Forecast For The Baht

[topfield]

As the baht hit a new nine year high today , Sontee Limtongkun, publishing mogul , owner of the Manager and Astv and argueably the most knowledgeable and influential journalist in Thailand today , on his tv program Guardian of the Nation this evening stated that he believed that the baht will rise to 32 to the dollar by May this year .

After that it will start to fall and by January 2008 will be back at around 40 to the dollar.

Do people agree this is the most likely scenario for the baht over the coming months and year ?

[ZhangYimou]

Link?

Did he say why he felt this would happen? I really do not see how the US dollar is going to strengthen in the short term, so the Thai government would have to play some role in weakening the baht, perhaps by lowering interest rates?

[sonicdragon]

It would be interesting to know the detailed reasons for his view on that. One thing I heard on the rumourmill is that Taxin and his family and cronies had shorted the baht in very big size after the coup. If that's true, then it's one reason why the government is happy to let the baht strengthen for the time being. Maybe in May these positions will be closed out and the baht can resume a more "reasonable" value.

Personally I think that's cobblers, but there's no way to know, right ?

You can make a strong case for either a weaker or stronger baht.

[topfield]

Link?

Did he say why he felt this would happen? I really do not see how the US dollar is going to strengthen in the short term, so the Thai government would have to play some role in weakening the baht, perhaps by lowering interest rates?

Sontee spoke live on his tv show this evening so no link . Perhaps repeated in the Manager tomorrow but you will need Thai to read that.

[topfield]

It would be interesting to know the detailed reasons for his view on that. One thing I heard on the rumourmill is that Taxin and his family and cronies had shorted the baht in very big size after the coup. If that's true, then it's one reason why the government is happy to let the baht strengthen for the time being. Maybe in May these positions will be closed out and the baht can resume a more "reasonable" value.

Personally I think that's cobblers, but there's no way to know, right ?

You can make a strong case for either a weaker or stronger baht.

He gave examples on his show how big money could be made transfering funds back and forth between Thailand and Singapore. This would spell the death knell for the dual rate system ...[the rest is my opinion] and of couse we all agree , as soon as the onshore rate /controls go and market forces take over, it is nearly hundred percent certain the baht will inmmediately rise and take up the slack between the two rates resulting in one far higher unified rate for the baht.

What happens after that nobody knows but Sontee 's forecast is as posted.

[ZhangYimou]

So he is suggesting (well we can only send $25k USD) to Thailand, then sending it back to Singapore, then doing it again, basically as soon as the funds hit? Is this legally viable?

[cclub75]

As the baht hit a new nine year high today , Sontee Limtongkun, publishing mogul , owner of the Manager and Astv and argueably the most knowledgeable and influential journalist in Thailand today , on his tv program Guardian of the Nation this evening stated that he believed that the baht will rise to 32 to the dollar by May this year .

That's a rather funny statement...

Because actually, THB is already at 32...

35 level is a "fiction". It's the on shore rate...

[PCA]

It would be interesting to know the detailed reasons for his view on that. One thing I heard on the rumourmill is that Taxin and his family and cronies had shorted the baht in very big size after the coup. If that's true, then it's one reason why the government is happy to let the baht strengthen for the time being. Maybe in May these positions will be closed out and the baht can resume a more "reasonable" value.

Personally I think that's cobblers, but there's no way to know, right ?

You can make a strong case for either a weaker or stronger baht.

He gave examples on his show how big money could be made transfering funds back and forth between Thailand and Singapore. This would spell the death knell for the dual rate system ...[the rest is my opinion] and of couse we all agree , as soon as the onshore rate /controls go and market forces take over, it is nearly hundred percent certain the baht will inmmediately rise and take up the slack between the two rates resulting in one far higher unified rate for the baht.

What happens after that nobody knows but Sontee 's forecast is as posted.

well, if something looks too bad most likely to happen is that it will get worse. Though this has to be seen as a normal process in order to revaluate the baht to a level it came from before the crisis in 1997. I expect a little bounce back and flittering around 35 and a further longterm continuation of the uptrend (down?) to prices between 30 and 25. The pace to there is depending on the strength or weakness the $ shows against other major currencies. The Thais can never ever controll their currency.

Prediction was asked for, here is mine.

PS:dont panick

[Maestro]

I am no whiz kid on this subject but I think that sooner or later the Bank of Thailand (Central Bank) will run out of money to buy up dollars in an effort to weaken the Baht. When the money runs out, market forces will take over.

The basic reason for the Baht’s strength, as I see it, it Thailand’s balance of payments surplus, combined with the USA’s balance of payments deficit.

A reduction in the prime rate (interest rate) for the Baht should help to weaken the Baht, but the 0.5% reduction predicted for April may not be enough.

--

Maestro

[ZhangYimou]

why cant the thai government just decide to peg the baht at 36 to the dollar?

[Maestro]

ZhangYimou, I’m afraid you’ve just lost your chance of being appointed an advisor to the Bank of Thailand.

--

Maestro

[Naam]

I am no whiz kid on this subject but I think that sooner or later the Bank of Thailand (Central Bank) will run out of money to buy up dollars in an effort to weaken the Baht. When the money runs out, market forces will take over.

--

Maestro

a central bank can never run out of money Maestro (as long as it is 'domestic' money).

[samran]

I am no whiz kid on this subject but I think that sooner or later the Bank of Thailand (Central Bank) will run out of money to buy up dollars in an effort to weaken the Baht. When the money runs out, market forces will take over.

--

Maestro

a central bank can never run out of money Maestro (as long as it is 'domestic' money).

Or, they can just do what Herr Mugabe has done in Zimbabwe...print more money!

[sonicdragon]

I am no whiz kid on this subject but I think that sooner or later the Bank of Thailand (Central Bank) will run out of money to buy up dollars in an effort to weaken the Baht. When the money runs out, market forces will take over.

--

Maestro

a central bank can never run out of money Maestro (as long as it is 'domestic' money).

Exactly. Only when defending a currency against devaluation can the the central bank run out of money.

They can (and will) always print more local currency. The Fed has been doing it for decades.

[PeaceBlondie]

My prediction, which is worthless: the baht will bounce back to 40:1 when the forex speculators stop playing chess with Asian currencies, and the baht stops being a measy little pawn in this multi-trillion game. And no, we're not talking about a pittance such as $25,000 or even a million pounds....think billions of pounds. Taksin would only be a small player if he could bet his entire fortune against the hedge funds. But, if he played it right, he could make big money. Am I just confused again, or am I at the top of the field?

[sonicdragon]

why cant the thai government just decide to peg the baht at 36 to the dollar?

It is not realistically possible. Pegs only work when they are implemented either as a currency board (eg Hong Kong 1984, still in effect today) or along with draconian currency controls (eg Malaysia 1998). Suvh currency controls would result in a mass exodus of foreign investors. I suppose it is possible in a world of increasing protectionalism, but I think it's very unlikely. A currency board requires that the central bank holds an equal amount of foreign currency to the amount of local currency in circulation (at the pegged rate) - completely outside the realms of possibility for Thailand. And even when it is implemented properly, if there is an attempt to bring it down although the peg will hold, it will wreak havoc in other areas of the economy such as the stock market, inter-bank lending market and real estate market (eg HK 1998)

When pegged, the central bank has to stand as the buyer and seller of last resort. Without a properly implemented currency board (ie with sufficient reserves) the currency will be decimated along with what reserves it did have in a heartbeat (egThailand 1997 or UK 1992)

Edited March 15, 2007 by sonicdragon

[sonicdragon]

As the baht hit a new nine year high today , Sontee Limtongkun, publishing mogul , owner of the Manager and Astv and argueably the most knowledgeable and influential journalist in Thailand today , on his tv program Guardian of the Nation this evening stated that he believed that the baht will rise to 32 to the dollar by May this year .

That's a rather funny statement...

Because actually, THB is already at 32...

35 level is a "fiction". It's the on shore rate...

I disagree. The offshore rate is fiction. Try actually dealing at the offshore rate and you'll see what I mean. There is no liquidity in the offshore market so the bid-ask is very wide, even between banks. As a customer, if you want to buy the baht sure, you might get 32, but if you want to sell it, you will find the rate very close the onshore rate, which is set by local market partcipants (not the BoT).

This scenario exists for 2 reasons: 1) certain transactions between domestic banks and offshore banks were banned by the BoT and 2) capital controls.

Edited March 15, 2007 by sonicdragon

[sonicdragon]

It would be interesting to know the detailed reasons for his view on that. One thing I heard on the rumourmill is that Taxin and his family and cronies had shorted the baht in very big size after the coup. If that's true, then it's one reason why the government is happy to let the baht strengthen for the time being. Maybe in May these positions will be closed out and the baht can resume a more "reasonable" value.

Personally I think that's cobblers, but there's no way to know, right ?

You can make a strong case for either a weaker or stronger baht.

He gave examples on his show how big money could be made transfering funds back and forth between Thailand and Singapore. This would spell the death knell for the dual rate system ...[the rest is my opinion] and of couse we all agree , as soon as the onshore rate /controls go and market forces take over, it is nearly hundred percent certain the baht will inmmediately rise and take up the slack between the two rates resulting in one far higher unified rate for the baht.

What happens after that nobody knows but Sontee 's forecast is as posted.

I assume that he was talking about transferring baht offshore, converting to USD then transferring the USD back to Thailand ?

This may be possible, but only in small size, and the "arbitrage" would be very small. For one thing, it would be subject to the 50k baht limit. For another, when you come to sell your baht at the offshore rate you will quickly discover that the rate is actually very close to the onshore rate (it's the rate that banks will buy baht offshore that is widely quoted in bloomberg and cnbc). What little is left over will be eaten with transaction costs and subject to the risks of maket movement due to timing differences or uncertainty about the legality of it.

Some of the cleverest people in the world sit at trading desks in banks and hedge funds thinking about things like this all day. If it really were possible to make significant profits doing this, then a wall of money would suddenly be trying to do it, which would immediately close the arbitrage to a level where only transaction cost and timing/market/legal risks are compensated.

[bendix]

Am I just confused again, or am I at the top of the field?

They are one and the same thing, PB

[backflip]

"The Fed has been doing it for decades. "

If you are referring to the US, the "Fed" was formed in the mid-1860's to finance the Civil War. Limiting its influence to "decades" is a mistake. The money supply is the US is almost always constantly expanding. There's nothing either wrong or abnormal about it.

Your next sentence will be "but, an expanding money supply leads to inflation", and my response will be (correctly), "an expanding money supply does not cause inflation."

Edited March 15, 2007 by backflip

[sonicdragon]

"The Fed has been doing it for decades. "

If you are referring to the US, the "Fed" was formed in the mid-1860's to finance the Civil War. Limiting its influence to "decades" is a mistake. The money supply is the US is almost always constantly expanding. There's nothing either wrong or abnormal about it.

Your next sentence will be "but, an expanding money supply leads to inflation", and my response will be (correctly), "an expanding money supply does not cause inflation."

Not sure if you are being argumentative for the sake of it ? Yes, I was referring to the Federal Reserve Bank of the USA. Would you have been happier if I had said "many decades" or "1.5 centuries" ? And I wasn't limiting it's influence to decades. I was referring to the period since 1971 when the gold standard was abolished. Prior to 1971 most of the industrialised world was on the gold standard under the Bretton Woods agreement and the money supply could not easily be expanded. Even before that particular system was adopted, several other gold standards were in effect at diferent times.

Whether there is anything wrong or abnormal about an expanding money supply is beside the point. I was simply making reference to the *fact* that a country *can* continue to sell it's own currency without running out of it.

[Naam]

Some of the cleverest people in the world sit at trading desks in banks and hedge funds thinking about things like this all day. If it really were possible to make significant profits doing this, then a wall of money would suddenly be trying to do it, which would immediately close the arbitrage to a level where only transaction cost and timing/market/legal risks are compensated.

all said! any further discussion how to make money by transferring "in/out" of Thailand is nothing but a waste time.

[Gary A]

Or, they can just do what Herr Mugabe has done in Zimbabwe...print more money!

That's not a solution either. Zimbabwe has run out of paper and the printing presses are worn out anyways.

[Huw]

My prediction, which is worthless: the baht will bounce back to 40:1 when the forex speculators stop playing chess with Asian currencies, and the baht stops being a measy little pawn in this multi-trillion game. And no, we're not talking about a pittance such as $25,000 or even a million pounds....think billions of pounds. Taksin would only be a small player if he could bet his entire fortune against the hedge funds. But, if he played it right, he could make big money. Am I just confused again, or am I at the top of the field?

Top of the field gets my vote

[TRIPxCORE]

As I have been predicting, Asian currencies, in relation to USD, were going to appreciate and that's exactly what's been happening. The Thai Baht isn't going to weaken against USD anytime soon. It's either going to stay right where it's at or continue to get stronger even. The US deficits are a mess and the US needs at least 75 billion a month of incoming foreign money to finance these deficits. They aren't getting it. So one of two things needs to happen for the US to be able to deal with this. Either the Fed has to raise interest rates, which they won't do with all the sub prime lending trouble going on right now, or USD has to weaken. You can guess which one of two is happening. The writing has been on the wall for a long time. Until the US gets the deficits under control, USD won't be able to maintain any strength. That's the bottom line.

[cloudhopper]

If the $ weakens instead of a rate increase, will domestic inflation necessarily rise too? That could be a bigger motivator for the Fed than a few more forclosures...

[Old Man River]

I am no whiz kid on this subject but I think that sooner or later the Bank of Thailand (Central Bank) will run out of money to buy up dollars in an effort to weaken the Baht. When the money runs out, market forces will take over.

--

Maestro

a central bank can never run out of money Maestro (as long as it is 'domestic' money).

Exactly. Only when defending a currency against devaluation can the the central bank run out of money.

They can (and will) always print more local currency. The Fed has been doing it for decades.

The BOT raises THB in the capital markets, same way the Fed does it.

[Old Man River]

As the baht hit a new nine year high today , Sontee Limtongkun, publishing mogul , owner of the Manager and Astv and argueably the most knowledgeable and influential journalist in Thailand today , on his tv program Guardian of the Nation this evening stated that he believed that the baht will rise to 32 to the dollar by May this year .

After that it will start to fall and by January 2008 will be back at around 40 to the dollar.

Do people agree this is the most likely scenario for the baht over the coming months and year ?

Topfield, I totally disagree with your views on Sonthi, but his views on the THB seem right to me.

[sonicdragon]

If the $ weakens instead of a rate increase, will domestic inflation necessarily rise too? That could be a bigger motivator for the Fed than a few more forclosures...

There are a multitude of theories on that. Most economic thinking says that it will, but it is by no means clear that it will because there are so many interdependencies. Also, while most economists can agree on what inflation is, in an abstract sense, there is very little consensus about how to measure it in practice.

[Naam]

I am no whiz kid on this subject but I think that sooner or later the Bank of Thailand (Central Bank) will run out of money to buy up dollars in an effort to weaken the Baht. When the money runs out, market forces will take over.

--

Maestro

a central bank can never run out of money Maestro (as long as it is 'domestic' money).

Exactly. Only when defending a currency against devaluation can the the central bank run out of money.

They can (and will) always print more local currency. The Fed has been doing it for decades.

The BOT raises THB in the capital markets, same way the Fed does it.

that's the "normal" way. if the BOT (or any other central bank) runs out of money the printing presses are started. that goes for the FED in USA too where the printing goes on since years and that's the reason why since last year no M3 figures are published anymore.

thank you Benjamin Shalom Bernanke!