How To Hedge The Long Term Decline Of The Us Dollar?

[LoveDaBlues]

Careful Gary......he's packin' heat.....and he hates Thailand.....he's in a bad mood....

[Gary A]

Careful Gary......he's packin' heat.....and he hates Thailand.....he's in a bad mood....

I just looked at his last 30 days of postings. I didn't read them all but I have decided that he is definitely not prejudiced. He simply hates Thailand and everyone here. LOL!

[Meerkat]

The Thai Bhat in twelve months will be at 46 to one dollar.

That is the general consensus of the finical markets and futures trading companies.

This is not news to anyone who has subscriptions to currency trading companies.

If this is true, why then is the 1yr THB outright forward middling at 38.94?

Perhaps those of us in the interbank market should start subscribing to those currency trading companies you cite - we obviously don't know what we're trading...

[bmanly]

sfokevin, congratulations on becoming financially successful, well done. I personally do not think the USD will ever go to 20 to 1. The largest economy in the world is not about to devalue the currency 50% even by 20 years time. I am looking as an outsider in as I am not a US citizen and I wouldn't be too worried about such a thing. The world still looks at the US as a better place to tie up money. For example when the Fed moved up interest rates the Australian currency took a dive, why? because a lot of people think that if you can get 5% in the US it is a better deal than getting 5.5% in Australia. The US is still viewed as a safer place to invest. It might or might not be correct but that how people think.

The way I look at it is that you have property in Thailand, you are already hedged there to a small extent so you need not worry about acommodation. Then you have 50% of your money in 401K. (Iam not sure of what it means but I think it is a retirement fund that invests in US stocks which has tax breaks). If that is the case you are 50% diversified in the US stocks. Then you have your Montana land, another fall back. That leaves the rest.

If you are really worried about that other money then why not look at term deposits and bonds in countries such as Australia and New Zealand? Lets say you put in a proportion into a NZ Term Deposit for 2 years, you can get 8% interest on that right now. Same for Australia but the interest is lower. Then go check out the rates in Europe, find a country that pays good interest on their cash deposits and put some in there. That way you will have a reasonable hedge in multiple currencies. For that matter you could put some in Thailand too, BBL is offering 5.15% on deposits for 10 Months right now. Just another avenue.

[MattFS218]

The Thai Bhat in twelve months will be at 46 to one dollar.

That is the general consensus of the finical markets and futures trading companies.

This is not news to anyone who has subscriptions to currency trading companies.

If this is true, why then is the 1yr THB outright forward middling at 38.94?

Perhaps those of us in the interbank market should start subscribing to those currency trading companies you cite - we obviously don't know what we're trading...

Yah...don't lisen to those guys who claim the THB is dropping or falling...I trade currencies and any professional trader will tell you, the best determinate of the future price of a currency is always it's current price.

--matt

[Gary A]

I have always considered currency trading as legalized gambling. I seem to remember a guy, I think his name was Leeson, who had a spectacular run of luck . All BAD!

The last couple of years has seen the baht under 39 for about the first five months of the year then back up to over 40. I hope this year follows that pattern. My Thai bank account is VERY low.

[Thaible]

The Thai Bhat in twelve months will be at 46 to one dollar.

That is the general consensus of the finical markets and futures trading companies.

This is not news to anyone who has subscriptions to currency trading companies.

If this is true, why then is the 1yr THB outright forward middling at 38.94?

Perhaps those of us in the interbank market should start subscribing to those currency trading companies you cite - we obviously don't know what we're trading...

Yah...don't lisen to those guys who claim the THB is dropping or falling...I trade currencies and any professional trader will tell you, the best determinate of the future price of a currency is always it's current price.

--matt

You must not be much of a trader if you think the future price is determined by the current price. That would mean it would never move!

The baht is going to keep getting more expensive. It's determined by the US dollar, which is Thailand's largest trading partner. And the new Fed governor Bernanke is purposefully weakening the US dollar so the huge government deficit can be paid off. His nickname, "Helicopter Ben", came about because he is famous in the US for thinking that devaluing the currency can solve all problems (idiotic, but true).

Matt, otherwise nice blog! I think more people like you would be good for Thailand.

Edited April 2, 2006 by Thaible

[sfokevin]

I would agree about riskiness of trading currencies (And as has been pointed out I'm not that smart) I will stay away from trying that. After hearing the comments from many I would agree that the US currency will most like holsd its own - We have our problems here in the US but the rest of the world is most likely in worse shape and as I said if the US dollar takes a dive I think the rest of the world would be hurt more than us.

I think what I need to do is develop a way to ride out short cycles (1 year) of currency fluctuation so I am not hit with a low exchange rate when I need to transfer money here... bmanly seems to have a good suggestion - Find a intrest bearing account off shore and keep a bit of cash there as the staging place for money I need for living expenses... Say keep $25-50K at a good interest rate... The IRS looks dimly on off shore account so I will have to tread softly.

Thanks all - Your advise and perspectives has enlighten me.

Kevin is San Francisco... Where it does not take much intelligence to be a Millionaire....

Edited April 3, 2006 by sfokevin

[MattFS218]

You must not be much of a trader if you think the future price is determined by the current price. That would mean it would never move!

The baht is going to keep getting more expensive. It's determined by the US dollar, which is Thailand's largest trading partner. And the new Fed governor Bernanke is purposefully weakening the US dollar so the huge government deficit can be paid off. His nickname, "Helicopter Ben", came about because he is famous in the US for thinking that devaluing the currency can solve all problems (idiotic, but true).

Matt, otherwise nice blog! I think more people like you would be good for Thailand.

Thanks for the compliment.

You're right, I am only an amateur currency trader....but the fundamentals of technical analysis says today's price is the best estimate for future price...in currencies that have rates set by the market (not China, or currency's which are fixed by the government). This is not to say that the price won't move, it's just to say the current price already fixes in any discounts or premiums on the horizon.

That being said, I agree with you that chances are the US dollar will deperciate in the coming years (I think it's only being bouyed up now by the rising Yield). Thailand like many southeast asian countires has its reservers in USD, but that doesn't necessary mean it will fall (or rise) with the USD.

I can't predict which way the Thai Baht will go, but if you're living in Thailand or plan to live in Thailand, you should probably have at least some of your investmets in Thailand or linked to the THB.

--matt

[Thaible]

You must not be much of a trader if you think the future price is determined by the current price. That would mean it would never move!

The baht is going to keep getting more expensive. It's determined by the US dollar, which is Thailand's largest trading partner. And the new Fed governor Bernanke is purposefully weakening the US dollar so the huge government deficit can be paid off. His nickname, "Helicopter Ben", came about because he is famous in the US for thinking that devaluing the currency can solve all problems (idiotic, but true).

Matt, otherwise nice blog! I think more people like you would be good for Thailand.

....but the fundamentals of technical analysis

That's an oxymoron

[mark45y]

Latest revisions in predictions that I use. These are an average of a number of services. In the last year they have been running about one baht high.

2006 May 42.9

2006 Jun 43.9

2006 Jul43.0

2006 Aug 42.8

[malcolminthemiddle]

I will retire to Thailand in two years at the ripe old age of 48. I will have a bit more than $1million. $500K will be locked in a 401K Rollover account and the other $500K in a regular stock fund. Both are under my total control and direction. I also will have my BKK condo completely paid off. I assume I will withdraw and transfer $50K a year to Thailand for life starting at 48 :>

The worry I have is that the value of the US Dollars will steadily decline over the next 30 years relative to other currencies ( I do not subscribe to the gloom & doom scenario of the Dollar collapsing – if that happens the rest of the world will be worse off than the US… and I have land in rural Montana )

I would predict that the dollar to baht rate will erode to a 20 to 1 rate over the next 20 years… My question is what I could invest a portion of my portfolio in to hedge the decline of the dollar?

I presently have the funds in a group of well diversified mutual funds. I was thinking of investing 1/3 of the funds in some investment (preferably one that could be purchased thru my US Fidelity stock account) that is invested in assets outside the US that has a track record stability and return?

Seeing that you are talking only about the possible depreciation of the US$ against other currencies in particular the Thai Baht (as opposed to capital return) the answer would seem quite simple.

You need to further diversify your portfolio to include investments denominated in currencies other than the US$ including those denominated in Thai Baht such as fixed term deposits where rates are currently on the rise, see here.

http://www.thaivisa.com/forum/index.php?showtopic=64651

Thai Mutual Funds may also be of interest.

Identifying and choosing these new investments as well as the timing of diversification will take research, which I guess you have already started.

Edited April 3, 2006 by malcolminthemiddle

[Meerkat]

Latest revisions in predictions that I use. These are an average of a number of services. In the last year they have been running about one baht high.

2006 May 42.9

2006 Jun 43.9

2006 Jul43.0

2006 Aug 42.8

Interesting...outright forward FX rates from the interbank market as I write:

1M 38.92

2M 38.93

3M 38.94

4M 38.95

I don't know the expiry dates of the contracts you're looking at so I've put mine as months (i.e. the 1M contract is spot - 5/5/06 end date).

Also your May number shows an approximately 10.3% depreciation in the THB between now and May (again, as I don't know your contract expiry, I can't say if it's May 1, Spot 1M, or May 31), then it shows the THB fairly flat until August. Would be interested to know:

1. When did these companies factor in the 10%+ deflation? You say they've been about a baht high on average (I assume you mean a baht weaker). So they were showing a +/- 1 baht 39 rate for the first quarter of the year, then a sudden drop for the May rate? I'd love to know what vol curve they used to justify that drop, or was it watching pine-cones over election-day?

2. How did they derive 10% as the number where the devaluation stops?

3. They're not just showing one side of the price are they? I'd almost understand a retail 32/42 bid offer spread (yikes...Travelex style rip-off), but not a 42 mid. The prices I've quoted here are all mids. For a 38.90 mid I'd expect to quote something like 38.70/39.10.

I posted a very brief idea of how forward FX rates are derived on the other thread linked to by someone else above. I could go into it more, but I already do this all day long for a living...

[kerryk]

Latest revisions in predictions that I use. These are an average of a number of services. In the last year they have been running about one baht high.

2006 May 42.9

2006 Jun 43.9

2006 Jul43.0

2006 Aug 42.8

Interesting...outright forward FX rates from the interbank market as I write:

1M 38.92

2M 38.93

3M 38.94

4M 38.95

I don't know the expiry dates of the contracts you're looking at so I've put mine as months (i.e. the 1M contract is spot - 5/5/06 end date).

Also your May number shows an approximately 10.3% depreciation in the THB between now and May (again, as I don't know your contract expiry, I can't say if it's May 1, Spot 1M, or May 31), then it shows the THB fairly flat until August. Would be interested to know:

1. When did these companies factor in the 10%+ deflation? You say they've been about a baht high on average (I assume you mean a baht weaker). So they were showing a +/- 1 baht 39 rate for the first quarter of the year, then a sudden drop for the May rate? I'd love to know what vol curve they used to justify that drop, or was it watching pine-cones over election-day?

2. How did they derive 10% as the number where the devaluation stops?

3. They're not just showing one side of the price are they? I'd almost understand a retail 32/42 bid offer spread (yikes...Travelex style rip-off), but not a 42 mid. The prices I've quoted here are all mids. For a 38.90 mid I'd expect to quote something like 38.70/39.10.

I posted a very brief idea of how forward FX rates are derived on the other thread linked to by someone else above. I could go into it more, but I already do this all day long for a living...

I read your referenced post about FX rates. Although I have a basic understanding of how the markets work I am certainly not a trader. If I am reading the charts correctly it seems that the Chinese Yuan is undervalued relative the Baht and the US dollar. It also seems to me if you had an offshore currency account with one 30% in each currency (Baht, Yuan and US Dollar) that earned 4% interest that it would be some measure of security against fluctuations in the Baht. Am I correct or am I missing something?

[Meerkat]

I read your referenced post about FX rates. Although I have a basic understanding of how the markets work I am certainly not a trader. If I am reading the charts correctly it seems that the Chinese Yuan is undervalued relative the Baht and the US dollar. It also seems to me if you had an offshore currency account with one 30% in each currency (Baht, Yuan and US Dollar) that earned 4% interest that it would be some measure of security against fluctuations in the Baht. Am I correct or am I missing something?

Sure - you'd simply be spreading your FX exposure so it's a good thing. If you have access to banking in HK, HSBC does a good account called CombiNations which is a multicurrency account and allows you to bank in 10 currencies (including THB). Not sure about multicurrency accounts in Thailand though...