US Fund

Alan · 04-05-2006, 09:40 PM

A useful graph for seeing the impact of the AUD/USD Exchange Rate on the US Fund can be seen at the following Oz Forex Site:

http://www.ozforex.com.au/cgi-bin/chartsInteractive.asp

From the following NavraInvest Performance Chart, it can also be seen how closely the performance has mirrored the exchange rate:

http://www.navrainvest.com.au/index....nd_perf_retail

If you normally just watch the movements of the Australian Stockmarket to monitor your performance, here is another important variable to consider.

TryHard · 05-05-2006, 02:23 PM

Nice one Alan. I've been considering switching half my NI funds into the US fund, but the whole Forex fluctuation thing makes me a bit antsy as its yet another thing I don't fully comprehend

Wonder what level of currency fluctuation is 'reasonably expected' for the US Fund to perform to its full potential ?

I know the high level of volatility in the Dow was meant to suit NavTrade system better than the long period of gains in ASX, but other than another interest rate hike, is there anything that would cause reasonable chance of major fluctuations against the USD ?

So many question marks, so little time ;-)

Cheers
Carl

MichaelWhyte · 05-05-2006, 02:27 PM

Carl,

It all depends on the direction the cross rate is going to head as to whether an unhedged fund is a good idea or not. If the AUD was to fall then the value of your holdings in the US fund would go up in value and you would make a forex gain above and beyond any DCT trading gains.

However, if the AUD were to firm against the USD then you'd see the sort of thing Alan is outlining above.

Here's some food for thought then... Alan Kohler presented an interesting chart a few nights back which showed the historic correlation between the AUD/USD crosss-rate and the commodities index. It showed a nice neat correlation back through time but a divergence recently as commodity prices have bolted. Had that correlation held then the AUD would now be on parity with the USD! Parity!!

i.e. One AUD = one USD. If the cross rate keeps tracking in that direction then it would single-handedly destroy manufacturing in Australia (my industry) as well as kill any unhedged investments you had in USD.

Just a thought, and why I've decided to keep my DCT exposure in the ASX via NavTrade Aus Retail. I'm not into currency speculation.

Cheers,
Michael.

TryHard · 05-05-2006, 02:40 PM

Hey Michael

Thanks loads for that. Wow !

I wonder if Sim could entice you to do an article on the impact of the exchange rate on investments overseas - that's so interesting.

I guess by the time you pay the extra to hedge you might be undoing a some of the gains you would make in the fund ? Meaning the retail fund is a safe option for some of us newbies. I guess

This sort of makes we wonder though :
a) isn't the dollar on a bit of a high at the moment ?
b) Is that the main reason the American fund is so low (ie. a large part of its drop in value is currency fluctuation not results of performance of the stocks held ?
c) Won't demand for our resources from China etc mean the commodity prices continue to save us ?

So if that's vaguely on track (which it might not be) couldn't the US fund be a bit of a bargain buy at present ? Sorry for my vagueness ...

Thanks for the previous info mate
Happy weekends
Carl

MichaelWhyte · 05-05-2006, 03:12 PM

Quote:

Originally Posted by TryHard

This sort of makes we wonder though :
a) isn't the dollar on a bit of a high at the moment ?
b) Is that the main reason the American fund is so low (ie. a large part of its drop in value is currency fluctuation not results of performance of the stocks held ?
c) Won't demand for our resources from China etc mean the commodity prices continue to save us ?

Carl,

I think the point Alan Kohler was making is sort of as follows in answer to your questions:

a) Yes, the AUD is at a bit of a high at the moment. This was largely as a result of the interest rate premium in Australia versus the US, but the Fed has been inching away at that premium by raising their rates in the US. The rate hike in Oz this month widened that gap a bit again and caused the AUD to bounce back from 70c to 77c.

b) Yes, I think a large part of its drop in value in AUD could be attributed to the forex movements from 70c to 77c over the last month or two.

c) Yes, commodity prices are likely to continue to bouy our economy. What this also means is that if commodity prices hold at current levels we can expect to see the AUD rally even higher than its current point and potentially run to parity. I'm not sure anyone is bold enough to suggest we'll see parity or that commodites will hold at current prices indefinately, but it is certainly possible that the AUD will trend higher against the greenback.

Have a great weekend mate,
Michael.

Tropo · 08-05-2006, 03:59 PM

Quote:

Originally Posted by MichaelWhyte

Carl,

I think the point Alan Kohler was making is sort of as follows in answer to your questions:

a) Yes, the AUD is at a bit of a high at the moment. This was largely as a result of the interest rate premium in Australia versus the US, but the Fed has been inching away at that premium by raising their rates in the US. The rate hike in Oz this month widened that gap a bit again and caused the AUD to bounce back from 70c to 77c.

b) Yes, I think a large part of its drop in value in AUD could be attributed to the forex movements from 70c to 77c over the last month or two.

c) Yes, commodity prices are likely to continue to bouy our economy. What this also means is that if commodity prices hold at current levels we can expect to see the AUD rally even higher than its current point and potentially run to parity. I'm not sure anyone is bold enough to suggest we'll see parity or that commodites will hold at current prices indefinately, but it is certainly possible that the AUD will trend higher against the greenback.

Have a great weekend mate,
Michael.

It's still long way to the parity (AUD/USD).
Latest weakening of the $ US moved AUD up.
The next possibly stop (resistance) it's at 0.8003 and 0.8210(AUD/USD) - long term.

TryHard · 08-05-2006, 04:13 PM

I happened to catch Alan Kohler interviewing Marc Faber - that was pretty interesting !

http://www.abc.net.au/insidebusiness...6/s1632456.htm

from the interview :

... in real terms, commodities are still relatively low compared to equities and therefore, also given the length of the cycle - the cycle for commodities lasts usually 45 to 60 years peak to peak or trough to trough - in other words the upward wave in commodities lasts around 22 to 30 years and we are now in year 2006. The bull market started in 2001 so we are five years into the bull market

... The US dollar is a doomed currency. ... Will be worthless. Actually each one of your listeners should buy one US Treasury bond and frame it - put it on the wall so they can show their grandchildren how the US dollar and how US dollar bonds became worthless as a result of monetary inflation.

... Now that we're in a commodities boom - which you now say is going to go for a long time - do you think that we're in for a period of rising political tension as well?

Tropo · 08-05-2006, 04:28 PM

Quote:

Originally Posted by TryHard

I happened to catch Alan Kohler interviewing Marc Faber - that was pretty interesting !

http://www.abc.net.au/insidebusiness...6/s1632456.htm

from the interview :

... in real terms, commodities are still relatively low compared to equities and therefore, also given the length of the cycle - the cycle for commodities lasts usually 45 to 60 years peak to peak or trough to trough - in other words the upward wave in commodities lasts around 22 to 30 years and we are now in year 2006. The bull market started in 2001 so we are five years into the bull market

... The US dollar is a doomed currency. ... Will be worthless. Actually each one of your listeners should buy one US Treasury bond and frame it - put it on the wall so they can show their grandchildren how the US dollar and how US dollar bonds became worthless as a result of monetary inflation.

... Now that we're in a commodities boom - which you now say is going to go for a long time - do you think that we're in for a period of rising political tension as well?

"The US dollar is a doomed currency. ... Will be worthless"

I would take it with a bit of salt, paper, chillies and ground cinnamon

TryHard · 08-05-2006, 04:36 PM

Heh - can I have that without the chillies ?

That came from his comments about :

"...we are in a global boom but it doesn't change the fact that it is an imbalanced boom and it's driven largely by credit creation in the US, leading to overconsumption, leading to a growing trade deficit, current account deficit, the accumulation of reserves in Asia and a global boom. But it is nevertheless an imbalanced boom and one day there will be a problem, certainly with the US dollar."

Its all a bit too complex for me

I've decided the Retail fund is all the confusion I'm prepared to handle for now though ...

Tropo · 08-05-2006, 04:58 PM

Quote:

Originally Posted by TryHard

Heh - can I have that without the chillies ?

That came from his comments about :

"...we are in a global boom but it doesn't change the fact that it is an imbalanced boom and it's driven largely by credit creation in the US, leading to overconsumption, leading to a growing trade deficit, current account deficit, the accumulation of reserves in Asia and a global boom. But it is nevertheless an imbalanced boom and one day there will be a problem, certainly with the US dollar."

Its all a bit too complex for me

I've decided the Retail fund is all the confusion I'm prepared to handle for now though ...

Do not worry...We deal all the time with the trade deficit, account deficit, balanced or imbalance boom, gloom ect..
I guess that he is more confused than you are. After all he is trying to make living selling his comments.
O.K.....Take it without chillies