The Aussie dollar party just won’t end. As I write, it trades comfortably over $US1.09. AMP Capital Investors chief economist Shane Oliver predicts the dollar could reach $US1.10 by the end of the year.
At the rate things are going, you can forget the end of the year. Try $US1.10 by early next week.
The old market saying goes there’s always a bubble somewhere. Regular readers will know we reckon we’ve found at least two bubbles…
1) The Aussie dollar.
2) Aussie house prices.
You could throw a couple more candidates into the list, like silver for example. Only this week The Australian Financial Review lead with the headline “Silver’s run prompts bubble talk”.
The article quoted David Baker of BakerSteel Capital Managers as saying “When a commodity’s deviation from its 200-day average is over 60 per cent, which it is for silver now, the price usually corrects itself.”
Silver, Gold and Speculation
I don’t have an opinion on whether silver is in a bubble. Its price is a combination of supply, demand, speculation, inflation, the US dollar and the gold price all rolled into one. How do you value that concoction? My short answer is, you don’t.
What I do have an opinion on is the uselessness of 200-day moving averages. I’d rather watch paint dry than spend my time on such so-called analysis. Each to their own, I guess.
By definition, all bubbles burst. If you’re in doubt, head out of the office at lunchtime, down to the local supermarket, and pick up a cheap bottle of bubble mixture. After a few gentle blows of the bubble wand, you’ll soon see each and every bubble eventually bursts.
If It Looks Like A Bubble…
What’s much harder to predict is the time is takes for each bubble to burst. The same goes with financial bubbles. Everyone (or almost everyone) knew the dot com boom was in fact a bubble. We knew it in 1998, we were even more convinced in 1999, and by 2000 it was an absolute certainty.
But, it took until the September 11th 2001 terrorist attacks to finally, once and for all, burst the dot com bubble. Most people got the timing wrong.
So what about my two bubbles mentioned above? If they are bubbles, by definition, they will burst. We just don’t know when.
And We All Lived Happily Ever After
The easy, but less sensationalist option is to call them balloons. The headlines would read…
“Silver is a balloon just waiting to slowly deflate.”
“House prices set to gracefully deflate.”
“Slowly escaping air will see the dollar float back down to parity, and beyond.”
They don’t quite have the same ring to them. Still, I like them, particularly the last one. A role as a sub editor for a tabloid newspaper awaits. Email me with all job offers, and make sure the 6-figure salary starts with a 2.
Most economists think house prices are a balloon.
“City house prices ease 0.6pc”,says the headline on page 3 of the Australian Financial Review.
“We think the market is going sideways to down. Don’t expect to see any significant improvement until next year and even then it will be pretty modest”, says National Australia Bank (ASX: NAB) economist Alan Oster.
Next Year Never Comes
Good old “next year”. As we’re still in April, “next year” is far enough away to not be on most people’s radar.
In this day and age of 24-hour news, email, text messages, Facebook and Twitter, we all want instant gratification. I’m guilty too. If someone doesn’t answer my email within, oh, 9.8 seconds, I get all impatient and narky.
Your Worst Enemy
When it comes to investing, impatience is absolutely your worst enemy. “Next year” should be totally irrelevant when measured over the course of a lifetime of investing.
So many people dive into the share market during the good times, but bail out when things go sour. In doing so, they buy expensively and sell cheaply. The result is a lifetime of chasing the next big thing, without ever catching it.
And The Next Big Thing Is…
The last next big thing was Australian property. The easy money has already been made. Whether you think house prices are a bubble or a balloon, they will not, and cannot, see the same increase they’ve enjoyed over the last decade or so.
The current next big thing is the dollar. Pile into forex trading today, and you might make a buck or two, if you’re really lucky, but surely the risks are to the downside.
As for the next next big thing, I’m predicting Aussies investing in US property. It seems like a no-brainer. Buy a 4-bedroom, 2-bathroom house in Florida for just $US50,000. Rent it out for $US800 a month and you’re looking at a near 20% rental yield.
What you say? Sounds a little too good to be true? As another old saying goes, never let the truth get in the way of a good story.
And believe you me, this US property story, on the back of the current next big thing, the seemingly unstoppable Aussie dollar, is set to run. But, like all tall stories, if it sounds too good to be true, it usually is.
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Returns as of 6th October 2020
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