The Red-Hot Australian economy chugs along, oblivious to the implosion in the USA and signs of a rate reduction in the United Kingdom. Could Australia be an economy which has decoupled from the good ‘ol USA, with demand in commodities from China and India fuelling domestic growth? (Could there be hope indeed for similar commodity rich economies such as Malaysia?). As was reported by the news, “The Reserve Bank of Australia lifted official interest rates by 25 basis points to 7 percent to curb inflation in an economy which is running at full capacity: with unemployment at 30-year lows, strong consumer spending and booming house prices. Economists believe at least one more hike may be needed to cool demand and price pressures.”
This makes the Aussie an ideal candidate for the Carry Trade, ala ISOptions. The aussie has a lot of things going for it in addition to the robust domestic economy. Gold is expected to increase and breach the US$1,000 barrier, notwithstanding that it’s still some distance away from the inflation adjusted highs of US$2,000 (US$850) achieved in 1980. Will it make another bullish run (with consecutive limit-up days) in 2008, culminating in a blow-off top and island reversal like 1980? Whatever the case, gold stocks (Goldcorp, Barrick Gold, Cour de Alenes) look a good bet, as is the ETF GLD, and not to forget, the venerable Aussie dollar.
Allocating $1,000 to invest in one lot the Aussie, and the second $1,000 for a hedge (for example, the EURAUD), results in an annualized return of about 18%. That’s really cool! Call options would be used to protect your long Aussie positions as it churns out the money daily(about $0.86 per lot), and deep in the money options can provide coverage of up to 400 pips). I’ll drink to that! (The picture of the wine is of the brand Yellow Tail, featured in the best-selling business book BLUE OCEAN STRATEGY).
Chief Shook
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