Baht Strengthens Significantly On Foreign Capital

[marshbags]

The wife said T******n stated on the Thai news last night that 39was to strong and wanted it back to 40-41baht to the dollar. 11-01-2006 18.45 time

The reason he gave was no one outside Thailand would want to come here to do business if it was to strong.

Doesn,t he look old and haggard now by the way, has anyone else noticed

Times running out for him me thinks....................................

marshbags

One can only hope

There was a big discussion today on another Thai programme around 13.00 with some financial

experts ( Thai ) on strong currency, thank you wife ( she,s worrying about her allowances )

They reckon the economy must have 40-42 baht to the dollar or there will be additional economic problems.

Stay cooool and wait for the increase if you can.

marshbags

[eljeque]

I have not seen any of the shows, and my Thai is not good enough to understand the Thai economists on TV, but does anyone know if they mentioned anything about the price elasticity of their imports and their exports. That would be one of the most important pieces of information necessary for making decisions on where they would like the Baht to go.

[craigt3365]

Interesting article today in Las Vegas papers. Investors are heading out of the real estate market in droves. Where are they going? Stocks. And money market funds. Their guess is this is really going to help the stock market. Again, just a guess.

[dr_Pat_Pong]

Interesting article today in Las Vegas papers. Investors are heading out of the real estate market in droves. Where are they going? Stocks. And money market funds. Their guess is this is really going to help the stock market. Again, just a guess.

[george]

Central bank signals baht is overvalued

BANGKOK: -- The Bank of Thailand (BoT) warned today that the baht was too strong, saying it was monitoring the situation closely to prevent any speculative capital flow.

BoT Governor M.R.Pridiyathorn Devakula said this morning's exchange rate of 39.45 baht to the US dollar was deemed by the central bank to be too strong and required “very close attention” to prevent the value of the currency having a damaging impact on the country’s international trade.

“The reason why the baht continues to be strong is because of the capital flow from the West to the Eastern part of the world, including Thailand. As far as we’re concerned, the bulk of this money is heading towards investment in the Stock Exchange of Thailand(SET), and in a considerably higher proportion than in 2005,” he said.

The governor said that within the first 10 days of 2006, 50 billion baht had already poured into the SET, compared with 110-120 billion baht in foreign investment funds for the whole of 2005.

M.R. Pridiyathorn attributed the influx of foreign capital to concerns over the stability of the US dollar instead of greater confidence in the baht and other Asian currencies. For the time being, the BOT had no plans to restrict capital flows either in or out of the country because it still considered the situation "normal".

He said while one still had to be cautious about short-term capital flows, indications so far were that capital inflows had gone into stock investment, rather than towards currency speculation.

However, the governor pledged that the Bank of Thailand would ensure that the baht was not too strong to help Thai exports, while also guarding against short-term currency speculation by foreign speculators.

M.R.Pridiyathorn said he believed that Thailand would continue to see a positive inflow of foreign capital this year, not only in the stock market, but also towards Foreign Direct Investment (FDI).

FDI into Thailand last year totalled about two billion dollars, higher than in 2004.

--TNA 2006-01-13

[Sir Burr]

The last Economist magazine Big Mac Index, which measures purchasing power parity and identifies under-valued and over-valued currencies in comparison to the US dollar, had the baht as under-valued.

It stated that equilibrium would be achieved at 33 baht per dollar.

[LaoPo]

The last Economist magazine Big Mac Index, which measures purchasing power parity and identifies under-valued and over-valued currencies in comparison to the US dollar, had the baht as under-valued.

It stated that equilibrium would be achieved at 33 baht per dollar.

Now, THAT would be something for Thailands' tourism+economy OR that's the question...

To Be or Not to Be

LaoPo

Edited January 13, 2006 by LaoPo

[usatrader]

I am having some trouble reconciling you 33 Bhat analogy to the Big Mac PPP

For example the Mac Index below shows China’s Mac cost $1.30 @ a Yuan of 8.06 per USD.

For it to have “parity” with the US Mac cost of $3.15. you would need to increase the Yuan to the dollar by 59%( under valued) or $1.85 up to 12.82 Yuan /USD ( 8,06 * 1.59).

( Yuan is Under Valued by 59% (3.15-1.30=$1.85 / 3.15=58.73%)

If seeking parity ( 8.06Yuan /USD X 1.59)= 12.81 Yuan/USD. To buy a Mac at the US price of $3.15/Mac you would need 40.35 Yuan to get you 1 Equally priced US Macs in parity.

As to the Thai Bhat. a Mac costs $1.51. With Bhat at 39.8/USD.

(3.15-1.51=$1.64/$3.15=52.06%) To have parity with the US Mac at $3.15, you would need to increase the Thai Mac price by $1.64 or 52.06%. ( 39.8*1.52=60.5 Bhat per USD)

Likewise from the chart, Take the Euro. a Mac cost $3.51. In the Us it is $3.15 (3.51/3.15 =1.1143% Euro is Overvalued to USD)

The Euro is at 1.22 per USD. To reach parity the Euro would need decrease in value to the Dollar ( 1.22 X (1-.1143)=1.0806 Euro to USD.

Maybe I am all wet here but knowing for years the Yuan has been complained about as being undervalued meaning it is less in parity to other currency. It seems it needs to increase per USD to have parity. Likewise the Thai Bhat.

If I have this arse backwards then the Euro would need to be 1.35 and the Bhat around 20 per USD. Which is counter intuitive to what I have read.

Big Mac index

Jan 12th 2006

From The Economist print edition

The Economist's Big Mac index is based on the theory of purchasing-power parity, under which exchange rates should adjust to equalise the cost of a basket of goods and services, wherever it is bought around the world. Our basket is the Big Mac. The cheapest burger in our chart is in China, where it costs $1.30, compared with an average American price of $3.15. This implies that the yuan is 59% undervalued.

http://www.economist.com/markets/bigmac/di...tory_id=5389856

That is all!

[ovenman]

Maybe I am all wet here but knowing for years the Yuan has been complained about as being undervalued meaning it is less in parity to other currency. It seems it needs to increase per USD to have parity. Likewise the Thai Bhat.

I think you have this backwards. If the yuan is undervalued against the dollar at 8.06 yuan per USD, then the yuan needs to move towards a lower number per dollar to achieve equilibrium.

My reading of the Big Mac index is that if the cost of a Big Mac should be equivalent around the world, then the $3.15 that a Big Mac costs in the US should be equivalent to the approximately 10.5 RMB that the same Big Mac costs in China (in other words, 3.15 USD equals 10.5 RMB). Therefore, the yuan should be valued at 3.33 to the dollar.

Using the baht, if a $3.15 Big Mac costs roughly 60 THB ($1.51 at 39.8 THB/USD), then the value of the baht against the dollar should be 19.05 THB/USD.

But the Big Mac index can be very misleading due to many local factors that do not get taken into account in such a rough measure. The Economist freely admits this.

Anybody else have a different interpretation?

[Carmine6]

Maybe I am all wet here but knowing for years the Yuan has been complained about as being undervalued meaning it is less in parity to other currency. It seems it needs to increase per USD to have parity. Likewise the Thai Bhat.

I think you have this backwards. If the yuan is undervalued against the dollar at 8.06 yuan per USD, then the yuan needs to move towards a lower number per dollar to achieve equilibrium.

My reading of the Big Mac index is that if the cost of a Big Mac should be equivalent around the world, then the $3.15 that a Big Mac costs in the US should be equivalent to the approximately 10.5 RMB that the same Big Mac costs in China (in other words, 3.15 USD equals 10.5 RMB). Therefore, the yuan should be valued at 3.33 to the dollar.

Using the baht, if a $3.15 Big Mac costs roughly 60 THB ($1.51 at 39.8 THB/USD), then the value of the baht against the dollar should be 19.05 THB/USD.

But the Big Mac index can be very misleading due to many local factors that do not get taken into account in such a rough measure. The Economist freely admits this.

Anybody else have a different interpretation?

I love it. Flashbacks to Econ 101. Ovenman, I think you're right. Since it's roughly half the price, the currency should be worth about twice as much (so 19 instead of 40 Baht per $) for the Big Mac to cost the same.

But I hope the Economist piece was a little tongue in cheek since my econ prof went on to explain why there isn't really Big Mac parity. For example, why is it much cheaper to buy one in say Iowa than New York City? What's undervalued in that situation? Iowa dollars versus NY dollars? No, it's that the Big Mac can't be transported to where you can get more for it, or the costs to do so outweigh the difference.

Now, Starbucks parity, maybe I can buy into that.

[OZONE]

For my money this is mostly to do with US debt and the Chinese stating they are no longer going to buy as much of it. The Chinese will diversify into other currencies and I guess other Asian countries will follow this lead.

We will see more angry comments from the US as this news hits home, after all if no one else if paying for US debt they may have to do it themselves

Sorry to be dumb, but, how does that work? Are the Chinese paying the US debt in exchange for the trade?

[eljeque]

"""There was a big discussion today on another Thai programme around 13.00 with some financial

experts ( Thai ) on strong currency, thank you wife ( she,s worrying about her allowances )

They reckon the economy must have 40-42 baht to the dollar or there will be additional economic problems. Stay cooool and wait for the increase if you can. """"

Did they mention anything about the value of the dollar to oil, gold, copper, steel, cement, the Euro, the Yen, etc.? These are very important.

[Gumballl]

For my money this is mostly to do with US debt and the Chinese stating they are no longer going to buy as much of it. The Chinese will diversify into other currencies and I guess other Asian countries will follow this lead.

We will see more angry comments from the US as this news hits home, after all if no one else if paying for US debt they may have to do it themselves

Sorry to be dumb, but, how does that work? Are the Chinese paying the US debt in exchange for the trade?

The Chinese have been buying "leverage". The US spits out rhetoric each day towards the Chinese, saying that the Yuan is not at a "fair" trading value, that the Chinese are dumping too many goods in the US, etc, etc.

It's all talk. The US cannot do any rash to resolve the trade deficit with China because the powers-that-be in the US know that China "owns" a sizable portion of the US (i.e. the US debt).

How do you bring down a super-power? Cash in your chips in one day, or in a short period. That's the leverage the China has over the US. Soon the US will be bowing to the Chinese. Of course, the rhetoric will still be there, for the masses to consume.

Edited January 13, 2006 by Gumballl

[Ricardo]

Dear Auntie TV,

I prefer Burger-King to McDonalds, when eating burgers, but my friend tells me this will screw with the global economic balance, and calls me an economic sabateur. Is he right ?

Will the FBI or CIA come after me ? How many should I plan to cater for ??

Worried of Chiang-Mai.

[Carmine6]

Dear Auntie TV,

I prefer Burger-King to McDonalds, when eating burgers, but my friend tells me this will screw with the global economic balance, and calls me an economic sabateur. Is he right ?

Will the FBI or CIA come after me ? How many should I plan to cater for ??

Worried of Chiang-Mai.

Start counting backwards from 10 and wait for the knock at the door, because now that everyone knows it's you....

[Carmine6]

For my money this is mostly to do with US debt and the Chinese stating they are no longer going to buy as much of it. The Chinese will diversify into other currencies and I guess other Asian countries will follow this lead.

We will see more angry comments from the US as this news hits home, after all if no one else if paying for US debt they may have to do it themselves

Sorry to be dumb, but, how does that work? Are the Chinese paying the US debt in exchange for the trade?

Here's what this is describing. The Chinese receive US dollars for much of their exported goods. They then take some of those dollars and buy US Treasury debt.

Why do they do this? Because they are trying to keep the Yuan in a tight trading range to the dollar. Otherwise there would be so much demand for the Yuan versus the dollar that the exchange rate would adjust to a very strong Yuan (bad for exports). The Chinese could buy other assets to accomplish this, but politically, US Treasuries make the most sense. They couldn't buy a lot of US real estate for example.

Until last summer it was a fixed exchange rate, but they've been "floating" it a bit since then, although they won't disclose what's in the currency basket they're floating against. But basically, they don't need to buy as much US Treasuries as they let the exchange rate float. Their growing middle class is also buying more US products (like Motorola phones, Starbucks, McDonald's) which takes some pressure off the government to fill that role.

I don't buy all the concern about them dumping treasuries since they'd be hurting themselves. If the US economy goes bad, all those exports dry up. Lots of unhappy citizens isn't good even in China. Plus they'd have to sell at a loss to have an effect. There's a whole lot of money here looking for even small yields, so I don't expect a lot of complaining if yields go up. Get's that inverted yield curve talk off the table too. Don't forget China has the 2008 Olympics so they're trying to be good world citizens.

[Gumballl]

For my money this is mostly to do with US debt and the Chinese stating they are no longer going to buy as much of it. The Chinese will diversify into other currencies and I guess other Asian countries will follow this lead.

We will see more angry comments from the US as this news hits home, after all if no one else if paying for US debt they may have to do it themselves

Sorry to be dumb, but, how does that work? Are the Chinese paying the US debt in exchange for the trade?

Here's what this is describing. The Chinese receive US dollars for much of their exported goods. They then take some of those dollars and buy US Treasury debt.

Why do they do this? Because they are trying to keep the Yuan in a tight trading range to the dollar. Otherwise there would be so much demand for the Yuan versus the dollar that the exchange rate would adjust to a very strong Yuan (bad for exports). The Chinese could buy other assets to accomplish this, but politically, US Treasuries make the most sense. They couldn't buy a lot of US real estate for example.

Until last summer it was a fixed exchange rate, but they've been "floating" it a bit since then, although they won't disclose what's in the currency basket they're floating against. But basically, they don't need to buy as much US Treasuries as they let the exchange rate float. Their growing middle class is also buying more US products (like Motorola phones, Starbucks, McDonald's) which takes some pressure off the government to fill that role.

I don't buy all the concern about them dumping treasuries since they'd be hurting themselves. If the US economy goes bad, all those exports dry up. Lots of unhappy citizens isn't good even in China. Plus they'd have to sell at a loss to have an effect. There's a whole lot of money here looking for even small yields, so I don't expect a lot of complaining if yields go up. Get's that inverted yield curve talk off the table too. Don't forget China has the 2008 Olympics so they're trying to be good world citizens.

This is great insight. You may or may not be correct in your assessment, but your arguments sound very rational. Either way, I am the middle class person, and I have no choice but to ride the wave. Surfs up!

P.S. Long term interest rates (in the US) have recently ventured downwards... maybe the curve will re-invert, thus as you suggest, placate many economists.

Edited January 13, 2006 by Gumballl

[Nam Kao]

Traders,

The US launched a new aircraft carrier group and a swarm of warbirds to the Persian Gulf today.

My brother in law, a pilot, was activated and took off this AM with his group.

War = Short

[Carmine6]

Traders,

The US launched a new aircraft carrier group and a swarm of warbirds to the Persian Gulf today.

My brother in law, a pilot, was activated and took off this AM with his group.

War = Short

Short what? The US market already reacted somewhat to the Merkel/Bush speeches. Short the dollar? Short the market? Short the Baht? Short the Iraian Rial?

[Nam Kao]

Carmine, want me place your trades for u too?

[Carmine6]

Carmine, want me place your trades for u too?

Yes, thanks. Just send me the profits.

[Trev]

This is all very interesting. I have also been told that the Thai stock market is very interesting with loads of potential. Is there any advice on how someone would begin to dabble in that area?

Other than that, I just can't get over the fact that the name of the Bank Of Thailand deputy governor is named Bandit.

In the latest news posting it is Bandit but in others it is Bandid... I for one hope it is Bandit... it's just too good.

[cclub75]

Short what? The US market already reacted somewhat to the Merkel/Bush speeches. Short the dollar? Short the market? Short the Baht? Short the Iraian Rial?

Short EVERYTHING.

But buy gold coins... they will survive the nuclear holocaust.

[Carmine6]

Short what? The US market already reacted somewhat to the Merkel/Bush speeches. Short the dollar? Short the market? Short the Baht? Short the Iraian Rial?

Short EVERYTHING.

But buy gold coins... they will survive the nuclear holocaust.

I'm going to buy cockroaches so that I have friends to play with. They'll survive too.

[Gumballl]

What does "Nam Kao" mean? Does it mean "I smoke crack"?

Day-traders... should we shoot them... or just shoot them between the eyes. Oh, the decisions we all face.

[marshbags]

"""There was a big discussion today on another Thai programme around 13.00 with some financial

experts ( Thai ) on strong currency, thank you wife ( she,s worrying about her allowances )

They reckon the economy must have 40-42 baht to the dollar or there will be additional economic problems. Stay cooool and wait for the increase if you can. """"

Did they mention anything about the value of the dollar to oil, gold, copper, steel, cement, the Euro, the Yen, etc.? These are very important.

They where discussing the effects it had on exporting and Thai business.

Sorry i cannot give any more details due to my limited Thai, but my wife does a good translation for me and takes an interest in anything that may effect us.

On both of the programmes i referred to there main topic was the effects on exports from the up market businesses and also those who supply the varied materials for the products and labour, and the knock on effects to the Thai economy.

marshbags

[george]

Baht stronger, investors await 4Q bank earnings : KRC

BANGKOK: -- The Thai baht is expected to remain strong this week while the stock market may consolidate due to short-term profit-taking as investors await an outcome of the Bank of Thailand's (BoT) Monetary Policy Committee meeting and earnings results reports of commercial banks during the fourth quarter of 2005, according to a report issued by Kasikorn Research Center.

The baht is anticipated to remain strengthening against the US dollar this week after touching Bt39.28 against the greenback last Thursday, the strongest level for the baht in more than nine months.

The strong baht last week caused traders to worry that the central bank may intervene the money market intending to defend exporters. Their anxieties also rose after BoT governor Pridiyathorn Devakula expressed his views that the baht at around Bt39.50 against the US dollar would be considered too strong and the central bank may have to monitor the movements closely.

Traders are expected to focus on several US key economic data to be released this week as well as on BoT's Monetary Policy Committee meeting due to be held on Wednesday, said the report.

The Stock Exchange of Thailand (SET) on Friday closed at 755.72 points, up 1.12 points from a week ago. Average daily turnover during last week was at Bt33,905.13 million compared with Bt30, 045.11 million a week ago.

Investors in the stock market are now awaiting the BoT report and also fourth quarter earnings reports of commercial banks -- to be released later this week, according to the report, adding that the SET index may consolidate due to profit-taking.

It said support for the SET index is projected between 745-747 points and the resistance level at around 763-765 points.

--TNA 2006-01-15

[craigt3365]

A great article on the effects of a large US budget deficit:

By JEANNINE AVERSA, AP Economics Writer

1 hour, 46 minutes ago

WASHINGTON - Like a person packing on pounds, the United States keeps adding to its flabby budget deficits, endangering the nation's economic health and the pocketbooks of ordinary Americans. Here's the worry: Persistent deficits will lead to higher borrowing costs for consumers and companies, slowing economic activity.

As Uncle Sam seeks to borrow ever more to finance those deficits, rates on Treasury securities would rise to entice investors. That would push up other interest rates, such as home mortgages, many auto loans, some home equity lines of credit and some credit cards.

"That's the pocketbook risk to the American consumer," said Greg McBride, a senior financial analyst at Bankrate.com, an online financial service.

For businesses, rates on corporate bonds would climb. It would become more expensive to borrow to pay for new plants and equipment and other capital investments.

With a succession of budget deficits, "you do expect to see higher interest rates. Where we fight about this is over how big the effects are. But they are definitely there," said James Feyrer, assistant economics professor at Dartmouth College.

The government's budget deficit last year was $319 billion. While smaller than the record $413 billion in 2004, it still was the third-highest ever.

A White House budget official now predicts that the deficit in the current budget year will top $400 billion, pushed up by the costs of the Gulf Coast hurricanes. The red ink is expected to keep flowing for years.

The nonpartisan Congressional Budget Office forecasts deficits every year through 2015; that is as far out as the office projects. The White House forecast, which runs to 2010, also expects annual shortfalls.

"The budget deficit is like gaining weight. You are not really aware of it until at some point, all of a sudden you can't do what you want to do because you are heavier. Interest rates go up and slow things down," said Brian Bethune, economist at Global Insight. "Then you go to your check up and the doctor tells you you got to lose 25 pounds."

America's economic doctor is Federal Reserve Chairman Alan Greenspan.

Greenspan, who retires Jan. 31 after 18-plus years at the central bank, repeatedly has urged Congress and the Bush administration to get the country's financial house in order.

Bloated budget deficits, if not curbed, could endanger the economy over the long term, Greenspan warned. Increased government borrowing would drive up interest rates and weigh down economic activity.

"In the end, the consequences for the U.S. economy of doing nothing could be severe," he said recently.

The looming retirement of 78 million baby boomers will put massive strains on the country's finances, Greenspan said.

In 2008, the oldest of the boomers will reach 62, the earliest age at which they can tap Social Security retirement benefits. Three years after that, in 2011, they will reach 65 and become eligible for Medicare.

Ben Bernanke, chosen by President Bush to succeed Greenspan, also believes the situation is troubling and that the deficits need to be controlled.

"Budget deficits are a problem," he said. "I think it's important to continue to reduce budget deficits."

The administration has a goal of cutting the deficit in half by 2009 and plans to do that by restraining spending. The president, meanwhile, is continuing to press Congress to make his tax cuts permanent.

Democrats mostly blame Bush's tax cuts for the government's red ink. The last time the government recorded a surplus was in 2001.

In a worst-case scenario, foreigners who finance the U.S. budget and trade deficits would sour on U.S. investments and unload their holdings. The prices of U.S. stocks and bonds could plunge. Interest rates, including those for mortgages, could soar. A financial crisis could confront the country.

Economists are troubled by the prospects of budget deficits as far as the eye can see and want to see them trimmed. But the size of the current budget deficits, while unwelcome, do not signal that a crisis is imminent, they said.

An important barometer is the size of the federal debt — now about $8 trillion — relative to the overall economy, as measured by gross domestic product. Under that measure, this debt accounts for around 63.2 percent of GDP, Bethune said.

"Generally speaking, when it is over 75 percent of GDP, then the yellow flag goes out. I would say 95 percent of GDP and over is definitely a red flag," Bethune said.

The government produces a budget deficit when its total spending exceeds its total revenues. Budget deficits cause the government to borrow more money by selling Treasury securities to domestic and foreign investors. That additional borrowing increases the government's debt.

Despite the recent string of large budget deficits, long-term interest rates in the U.S. have behaved well. In fact, relatively low long-term rates around the world have puzzled economists and spawned a number of theories. Some experts believe too little investment worldwide may be behind this; others believe too much savings is the reason.

From an economic point of view, there is more concern about higher borrowing costs over time crimping business investment and ultimately the production of goods and services, economists said.

"Low investment is bad. That's going to mean lower productivity and lower production in the future, which has a cost on society," said Erik Hurst, associate professor of economics at University of Chicago's Graduate School of Business.

People who save would benefit, assuming inflation stayed under control. If the deficits fanned inflation, then the Fed would need to boost interest rates, pushing a whole range of borrowing costs even higher.

[Martin]

That worst-case scenario in Aversa's article is what I expect will happen. And I expect it within five years.

As to being prepared for it by having some gold stashed away, I hold to my view.

Someone pointed to the fact that gold had crashed from a peak of around 800 some twenty years ago, but if a look is taken at the graph of the gold price over the years, it is revealed that gold had zoomed to that figure in the months previously.

The reason for the zoom was an enormous demand for gold that resulted from the invasion of Afghanistan.

As soon as that was accommodated, the gold price settled back to a sensible level and resumed its steady progress upwards.

It is just as valid to describe the descent from 800 as an 'adjustment' as to describe it as a 'crash'.

Since I don't expect to want to move away from where I live now, I think the best way to leave most to the next generation of the family is to buy more rice fields. And I will hold the money, that I am accumulating to buy the next tranche, in the form of gold.

[Nam Kao]

I dont need gold, i'll make more just by shorting