How the Australian Dollar Stole Your Capital Gains

Publisher’s Note: Make sure you watch this recent discussion between your regular Daily Reckoning editors Greg Canavan and Dan Denning.  Greg provides you with an update on the ‘China Bust’ story he’s been tracking for over a year. In addition to China, he talks about iron ore, resources and gold. Stay tuned because next Tuesday his latest video will tell you what the current trends mean for your wealth and Aussie stocks.

Greg Canavan

Now over to your Weekend Markets and Money

From Nick Hubble in Albert Park:

Before we identify the thief of your capital gains, a quick note to make sure you don’t miss out on tomorrow’s instalment of the revolution. What revolution?

The one that features telepathic communications, predicting and avoiding the risks to your health  in retirement, and a third mystery technology that promises to cut the travel time between Sydney to London to four hours. You read that right.

And it’s not crazy…it’s a real project being developed right now by a billionaire with an incredible track record. All will be revealed tomorrow.

Keep an eye on your inbox this weekend for the innovations which could revolutionise business, pleasure and your everyday life.

But, if you haven’t already, it’s probably best to start with the introduction. It explains your part in the revolution. You’ll also find out how it can make you money with the help of our newest addition to the editorial team to guide you through.

3D Printer

Tech guru Sam Volkering and stock tipper Kris Sayce have thrown their lot behind a new service which has them more excited than the 3D printer which arrived in the office last week. You’ll be hearing more about that soon too…

But the future only makes sense in the context of the past. So what happened to the money you were supposed to make from the stock market these last few years?

Have you noticed the dismal performance of our Australian index compared to everyone else’s? For the last four years of ‘recovery’, the ASX200 has been underperforming the Germans, Americans, English, Chinese and, yes, even the Japanese!

Our market’s in dark blue, down there at the bottom:

Down Under in More Ways than One

Source: Yahoo Finance

Despite our wonderful mining boom, unemployment rate and world’s best treasurer – *cough* –  Australian investors are being left behind. But enough moaning, who’s to blame? Who stole your capital gains?

Hint: It was an Aussie.

No, this isn’t a rant against the ATO or Wayne Swan. We’re not even blaming Dave Warner or James Hird. We’ve got a different Aussie in mind – the Australian dollar.

You see, the Australian stock market has actually been doing rather well. Just not priced in Aussie dollars.

If you were to throw in the gains in the Aussie dollar, that would move the ASX200 to be smack bang in the middle of all those squiggly lines in the chart above.

In other words, if you measure our stock market’s performance from the point of view of an American, German or Englishman (God forbid) it’s performed very well. That might sound like a ‘walked into a bar’ joke, but it’s really more of a fast one being pulled on us Aussies.

It’s a fast one that’s difficult to avoid. If you wanted to escape Australia’s underperforming market and invest in one of those stock markets that have been rocketing away, you would’ve done poorly anyway. As soon as you move your money back to Australian dollars, the gains would be reduced.

Unfortunately, you’re not a foreigner investing in Australia. So the Aussie dollar’s rise has stolen your capital gains from you. Or at least it’s hidden them.

But the good news is, the tide is turning. The Australian dollar may soon give your gains back. The bad news is, that’s very unlikely, in the short term at least.

You see, the Aussie dollar is likely to tumble at the same time as our stock market does. Both our currency and our stock market are considered ‘risk assets’. People invest in them and sell out for the same reasons. So a falling Australian dollar won’t happen alongside a rising stock market. It will happen alongside a falling stock market.

The move in the Aussie might take the bite out of a falling market, but that’s as good as it will get. Just as the dollar mitigated the rising market, it will mitigate the falling one. That doesn’t answer how far or fast the fall will be though.

However, some stocks benefit from currency moves more than others. If you can find those stocks which benefit, you can make the most of the currency’s moves.

Why is Australia’s Biggest Bear Buying Resource Stocks?

Greg Canavan’s trilogy is complete. It will hit the box office next week. Apart from his film crew, nobody knows what he’s going to say. But, going by the first two acts, the third is going to be a ripper.

Word is, he’s gone bullish on resource stocks. Although it would probably be more accurate to say he’s now less bearish than he’s been in the past few years.


That’s a surprise to say the least. Greg’s previous two instalments were about the end of the resource boom and economic trouble in China – the source of Australia’s resource demand. He’s been known as the office’s China bear ever since.

But now he’s a happy bear. You see, Greg waits for the porridge to be the perfect temperature before he buys stocks. And a Chinese slowdown could be exactly what he needs to put his subscribers dry powder to work.

In his newsletter Sound Money. Sound Investments., Greg recommends ahigh allocation to cash alongside his other recommendations. What’s the point of a newsletter telling you to hold cash? Well, holding cash could turn out to be a great trade if it’s put to work at the right time.

Buying the pride and joy of Australia’s economy when they’re cheap would be a lovely position to be in. But to get cheap, share prices have to fall first, which they are clearly doing in the resource space.

But back to the currency thief. Part of Greg’s predictions include a falling Australian dollar. And he can’t wait to see the effect it will have on the stocks he’s ready to pounce on. The mining stocks in particular.

Because commodities are priced in US dollars, an Aussie resource company’s earnings rise in Aussie dollar terms as the Aussie dollar falls.

So here’s the scenario Greg reckons is shaping up: Stock markets are shaping up for a crash, or as he puts it, shares will become good value. The Aussie dollar will tumble too. As a result, the earnings of decent Aussie resource companies will rise in Australian dollar terms. Combine the three and you have a value investor’s dream scenario.

While the rest of us fret over a falling market, Greg is getting ready to pounce.

Until next week,

Nickolai Hubble.
Markets and Money Weekend Edition

Join me on Google+
ALSO THIS WEEK in Markets and Money

The Launch of Revolutionary Tech Investor
By Kris Sayce

I’m really excited about this project. It’s truly like nothing else we’ve ever published. If like me you’re sick of reading about central bankers and government bailouts, and you’d rather read about technology and biotechnology breakthroughs, Revolutionary Tech Investor will be a refreshing change. It will be a banker-free zone

The Architecture of Oppression
By Dan Denning

Anytime the intelligence agencies of a country use secret courts to mine your private digital data without your consent – and without any suspicion of a crime – then you are no longer living in a free society. You’re living in a police state. And the tendency of all regimes that accumulate too much power is to abuse it. That’s the threat you face now.

What Turns a Great Technology into a Great Technology Business?
By Sam Volkering

In this current global economic environment, a lot of businesses are struggling. There’s a lot of doom and gloom about. Yet it seems every other day there’s a story about successful technology companies making billions of dollars…But what takes a company from being worth nothing with a great technology to, a billion dollar business?

What Crime Lies Behind Booz Allen Hamilton
By Bill Bonner

Booz Allen earned $1.3 billion pretending to protect approximately nobody from a mostly non-existent threat. What it was actually doing was helping the feds snoop on the law-abiding people who pay the bills.

Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like.

Leave a Reply

Your email address will not be published. Required fields are marked *

Markets & Money