Getting ready to short the Bubble Economies: Canada and Australia

I've been documenting myself about Canada and Australia, which are two of the most resilient and biggest bubble economies at the present time. While I have gathered lots of material, I haven't had a chance to post about them yet, except mentioning that I have shorted the CAD and the AUD as part of my long EUR position.

I was a bit surprised this morning when I ran into the following Bloomberg report:
July 14 (Bloomberg) -- John Malone, the billionaire chairman of Liberty Media Corp., said he’s invested a portion of his family’s fortune in the currencies of Australia, Canada and Norway amid concern that the long-term value of the U.S. dollar may decline.

Malone, 69, whose net worth was valued at $2.4 billion by Forbes in March, said he’s more comfortable with the monetary and fiscal discipline of those countries compared with the U.S., in an interview in Denver broadcast today with Bloomberg Television’s “In the Loop with Betty Liu.”

Malone said he’s become more conservative in protecting his assets. [...] Malone said he’s avoiding investing in gold. “I’m not a gold bug. There’s just something about gold that seems artificial to me,” he said.

“The vast bulk of my wealth is still in U.S. equities and companies that I’ve founded or I am still a major investor in,” Malone said. “I feel good about the companies. I’m worried about the macro environment.”

Liberty, based in Englewood, Colorado, has controlling interests in the Starz Entertainment cable networks, global cable systems and the QVC shopping channel.
Why surprised? Well, it seems completely obvious that John Malone, apart from being a very good business man as proved by his track record, is totally ignorant when it comes to money, economics and financial markets. His statements about the AUD, CAD and gold as well as his holding onto US equities make it very clear.

I'm sorry for Mr Malone because he's going to get crushed speculating on the forex markets, while believing that he's conservative and is protecting his assets. I'm even more sorry for him because he's going to be the perfect contrarian indicator for me, leading to me increase my shorts in both the AUD and CAD (something I started early morning today) as had become Jeremy Grantham, in one of the most ridiculous market calls he ever made.

Let's see results for today the two currencies felt hard against the Euro, as you can see on the two following charts:

I will try to come up with posts about Australia and Canada. But if you were thinking about investing in those countries, you have been warned. Caveat Emptor.


Marcus said...

I do think Malone is speculating in the Forex marketplace. Rather, he's buying into a long, likely very long, trend, namely the greater stability of commodities-backed currencies, and the Canadian and Australian economies generally. He may be doing it at a relatively high point, but even if your call of an CAN/AUD correction is correct, the long-term trend is with those currencies and against the hapless euro. Note that it is you who is speculating (trading) - not that there's anything wrong with that.

pej said...

@Marcus: You are right indeed — or actually, half-right, for what it's worth: he is not speculating.

But I won't say that he's investing. You invest in what you know. He knows his company, the business sector its in, etc. But he's completely ignorant when it comes to economics or markets, or money.

In that respect, he's not investing, nor speculating, he's plain and simply gambling.

Finally, who said that on the long term, Canadian and Australian economies are going to perform well? The trend is not clear or obvious, worse, it's very much likely inexistent. I'm actually tending to think the exact opposite is true: I'm forecasting a pretty ugly future for these bubble economies — in my opinion.