Policy change.
I deal with my bank and use forward exchange contracts, typically rolled out at inception for 1 year. That means I don’t really worry about day-to-day changes unless the trend itself is in danger. In the past I have shown the spot rate that I have entered deals and ignored the forward points, whether they have been a benefit or cost.
But some of these carry trades have been in place a long time, and the points are getting extremely valuable. So from now on I will show the deal at the forward rate and strip out the unearned forward points for valuation.
Here are the trades I am active in:
I deal with my bank and use forward exchange contracts, typically rolled out at inception for 1 year. That means I don’t really worry about day-to-day changes unless the trend itself is in danger. In the past I have shown the spot rate that I have entered deals and ignored the forward points, whether they have been a benefit or cost.
But some of these carry trades have been in place a long time, and the points are getting extremely valuable. So from now on I will show the deal at the forward rate and strip out the unearned forward points for valuation.
Here are the trades I am active in:
AUD/JPY
Long AUD 3,735,990.04 short JPY at 76.69 average.
This was originally made up of two trades:
An original deal of long USD3m short JPY @103.10 (unfrozen on 5 June 2009) and a short USD3m long AUD @ 0.8030 (yes, crossing it up with the AUD has saved me!) done on 5 June 2009, creating a cross of 82.79 average.
I have not bothered with the points on the USD/JPY leg as the interest differential was so small.
The AUD/JPY deal was rolled to 7 June 2010 at a 230 point benefit and has since been rolled again at the bank to 7 June 2011 at a 380 point benefit (as AUD interest rates have climbed over the rollovers).
This was originally made up of two trades:
An original deal of long USD3m short JPY @103.10 (unfrozen on 5 June 2009) and a short USD3m long AUD @ 0.8030 (yes, crossing it up with the AUD has saved me!) done on 5 June 2009, creating a cross of 82.79 average.
I have not bothered with the points on the USD/JPY leg as the interest differential was so small.
The AUD/JPY deal was rolled to 7 June 2010 at a 230 point benefit and has since been rolled again at the bank to 7 June 2011 at a 380 point benefit (as AUD interest rates have climbed over the rollovers).
So the new rate due 7 June 2011 is 76.69, but only on 7 June 2011. The unearned forward points as at today are 238 points cost, so an effective spot rate for valuation purposes of 79.07. (Are ya confused yet!)
Current spot rate: 81.35
Current spot rate: 81.35
Current: Gain 228 points
Comment:
See AUD/USD comments below.
USD/JPY:
The state of Japanese government finances remains extreme. The new government will eventually break the self-imposed debt ceiling and prompt a credit downgrade by the ratings agencies. But the weakness of the USD remains paramount at this stage, especially with QE the dominant force at the Fed. The USD/JPY will eventually test the 80.00 area, and we will see the Japanese intervene below there. I am not hopeful that they will achieve anything by intervening, but the AUD upmove itself should compensate for USD weakness.
I am happy with the current exposure, but more from a carry trade perspective, in that time works the profit out.
USD/JPY:
The state of Japanese government finances remains extreme. The new government will eventually break the self-imposed debt ceiling and prompt a credit downgrade by the ratings agencies. But the weakness of the USD remains paramount at this stage, especially with QE the dominant force at the Fed. The USD/JPY will eventually test the 80.00 area, and we will see the Japanese intervene below there. I am not hopeful that they will achieve anything by intervening, but the AUD upmove itself should compensate for USD weakness.
I am happy with the current exposure, but more from a carry trade perspective, in that time works the profit out.
NZD/JPY
Long NZD 3m short JPY at average of 53.33.
The NZD/JPY deal was rolled from the last trade of 1m (making 3m in total at an average of 57.23) on 28 May 2009 to 28 May 2010 at a 160 point benefit and has since been rolled again at the bank to 27 May 2011 at a 230 point benefit (as NZD interest rates have climbed over the rollovers).
So the new rate due 27 May 2011 is 53.33, but only on 27 May 2011.
The unearned forward points as at today are 121 points cost, so an effective spot rate for valuation purposes of 54.54.
Current rate: 63.80
Current: Gain 926 points.
Comment:
See Yen comments in AUD/JPY above. See NZD/USD comments below.
I am happy with the current exposure, but more from a carry trade perspective, in that time works the profit out.
EUR/USD
Square
Current rate: 1.3690
Comment:
The ongoing concerns in Europe over debt are not going away. But I believe that it is not the problem it was back in May. The ECB can buy bonds, but at present there is a bit of brinkmanship going on. They want to teach the politicians that they have to sort out fiscal policy. Eventually the ECB will again step in so I don’t see EUR weakness as long lasting.
In the long run, all other things being equal, the Euro Zone debt position is far better than the US. If the US does not move to reduce the budget deficit over time, then the USD will become the next Greece.
I still believe that Europe will raise interest rates before the US does. Watch the inflation readings. With Gold, oil and food all hugely higher, inflation is on its way. Have look at
In the long run, all other things being equal, the Euro Zone debt position is far better than the US. If the US does not move to reduce the budget deficit over time, then the USD will become the next Greece.
I still believe that Europe will raise interest rates before the US does. Watch the inflation readings. With Gold, oil and food all hugely higher, inflation is on its way. Have look at
then expand the agriculture icon!!!!
Agriculture is up 25%, with cotton up 90%!
GBP/USD
Square
Current rate: 1.6114
Comment:
Took a loss on my short GBP1m position at 1.5278 (short from 1.4990) of USD 28,800. Took a gain (back on 11 August) on my long GBP1m position at 1.5820 (long from 1.5278) of USD 54,200. Net gain USD25,400 (NZD35,376 @0.7180).
AUD/USD
Long AUD 2m short USD at 0.7907.
Current rate: 0.9861
Current rate: 0.9861
Current: Gain 1954 points.
The AUD/USD deal was at spot of 0.8670 on 28 September 2009. Was rolled to 28 September 2010 at a 320 point benefit and has since been rolled again at the bank to 28 September 2011 at a 443 point benefit (as AUD interest rates have climbed over the rollovers).
So the new rate due 28 September 2011 is 0.7907, but only on 28 September 2011. The unearned forward points as at today are 393 points cost, so an effective spot rate for valuation purposes of 0.8300.
So the new rate due 28 September 2011 is 0.7907, but only on 28 September 2011. The unearned forward points as at today are 393 points cost, so an effective spot rate for valuation purposes of 0.8300.
Comment:
Unchanged really. I believe the Australian economy remains extremely well placed to benefit from ongoing commodity demand, especially with China still growing strongly. I expect ongoing interest rate increases from Australia. I still believe that the AUD/USD has a long way higher to go yet. My new target is now 1.0500.
Happy with the current exposure.
Happy with the current exposure.
NZD/USD
Long NZD 2m short USD at .6745.
Current rate: 0.7730
Current : Gain 985 points.
Comment:
The NZD/USD deal was at spot of 0.7160 on 28 September 2009. Was rolled to 28 September 2010 at a 190 point benefit and has since been rolled again at the bank to 28 September 2011 at a 225 point benefit (as NZD interest rates have climbed over the rollovers).
So the new rate due 28 September 2011 is 0.6745, but only on 28 September 2011. The unearned forward points are 207 points cost, so an effective spot rate for valuation purposes of 0.6952.
The NZD/USD is still looking very positive, with commodity prices still driving the NZD higher. There is also some pressure from the Canterbury earthquake offshore flows. As the re-insurers offshore pay out on the claims they have to buy NZD’s. The sums involved are large and that is driving the NZD/EUR and NZD/GBP higher, as the re-insurers are in the UK and Europe.
The NZD/USD is still following the AUD/USD, which is driven by Asian developments. The NZD/USD has not really had the benefit of rising interest rates, but this cannot be too far away now. Inflation pressures are strong in China and Asia and we need the higher NZD to insulate us from imported inflation. When the RBNZ begins to raise interest rates in March 2011, the NZD/USD will begin to test the post float highs around 0.8250. Target remains the highs of 0.8250, but we may see the 0.9000’s before this trend finally tires.
Happy with the current exposure.
So the new rate due 28 September 2011 is 0.6745, but only on 28 September 2011. The unearned forward points are 207 points cost, so an effective spot rate for valuation purposes of 0.6952.
The NZD/USD is still looking very positive, with commodity prices still driving the NZD higher. There is also some pressure from the Canterbury earthquake offshore flows. As the re-insurers offshore pay out on the claims they have to buy NZD’s. The sums involved are large and that is driving the NZD/EUR and NZD/GBP higher, as the re-insurers are in the UK and Europe.
The NZD/USD is still following the AUD/USD, which is driven by Asian developments. The NZD/USD has not really had the benefit of rising interest rates, but this cannot be too far away now. Inflation pressures are strong in China and Asia and we need the higher NZD to insulate us from imported inflation. When the RBNZ begins to raise interest rates in March 2011, the NZD/USD will begin to test the post float highs around 0.8250. Target remains the highs of 0.8250, but we may see the 0.9000’s before this trend finally tires.
Happy with the current exposure.
Unrealised gains NZD1,174k (AUD/JPY +134, NZD/JPY +435k, AUD/USD +404k, NZD/USD +201k).
Previous realised balance: NZD2,344,360.38
Plus GBP/USD realised gains of NZD35,376
Total gains banked since August 2007:
NZD2,379,736
So if I cashed up the whole lot right now I would have made over NZD3.5m since August 2007 or slightly over 3 years.
If you don’t believe me, scroll back through all my posts to see how I did it!!
2 comments:
nice work KT.. how about you go buy a new boat and we go fishing?
About the current condition of the american economy. This is one of the hardest periods in the countries history. Their does not seem to be any consensus about the trends for the economy one week the economic news is good the next week its not so good. Their seems to be no consistency what so ever when it comes to economic matters. Mcdonald’s recently hired fifty or sixty thousand people out of one million that applied maybe mcdonald’s should change their saying you deserve a break today at mcdonald’s to you deserve a job today at mcdonald’s. As far as those banksters go I say lets exchange those three piece suits and briefcases for a pick' a shovel' a bucket' and some pinstripes. Inflation Is the primary reason for much of the growing income inequality between the rich and the poor. It is also I believe the cause of the decline of the middle class. When ever the employing class and by Employing class I Mean anyone or any company That hires personal And gives them a regular paycheck. Their is always a tendency to undercompensate your personal less and less over time simply because when prices rise wages generally lag increases in prices at least for a substantial portion of the working population. Workers do not have much ability to control their wages and benifits. But companies that employ personal have much to say about the wages and benifits that their employees receive. Companies have been undercompensating their personal for decades in an attempt to increase their bottom lines. They have been systematically undercompensating their personal less than the increase in prices on purpose. The result is many workers have little income left over for any purpose other than basic needs food' rent' necessary clothing' utilities' medical bills' Its no wonder that the economy is in serious trouble.
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