Another American Concerned About The Us Dollar

[Iolare]

My wife and I currently have our cash savings set up this way: 55% in Thai Baht earning a little over 2% interest, and 45% in a US Dollar money market earning 5.3%. My concern is both preserving the value of the cash and earning some interest income from it. Blending the return from the two currencies results in an interest income of about 3.6% Since we’re pretty evenly weighted in both currencies, the Baht gain has balanced out the Dollar loss, but like everyone in dollars, I’m distressed by it’s slide, and while I’m admittedly very late to the party, I’ve decided to change the mix.

We’re going to Singapore next week to open a Premier account with HSBC. That account offers a basket of up to 10 commonly traded currencies, and I’m thinking along these lines:

Keep 50% in Baht (We live in Thailand)

Reduce US Dollars to 10% ( We have a place there too, and will spend 3 or 4 months a year there in the future)

The HSBC account would hold 40% of the cash as follows:

10% New Zealand Dollars earning 6.7%

9% Australian Dollars earning 4.55% interest

8% Euros earning 4%

7% British Pound earning 3.75%

6% Canadian Dollars earning 3.13%

The blended interest earnings on the cash is nearly the same as we are getting now, and hopefully, there would be some appreciation in this mix of currencies too. Or, at least we’d be spreading out the risk. The HSBC account allows switching currencies online at no charge, so if the mix wasn’t looking good, it could be easily changed.

Does anybody have any suggestions about this proposed basket of currencies?

[samran]

all I can say is that as the US economy looks weaker, and people become more risk adverse, the AUD and probably the NZD are actually getting weaker against the USD.

[lannarebirth]

all I can say is that as the US economy looks weaker, and people become more risk adverse, the AUD and probably the NZD are actually getting weaker against the USD.

Well, they've had pretty nice runs haven't they, and may yet run further. Still "beggar thy neighbor" is all about a race for the bottom. The US started it off in grand style. No other country save for Japan has followed suit, but that may change.

[fletchsmile]

There's really not enough info in your post to comment on the optimum split for you, as it varies per person, but your idea is a reasonable one, of spreading your money across a basket of currencies, to diversify your risk. The THB exchange rate is still key for you, and will still remain your key risk. As you note, you're a little late in some respects, and hence you risk the USD appreciating if you move out of it, but the diversification will reduce your risk if you don't have particular views on individual currencies.

Personally, I do something similar. I have money, in THB, AUD, EUD, GBP, NZD, SGD USD. Can't say I recommend SGD as interest rates are low, and for me it'ss more historic as I used to be paid in SGD. AUD and NZD I opened this year for similar reasons to you. I don't live off my interest income, but like to spread my risk.

A couple of other points:

- Check out other banks in Singapore, for possibly better rates.

- You will incur charges (bid-offer spreads even if no transaction fees) for switching between currencies and back

- Your rates overall look poor. You've got a good deal on USD. But the rates from HSBC for AUD, GBP, NZD look miserly. AUD should be >5% on a savings account, GBP > 4% and NZD > 7%.

- Consider using fixed / term deposits as well. In addition to savings accounts I use fix deposits/ term deposits for tenors of 1 month and above. If you have them maturing at diffferent times, this ensures you always have access to amounts you need. Fixed deposits usually have a higher interest rate than savings.

- Look for internet banking. This will alllow you to take out fixed deposits on line as suits you, and move money more easily

- Check you get an ATM card, with decent delta, visa, electron, cirrus logos for easy access

- Lastly you might want to consider a small amount in an equity or bond based mutual fund. In the same way you have diversified currency cash risk, this diversifies risk into different products. If you put say 5% in an equity based fund, this is still a small proportion of your wealth. There is a risk you lose money similar to currency exposures, as you have equity risk, and prices go up and down. However, over 3-5 years you should earn more than THB cash rates, although it is not guaranteed. Dividends/distributions may be more than the THB interest you earn. There is the potential for capital gain (but also loss). You also have quick access in emergencies. This would depend on your risk appetite tho', and not suitable for everyone.

Edited November 23, 2007 by fletchthai68

[sonicdragon]

Would also recommend exposure to CHF and SGD. Although having low rates of interest, these currencies have been debased a lot less than most others. Their respective governments operate prudent fiscal policy. Also CHF is a funding currency and would further benefit from carry trade unwinding. I would be quite wary of buying the euro at these levels. Personally I am now selling EUR and GBP and buying CHF, SGD (and CNY). EUR outlook doesn't look very good to me. But of course, its all relative. I'm completely avoiding the US$ for a long time already and don't expect that to change any time soon.

[sonicdragon]

all I can say is that as the US economy looks weaker, and people become more risk adverse, the AUD and probably the NZD are actually getting weaker against the USD.

Agreed, and a global slowdown will be exacerbate australia's already poor balance of payments position leading to further pressure on the currency.

[BEENTHEREDONETHAT]

Agree that the rates lolare is being quoted are low. You can get 8.9% in New Zealand in a aaa rated bank term deposit. Australia should be around 7%.

Australia does not have a poor balance of payments sonicdragon. If you check you will find it is one of the lowest debts on 16% of GDP. That compares to 64% for the US and 158% for Japan.

[misterme]

Anyone knows selling at the bottom is the worst idea. Smart people hold in bad times, make decisions in good times.

If you want to solidify your losses, sell your remaining US dollars. In my opinion it's got no where to go but up.

[sonicdragon]

Agree that the rates lolare is being quoted are low. You can get 8.9% in New Zealand in a aaa rated bank term deposit. Australia should be around 7%.

Australia does not have a poor balance of payments sonicdragon. If you check you will find it is one of the lowest debts on 16% of GDP. That compares to 64% for the US and 158% for Japan.

Errrr.... No ! Australia has a large current account deficit in it's balance of payments accounts. Japan on the other hand, which you mention, runs as enormous current acccount surplus.

You seem to be confused between national debt (the excess of government spending over revenues) and the current account deficit which forms part of the balance of payments accounts.

[BEENTHEREDONETHAT]

Guess I am

[Iolare]

Thanks for all your responses. I came to Thailand a few years ahead of schedule because I could foresee the problems coming in real estate in the US. I knew that if we didn’t sell off some property early in 2006, we might have to wait 5 or more years to regain the value they had at that time and that would put us a few years behind schedule. So we sold some and still have some that we’re trying to sell, and a couple of keepers. We have some good quality property here too that I believe is appreciating despite the uncertainties. We’ve got some US securities in retirement plans, so this topic isn’t about managing the whole estate, but just a cash redeployment question

When most of our assets were in the US I wasn’t thinking about the value of the dollar very much, but now I can’t avoid it. I’m not a currency trader, having never done it, but I don’t think the decline of the dollar is over yet so I don’t think I’m selling at the bottom on dollars. I certainly don’t expect a total collapse, but I think that reducing the exposure for the next 6 months to a year makes sense. I think there will be a time after that when increasing the dollar position will be prudent.

But first we have to see how serious the sub-prime problem and the real estate slow down is to the overall American economy, and whether those problems will trip a similar credit card meltdown. I think they will and that there’s a recession coming and it will impact the stock markets and the currency, but it won’t be of epic proportions. So I’ll be ready to buy a US based blue chip mutual fund next year, and I’ll probably try to pick up an income producing property or two after that. I’m also planning to buy a Thailand fund after the elections if the political situation stabilizes.

In the mean time, I like the convenience of the HSBC account even if it doesn’t present the best rates. As I get more comfortable with this international business I’ll seek out better deals.

Maybe I should reduce the buy of Aussie dollars and New Zealand dollars a little bit and add some Swiss and Singapore. The Chinese Yuan is not offered as a part of the basket. I was trying to match our current blended interest rate, but maybe capital preservation is more important as we’re not living off the interest income.

[meom]

How much money we're talking about actually? I'll probably get shot for this but if you're talking less than a million dollars it's not really worth the hassle to spent your time looking for a few percent here and there and you might as well keep everything in thai baht.

[lordofdelusion]

As has been mentioned, it's late to the dollar fall party. This week at least 3 loud complaints from Europe, Airbus, Sarkozy and some finance minister, regarding the high level of the Euro. It is a similar complaint to what the US had for years about the Chinese currency. Any slow down in the US economy will be felt globally as the US still makes up a very large percentage of the world economy. Other economies and currency will get pinched too. I wouldn't move out of dollars completely. Especially if as you say you will be living in the US for some time. All the exchanging back and forth will cost you. I'm in the same boat you are being concerned first with the Dollar/Baht exchange rate. I have no idea how that will turn out!!! We'll see after the election.

[cclub75]

My wife and I currently have our cash savings set up this way: 55% in Thai Baht earning a little over 2% interest, and 45% in a US Dollar money market earning 5.3%. My concern is both preserving the value of the cash and earning some interest income from it. Blending the return from the two currencies results in an interest income of about 3.6% Since we’re pretty evenly weighted in both currencies, the Baht gain has balanced out the Dollar loss, but like everyone in dollars, I’m distressed by it’s slide, and while I’m admittedly very late to the party, I’ve decided to change the mix.

We’re going to Singapore next week to open a Premier account with HSBC. That account offers a basket of up to 10 commonly traded currencies, and I’m thinking along these lines:

Keep 50% in Baht (We live in Thailand)

Reduce US Dollars to 10% ( We have a place there too, and will spend 3 or 4 months a year there in the future)

The HSBC account would hold 40% of the cash as follows:

10% New Zealand Dollars earning 6.7%

9% Australian Dollars earning 4.55% interest

8% Euros earning 4%

7% British Pound earning 3.75%

6% Canadian Dollars earning 3.13%

I think HSBC is a mistake. You should go at DBS or OCBC (the 2 largest singapore banks).

Check the rates for deposits in foreign currency : much better than HSBC.

And they do have also premier banking.

As for your aims :

-reduce USD, makes perfectly sense (and maybe you're not too late, USD should continue to fall).

-AUD looks like a good bet (commodities economy, that feeds the chinese dragon)

However I don't understand "Keep 50% in Baht (We live in Thailand)"

What's the point ? THB has very low rate. With time deposits in foreign currencies in Singapore, you have no tax on interest earned. And you can have the interests sent on your current account (also in Singapore). And after in Thailand, you take the cash from ATMs...

Easy. Efficient.

And I should add : there is clearly a "political" risk on THB, that could lead to a decrease of exchange rate...

[Naam]

- Your rates overall look poor. You've got a good deal on USD. But the rates from HSBC for AUD, GBP, NZD look miserly. AUD should be >5% on a savings account, GBP > 4% and NZD > 7%.

the expression "poor" is quite polite Fletch i'd cut off the tie of my banker if he offered me that kind of sh*tty rates and that goes for USD money market too (which is riskier than cash).

of course a lot depends on the amounts and the time frame of fixed deposits. the OP hasn't mentioned these facts that's why it is impossible to compare my rates with his.

[Iolare]

I agree that we’re overloaded in Baht, but there are three reasons for it.

1) I found that we could get around the 30% capital control rule by claiming that we were buying land and building a house, which is true, but we also were able to bring in some extra money at that time which we earmarked for other real estate purchases. 2) After we moved that money in, someone made a very good unsolicited offer for property that we acquired about a decade ago in Chaing Mai, so that added to the baht in the bank, and 3) My wife being a thrifty Chinese/Thai has been a faithful, regular saver in baht (thru thick and thin including the late 90’s currency crisis) for the last 26 years that she has been in the USA--modest amounts, but it adds up.

Several of you posters have wondered why I’m making the move out of dollars at this point (Like closing the barn door after the horse has already escaped). Three reasons for that, too. 1) I was ethnocentrically naive until I got here and started to figure what was going on, and I don’t like to be a passive victim if I think I can do something to change it. And even though I should have made the move earlier, I don’t think the dollar has bottomed out yet. 2) I now want to learn a more global perspective relative to money, and this is a first step. 3) Last, and most importantly, the dollars that we will move to Singapore are currently residing in the IndyMac bank system, and anyone who follows the American scene knows that that’s not a good place to be, particularly in our case where we’re considerably above the limits of the govt. insurance. We were in timed deposits there and I parked the money in a money market when the CD’s matured. Now i can move it.

I chose HSBC as a safe haven, but will check out the other banks while in Singapore to compare rates offered. Thanks for those leads. I’ll confirm the details when I get to Singapore, but I believe that the account I’m contemplating is not a timed deposit, so I can move the money at any time, but hence the lower rates. Again, I’m not married to HSBC yet, so I’ll look at the options when I get there. This is the kind of advice I appreciate, along with any more insight about which currencies seem best at this time. They’re not all going down together, are they?

[sfokevin]

Sounds like you have had quite the epiphany... No longer a passive victim... Careful.. you have move into the realm of an active victim

Edited November 24, 2007 by sfokevin

[Naam]

I’ll confirm the details when I get to Singapore, but I believe that the account I’m contemplating is not a timed deposit, so I can move the money at any time, but hence the lower rates.

to avoid any misunderstanding. even the overnight rates should be better than the rates you have been quoted by HSBC (except USD). but -as i mentioned already- it depends on the amounts of the various currencies. if it's 10k $-value each position then ignore my advice, if it's 100k $-value each then negotiate hard and shop around.

[thaihome]

You have, rightly so, not stated how much USD or baht is being discussed, but it seems to me that if you have enough baht to live on here in Thailand for a while, why are you worried about your USD? Are you eventually thinking you will need them all in a foreign currency, like the baht, and think the USD is going to continue to go down until you have spent your last dollar?

It just seems to me that you only lose the value of your USD when to change them for another currency. So, to minimize your losses, minimize how much you have to exchange to live and just leave the rest in USD. You might want think about your where USD are invested though.

TH

[Loom]

HSBC Hong Kong accounts offer better rates, more flexibility and broader investment options than in Singapore. HSBC Singapore does not offer gold services nor do they provide online brokerage.

As I understand it, the Aussie and Kiwi dollars tend to move in sympathy with the global economic situation which explains why they've been weak lately. If other countries start to feel the spillover from the US slowdown and move to cut rates (some countries have been leaning that way in recent days), that could take some of the wind out of current dollar weakness.

[Iolare]

You have, rightly so, not stated how much USD or baht is being discussed, but it seems to me that if you have enough baht to live on here in Thailand for a while, why are you worried about your USD? Are you eventually thinking you will need them all in a foreign currency, like the baht, and think the USD is going to continue to go down until you have spent your last dollar?

It just seems to me that you only lose the value of your USD when to change them for another currency. So, to minimize your losses, minimize how much you have to exchange to live and just leave the rest in USD. You might want think about your where USD are invested though.

TH

TH, I’d like to than you and the other posters for your thoughts and advice. It’s good to think a second time and be challenged on matters like this to clarify one’s thoughts.

OK, I probably don’t need the money that’s back in the US to continue to live in Thailand, but I’m not going to go out and buy a Piper Malibu Mirage with it either, even though I’ve always wanted one. It’s the nest egg, or cushion. something to fall back on if everything else goes to hel_l. That’s why I’m concerned when I see its value eroding.

I disagree with your premise that the dollar only loses value when you exchange it for another currency, and your contention that the weakened dollar doesn’t matter much in America. I think that partly due to the weakened dollar the American economy will likely be headed for a period of stagflation due to the cost of imports, especially oil. Those dollars would buy less particularly overseas, but also in America. You want your nest egg to at least stay even with inflation.

In the last year our dollar accounts earned a little over 5% interest, but the currency lost over 10% in value relative to the other major currencies (even more vs the Baht). So I see that as a loss of significant ground, plus to rub salt into the wound I will still have to pay tax on that interest.

I’m concerned that the scenerio could repeat next year as the Fed continues to reduce interest rates in an effort to stave off a recession going into the presidential elections. And then there is the sub-prime mortgage problem which feels to me very much like the Savings and Loan crisis of the 1980’s. And also the fact that Asian and Middle Eastern countries are talking about uncoupling from the dollar. I don’t think it signals a collapse, but I think the odds of the dollar continuing to sink a little are much greater than than that the dollar comes roaring back. It’s not coming back quickly unless they go back to a gold standard, and I don’t think that can happen (wish we never left it).

If I moved to other currencies that increased in relative value while earning a similar rate of interest, I could then convert back at any time and have more dollars than if I did nothing. Also, it’s not like selling a Van Gogh painting and then not being able to buy one back if you change your mind. A couple of key strokes on the computer and you’re in or you’re out and the expense is just the spread; the currency market is always there. The downside can be limited if one pays attention. So, I lost 5% this year sitting in dollars; maybe I can actually earn 5% next year.

[steffi]

What would you do if you were still in the US but had accounts in the UK and Australia where you park cash? That said, it's easy to get it there it's not so easy to get it back out though. I could also park some money in Thailand to diversify things a bit but most of my current exposure is USD. I also don't believe the USD is done going down yet since not many countries have paniced and diversified their reserves more aggressively yet. Secondly, I could be earning either USD, or GBP and I'm starting to think that it might be better to earn GBP. Rates as good as 500 GBP a day can be had in London compared to 600 USD per day here in the US. I am a notoriously bad investor. Most of my money is in money market account earning piddly amounts of interest.

[thaihome]

You have, rightly so, not stated how much USD or baht is being discussed, but it seems to me that if you have enough baht to live on here in Thailand for a while, why are you worried about your USD? Are you eventually thinking you will need them all in a foreign currency, like the baht, and think the USD is going to continue to go down until you have spent your last dollar?

It just seems to me that you only lose the value of your USD when to change them for another currency. So, to minimize your losses, minimize how much you have to exchange to live and just leave the rest in USD. You might want think about your where USD are invested though.

TH

TH, I’d like to than you and the other posters for your thoughts and advice. It’s good to think a second time and be challenged on matters like this to clarify one’s thoughts.

OK, I probably don’t need the money that’s back in the US to continue to live in Thailand, but I’m not going to go out and buy a Piper Malibu Mirage with it either, even though I’ve always wanted one. It’s the nest egg, or cushion. something to fall back on if everything else goes to hel_l. That’s why I’m concerned when I see its value eroding.

I disagree with your premise that the dollar only loses value when you exchange it for another currency, and your contention that the weakened dollar doesn’t matter much in America. I think that partly due to the weakened dollar the American economy will likely be headed for a period of stagflation due to the cost of imports, especially oil. Those dollars would buy less particularly overseas, but also in America. You want your nest egg to at least stay even with inflation.

In the last year our dollar accounts earned a little over 5% interest, but the currency lost over 10% in value relative to the other major currencies (even more vs the Baht). So I see that as a loss of significant ground, plus to rub salt into the wound I will still have to pay tax on that interest.

I’m concerned that the scenerio could repeat next year as the Fed continues to reduce interest rates in an effort to stave off a recession going into the presidential elections. And then there is the sub-prime mortgage problem which feels to me very much like the Savings and Loan crisis of the 1980’s. And also the fact that Asian and Middle Eastern countries are talking about uncoupling from the dollar. I don’t think it signals a collapse, but I think the odds of the dollar continuing to sink a little are much greater than than that the dollar comes roaring back. It’s not coming back quickly unless they go back to a gold standard, and I don’t think that can happen (wish we never left it).

If I moved to other currencies that increased in relative value while earning a similar rate of interest, I could then convert back at any time and have more dollars than if I did nothing. Also, it’s not like selling a Van Gogh painting and then not being able to buy one back if you change your mind. A couple of key strokes on the computer and you’re in or you’re out and the expense is just the spread; the currency market is always there. The downside can be limited if one pays attention. So, I lost 5% this year sitting in dollars; maybe I can actually earn 5% next year.

I never made the contention or agree that the falling dollar doesn't matter much in the US, though anther poster did say that. I did say that until you change your dollars for another currency you do not realize the loss caused by the drop.

If you only earned 5% on your dollar accounts in the past year you must have had them in money market accounts, one of the most conservative investment strategies. From that position, you are contemplating moving into one the most riskiest strategies by moving into other currencies and overseas investments. I wonder if you are really thinking this through or just making an emotional decision, not a good idea when making investment decisions.

TH

[Naam]

What would you do if you were still in the US but had accounts in the UK and Australia where you park cash? That said, it's easy to get it there it's not so easy to get it back out though.

says WHO?

[Naam]

What would you do if you were still in the US but had accounts in the UK and Australia where you park cash? That said, it's easy to get it there it's not so easy to get it back out though.

says WHO?

Steffi, with all due respect and no offence meant... i have lived in the Greatest Nation on Earth™ for nearly 15 years and what i realized is that my american friends and acquaintancies who have never lived and/or worked abroad have not the faintest idea as far as international finance and procedures are concerned. your remark "it's not easy to get it back" proves my point.

the fact is that i can electronically transfer any amount of money (assuming it is not a restricted currency) from one country to the other without the slightest problem.

[jonniebkk]

As you say, you are late to the party..Buffet publicly announced 3-4 years ago that the US dollar was heading into the tank due to US economic and fiscal policies...that's about the time he bought his Petro China stake. (Of course, as everyone and their maids and drivers were pilling into the IPO of Petro China a couple weeks ago...Buffet had sold ALL his stake a few weeks before...a clear signal of what he thinks of the current values of stocks on the China markets. What is it they say...when the little investors get in it's time to head for the hills...) Anyway, it's a little late to diversify outside the USD as most of the damage is probably done. If anything, most economists will tell you that the USD is now oversold and more likely to strengthen against its peer Western currencies over the next few years. However, it's likely that strong growing developing country currencies (i.e., India, China, maybe even LOS will continue to strengthen against the greenback).

Of course, markets tend to overshoot fair value in both directions up and down and the problem is that markets can stay irrational longer than one can stay solvent (betting against the irrationality). In any case, diversification for its own sake is never a bad thing.

[steffi]

Firstly which Banks let you electronically transfer money like that? Last I checked it wasn't possible with the two I use which is Natwest and Wespac. I'm pretty sure letters are required before they will let me transfer money internationally (outbound)

What would you do if you were still in the US but had accounts in the UK and Australia where you park cash? That said, it's easy to get it there it's not so easy to get it back out though.

says WHO?

Steffi, with all due respect and no offence meant... i have lived in the Greatest Nation on Earth™ for nearly 15 years and what i realized is that my american friends and acquaintancies who have never lived and/or worked abroad have not the faintest idea as far as international finance and procedures are concerned. your remark "it's not easy to get it back" proves my point.

the fact is that i can electronically transfer any amount of money (assuming it is not a restricted currency) from one country to the other without the slightest problem.

[Firefan]

While not an expert in US banks I do not have a problem arranging international wires based on a signed fax to any of my brokers or banks.

Some of the brokers will only accept wire to account in my name - can live with that as an extra security.

That said, I think that if one wires large amounts to Thailand and later wish to wire some out, be it real estate profits/Thai stock market profits or anything else than actual Thai based salaries, one should be ready to supply lots of documentation as to where the money originate from to the sending Thai bank.

I have not tried it yet(where are those profits!? ) but have heard stories about it and also seen the documentation required by Bangkok Bank to set it up via Ibanking.

Cheers!

[fletchsmile]

Not sure whether you can do with US banks or not, as US tend to have reams and reams of legislation compared to other countries for listed companies, but Firefan's note seems to make sense it is do-able.

For many banks tho' you can sign a "fax indemnity form", (has different names in different places). This formally allows you to give instructions by fax. Of course with the word indemnity, you're also assuming more risk if something goes wrong.

I've signed these with my banks in the past, and find it convenient. I always call just before sending a fax, document it in email, and ask someone to get back to me and confirm when it's received. This reduces the risk of someone manipulating it, which should be low in the first place with a decent bank

Edited November 26, 2007 by fletchthai68

[fletchsmile]

"Smile" the internet bank in the UK, will also let you send instructions to transfer money by cutting and pasting a standard declaration into an on-line text message sent securely via internet banking. I've haven't actually done this myself, but theykindly gave step by step instructions when I texted them how to do. They will also send credit cards to an address in Thailand, which is another question that comes up. Again haven't taken them up on it, as I send to my parents house, and pick it up either when they visit me, or at Xmas