question

[ddmar...@gmail.com]

John,
I read your posts and agree with your comments. How are you shorting this Australian property market unfolding? Curious to find out if there are any good candidates as I am unfamiliar with public traded housing related stocks/bonds/etc in Australia.
Cheers,
DD

[John]

DD,

First off - advice to my readers - trading is very risky (etc. etc.). Shorting even more so. This is not investment advice (etc. etc.). I am not a Certified Investment Advisor (and damn proud that I'm not, for what it's worth - most Australian Certified Investment Advisors are a complete joke).

I am not presently shorting the Australian property market. If I was to short it, I would be shorting a basket that included the big four Aussie banks and various Aussie REIT's. I would be using CFD's to do this.

However, shorting the Australian property market is not the most compelling trade right now, in my opinion. The most compelling one (and one that I'm actively involved in) is currencies. I'm short various currency pairs vs the USD, including short AUD/USD. In other words, I'm expecting an extended period of US Dollar strength and weakness in almost every other currency.

In the AUD case, my current expectation is that the Australian dollar (in the coming months/years) will drop to 45 - 50 US cents, with maximum risk that it goes to 80-85 cents in the intervening period (maximum).

I prefer this trade because the powers that be will try everything within their power to support the real estate market, whereas most of them are quite happy to see the AUD drop. The structural headwinds facing the Australian economy will exert strong downward pressure on both the currency and property prices, so it seems more prudent to focus on the latter.

In actual fact, the devaluing of the AUD is part of a stealth decline in Australian's net worth as their assets (Australian property, cash) lose their purchasing power. Wage growth is flat and we import a lot of goods so disposable incoming is dropping and cost of living is rising. It's the first phase of "wealth destruction" (more correctly, wealth "fair value realisation"). But that's a whole other discussion.

Cheers

John

[John]

Clarification: when I said "focussing on the latter" I was referring to focussing on currencies.