Refreshing Candor


  • RBA Stevens delivers refreshing exit speech
  • Monetary policy limitations front and center
  • Selling risk assets is the way to go

NO HOLDING BACK - Early Wednesday, the Governor of the RBA was out with his final speech. It's always interesting when a person in a position like this puts together his final thoughts. Quite often, when someone is on the way out and no longer forced to deal with the everyday pressures and politics of their position, there is a level of candor that comes through that can be most refreshing. And this is what we got from Governor Stevens on Wednesday. The Governor outlined is views and outlook for the Australian economy but more importantly, highlighted his macro views on monetary policy. 

TIME FOR TRUTH - In his speech, Stevens discussed his fear over the limitations of monetary policy, something I have discussed ad nauseam for some time. We have been hearing more and more in recent weeks about such limitations and I thought Stevens did a wonderful job outlining just how serious these risks are at present. I have included a link HERE of a tweet I had sent out with clips of the most interesting points from Stevens' speech. But the key takeaway from all of this is that we are at the end of the game now. This isn't coming from my mouth but from the mouths of those right in the heart of the game. 

There's no more monetary policy fuel left in the tank. Via @joelkruger

THE POINT - So what does this mean? It means the strategy of incentivizing investment in assets like US equities and higher yielding currencies is a strategy that is quickly losing merit. The incentive is no longer there and any rallies we see from here on are nothing more than last gasp efforts to keep the market from waking up to this haunting fact. We've reached a point where there just isn't anything of value left in the monetary policy tank and this reality will unquestionably bring these risk assets tumbling down. It's always a challenge to time this type of a trade but if you take your shots and pick your spots well, I believe the reward will be well worth it. I am short the SPX500 at 2167, short NZDUSD at 0.7230 and long AUDNZD at 1.0530. 

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