Wealth Preservation

[AFKAFSinLOS]

The East is assuming far more importance these days. The UK is well past its zenith. The US is also past its zenith. For a while at least the East looks the place to be for the future...

But when it comes to the East, Thailand often seems to regularly manage to shoot itself in the foot and miss its opportunities; never quite realising the potential it should compared to its peers. The article below is interesting to juxtapose the UK today with what we see in Thailand. Particularly since it covers the time since the current "idiot in charge" became Chancellor in 1997, (just around the Financial crisis) until now...

When you consider do you have enough to live in Thailand, and are your finances in shape, this is an interesting perspective. For the Brits out there, there's some good reasons not to go home even if it gets tough here in Thailand...

Also some interesting views to read between the lines on where GBP is heading vs other currencies eg THB...

QUESTION: As a Brit (or yank or European who have similar problems), if you're living in Thailand, shouldn't you be investing more here these days... ???

----------------------------

http://www.h-l.co.uk/news_and_expert_views...7/rq/article.hl

Wealth preservation

....

Eleven years ago our Prime Minister, the then Chancellor, told us that his policy would be neutral regarding expenditure and borrowing over the economic cycle. This would lead me to believe that during periods of economic growth he would have created a budget surplus and saved that money for the rainy day that has now arrived. He had surplus when he took office in 1997.

We never had a recession in those first ten years so I don't think it would be unreasonable to have expected him to have stashed away £10 billion a year; it would have been a tiny proportion of the tax collected. In fact he did the reverse.

First, he sold over half our gold reserves. I don't blame him for selling them at the wrong time; I blame him for being profligate and having to sell them at all. Indeed if he was the finance director of a public company he would be brought to book. In addition to not saving he has actually borrowed behind the scenes. The Government has indulged in what are known as Private Finance Initiatives (PFIs).

... - PFIs were a BAD idea of the Conservative Party. The difference is that Mr Brown has milked them. Many of the new hospitals, schools and many other capital assets have actually been bought by the private sector and leased back to the Government at exorbitantly profitable rates of return. This is a legacy that Mr Brown has left for society long after he will have left office.

In addition he has solved the unemployment problem by employing close to a million public sector workers. This will create another huge problem as the public sector pension deficit skyrockets. This deficit has been calculated to be in excess of £1,000,000,000,000 and not one penny has been paid into a pension fund for civil servants, teachers, the military and NHS workers. Their pensions will be borne out of future taxation.

What next?

The country looks to be going into recession, house prices are sliding, the pound has declined against most other world currencies, unemployment is rising, corporate profits are down and the Government already has a budget deficit. At the same time inflation has once again reared its ugly head and public sector workers are seeking inflation matching pay rises. This means:-

• The Government's tax take looks certain to decline.
  • Less corporation tax as company profits drop.
    
  • Reduced income tax receipts as unemployment rises.
    
  • A massive reduction in stamp duty as house purchases stall.
    
  • Less VAT as people reduce spending.
    

  [*]Unfortunately it will be very difficult to trim expenditure; if he does it would most likely create an even bigger recession.

  [*]This means he is likely to borrow - and borrow billions.

Had he been the prudent Chancellor he claimed to be, I believe he should have had £100 billion in the kitty which he could be spending now to reflate the economy. The Government is now in a quandary. They know the public sector borrowing requirement will be massive, but they would like to spend even more to revive a flagging economy.

What this means to the British general public is that the value of our investments is being eroded by inflation and the falling value of sterling.

40 to 50 years ago the value of sterling was of less concern to British people. The only time we came in contact with exchange rates was on rare holidays abroad. Indeed when Harold Wilson devalued the pound in the 1960s he famously said it does not affect the "pound in your pocket."

That is certainly not the case today because we import so many of the items we take for granted. Where are many electrical goods sourced? Where do the foods and fine wines we have become accustomed to originate? Even if your car was built in Britain it was probably merely assembled from parts imported from abroad.

In addition there is huge demand for commodities and oil. We have been lucky to have reserves of North Sea oil. Unfortunately we are no longer a net exporter of oil; we are now a net importer. As sterling falls in value this is another bill that will increase.

So we have to criticise Mr Brown for getting the economy in this state. If he looks a worried man, he should be. He has left all of us much poorer than we thought we were. In current economic conditions it will become increasingly difficult for UK investors and savers to preserve their wealth. Inflation is once again eating into capital and sterling's fortunes have been completely reversed. At the same time the Governor of the Bank of England is in a complete dilemma. On the one hand he would like to increase interest rates to damp down inflation and shore up sterling. On the other hand he is under pressure to keep interest rates low in order to not further slow down our economy.

There is precious little confidence from investors about how they will, in the short term, maintain their wealth against a declining pound and rising inflation. It is a problem that I personally have applied my mind to for some time, seeking, like every other UK investor, to preserve my personal wealth. Clearly everyone's circumstances are different; however I think there are things which all of us should be considering.

Whether we like the stock market or not, I do not think it seems expensive. It strikes me that, for long term investors, the stock market is still probably one of the most sensible ways of trying to build your wealth. Many UK companies have massive overseas earnings and with a declining pound these earnings are worth considerably more when repatriated. The declining pound has also made our exporters more competitive in world markets. Elsewhere we still believe there is a place in most portfolios for absolute return funds and corporate bonds also look good value.

------------------------------

[\quote]

Edited July 23, 2008 by AFKAFSinLOS

[Riley'sLife]

I agree with you entirely, however, while I certainly would prefer to invest in the country where I live (Thailand). the crazy Thai rules for Farang here restrict my import of capital to the bare minimum.

[awakened]

The East is assuming far more importance these days. The UK is well past its zenith. The US is also past its zenith. For a while at least the East looks the place to be for the future...

Had the U.S. stock market not seriously scalped me, I would be buying Chinese solars. I would, however, wait until the Olympics are over and see whether there is any more downside to come.

How about waiting for Vietnam to collapse, then picking up bargains there? Is it possible or even desirable?

It may well be that Thailand stays affordable for Brits, if as you suggest, it is unable to get its act together. I am liquidating assets in the UK and moving them into other vehicles, like gold and stocking up on bags of rice.

How do you see the UKP/THB exchange rate over the next 6 months? 12 months?

Do you see serious systemic failure in the whole fiat money system bringing ruin to everyone? How much debt upon debt can the system support? Surely it can't go on like this?

[chiang mai]

It's hard to imagine that GBP will not slide substantially, given a one year view. Whilst the BOE's remit is to fight inflation and this will require rate increases to be truly effective, it's unlikely that rates will remain as high as at present for very long since this will impact on recovery and growth. I can imagine that UK rates will begin to fall soon and with that fall the rate against THB will also fall. I'm gambling on USD getting stronger over the medium term and whilst the yield on USD is currently very low, the likelihood of seeing USD 1.80 to GBP before Xmas remains strong.

[farang555]

the usa is OVERTHEHILL

[Chaimai]

It's hard to imagine that GBP will not slide substantially, given a one year view. Whilst the BOE's remit is to fight inflation and this will require rate increases to be truly effective, it's unlikely that rates will remain as high as at present for very long since this will impact on recovery and growth. I can imagine that UK rates will begin to fall soon and with that fall the rate against THB will also fall. I'm gambling on USD getting stronger over the medium term and whilst the yield on USD is currently very low, the likelihood of seeing USD 1.80 to GBP before Xmas remains strong.

Interesting conflicting view on rates compared to the OP. Current inflationary pressures are almost exclusively down to non-discretionary expenditure ie fuel, fuel related (food) and stealth taxes etc. Strip that out and MPC haven't done a bad job in managing the position. I have to support the view that the BoE have to take a more 'relaxed' stance on inflation and look to re-flate the economy.

Whilst not technically the case, it looks, feels and smells like a recession. I am involved in mortgage broking and finding a customer is like finding a needle in a haystack. I see estate agents, conveyancers, DIY managers, builders etc, etc all looking suicidal. The UK is such a property based economy it needs activity, and value, in this sector to support the rest of the economy.

The government appear to be doing bugger-all and continue to abrogate their responsililties (as they did for so long in Northern Rock debacle), the Uk press are only interested in negative, sensationalist headlines.

The situation requires positive action, positive attitudes and positive words - talk it up, not down otherwise it will become self-prophesising.

One small crumb of comfort it that the States are in bigger do do than the UK so with the Baht tracking the USD we may see 68-70 for our Sterling.

[chiang mai]

It's hard to imagine that GBP will not slide substantially, given a one year view. Whilst the BOE's remit is to fight inflation and this will require rate increases to be truly effective, it's unlikely that rates will remain as high as at present for very long since this will impact on recovery and growth. I can imagine that UK rates will begin to fall soon and with that fall the rate against THB will also fall. I'm gambling on USD getting stronger over the medium term and whilst the yield on USD is currently very low, the likelihood of seeing USD 1.80 to GBP before Xmas remains strong.

Interesting conflicting view on rates compared to the OP. Current inflationary pressures are almost exclusively down to non-discretionary expenditure ie fuel, fuel related (food) and stealth taxes etc. Strip that out and MPC haven't done a bad job in managing the position. I have to support the view that the BoE have to take a more 'relaxed' stance on inflation and look to re-flate the economy.

Whilst not technically the case, it looks, feels and smells like a recession. I am involved in mortgage broking and finding a customer is like finding a needle in a haystack. I see estate agents, conveyancers, DIY managers, builders etc, etc all looking suicidal. The UK is such a property based economy it needs activity, and value, in this sector to support the rest of the economy.

The government appear to be doing bugger-all and continue to abrogate their responsililties (as they did for so long in Northern Rock debacle), the Uk press are only interested in negative, sensationalist headlines.

The situation requires positive action, positive attitudes and positive words - talk it up, not down otherwise it will become self-prophesising.

One small crumb of comfort it that the States are in bigger do do than the UK so with the Baht tracking the USD we may see 68-70 for our Sterling.

I also can imagine 68-70 in the short term but thereafter, UK rates will have to come down and that's when the exchange rate will start to hurt expats in Thailand, unless they are hedged or similar - it will all be in the timing.

The US in bigger do do than the UK? - possibly (almost certainly) not, again it's a timing issue. And as for the poster who reckons that USD is over the hill, it's all relative I'm afraid.

Edited July 23, 2008 by chiang mai

[Chaimai]

also can imagine 68-70 in the short term but thereafter, UK rates will have to come down and that's when the exchange rate will start to hurt expats in Thailand, unless they are hedged or similar - it will all be in the timing.

And as for the poster who reckons that USD is over the hill, it's all relative I'm afraid.

CM - I read somewhere (and accepted at face value) that the THB/GBP rate was only a spin-off of the THB/USD rate i.e. it was not was not independently determined. Certainly, friends who have tried to explore converting GBP to USD and then USD into THB have always found that it has never had any benefits.

If this is the case then GBP/THB will head back towards 60 as the USD strengthens.

I am happy to stand corrected.

[Naam]

i would have loved to add an opinion on currencies. unfortunately the dog has again buried my crystal ball somewhere in the garden

[chiang mai]

also can imagine 68-70 in the short term but thereafter, UK rates will have to come down and that's when the exchange rate will start to hurt expats in Thailand, unless they are hedged or similar - it will all be in the timing.

And as for the poster who reckons that USD is over the hill, it's all relative I'm afraid.

CM - I read somewhere (and accepted at face value) that the THB/GBP rate was only a spin-off of the THB/USD rate i.e. it was not was not independently determined. Certainly, friends who have tried to explore converting GBP to USD and then USD into THB have always found that it has never had any benefits.

If this is the case then GBP/THB will head back towards 60 as the USD strengthens.

I am happy to stand corrected.

I am far from being anywhere close to an expert on these matters and do not be fooled by Dr Naam's comments, he knows everything - his old story line of having lost the crystal ball is simply not true.

You are correct to say that the link is effectively GBP/USD/THB and that there is not a direct GBP/THB relationship. That being said however when there are extreme circumstances in either the GBP or THB camp it shows up in the exchange rates - USD strengthens as GBP weakens and if THB remains largely neutral, GBP/THB will fall.

[chiang mai]

i would have loved to add an opinion on currencies. unfortunately the dog has again buried my crystal ball somewhere in the garden

The absence of an accurate and reliable source of information has never stopped you previously, why now?

[Naam]

i would have loved to add an opinion on currencies. unfortunately the dog has again buried my crystal ball somewhere in the garden

The absence of an accurate and reliable source of information has never stopped you previously, why now?

fact is that "reliable sources of information" do not exist. if there were reliable sources they would keep their reliable information secret for their own benefit/profit instead of publishing said information. i am getting daily tons of information from a number of multinational banks and smile when i read the [often] contradicting forecasts of "experts' and "ANAL"-ysts especially as far as currencies are concerned.

[GuestHouse]

i would have loved to add an opinion on currencies. unfortunately the dog has again buried my crystal ball somewhere in the garden

Don't worry Naam, this is TV - do what others do - rely on hindsight - Posting claims of a huge profit after the results are out is always good for a few lines or so around here.

[JSixpack]

Ah, more gloom & doom.

"All this has happened before and will again." Market declines, as in the USA and UK, are good. That's the time to buy, is it not? Invest on the way down, sell on the way up. Invest in short/long funds for hedging. Etc.

Developing world markets sometimes outperform spectacularly--always have. But the ride in those poorly regulated markets is quite bumpy. If you want to play them, you really should diversify. Hence it doesn't make a lot of sense to talk about Thailand exclusively. While Thailand is having its military coups, I'd like to have some money in, say, Eastern Europe.

Similarly, global diversity handles the issue of declines and appreciation in currencies. But if currencies is really your crapshoot, best to check out multi-currency funds. Long-term, think you can beat the pros? Truth to tell, most of them aren't very exciting. But you can also buy them on margin, if that helps.