What's Up With The Thai Baht?

[chiang mai]

In 1997 shop houses were springing up everywhere and in the middle of nowhere. People were getting huge loans to build these, with no realalistic chance to ever pay them back. We all know what happened in 1997. Now the same thing is happening with short time motels. In my area there is a new short time motel being built almost every week. Shades of 97 I think.

I think not, you don't need huge loans to build shop houses and anyway, all the shop houses built back then would all have been sold to end owners pretty quickly. The 1997 crisis was more to do with the fixed currency peg than anything to do with shop houses although an excess of poorly valued real estate loans was a factor in the currency crash. Today there's an effective central bank in place to monitor and control such things, exports are booming and reserves are strong, the current boom you see in construction is not what you think it is, unless your area has captured the market in short time hotels!

If it didn't have to do with a real estate bubble in '97, then why did the IMF have to bail out Thai banks from bad real estate loans?

Read what I wrote again, particularly the second sentence that reads, ".an excess of poorly valued real estate loans was a factor in the currency crash"!

The fact remains however that the currency peg and not the real etstate bubble was the root cause of the problem.

Edited April 14, 2013 by chiang mai

[Naam]

In 1997 shop houses were springing up everywhere and in the middle of nowhere. People were getting huge loans to build these, with no realalistic chance to ever pay them back. We all know what happened in 1997. Now the same thing is happening with short time motels. In my area there is a new short time motel being built almost every week. Shades of 97 I think.

I think not, you don't need huge loans to build shop houses and anyway, all the shop houses built back then would all have been sold to end owners pretty quickly. The 1997 crisis was more to do with the fixed currency peg than anything to do with shop houses although an excess of poorly valued real estate loans was a factor in the currency crash. Today there's an effective central bank in place to monitor and control such things, exports are booming and reserves are strong, the current boom you see in construction is not what you think it is, unless your area has captured the market in short time hotels!

If it didn't have to do with a real estate bubble in '97, then why did the IMF have to bail out Thai banks from bad real estate loans?

Read what I wrote again, particularly the second sentence that reads, ".an excess of poorly valued real estate loans was a factor in the currency crash"!

The fact remains however that the currency peg and not the real etstate bubble was the root cause of the problem.

Chiang Mai is right. real estate financing was only one of a dozen factors which led to the crisis. the main factor was the (at that time) unjustified stubborn peg of the Baht to USD which enabled not only George Soros but a whole bunch of hedge funds to short Baht (and Ringgit). big shots of the industry as well as banks used the artificial strength of the Baht to cash in with carry trades.

Baht loans were in the 14-17% area whereas loans in other currencies were available at a fraction. loans in USD, JPY, DEM and other currencies were used to invest in Thai shares and the (initial) profits made Messrs. Ferrari, Cartier, Louis Vuitton et al very happy. last not least these cheap loans were used to pay fancy high interest rates (10-12%) on Thai Baht deposits.

not to forget the imported bottles of wine fetching not only several hundred but even thousands of Dollars per bottle. that's why during or shortly after the crisis the still existing exorbitant excise duty on wines was introduced.

when THB collapsed the speculative house of cards collapsed too.

[Naam]

SOMEONE is making a LOT of money off all of this behind the scenes, just
as they were on Wall Street and in the big banks, and in government in the US.

someone has, is and will always make a LOT of money behind or even in front of the scenes.

[NeverSure]

Chiang Mai is right. real estate financing was only one of a dozen factors which led to the crisis. the main factor was the (at that time) unjustified stubborn peg of the Baht to USD which enabled not only George Soros but a whole bunch of hedge funds to short Baht (and Ringgit). big shots of the industry as well as banks used the artificial strength of the Baht to cash in with carry trades.

Baht loans were in the 14-17% area whereas loans in other currencies were available at a fraction. loans in USD, JPY, DEM and other currencies were used to invest in Thai shares and the (initial) profits made Messrs. Ferrari, Cartier, Louis Vuitton et al very happy. last not least these cheap loans were used to pay fancy high interest rates (10-12%) on Thai Baht deposits.

not to forget the imported bottles of wine fetching not only several hundred but even thousands of Dollars per bottle. that's why during or shortly after the crisis the still existing exorbitant excise duty on wines was introduced.

when THB collapsed the speculative house of cards collapsed too.

OK, Which came first, the chicken or the egg? I don't totally disagree, and maybe we actually agree using different terms.

To me, it's important to remember that not only Thailand, but Indonesia, Malaysia, and The Philippines were also involved in this '97 "crisis." I can't "strictly" blame all of that on the management of the Thai baht.

Thailand was hit hardest, but it had the worst case of a real estate bubble and bad bank loans.

Chicken or egg, why did Thailand float the baht? It's easy to say that the problem was caused by pegging it to the dollar, or by Soros et al, but what created the opportunity? The likes of Soros would show up only if he thought there was an opportunity, just like he did in Britain. It's debatable in both Thailand and the UK whether Soros actually caused the currency crisis, or just saw it coming and got on board. If anything, perhaps his actions only caused it to happen earlier, which is where an investor wants to be - ahead of the herd.

Money started to flow out of Thailand like water when investors, too late to see it as usual, saw the real estate bubble. These SE Asian countries all had big current account deficits too. All the cards were stacked against them, and even exports were falling. Thailand's growth had been about 9% and it dropped to zero. The two biggest issues were slowing exports and a halt in building activity.

Thailand's GDP dropped quickly, and exports dropped. Thailand had to float the baht to keep the domestic engine running.

The Baht will be strong as long as investors see Thailand as growing economically, and interest rates are favorable compared to Western countries. Money flows in, converts to baht for investment or deposit, and the baht value increases.

But if at any point the investors want their money out of baht (Thailand) and start really selling baht, the value will drop. At that point it is impossible to peg its value, just as in '97. The market will set the value. Any attempt to freeze the exchange rate will result in financial chaos. In that event there would be an underground market just like there has been at times in the Euro.

I think that saying that fixing the value of the baht caused the problems is too simplistic. There were other countries and other forces involved. Without those forces, the baht might have remained stable.

FWIW and off topic, I see all of the above negative forces at work in Thailand today, again. All of them.

Edited April 14, 2013 by NeverSure

[NeverSure]

In 1997 shop houses were springing up everywhere and in the middle of nowhere. People were getting huge loans to build these, with no realalistic chance to ever pay them back. We all know what happened in 1997. Now the same thing is happening with short time motels. In my area there is a new short time motel being built almost every week. Shades of 97 I think.

I think not, you don't need huge loans to build shop houses and anyway, all the shop houses built back then would all have been sold to end owners pretty quickly. The 1997 crisis was more to do with the fixed currency peg than anything to do with shop houses although an excess of poorly valued real estate loans was a factor in the currency crash. Today there's an effective central bank in place to monitor and control such things, exports are booming and reserves are strong, the current boom you see in construction is not what you think it is, unless your area has captured the market in short time hotels!

If it didn't have to do with a real estate bubble in '97, then why did the IMF have to bail out Thai banks from bad real estate loans?

Read what I wrote again, particularly the second sentence that reads, ".an excess of poorly valued real estate loans was a factor in the currency crash"!

The fact remains however that the currency peg and not the real etstate bubble was the root cause of the problem.

See above to Naam. Dang, I can't manipulate the quotes these days. I think something may have changed?

[Naam]

I can't manipulate the quotes these days. I think something may have changed?

the "change" is bullshit²! GEORGE... what are you doing about it?

[NeverSure]

I can't manipulate the quotes these days. I think something may have changed?

the "change" is bullshit²! GEORGE... what are you doing about it?

Hahaha. I get an error message telling me I have included too many quotes or something, then I can't figure out how to selectively delete them.

Oh well. If that's the worst thing that happens to me today, I'm golden.

[Naam]

Thailand's GDP dropped quickly, and exports dropped. Thailand had to float the baht to keep the domestic engine running.

Thailand was forced to break the peg, float and devalue the Baht as U.K. was forced to get out of the EMU peg, float and devalue Sterling. nobody was willing anymore to sell one Dollar for 25 Baht and no creditor was accepting 25 Baht for each Dollar Thailand and its debtors owed.

a choice, such as "keep the domestic engine running" did not exist.

[Naam]

I think that saying that fixing the value of the baht caused the
problems is too simplistic. There were other countries and other forces
involved. Without those forces, the baht might have remained stable.

egg? hen? the Baht was only stable because of the fancy interest rates were

paid on Baht deposits and because the SET attracted speculative flows from

abroad. how long can lendors/banks pay 10% (in the 80s) and 12-14% (in the 90s)

without looking for differentials to make up for this cost and add profit?

and, last not least what kind of risky deals had to be cut to rake in gross profit

who's net after operating expenses exceeded 14%?

[NeverSure]

Thailand's GDP dropped quickly, and exports dropped. Thailand had to float the baht to keep the domestic engine running.

Thailand was forced to break the peg, float and devalue the Baht as U.K. was forced to get out of the EMU peg, float and devalue Sterling. nobody was willing anymore to sell one Dollar for 25 Baht and no creditor was accepting 25 Baht for each Dollar Thailand and its debtors owed.

a choice, such as "keep the domestic engine running" did not exist.

I don't understand the last line. Maybe that's all it is - I don't understand. Dang, your English is good too...

Thailand had to unpeg from the dollar and float the value of the baht so that its baht would be accepted against foreign currencies for every type of exchange. It simply wasn't worth 25 to the dollar any longer. It couldn't export at those rates - keeping the domestic engine running. It couldn't pay its bills at those rates - keeping the domestic engine running. It couldn't buy anything at those rates - keeping the domestic engine running.

Maybe we're saying or thinking the same thing.

[Naam]

I see all of the above negative forces at work in Thailand today, again. All of them.

i see some, not all. obviously Ms Yingluck doesn't see any. but that's none of my business

[NeverSure]

I think that saying that fixing the value of the baht caused the

problems is too simplistic. There were other countries and other forces

involved. Without those forces, the baht might have remained stable.

egg? hen? the Baht was only stable because of the fancy interest rates were

paid on Baht deposits and because the SET attracted speculative flows from

abroad. how long can lendors/banks pay 10% (in the 80s) and 12-14% (in the 90s)

without looking for differentials to make up for this cost and add profit?

and, last not least what kind of risky deals had to be cut to rake in gross profit

who's net after operating expenses exceeded 14%?

Naam, we're thinking the same things, just not in the same order, but I don't disagree at all.

[NeverSure]

I see all of the above negative forces at work in Thailand today, again. All of them.

i see some, not all. obviously Ms Yingluck doesn't see any. but that's none of my business

I would make it my business if I owned an expensive home or had a lot of the SET or baht.

Edited April 14, 2013 by NeverSure

[Naam]

Dang, your English is good too...

zome Tchermans, especially zome Tcherman-Sviss-Tchermans (is zat expresshun confewsing?) having had a semi-Sviss-French grandmozzer and being brought multilingual shpeak different lankuatches vizz ease.

vee kan even zink and dream in different lankuatches. and vhen vee note down zings in riting vee nevver know in vhat skript and strange tongue it vill finally turn out.

[NeverSure]

I think that saying that fixing the value of the baht caused the

problems is too simplistic. There were other countries and other forces

involved. Without those forces, the baht might have remained stable.

egg? hen? the Baht was only stable because of the fancy interest rates were

paid on Baht deposits and because the SET attracted speculative flows from

abroad. how long can lendors/banks pay 10% (in the 80s) and 12-14% (in the 90s)

without looking for differentials to make up for this cost and add profit?

and, last not least what kind of risky deals had to be cut to rake in gross profit

who's net after operating expenses exceeded 14%?

I'd like to visit this again. I agree.

But it doesn't say that pegging the baht to the dollar caused the big '97 implosion. It was excesses. Too many excesses.

[Naam]

I see all of the above negative forces at work in Thailand today, again. All of them.

i see some, not all. obviously Ms Yingluck doesn't see any. but that's none of my business

I would make it my business if I owned an expensive home or had a lot of the SET or baht.

the owner of an expensive home is the least worried about the value of his home. he built what he wanted and neversure wastes a single thought what the resale value might be because his only plan to leave his home is feet first to the crematorium. it's the ratio home value:net worth that counts.

if your home is worth one million Baht and your net worth is three million your home is expensive. if your net worth is five million your one million home is within reason and if your net worth is twenty million your one million home is dàmn cheap.

do you agree or yes?

[AnotherOneAmerican]

the owner of an expensive home is the least worried about the value of his home. he built what he wanted and neversure wastes a single thought what the resale value might be because his only plan to leave his home is feet first to the crematorium. it's the ratio home value:net worth that counts.

if your home is worth one million Baht and your net worth is three million your home is expensive. if your net worth is five million your one million home is within reason and if your net worth is twenty million your one million home is dàmn cheap.

do you agree or yes?

Principle correct but amounts wrong if we are talking Baht.

Net worth 20M with home 1M is about right (but not cheap).

[NeverSure]

I see all of the above negative forces at work in Thailand today, again. All of them.

i see some, not all. obviously Ms Yingluck doesn't see any. but that's none of my business

I would make it my business if I owned an expensive home or had a lot of the SET or baht.

the owner of an expensive home is the least worried about the value of his home. he built what he wanted and neversure wastes a single thought what the resale value might be because his only plan to leave his home is feet first to the crematorium. it's the ratio home value:net worth that counts.

if your home is worth one million Baht and your net worth is three million your home is expensive. if your net worth is five million your one million home is within reason and if your net worth is twenty million your one million home is dàmn cheap.

do you agree or yes?

Yes, I agree completely. Completely.

I also have a much above average home and acreage (especially the view acreage) that I'll never sell. It is a place to be if I need it. I don't even think of it as part of my net worth because I can't use the money. By that I mean it doesn't figure into anything I can spend.

If it dropped to a value of $1, it wouldn't be worth less to me for the purpose intended.

As for your ratios which I assume were pulled out of the air as an example, for me it only matters that I have enough additional to live comfortably. If I had half of my net worth in a home, and still had US$100 million left in liquid assets, haha. all that would mean is that I must have one heck of a home.

[yoshiwara]

Chiang Mai is right. real estate financing was only one of a dozen factors which led to the crisis. the main factor was the (at that time) unjustified stubborn peg of the Baht to USD which enabled not only George Soros but a whole bunch of hedge funds to short Baht (and Ringgit). big shots of the industry as well as banks used the artificial strength of the Baht to cash in with carry trades.

Baht loans were in the 14-17% area whereas loans in other currencies were available at a fraction. loans in USD, JPY, DEM and other currencies were used to invest in Thai shares and the (initial) profits made Messrs. Ferrari, Cartier, Louis Vuitton et al very happy. last not least these cheap loans were used to pay fancy high interest rates (10-12%) on Thai Baht deposits.

not to forget the imported bottles of wine fetching not only several hundred but even thousands of Dollars per bottle. that's why during or shortly after the crisis the still existing exorbitant excise duty on wines was introduced.

when THB collapsed the speculative house of cards collapsed too.

OK, Which came first, the chicken or the egg? I don't totally disagree, and maybe we actually agree using different terms.

To me, it's important to remember that not only Thailand, but Indonesia, Malaysia, and The Philippines were also involved in this '97 "crisis." I can't "strictly" blame all of that on the management of the Thai baht.

Thailand was hit hardest, but it had the worst case of a real estate bubble and bad bank loans.

Chicken or egg, why did Thailand float the baht? It's easy to say that the problem was caused by pegging it to the dollar, or by Soros et al, but what created the opportunity? The likes of Soros would show up only if he thought there was an opportunity, just like he did in Britain. It's debatable in both Thailand and the UK whether Soros actually caused the currency crisis, or just saw it coming and got on board. If anything, perhaps his actions only caused it to happen earlier, which is where an investor wants to be - ahead of the herd.

Money started to flow out of Thailand like water when investors, too late to see it as usual, saw the real estate bubble. These SE Asian countries all had big current account deficits too. All the cards were stacked against them, and even exports were falling. Thailand's growth had been about 9% and it dropped to zero. The two biggest issues were slowing exports and a halt in building activity.

Thailand's GDP dropped quickly, and exports dropped. Thailand had to float the baht to keep the domestic engine running.

The Baht will be strong as long as investors see Thailand as growing economically, and interest rates are favorable compared to Western countries. Money flows in, converts to baht for investment or deposit, and the baht value increases.

But if at any point the investors want their money out of baht (Thailand) and start really selling baht, the value will drop. At that point it is impossible to peg its value, just as in '97. The market will set the value. Any attempt to freeze the exchange rate will result in financial chaos. In that event there would be an underground market just like there has been at times in the Euro.

I think that saying that fixing the value of the baht caused the problems is too simplistic. There were other countries and other forces involved. Without those forces, the baht might have remained stable.

FWIW and off topic, I see all of the above negative forces at work in Thailand today, again. All of them.

The breakdown of the baht in 1997 was preceded by loans breaking down ie borrowers inability to service their loans.

The peg broke as a result of other things happening in the real economy. The disconnect. Events don't always repeat themselves in exactly the same way. In 2007 I got a sense of disconnect with sterling compared with HKD and made a big jump. The question today is not so much whether negative factors are present in an economy (maybe they are always there in some respect) but rather whether the significance of those negative factors is critically near and requires action. It has to be recognised, like it or not, that those who have invested assets in Thailand post the 1997 crisis have got it right, whether lucky or otherwise.

[Naam]

I think that saying that fixing the value of the baht caused the

problems is too simplistic. There were other countries and other forces

involved. Without those forces, the baht might have remained stable.

egg? hen? the Baht was only stable because of the fancy interest rates were

paid on Baht deposits and because the SET attracted speculative flows from

abroad. how long can lendors/banks pay 10% (in the 80s) and 12-14% (in the 90s)

without looking for differentials to make up for this cost and add profit?

and, last not least what kind of risky deals had to be cut to rake in gross profit

who's net after operating expenses exceeded 14%?

I'd like to visit this again. I agree.

But it doesn't say that pegging the baht to the dollar caused the big '97 implosion. It was excesses. Too many excesses.

indirectly yes. the peg with it's artificially and unjustified high value provided the opportunities for the initially highly profitable but extreme risky deals.

i see some parallels to what happened in Europe after the ClubMed DolceVita buggers south of the Alps got access to cheap money at conditions they could only dream of before. the basis is different but the result was "same same".

what? mortgages in €UR are now 4-5%? not 16-18-20% in Pesetas, Escudos and Drachmas?

let's borrow!

in thailand:

what? we can get loans denominated in Dollars and we only have to pay a fraction (see above)?

let's borrow! we have the peg and buy Dollars at a fixed rate with our Baht to service our loans. no risk involved.

on a side note. when i had accumulated my first real money (and i mean real money!) i had no bloody idea of investing or global finances although i was the CEO of a big company in the desert. i was a technical man and finances was for the lower ranks like chief accountant and similar necessary evils a company needs

all my money was in Germany, naturally in Deutsch Marks on a savings account paying 2.5%, which in my simple mind i thought it was right. then one day i read a two week old (censured) FinancialTimes and i scratched my head in confusion. how come that i get only 2.5% on my Marks in Germany and the perfide Albion pays 10 and 11% on Sterling?

i asked one of my people"yo Hans-Jürgen! you haff been vorking vizz ze Britischers in Britischland. tell me zomezing about der Pound."

he answered "der Pound is alvays four Marks"

and vhy do zey pay mutch more interest for der Pound zan vee get for our marks?

vhy vould i know?

next time i was in Germany i went to my bank and asked about the procedure how to invest in Sterling. was told no problem and advised to buy "gilts" because they were guaranteed by the full faith and power of the British Empire, the Queen the colonies except for the rebels in the U.S. of A. happily i quadrupled the yield of my savings. and with the yield i bought more Sterling which produced more yield and... and...

again some time later my bank bothered me with letters

"Deer Sör, don't you need zome loans? perhaps to buy a haus or a car? vee kan offer you x-amount at verry kompetitive rates vhich are presently 2.5%."

again i scratched my head because i thought that idea can't be true. i asked my bank

"Deer Bank, i don't want to buy a haus now and i have a kompany car. vhat i vant is to buy manny more "gilts" because since Mrs Satcher is in tchartch of ze British Empire and its kolonies ze interest for der Pound has increased to 13 and even 14%."

bank said "no problem as long as wee keep der gilts as kollaterall."

so i took loans, bought gilts, received 13.5 from the Right Honourable Sir Nigel Lawson out of which i changed 2.5% to pay my bank and for the difference of 11% i bought... guess what? right you are i bought gilts!

that went on till 1982 when i found out that the United Mexican States had issued gilts too and denominated in... what coincidence! British Pounds which however were not guaranteed by the full faith of the British Empire and its kolonies. but the risk was buffered by nominal interest rates of 16% (sixteen) and the papers were priced at 82 which amounted to a yield to maturity of 26% (twenty-six). the whole thing lasted a full decade till Georgie Soros spit in my soup in 1992 when i was holidaying (with my wife) in Pattaya. Soros cost me a bundle but only one bundle out of the many bundles i made in the years before.

in the meantime i have of course acquired much more financial wisdom and i don't shoot for 26% yields anymore

[chiang mai]

Very good.

[Naam]

in the meantime i have of course acquired much more financial wisdom and i don't shoot for 26% yields anymore

i forgot to add "nowadays i'm quite happy with a meager 16%"

[NeverSure]

Chiang Mai is right. real estate financing was only one of a dozen factors which led to the crisis. the main factor was the (at that time) unjustified stubborn peg of the Baht to USD which enabled not only George Soros but a whole bunch of hedge funds to short Baht (and Ringgit). big shots of the industry as well as banks used the artificial strength of the Baht to cash in with carry trades.

Baht loans were in the 14-17% area whereas loans in other currencies were available at a fraction. loans in USD, JPY, DEM and other currencies were used to invest in Thai shares and the (initial) profits made Messrs. Ferrari, Cartier, Louis Vuitton et al very happy. last not least these cheap loans were used to pay fancy high interest rates (10-12%) on Thai Baht deposits.

not to forget the imported bottles of wine fetching not only several hundred but even thousands of Dollars per bottle. that's why during or shortly after the crisis the still existing exorbitant excise duty on wines was introduced.

when THB collapsed the speculative house of cards collapsed too.

OK, Which came first, the chicken or the egg? I don't totally disagree, and maybe we actually agree using different terms.

To me, it's important to remember that not only Thailand, but Indonesia, Malaysia, and The Philippines were also involved in this '97 "crisis." I can't "strictly" blame all of that on the management of the Thai baht.

Thailand was hit hardest, but it had the worst case of a real estate bubble and bad bank loans.

Chicken or egg, why did Thailand float the baht? It's easy to say that the problem was caused by pegging it to the dollar, or by Soros et al, but what created the opportunity? The likes of Soros would show up only if he thought there was an opportunity, just like he did in Britain. It's debatable in both Thailand and the UK whether Soros actually caused the currency crisis, or just saw it coming and got on board. If anything, perhaps his actions only caused it to happen earlier, which is where an investor wants to be - ahead of the herd.

Money started to flow out of Thailand like water when investors, too late to see it as usual, saw the real estate bubble. These SE Asian countries all had big current account deficits too. All the cards were stacked against them, and even exports were falling. Thailand's growth had been about 9% and it dropped to zero. The two biggest issues were slowing exports and a halt in building activity.

Thailand's GDP dropped quickly, and exports dropped. Thailand had to float the baht to keep the domestic engine running.

The Baht will be strong as long as investors see Thailand as growing economically, and interest rates are favorable compared to Western countries. Money flows in, converts to baht for investment or deposit, and the baht value increases.

But if at any point the investors want their money out of baht (Thailand) and start really selling baht, the value will drop. At that point it is impossible to peg its value, just as in '97. The market will set the value. Any attempt to freeze the exchange rate will result in financial chaos. In that event there would be an underground market just like there has been at times in the Euro.

I think that saying that fixing the value of the baht caused the problems is too simplistic. There were other countries and other forces involved. Without those forces, the baht might have remained stable.

FWIW and off topic, I see all of the above negative forces at work in Thailand today, again. All of them.

The breakdown of the baht in 1997 was preceded by loans breaking down ie borrowers inability to service their loans.

The peg broke as a result of other things happening in the real economy. The disconnect. Events don't always repeat themselves in exactly the same way. In 2007 I got a sense of disconnect with sterling compared with HKD and made a big jump. The question today is not so much whether negative factors are present in an economy (maybe they are always there in some respect) but rather whether the significance of those negative factors is critically near and requires action. It has to be recognised, like it or not, that those who have invested assets in Thailand post the 1997 crisis have got it right, whether lucky or otherwise.

So far! I have taken those profits off the table. To each his own.

[StreetCowboy]

Chiang Mai is right. real estate financing was only one of a dozen factors which led to the crisis. the main factor was the (at that time) unjustified stubborn peg of the Baht to USD which enabled not only George Soros but a whole bunch of hedge funds to short Baht (and Ringgit). big shots of the industry as well as banks used the artificial strength of the Baht to cash in with carry trades.

Baht loans were in the 14-17% area whereas loans in other currencies were available at a fraction. loans in USD, JPY, DEM and other currencies were used to invest in Thai shares and the (initial) profits made Messrs. Ferrari, Cartier, Louis Vuitton et al very happy. last not least these cheap loans were used to pay fancy high interest rates (10-12%) on Thai Baht deposits.

not to forget the imported bottles of wine fetching not only several hundred but even thousands of Dollars per bottle. that's why during or shortly after the crisis the still existing exorbitant excise duty on wines was introduced.

when THB collapsed the speculative house of cards collapsed too.

OK, Which came first, the chicken or the egg? I don't totally disagree, and maybe we actually agree using different terms.

To me, it's important to remember that not only Thailand, but Indonesia, Malaysia, and The Philippines were also involved in this '97 "crisis." I can't "strictly" blame all of that on the management of the Thai baht.

Thailand was hit hardest, but it had the worst case of a real estate bubble and bad bank loans.

Chicken or egg, why did Thailand float the baht? It's easy to say that the problem was caused by pegging it to the dollar, or by Soros et al, but what created the opportunity? The likes of Soros would show up only if he thought there was an opportunity, just like he did in Britain. It's debatable in both Thailand and the UK whether Soros actually caused the currency crisis, or just saw it coming and got on board. If anything, perhaps his actions only caused it to happen earlier, which is where an investor wants to be - ahead of the herd.

Money started to flow out of Thailand like water when investors, too late to see it as usual, saw the real estate bubble. These SE Asian countries all had big current account deficits too. All the cards were stacked against them, and even exports were falling. Thailand's growth had been about 9% and it dropped to zero. The two biggest issues were slowing exports and a halt in building activity.

Thailand's GDP dropped quickly, and exports dropped. Thailand had to float the baht to keep the domestic engine running.

The Baht will be strong as long as investors see Thailand as growing economically, and interest rates are favorable compared to Western countries. Money flows in, converts to baht for investment or deposit, and the baht value increases.

But if at any point the investors want their money out of baht (Thailand) and start really selling baht, the value will drop. At that point it is impossible to peg its value, just as in '97. The market will set the value. Any attempt to freeze the exchange rate will result in financial chaos. In that event there would be an underground market just like there has been at times in the Euro.

I think that saying that fixing the value of the baht caused the problems is too simplistic. There were other countries and other forces involved. Without those forces, the baht might have remained stable.

FWIW and off topic, I see all of the above negative forces at work in Thailand today, again. All of them.

The breakdown of the baht in 1997 was preceded by loans breaking down ie borrowers inability to service their loans.

The peg broke as a result of other things happening in the real economy. The disconnect. Events don't always repeat themselves in exactly the same way. In 2007 I got a sense of disconnect with sterling compared with HKD and made a big jump. The question today is not so much whether negative factors are present in an economy (maybe they are always there in some respect) but rather whether the significance of those negative factors is critically near and requires action. It has to be recognised, like it or not, that those who have invested assets in Thailand post the 1997 crisis have got it right, whether lucky or otherwise.

So far! I have taken those profits off the table. To each his own.

the problem was not the peg, but rather the lack of commitment to the discipline necessary to maintain the peg. That discipline has to come in when times are good. When times are bad, it's too late.

SC

[NeverSure]

in the meantime i have of course acquired much more financial wisdom and i don't shoot for 26% yields anymore

i forgot to add "nowadays i'm quite happy with a meager 16%"

I don't have the guts to earn 16%. I don't like the world economy. Euro, Sterling, USD, Thai baht, I don't trust any of them and especially not such places as S. America or elsewhere.

I admire your courage. Even silver which I have bought some of lately (junk silver dollars) may not have its "industrial" value if the economy goes into trouble. People say "silver" because more is used than is mined, but that could change.

I have actually bought US rentals - duplexes. I like to buy at the bottom, and at least I get a good return on rents right now. Houses and duplexes are selling far below replacement cost. As inflation drives up the cost of the components to build a house, the cost to build is double the cost to buy. I like that number, plus the income.

We all have to find what we are comfortable with. I'm not comfortable with Thailand's situation.

[metisdead]

Off topic post removed, this isn't about the US housing crash.

[Naam]

NeverSure

I don't have the guts to earn 16%. I don't like the world economy. Euro,
Sterling, USD, Thai baht, I don't trust any of them and especially not
such places as S. America or elsewhere.

please note the smiley i have added to my claim. the chances of achieving

an average of or exceeding a 16% yield per annum are nowadays

extremely low as opposed doing that during the last decade. nevertheless

it is quite normal for an active investor to allocate and invest a certain

percentage of his liquid capital in high risk/high yield assets to boost yield.

to the best of my knowledge there was never a sh*ttier time for investors

and besides the well known slogan "no risk = no reward!" another slogan

is prevailing, namely "no risk = no reward but loss!"

[yoshiwara]

NeverSure, on 14 Apr 2013 - 23:28, said:

Naam, on 14 Apr 2013 - 18:10, said:

Quote

in the meantime i have of course acquired much more financial wisdom and i don't shoot for 26% yields anymore

i forgot to add "nowadays i'm quite happy with a meager 16%"

I don't have the guts to earn 16%. I don't like the world economy. Euro, Sterling, USD, Thai baht, I don't trust any of them and especially not such places as S. America or elsewhere.

I admire your courage. Even silver which I have bought some of lately (junk silver dollars) may not have its "industrial" value if the economy goes into trouble. People say "silver" because more is used than is mined, but that could change.

I have actually bought US rentals - duplexes. I like to buy at the bottom, and at least I get a good return on rents right now. Houses and duplexes are selling far below replacement cost. As inflation drives up the cost of the components to build a house, the cost to build is double the cost to buy. I like that number, plus the income.

We all have to find what we are comfortable with. I'm not comfortable with Thailand's situation.

There is a positive side to your contributions IMHO in that we are not reading pure crystal ball projections into the future (talk is cheap) but rather your analysis is translated into taking positions other than the purely bag of coins hiding in the dark play, though some slippage (sigh...) And that requires a little attention. My reservation about buying rentals is that if it is done in secondary bargain basement areas then this is not a defensive play if that is what you are aiming at. The second is your silver play. It is almost if you are wanting to pull out but then plunge back into 'secondary' speculation which doesn't (IMHO) necessarily look any better than where you came from. Are you looking for bargains?

[yoshiwara]

Even silver which I have bought some of lately (junk silver dollars) may not have its "industrial" value if the economy goes into trouble. People say "silver" because more is used than is mined, but that could change.

We all have to find what we are comfortable with. I'm not comfortable with Thailand's situation.

... and this is what I mean by jumping out of the frying pan into the fire. You are 'not comfortable with Thailand's situation', but then you jump into silver and get immediately cooked. Fatal mistake to believe the precious metal crowd about PM's providing a place of safety. Maybe you should have stayed in the discomfort zone. Edited April 15, 2013 by yoshiwara

[NeverSure]

Even silver which I have bought some of lately (junk silver dollars) may not have its "industrial" value if the economy goes into trouble. People say "silver" because more is used than is mined, but that could change.

We all have to find what we are comfortable with. I'm not comfortable with Thailand's situation.

... and this is what I mean by jumping out of the frying pan into the fire. You are 'not comfortable with Thailand's situation', but then you jump into silver and get immediately cooked. Fatal mistake to believe the precious metal crowd about PM's providing a place of safety. Maybe you should have stayed in the discomfort zone.

Then you don't understand me. We are emotional beings as well as practical. I bought $9,500 worth of junk silver because I wanted to stash it, along with a bunch of silver I bought a long, long time ago, for life. For life. I don't care what the price does because it won't affect me except to give me a little feeling of security when I lift it. I put another small fraction of my net worth into something I can see and feel and heft and feel better about owning. I traded fiat money for it and long term I'm fine with that.

Naam made a very wise statement about the value of his home, and I had to agree. Mine is the same. It's what I live in and the price isn't an issue.

If the price of my silver falls to 1 baht per ounce, it won't weigh any less. But with the money printing presses running, and looking years down the road, I think the silver will match up pretty well against that fiat money. Maybe not. How would I know for certain?

Also, please, please don't come back angrily spoiling for a fight, or being insulting. This is only a silly internet discussion, and I don't have my ego invested in it.

Peace.