Shorting Australian Dollar

[persistentone3]

This looks like a decent place to go short the Austalian Dollar, in favor of the USD.  The basic thesis is that continued weakness in the iron ore market will become a catastrophe as Chinese steel mills start to go belly up.  Trade should settle in the 60 to 70 cent range Aussie to US within two years.

 

Can someone argue against the trade, and what about the timing?  Are there any short term factors that might give a boost to the Aussie in the next six months?

[Myth465]

Sitting in Australia, I cant argue with your logic but inmo its a tough short due to timing.

The AUD moves around with no real logic and has sat between 1.10 and 80 cents over the last 2 years.

 

I tend to believe the USD should be worth more, and that the natural rate is closer to 80 cents. I hold all investment assets in USD / CAD outside of my super.

I think Australia is due for a slow down, housing slump, china slump, or all of the above but have given up timing it or profiting from it.

 

I will just pick over assets after something gives ...

[siddharth18]

I think Australia is due for a slow down, housing slump, china slump, or all of the above but have given up timing it or profiting from it.

 

What about long duration, out of the money puts (LEAPs) on Australian banks?

[Parsad]

Not a specific stock recommendation...does not belong in the "Investment Ideas" section!  Cheers!

[persistentone3]

I think Australia is due for a slow down, housing slump, china slump, or all of the above but have given up timing it or profiting from it.

 

What about long duration, out of the money puts (LEAPs) on Australian banks?

 

I can't find any Australian bank that does not

 

a) pay high dividends

b) have high borrow rates for shorting

 

It's just impossible to climb over the 8%+ per year hurdle of these things together.

 

Also, it's important to realize that the US collapse in banking was because the US got financially lazy and allowed people to use non recourse loans.  Australians cannot default on mortgages without financial consequences long term.  So it's much more likely to be a slow steady slide.  Banks will have plenty of time to recapitalize during that process.

[persistentone3]

Not a specific stock recommendation...does not belong in the "Investment Ideas" section!  Cheers!

 

How can you say that Parsad?  It's the single most liquid investment idea you have in this group.  You sell Aussie Dollars in favor of US Dollars on a platform like Interactive Brokers, and hold the virtual currency position as a trade.

 

It's not different in concept from shorting a specific stock.  You are shorting a currency pair, and the AUD.USD currency pair is one of the most liquid with huge daily volumes and absolutely trivial bid / ask spreads.

[Myth465]

I dont think Australia will have a crash, just a few crappy years as well as a sideways housing market for a decade or so. Before I moved I was very worried about it, but things just dont seem so bad on the ground. The system here is very well designed, but assets are just overvalued. I probably wont ever buy AUS property and have been here for 3 years and havent bought an AUS share.

 

You can short the AUD but it seems to be based and priced on sentiment, which is tough to take to the bank.

Why did we drop from ~1 to .89, sentiment. Why are we back up to 93 sentiment. If China goes we will dive, but when will China go, will China go, how will China go???

 

http://www.cnbc.com/id/47290031

 

I agree with this article, and the quote below. Notice the date though......

 

“(In Australia) We see a credit bubble built on a commodity bull market based on a much bigger Chinese credit bubble,” Edwards said in a report. “Of all the bubbles I have seen over the last 30 years in this industry, this one is even more obvious.”

 

According to Edwards, the lack of volatility in the Australian economic cycle and the absence of any recession since 1991 has led Australians to have an “excessive” appetite for debt in the belief the “future will reflect the past”.

 

 

[ERICOPOLY]

Also, it's important to realize that the US collapse in banking was because the US got financially lazy and allowed people to use non recourse loans.  Australians cannot default on mortgages without financial consequences long term.  So it's much more likely to be a slow steady slide.  Banks will have plenty of time to recapitalize during that process.

 

 

That's not entirely true.

 

Florida does not have non recourse loans.  They are full recourse in Florida.

 

Florida had one of the biggest housing disasters.

[Parsad]

Not a specific stock recommendation...does not belong in the "Investment Ideas" section!  Cheers!

 

How can you say that Parsad?  It's the single most liquid investment idea you have in this group.  You sell Aussie Dollars in favor of US Dollars on a platform like Interactive Brokers, and hold the virtual currency position as a trade.

 

It's not different in concept from shorting a specific stock.  You are shorting a currency pair, and the AUD.USD currency pair is one of the most liquid with huge daily volumes and absolutely trivial bid / ask spreads.

 

The "Investment Ideas" section is so that others can use it as a library of sorts and find historical information or discussion on a specific stock...thus the ticker symbols at the beginning of each title.  Your idea would be difficult to track and find over time in that section, thus it doesn't belong. 

 

I don't like wasting my time moving these threads to the "General Discussion" board, so please don't post non-ticker stock ideas in that section.  Cheers!

[persistentone3]

Not a specific stock recommendation...does not belong in the "Investment Ideas" section!  Cheers!

 

How can you say that Parsad?  It's the single most liquid investment idea you have in this group.  You sell Aussie Dollars in favor of US Dollars on a platform like Interactive Brokers, and hold the virtual currency position as a trade.

 

It's not different in concept from shorting a specific stock.  You are shorting a currency pair, and the AUD.USD currency pair is one of the most liquid with huge daily volumes and absolutely trivial bid / ask spreads.

 

The "Investment Ideas" section is so that others can use it as a library of sorts and find historical information or discussion on a specific stock...thus the ticker symbols at the beginning of each title.  Your idea would be difficult to track and find over time in that section, thus it doesn't belong. 

 

I don't like wasting my time moving these threads to the "General Discussion" board, so please don't post non-ticker stock ideas in that section.  Cheers!

 

Could I have posted this with the subject "Sell AUD.USD Currency Pair"?

 

How is tracking the Australian dollar on a daily basis any different than tracking a stock symbol?    Just track the symbol FXA and you will get the approximate correct value, and you will certainly follow the direction of the trade.

 

In principal, this is no different than any stock trade, and contrary to your claim it is a more liquid trade than a stock trade, not a less liquid trade.  The bid ask spreads on a currency like this are less than 1/10th of 1%.

[persistentone3]

Also, it's important to realize that the US collapse in banking was because the US got financially lazy and allowed people to use non recourse loans.  Australians cannot default on mortgages without financial consequences long term.  So it's much more likely to be a slow steady slide.  Banks will have plenty of time to recapitalize during that process.

 

 

That's not entirely true.

 

Florida does not have non recourse loans.  They are full recourse in Florida.

 

Florida had one of the biggest housing disasters.

 

And who were the buyers in Florida at the high end of the market?    Try South Americans with lots of money, probably buying through investment vehicles like partnerships and corporations, all backed by offshore entities.    A large number of those buyers were effectively non-recourse.

 

It does not matter in any case, because that is one state out of 50.