PacificPeso has taken a battering

[gooseberry]

Aussie dollar has taken a battering in the last couple of days... has been riding pretty high over the past year or so, but looks like it will go even lower a bit over the next few weeks.

[Killakoala]

It'll bounce back.

[gstark]

Poon was telling me that with the adverse movements on the various stock exchanges of the world, he has seen a distinct downturn in orders placed thorugh his eBay shop.

[Onyx]

It won't continue. US futures are steady. Like it or not, the world takes its position from what the US market does.

The aussie dollar's Friday loss of value was due to a computer gitch in futures trading that caused a mass panic into selling real stocks.

I'd expect the Aussie market to be make up all the losses and then some at close of trade Monday, pending the Dow.

We're not overvalued yet. 2008 will be the start of stock market losses, not just yet...

[gstark]

Just for fits and giggles, you might like to know that, against the US$, the Pacific Peso lost about 12% of its value in just one week.

[jamesw]

my 2c... avid economist...

I believe the main cause of the fall in value against the AUD is due to carry trade... particularly with the JPY

Basically speculators are borrowing from Japan at very low interest rates and investing in AUD assets. The loans from japan are particularly short term. For this to be profitable:

- AUD has to remain reasonably stable against the JPY
and
- The Jap loans need to be renewed reasonably often.

The japanese banks are becoming more and more prudent, and are choosing not to renew the loans in many cases.

What this means is that the investors who have bought australian assets need to sell these assets and convert their AUD into JPY, creating an increase in supply of AUD on the foreign exchange market. The increase in supply of AUD on the forex market drives down the prices of AUD.

Remember that this oversupply of AUD will tend to decrease the value of AUD against all currencies, not just the JPY (although you will see [right now] that the AUD per JPY exchange rate is particularly weak)

This has caused a widescale selling of AUD on the forex market, basically because as the AUD falls against the JPY and other currencies, their investments become less profitable (remember their loans are not denominated in AUD - they are in JPY - and as our currency weakens, their assets here are worth less in JPY which makes the whole situation less attractive, also, the fall in the value of AUD makes their loans harder to service)

Also, it pays to remember that the general concensus is that the AUD has been reasonably overvalued.

With that said, I think it will be unlikely (although that is only an opinion) that the AUD regains as much strength as it had.

[Reschsmooth]

Also, it pays to remember that the general concensus is that the AUD has been reasonably overvalued.

With all due respect, and I know this is not your view(?), but the "consensus" has rarely been remotely accurate with their forecasts.

Short term forecasts of currencies, stock markets, etc are inaccurate at best and dangerous at worse. Yeah, the AUD/AOI may bounce back and it may bounce back on Monday (Dow up 233 last night), but over time, you can expect a market return equal to the cost of capital of the companies you invest in.

People I know where saying that when MacBank fell from $90s down to low $80s, it was a screaming buy. It is now 20% below that level!

In my line of work, it is frustrating and humourous to hear people say "the market is off 5%, should we jump in?". My response is - why didn't you jump in back in Feb/April/whenever, when the market was at these levels back then?

Sorry for the rant.

[adam]

Behavioural finance

[Steffen]

The stock market surrendered to gamblers long ago, there is no rationality in play right now. Like it or not, ethics and reason are out of the window, and will be for some time to come.

Cheers
Steffen.

[adam]

The stock market surrendered to gamblers long ago, there is no rationality in play right now. Like it or not, ethics and reason are out of the window, and will be for some time to come.

Cheers
Steffen.

Gamblers? depends on how you 'play' it!

[ATJ]

I believe the main cause of the fall in value against the AUD is due to carry trade... particularly with the JPY

Damn JPY. I always thought he was yesterday's hero.

[Spooky]

I think it was Ben Graham that said

"In the short term the market is a voting machine, in the long term it is a weighing machine."

[Reschsmooth]

I think it was Ben Graham that said

"In the short term the market is a voting machine, in the long term it is a weighing machine."

Before he played for Geelong...

Seriously, it was B Graham who said that, and also used the analogy of Mr Market (ok, it was written in the 60s or 70s) - Mr Market became depressed at times and would sell stocks at any price. Then, he would become delirously happy, and buy stocks at any price, now matter how high they were!

In the end, short term speculators who talk about expecting the market to bounce over the next 3 months or something are always funny - we call it "Investment Porn".

[jamesw]

The stock market surrendered to gamblers long ago, there is no rationality in play right now. Like it or not, ethics and reason are out of the window, and will be for some time to come.

fair call.

but unlike a typical gambler, they are not particularly confident in themselves. you know, the stockmarket & forex mkt participants don't exhibit the whole 'double or nothing mentality'.