The AUD is and has gone down under in many ways. What is the culprit? China, US tapering, Commodity weakness. One may argue there is common ground to all three. And that is a generally negative sentiment for anything that is not American. The Taliban would likely not like this point but I speak economically on this.
Now Australia is about as Far East you can go (lets leave aside New Zealand for now) as the US is about as far west you can go. The furthest away get hit the hardest? Even the JPY is hit. This may be a coincidence but then again, investor psychology works in unknown ways and we will never quite know why certain things happen in the financial world. Enough to say that for now, yield differentials reign supreme and the Australian Bond market is in no rush to sell off. While the US rates market is generally selling like hot potatoes. And then contagion not only drives AUDUSD lower but also AUDNZD, AUDCAD, AUDGBP etc etc. More to go in these.
Wednesday, July 31, 2013
Saturday, July 27, 2013
The Third Arrow with attitude
The Chartonomist had the pleasure of watching Shinzo Abe speak at a conference yesterday. The Japanese premier, his excellency, was uber-bullish. If we all were in the same shoes as Abe, the Nikkei would not be lingering around 14,500 but would be closer to 20,000. The three Abenomics arrows of monetary, fiscal, and growth policies may or may not revitalize the economy but the exuberant confidence of Abe has certainly already triggered a change for Japan.
The big goal is for such sentiment to persist. Sentiment eventually drives the data and this gives some room for policy error, so long as the premier keeps positive. The risks are thus skewed to a Japanese recovery so long as the LDP stays at the helm, and Abe as the boat steerer. Unless, of course, he changes his attitude.
Shinzo Abe marches down the aisle to deliver his boisterous speech
The big goal is for such sentiment to persist. Sentiment eventually drives the data and this gives some room for policy error, so long as the premier keeps positive. The risks are thus skewed to a Japanese recovery so long as the LDP stays at the helm, and Abe as the boat steerer. Unless, of course, he changes his attitude.
Shinzo Abe marches down the aisle to deliver his boisterous speech
Tuesday, July 23, 2013
Time to time
The goods that we transport are invaluable. This is because we intend to transport them in the first place, otherwise we would just junk them. By association, the companies that transport our goods are also valuable. Thus, the Dow Transportation average is in many ways more important than several other global indices.
That the Dow Transports (Trannies if I may call it) have given up their gains of the past few sessions is precursor to a small correction. By no means an end to the comfortable rally of the past three weeks but we are only attempting to time the market and we all know that timing is key. A view, is a view, is a view, and unless you are Warren Buffet with very deep pockets which can hold onto large losses, timing is important. Heck, even Warren Buffet needs it despite all the fundamental investment, for if you invested in Berkshire Hathaway 12 years ago, you likely would have made nothing while wearing large volatility.
It's time to time a small correction and take some profit in existing equity length. Rebuy next week (at the risk of micromanaging the overall bullish position)
That the Dow Transports (Trannies if I may call it) have given up their gains of the past few sessions is precursor to a small correction. By no means an end to the comfortable rally of the past three weeks but we are only attempting to time the market and we all know that timing is key. A view, is a view, is a view, and unless you are Warren Buffet with very deep pockets which can hold onto large losses, timing is important. Heck, even Warren Buffet needs it despite all the fundamental investment, for if you invested in Berkshire Hathaway 12 years ago, you likely would have made nothing while wearing large volatility.
It's time to time a small correction and take some profit in existing equity length. Rebuy next week (at the risk of micromanaging the overall bullish position)
Monday, July 22, 2013
It's a boy!
Markets seemed more interested with what is going on with the new British heir to the throne than price action. One website said the new boys fortune will be one of "extreme ups and downs". That sounds more like the fate of cable.
I know we wanted to punt cable to the short side but we also wanted to flip our view to bullish should 1.5310 give way. Which it did and we managed to catch onto a nice rally to the 1.54 handle. We think this can go higher still. Why? Because of gold.
And also because of inflation expectations which are trading higher by the day. This is optimism at its best. The Fed is tapering and stopping printing machines (effectively), yet the economy is able to inflate its debt away. The Fed needn't be involved. At least for now. And thus, even gold has rallied given the inflation hedge that it is. On gold, we continue to think that either a long term base is in, or we are very close to one. 5 years later we will likely be kicking ourselves as to why we did not buy this in our personal accounts if we haven't already done so.
But this is more about the pound and inflation expectations. GBP/USD and Treasury Inflation Protected Securities have been correlated for months and as these TIPS increase in value, so will GBP/USD. Particularly given the country's irritating history of high inflation. Even in future kings to come, inflation is likely to remain a mainstay for the UK.
Gold recovering:
I know we wanted to punt cable to the short side but we also wanted to flip our view to bullish should 1.5310 give way. Which it did and we managed to catch onto a nice rally to the 1.54 handle. We think this can go higher still. Why? Because of gold.
And also because of inflation expectations which are trading higher by the day. This is optimism at its best. The Fed is tapering and stopping printing machines (effectively), yet the economy is able to inflate its debt away. The Fed needn't be involved. At least for now. And thus, even gold has rallied given the inflation hedge that it is. On gold, we continue to think that either a long term base is in, or we are very close to one. 5 years later we will likely be kicking ourselves as to why we did not buy this in our personal accounts if we haven't already done so.
But this is more about the pound and inflation expectations. GBP/USD and Treasury Inflation Protected Securities have been correlated for months and as these TIPS increase in value, so will GBP/USD. Particularly given the country's irritating history of high inflation. Even in future kings to come, inflation is likely to remain a mainstay for the UK.
Gold recovering:
Sunday, July 21, 2013
Going for par
The LDP victory is another feather in the abenomics cap. Now for the flurry of investors rushing to USDJPY, Nikkei and other Japanese assets. Perhaps even JGBs! Though for JGBs we think that Treasuries matter more and that relationship probably deserves greater attention.
Meanwhile, USDJPY above to 103.50 and likely 105 in the coming months. It can help the US dollar index get back a couple of percent higher for now as its multi month choppy ascent continues. If 'risk' is measured by local stock market price action, this should be healthy. Even healthy for EM, despite JPY weakness, for we think that confidence has improved, in contrast to a few months ago. This is exemplified by gold and oil having recovered and global assets holding up fairly well along with this. It's not a hole in one by any means but at least we can go for par on this punishing financial course.
Hurrah Mickleson.
Meanwhile, USDJPY above to 103.50 and likely 105 in the coming months. It can help the US dollar index get back a couple of percent higher for now as its multi month choppy ascent continues. If 'risk' is measured by local stock market price action, this should be healthy. Even healthy for EM, despite JPY weakness, for we think that confidence has improved, in contrast to a few months ago. This is exemplified by gold and oil having recovered and global assets holding up fairly well along with this. It's not a hole in one by any means but at least we can go for par on this punishing financial course.
Hurrah Mickleson.
Wednesday, July 17, 2013
A cable punt
Although Indian by origin, I am a proud British citizen. Proud for a reason, not just because I got naturalised. The reason being the open culture. The only major (or even minor) central bank to appoint a foreign citizen as the governor. I mean many do not even allow you to apply if you are not a citizen. But not the case for the Bank of England. A country that would probably sell the Big Ben if she had to.
So what does Carney really bring to the table? Dovish expectations fought by hawkish rhetoric, the market is overall in a mess. It probably doesn't matter. We look at the charts and say, we are near a tipping point. Sell with a stop at 1.5310 targeting 1.5150 or we just flip to bullish if the market moves above 1.5310. But in this scenario of higher prices we likely revisit this post.
Why we want to sell is because the USD is inherently bid. If US yields are to eventually rise, which we think they do, then for GBP/USD the USD leg of the trade should awaken and cable should fall lower. So we pick our levels based on market commitment (1.5310 is where the last significant selling was seen) and trade with that.
So what does Carney really bring to the table? Dovish expectations fought by hawkish rhetoric, the market is overall in a mess. It probably doesn't matter. We look at the charts and say, we are near a tipping point. Sell with a stop at 1.5310 targeting 1.5150 or we just flip to bullish if the market moves above 1.5310. But in this scenario of higher prices we likely revisit this post.
Why we want to sell is because the USD is inherently bid. If US yields are to eventually rise, which we think they do, then for GBP/USD the USD leg of the trade should awaken and cable should fall lower. So we pick our levels based on market commitment (1.5310 is where the last significant selling was seen) and trade with that.
Tuesday, July 16, 2013
Choose one or the other
Sorry we are beating this one to death. Another post about the INR. We just think it is important in the global context. Important because it is a high yielder. Important because it has solid demographics. Important because it is (was?) a part of BRIC.
But what this post is about is a bit beyond the INR as well. Some of the worst performing currencies (taking a longer term horizon over, say, 10 years) in the world have something in common. They all love gold. Turkey, South Africa, India, Mexico (ok this one likes silver more, but still). It all starts to make sense. Blame it on culture, weddings and gifts but currency is a part of culture. And gold is a preferred currency over the ZAR, INR, MXN, TRY for a reason. These are all inherently weak currencies. Bottom line - you may not know it but if you like gold, you are bearish INR. If you are bullish INR, you probably don't like gold as much. Both gold and INR can't strengthen together in the long run, as we have seen.
Image: Gold price in INR - Gold still winning overall
But what this post is about is a bit beyond the INR as well. Some of the worst performing currencies (taking a longer term horizon over, say, 10 years) in the world have something in common. They all love gold. Turkey, South Africa, India, Mexico (ok this one likes silver more, but still). It all starts to make sense. Blame it on culture, weddings and gifts but currency is a part of culture. And gold is a preferred currency over the ZAR, INR, MXN, TRY for a reason. These are all inherently weak currencies. Bottom line - you may not know it but if you like gold, you are bearish INR. If you are bullish INR, you probably don't like gold as much. Both gold and INR can't strengthen together in the long run, as we have seen.
Image: Gold price in INR - Gold still winning overall
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