Stay the course

I appreciate the emails, but I just don't have a lot to say.  It is no longer a supposition.  The facts are becoming clear.  These facts have begun to be reflected in the interest rate markets, but have not yet taken hold of the currency markets.  Here they are ...

• The Chinese real estate bubble is imploding
• This will take the Aussie real estate bubble and the Aussie economy down with it
• Aussie monetary policy makers have moved from a tightening stance to neutral
• They will soon move to an easing stance
• The purest way to play this has been and will continue to be purchasing Aussie 90 day bill futures
• The additional way to play this will be by shorting the AUD, or by buying puts on the AUD

• I have been long June 2011 and Sept 2011 90 day bill futures for a couple of months
• I am also an owner of out-of-the-money Sept 10 and Dec 10 puts on the AUD/USD
• I am also short the AUD/JPY

• The 90 day bill futures have made a nice move higher, but can easily move another 200 basis points
• The AUD is off of its Spring highs, but remains stubbornly tethered to the S&P 500 - essentially moving tick for tick with American stocks.  As long as the stock market hangs in there, the AUD appears to be going nowhere.  I am reminded of the GBP in the Spring and Summer of 2008.  It was clear that the jig was up in the UK during this period and that the GBP was on a train to $1.50-ville.  The only problem was that the currency markets don't always read the newspapers.  As late as mid July 2008, the GBP was still trading around $2.00 and my wife was on the verge of leaving me after enduring months of me screaming at my computer screen. Starting in late July, the markets began to get things right (though I still scream at my computer screen and my wife remains on the verge of leaving).

GBP/USD

Levitating until late July 2008
(click on chart for clearer image)

 

AUD/USD in 2010

Stubborn fucker
(click on chart for clearer image)

 

Markets often take their time about things, and inertia is a powerful force.  Also, gubmint officials around the globe are scared shitless of losing their jobs and will bail like hell to prevent markets from reflecting reality.  Patience, grasshopper, patience.

Remember my Eurodollar call options - how many weeks and months did I have to sit with these things, while stocks zoomed and economies bounced?  Over time, reality won out - stocks stalled, and economies slowed once the steroids wore off.  Now, 0% rates in the US are in the process of being priced in all the way to Dec 2011 and beyond.

The Oz Trade is working, not as much and as fast as I would have hoped, but it is working.  I will continue to read everything, play lots of golf, enjoy my kids, and get ready to spend most of the rest of the summer at the beach (starting this coming Monday!).  The Oz Trade train has left the station.  All that is left is to find opportune times to add to my positions and wait, just wait.