course owed to the Japanese people.
At the moment the yen is at a support level of 84.94-85.00. I would expect this to be breached, and for the currency to plummet to the 81.86 level, if only for a day. The implication is that traders ought to be looking to take a trade position here. This also makes a great opportunity for Japanese people to buy a house in the USA foreclosed market given the weak USD. It is not a bad time to sell your property in Japan if you are repatriating USDs, but to what end when the yields are so much better in Japan. There is not going to be any huge recovery in USD in the short term, however there is sufficient upside to consider selling investments like property, i.e. A recovery is possible, and it could be as high as 125 Yen. The deciding issues are going to be:
1. Japanese budget balance - The extent to which the government resorts to taxation vs printing money to resolve the domestic public sector debt
2. Your time line - the longer you wait, the greater prospect of a US recovery. The US is still absorbing all their surplus property stock and liquidating the related debts.
Andrew Sheldon

Flat EUR-USD currency market outlook

The EUR can be expected to fall back weaken in the short term. It might sfind support around 1.24, or otherwise fall back to previous support at 1.1879. My position is the former proposition, and we can in the middle term expect a stronger EUR. Of course its all relative with the major currencies, as both governments and the Japanese engage in currency debasement.
Andrew Sheldon

The outlook for the AUD positive

The Australian dollar is confronting several competing forces at the moment. In the short term there is the uncertainty of an unknown election result, even if it appears as if the Coalition will have the power in the House of Representatives, given that most of the Independent MPs are alligned to Liberal-National values.
The trading in the AUD suggests that the currency is close to breaking out to a new high, or set to fall to the old 80c support.
I am confident that once the election uncertainty has cleared we are going to see a stronger AUD. The reasons will be:
1. An end to the Emissions Trading Scheme
2. An end to the Mining Tax
3. Strong mineral export revenues
4. Strong business investment by the Chinese and Indians in coal & iron ore

The economy is currently bumping along with capital inflows of $3.5-4 billion per month. They are going to keep the AUD strong for the foreseeable future. The USD does not convey such strength, but the Chinese economy does. I see no reason to expect a slump in China, which is still benefiting from a great deal of stimulus. I can see upside for the AUD to as high as 98.38c, the previous high. I cannot see that support being broken in the medium term. It is probable that Australia will witness a recovery in domestic spending by that point. i.e. When Australians know they are on a good thing they go out with their credit cards in hand.
Andrew Sheldon

Wednesday, August 18, 2010

Forex market attitudes to Australian PM candidates

Interestingly the Forex markets are signalling that Australia is confronting a bad choice of leaders - between two idiots to be sure. The NZD is surprisingly strong. I think the markets are anticipating a bad choice either way. Certainly there is no question that Gillard is dire news for the AUD in the short-medium term (say 0-5 years), whereas Abbot is the opposite I feel. Really its about the Gillard risk. The considerations are:
1. Resource Rent Tax - it will kill investment in the long term, but committed projects will continue. In the long term there will be balance of payments benefits in the Australian government receiving more money through extortion, but there will be a retained distaste in financial markets in the form of an interest rate risk premium for the extortion, and its surprise introduction.
2. Ideology - Gillard is a socialist who will invest long term in education. It will be inefficient spending, so considered a debasement of the currency value. Mind you? Any worse than Obama? The implication however is that wealth will unnecessarily be squandered.
3. Interest rates - I think both parties will have similar implications for interest rates - except for the Gillard 'tax premium' of say 0.25% x $750 billion of household debt for Australia. Basically they will have soft monetary policies because of the high housing debt, so they will let the exchange rate jump around with commodity prices and speculation about global economic growth.
4. Fiscal policy - Abbot could be expected to cut govt spending to repay debts.

Little surprise then that investors wanting AUD exposure are bidding up the NZD. Expect that disparity to correct after the election results.
Andrew Sheldon

Monday, May 17, 2010

AUD-USD close to support levels

The AUD has fallen off considerably in May. The AUD is destined to find support at the 0.8574 level, which ought to provide a good platform from which to trade forward. The critical factors shaping the AUD are interest rates and the Resource Rent Tax (RRT) under consideration by the Rudd government. A RRT would undermine a great deal of investment interest in Australia, particularly in the iron ore, coal, coal seam methane and the conventional oil & gas sectors. Several LNG terminals have been proposed. If this tax is adopted, a few more energy projects will be directed towards Oman and Yemen instead. That is how seriously Kevin Rudd has crippled the sovereign risk weighting of Australia. What an idiot! Rudd can be categorised with other infamous expropriators of private wealth - President Mugabe and President Chiraz. A 40% tax off the top is not much better than nationalisation with nominal compensation.
I would not even be surprised to see the AUD breach this support. The factors working against this are the internally strong economy, and thus its relative merits over other economies, since it promises to keep interest rates relatively high.
Andrew Sheldon

EUR-USD turnaround imminent

Expect weakness in the USD this week, as the focus shifts from the Eurozone to the USA. The Euro has fallen to an important support level, and recent trading suggests it will find support at these levels. This of course provides a good basis for future trading once the downtrend is technically breached.
------------------------------------Andrew Sheldon

Monday, March 01, 2010

USD has short term upside, though consolidating

The USD is likely to experience some strength in the short term against the Yen. We can see in the chart that there is upside to 91.89. Thereafter I would expect it to preserve its consolidation for the next few months.
Andrew Sheldon

Euro weakness in the short term

The Euro is coming under pressure because of the Greek, Portuguese and Spanish economic fears. I don't see much of a problem with this exposure, but its weighing on the market. There is talk of a bail out. It seems probable that the Euro is falling back to 1.2492 support, though there is an interim support level at 1.2969 which will need to be tested.
The best outcome for the Eurozone would be for these 3 nations, as well as other Eastern European countries lacking in monetary and fiscal discipline to have their own currency, so the puritans in the north can define their own monetary identity. The Mediterranean countries can then peg their new currency to the price of red wine.
Andrew Sheldon

Australian dollar has strong short term outlook

Stronger commodity prices and a strong economy are likely to give short term confidence to the AUD. The currency is currency trading within an expanding envelope, which will eventually break down.
In this case we can look for resistance at the 90c mark in the short term, before rising to 92.44c level in the medium term. I would thereafter expect weakness in the AUD down to 84.58c.
The sustainability of the current strength in commodity prices is in question, though the currency will be buoyed by rising interest rates. I believe the currency will test the 84.58c level before it goes higher.
Andrew Sheldon

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