Australia & America: What about the Australian Dollar & America's Economic Time?
Summary
Readers know of our thesis that superpower currencies are doomed. The costs of defending the Empire rise, so more debt and thus dollar currency is issued. And with the supply of debt rising, down goes its price.
For this reason we have recommended a "short" ETF on the US Treasury bonds since 22nd December 2008 - and have reaped our subscribers a return of 47%!
Over the past year, the A$ has lost nearly 20%, but since 24th October 2008, it has gained by 26%. Last Friday, it stood at US$78.69/A$.
So: quo vadis, Aussie?
Topics Covered
- Currency convulsions
- How to make money off this idea
Background
1. Currency convulsions
Readers know that we have recommended buying the non-yielding yen since 14th February, 2007; it is up by 26% since. We also have recommended that non-yielding Swiss Franc since 27th October 2008; it is up by nearly 7%.
The one that we have missed has been the Australian dollar (A$). Over about the past , the A$ has lost 20%, but since 24th October 2008, it has gained by 26%. Last Friday, it stood at US$78.69/A$.
We think that it has plenty of upside - but not for the conventional reasons. We do NOT believe in a better global Economic Time®, so we cannot believe in commodity prices thundering onwards and upwards.
Quite the opposite. We pointed out recently that America's Economic Clock® is ticking "bad" more and more stridently. Quoting from a Wall Street Journal article, and repeating it here for your convenience:
- "...the recent increase in the U.S. saving rate is the beginning of a major behavioral shift.";
- "The economists on average expect the unemployment rate to climb to 9.7% by the end of the year, with two million more jobs lost over then next 12 months, even as growth returns to the economy." (my italics)
- nearly half of the economists said that it would take 3-4 years for growth to return to a solid trajectory, and
- Just under one third of those surveyed said that they doubted the sustainability of the recent stimuli by the Fed.
So, our glass is half empty, whilst the market's may be half full.
But why advise buying the A$ if the US - and thus global - Economic Time is set to worsen?
Because the US$'s role as a safe haven currency keeps wilting.
We reckon that the A$ will stay on its upward trajectory that has been evident since March - precisely because people will get increasingly scared of holding US government debt and thus will seek to diversify out of the US$.
2. How to Make Money Off This Idea
- Always consult your financial adviser first
- Go long the A$ and get some yield, too.
