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Daily Archives: July 10th, 2015

I have been asked to give my 2 cents worth about the whole situation of Greece and the EU.

After Euro323Bn worth of financial support to Greece, EU and its member countries, together with ECB and IMF have proven their commitment to the Eurozone, however, this ‘bottomless pit’ cannot continue, as it will cause a financial drain to Euroland.

More importantly, the monies can be better allocated to other EU member countries for economic growth.

We know the debt is not sustainable and it needs to be restructured to include a ‘haircut’ and deferment, otherwise, anything else simply doesn’t work as Greece has no engine of growth.

What are the engines of growth for Greece; shipping, commodities and tourism.  Can these pillars of the economy generate sufficient income for Greece?  Structurally, the problem in Greece is the fact that civil service and pensions ballooned in the past 8 years, sucking the lifeline of the country.  Less and less people are working in the private sector as prospects are so poor, so all flock to become civil servants for the ‘iron rice bowl’.  The wealthy has always escaped taxes and probably will continue to do so.

What is interesting is that post EU in the early years after the millennium, capital and investments poured into Greece and it actually enjoyed prosperity in the early and mid 2000s.  What happened to all that good work?  Where did all the monies go?

Going forward, they are talking about ‘Marshall Plan for Greece’ where E35Billion will be used to rebuild the economy through investments.  The real issue is who is going to drive this?  Will the monies really go into the working wheels of the economy or just into the fat pockets of politicians and bureaucrats?  This is  dangerous proposition, and may well be another delay tactic to postpone the inevitable.

I feel that Tsipras should have a heart to heart discussion with ECB, EU and IMF about how to rebuild the Greek economy; identify engines of growth or potential engines of growth, invest in these potentials, as it will be the income generators for the economy.  Forget about collecting taxes and reducing outrageous pensions, these is only a stop gap measure.

There must truly be sincerity from both parties, not just more politicking.

The outstanding Greece issue, collapse of commodity prices and the collapse of the Shanghai and Shenzhen equity markets was all the right ingredients to push the AUDUSD below 0.7500, then, 0.7400.

RBA Stevens also reiterated in his statement while holding rates at 2% that further weakness in the AUD is expected and necessary because of weak commodity prices.

I have a different opinion and believe that the AUDUSD should be trading at a fair value of about 0.7700.  Australia is not all about commodities, it has a strong agriculture based export industry, including dairy and other foodstuff.  Health products and pharmaceuticals are also significant.  Property market be it supported by Locals or foreigners is buoyant because of cheap mortgage rates.

I see AUDUSD spiking to 0.800 and then coming back down to the 0.7700 range within the next the next 3 months and our option is good for 4 months till end November.

Since the start of 2015, AUDUSD started out the year at about 0.7720 and hit a low of 0.7566 in March/April.  A strong pike to 0.80 happened in late April and a new high for the year at 0.8115 in mid May.  All fundamentals in Australia has been the same for the past 6 months, so will we see the pattern repeat itself?  I believe so.

Spot: 0.7390

Strike: ATM spot

Premium: 200bps

Breakeven: 0.7590

Expiry: 27 November 2015