they have to meet redemptions they are losing a fortune on geared investments into commodities overseas hedge funds investing in ozzie resource companies are losing a fortune due to the lower $A as result they dumping indiscrimantly and at any price
but bare in mind the market is distorting the real value of the businesses
hwew ia what alan kohler says
Australian Broadcasting Corporation
Broadcast: 27/10/2008
Where does China sit with all of this? When you hear a slowdown to nine per cent it doesn't sound like much, but is it?
ALAN KOHLER: Well, it's already slowed down to nine per cent but that's the process of slowing down in China is continuing on.
I mean China growth is likely to go to eight per cent, possibly seven per cent. In which case that really is going to be a Chinese recession, because they have so many people to employ that they need growth of above eight per cent in order to not be in effective recession.
And what we're seeing is commodity prices have crashed by 50 per cent in the past three months; this is on the broad commodity indices.
And that's largely because of hedge funds bailing out of commodities, but also because of forecasts by economists and basic investors, not hedge funds, that Chinese growth will slow.
KERRY O'BRIEN: Which brings us to what's happening to the dollar. The plunge in the Australian dollar is absolutely unprecedented.
Some of the falls can be explained by interest rates and commodities going down, but why has the dollar become such a target and where does it go from here?
ALAN KOHLER: Well, we're witnessing a hedge fund crash. The global hedge fund industry is suffering a run on redemptions; a bit like our mortgage trusts.
And they have to repay the debt as well at a much greater rate that they get the removal of redemption. So they're having to sell everything, all the risk assets they've been buying; which is commodities, emerging stock markets and Australian dollars.
So you're seeing the hedge fund run exacerbated by the fall in commodities, which is also caused by hedge funds, and therefore the Australian dollar is getting sold off.
KERRY O'BRIEN: Well that implies it could go lower, significantly lower?
ALAN KOHLER: Well, I think these situations often go further than you expect. I mean, everyone says, why is the Australian dollar falling so much and the US dollar is rising when it's the US economy that's a basket case and Australia's is Okay?
And that absolutely is true. But the situation isn't really subject to rational thought. It isn't really about sort of economics of that sort, it's about a run on hedge funds and it could go and probably will go a fair bit further.
I would expect the Australian dollar to fall below 60 cents and possibly into the mid 50s.
