Australian : Sell Everything Till The Cows Come Home

I think the only thing not for sale in Australia would be the Great Barrier Reef, which the Chinese would not dream of buying anyway, given the high cost of maintenance.

$47 million for a 705k hectare cattle station vs $ 1 bio for a small office of 5 programmers who claim they have the next big APP, to be displaced by the next kids on the block next month  ?

The Chinese have their heads in the right place as Shenhua wins approval for their Australian coal project, their 3rd cattle ranch gets sold this year and Australian property brokers see roaring business in sales after the Chinese stock market rout with Chinese developers snapping up most of the 15 sites in and around Melbourne sold by CBRE Group – five times the property broker’s usual monthly tally. http://www.smh.com.au/business/markets/chinese-stock-market-australian-property-brokers-cash-in-on-turmoil-20150714-gicfk0.html#ixzz3gCuXg9TK

AUD UPDATE

Sweeter for the Chinese is that the AUD has lost 10% year to date, matching the EUR’s weakness against the CNY which is unchanged against the mighty USD.

Incredible Wednesday showed us that the AUDUSD is really out of Australia’s control !

AUD GIP 6Y LOWS

What do I think ?

Brace.

3 commodity related bankruptcies in the US last week alone. 2 of them are the largest we are seeing in the past 12 months. That will be the precedence.

Mine closures and write-downs are happening daily. (FOR SALE – CHINA, INTERESTED ?)

“Globally diversified miner Anglo American said on Thursday it will incur $US3 billion to $US4 billion in write downs in the first half of this year related to its Brazilian Minas Rio iron ore project and certain Australian coal assets as a result of falling commodity prices. ” http://www.businessspectator.com.au/news/2015/7/16/resources-and-energy/anglo-american-takes-aust-coal-charge

“Woodside’s June quarter report revealed a 35 per cent plunge in the Japanese crude oil import price that drives LNG revenues between the March and June quarters……delays in the start-up of new LNG projects in Queensland and Western Australia” http://www.afr.com/business/energy/oil/woodside-petroleum-revenues-hit-by-lng-price-plunge-20150716-gidcul

There is good reason to expect that the government’s budget forecast will definitely fall short this year.

AUD DAILY CORRELATIONS FOR PAST 12 MONTHS

AUD CORR

The AUD is a currency play with a commodity angle.

The worst bit is that manufacturers are not benefiting from the weak AUD because labour costs have doubled in the past decade. http://www.bloomberg.com/news/articles/2015-07-12/cheap-aussie-can-t-save-factories-one-gets-shipped-to-india

Like I said last week, “It would be easier to play the currency against the other rate-cut campers than the potential hiking Fed. And playing for the pain of carry is a good way to start.”

The AUD strengthened  against the SGD (slightly), CAD, CHF, CAD, NZD, EUR, NOK and KRW last week, amongst others and I think there is more to come because AUD is already down 21% in the last 12 months which is more than what the rest can say (except for BRL -29%, NZD -24% and NOK -24%).

And Australia still has plenty of stuff to sell so I think there is no good reason, really, to sell more AUDSGD, for example and in fact, it would be good to have a hint of a recession to put on a trade (AUDUSD dips to 0.72) to call Yellen’s bluff on that hike.

I like AUD bonds the way they are and I think they underperformed enough for the time being and still one of the safer markets in terms of quality of issuers which are mostly in the investment grade category.

Lastly, on the equities. I would be skeptical of the ASX 51 at the moment with all the negative headlines on banking and the capital shortfall of the big 4 Australian banks that is estimated at $ 21 billion. The AS51 is 47.84% weighted by financials which is pretty precarious given the spate of calls for capital strengthening on frothy mortgages and over reliance on bond funding.

Leaving with the indicative prices and the cheerful note that Australia is leading England by a mile on the second test of the Ashes cup (GBPAUD, capped here ?)

aud bonds