Economics And The Thai Baht

[rikpa]

I got unceremoniously cut off replying to the WWIII thread! This is a very relevant topic to Thailand! Let an economist moderator at it next time!

That said...

The Baht is one of the strongest currencies in the world at the mo. Maybe the US will go to war with Thailand!

a

As for the American economy being in trouble, you'd better tell that to the US stock market; currently trading at or about record levels.

But still, I think I'd rather believe a young girl from the PI than a bunch of highly paid economists on Wall Street.

The American economy is in huge trouble.

My dentist told me today that if I don't get my wisdom tooth pulled in the next six months I'll be in for a root canal. But it sure feels fine now. Just like the US economy.

The stronger the baht gets, the more trouble for Thailand. I can't fathom the ignorance regarding this point. A quick survey of the Bankok skyline should surely disabuse the punters who think this is not relevant! Those eyesores are from the last baht crash in '97. I know many people who lost their shirts (and a whole lot more) on that one.

If & when China starts dumping its trillion in UST's, it will mean a panic for the exits wrt the UST's from all of the other players holding treasuries, and a concomitant devaluation of the USD. This has a very direct impact on the well-being of rice-farmers living in Isaan or elsewhere. There was an article not a couple of weeks ago in a Thai publication with Thai farmers crying for tariffs because of the weakening dollar.

And forget the folks living in the LOS from the USA living on fixed incomes denominated is US dollars. They are not impacted by the weakest dollar in over a decade. Not a little bit!

This is the changing of the guard, the change from the USD as the world's reserve currency vs. the Euro. And once oil is repriced in a more sustainable currency like the Euro, the luxury of being the world's reserve currency the USA holds now will evaporate. It already is.

Once the reserve currency status flies to the Euro or other investments, the USA all of a sudden loses its cheap borrowing power. And nothing the Fed can do to sell UST's will make a difference. There will be inflation--there already is, it's just been hidden by the so-called "core" index that excludes energy and housing (which is an insane index of inflation given the impact of both energy and housing for the average consumer).

Once the USD loses its reserve currency status (a total inevitability given the profilagate spending of the US as a whole and its massive account and trade deficits), it spells big trouble for the global economy.

I am personaly bearish on the USD and the implications of the change in reserve currency from USD to Euro, and the Chinese's plan of dumping UST's. This could easily create a "black swan" event (like the Russian default that caused Long Term Capital to tank in '98 ,which required a Fed bailout sponsored by several major banks) that no one is taking into account now, since most traders foolishly adhere to the idea that the past is an accurate reflection of the future.

The USA is not "too big to fail.", regardless of the meetings the G8 holds. It is a mathematical certainty the US is headed into at least a recession very soon, if not a depression. I would be quite interested to see how the USD tanking would impact the Thai baht. This would not be a pretty scenario.

Edited December 1, 2006 by rikpa

[ProThaiExpat]

A recent article pointed out that the USD/Baht conversion rate prior to the Asian Crisis of the late 90'a was 1 to 25. The baht has been strenghening steadily from over 50 to 1 USD to the present 36 and why shouldn't it continue to 25.

While I was fortunate to bring in three years expenses at 44 to the dollar, those baht are now gone and I am looking at 35 to 1. Quite an impact on a retiree living on U.S. pension, and that doesn't take into account the inflation in Thailand and compared to the U.S.

The dilema for me now is do I bring in three years of expenses now anticipating 25 to 1 or bring it in dribles hoping for a short term reversal. There were many, like OP, who felt that the Japanese would dump the dollar at one time, but they didn't for the same reason China won't do it now or in the forseeable future.

As globalization intensifies, my view is we are looking at a world economy with highly interdependent nations who can't afford to allow any one country to "go down".

I will bring in only dribbles of USD until I see a pullback from the "strongest baht in seven years".

[tracker]

probably the USD will fall.. and deeply... but since you know this, take care of it in your own life. Some big-boys game is being played out, as it is already for the last 2000 years or so. There is nothing you can do to stop it, but you can take precautions that your personal impact is low.

That there are many people who stay ignorant of all these signs is their own choice. Sooner or later they will think it over (when they line up with a plate for a spoon of rice ;-)).

Better to plant a tomato or two. Food and shelter are the basics, Whatever happens.

[GracelessFawn]

Great post, Rikpa.

Hopefully, ThaiVisa will see the light and invite you to be a Moderator, specializing in the World Market, currencies and Economis in general.

[bkkandrew]

Great post, Rikpa.

Hopefully, ThaiVisa will see the light and invite you to be a Moderator, specializing in the World Market, currencies and Economis in general.

Well, I can't see them extending you the same invitation!!

[GracelessFawn]

Great post, Rikpa.

Hopefully, ThaiVisa will see the light and invite you to be a Moderator, specializing in the World Market, currencies and Economis in general.

Well, I can't see them extending you the same invitation!!

So? What's your problem?

Relax, dude! The world's not that bad!

[Buckwheat]

There's nothing wrong with the US economy that a good shot of pepper spray won't cure!

[qualtrough]

Serious question. If the dollar really is tanking, as it seems to be, does anyone have any recommendations into sound investment strategies to counter the drop, other than changing all your dollars into another currency? I have a portion of my dollars offshore in CHF, but I don't want to put everything in one basket. What other options are there? For the time being I am not looking for growth so much as just retaining the present value of my money.

[Mid]

What other options are there?

[usatrader]

Perhaps added fondling of the issue?

http://www.thaivisa.com/forum/index.php?sh...0106&st=120

P.S.

Edited December 1, 2006 by usatrader

[rikpa]

Serious question. If the dollar really is tanking, as it seems to be, does anyone have any recommendations into sound investment strategies to counter the drop, other than changing all your dollars into another currency? I have a portion of my dollars offshore in CHF, but I don't want to put everything in one basket. What other options are there? For the time being I am not looking for growth so much as just retaining the present value of my money.

Hmmm... I can't give advice on investing, but if it were my money I'd keep a big chunk allocated in ABD (anything but dollars). Investing too heavily in US stocks, for example, still exposes you to FX risk of a depreciating dollar. It is fine if you live in the USA but probably not too smart if you live elsewhere.

Commodities like oil are too volatile for my tastes--though maybe I'd allocate some of my portfolio to gold stocks.

I ain't an equities guy (my idea of pickng stocks involves a dartboard and a blindfold)--I am sure there are others who could be more helpful on that, though if it were my call I'd invest a good chunk in index funds of non-US companies.

I think the key is a rational allocation strategy across different asset classes, including stocks, bonds, and commodities, and cash. This provides enough of a hedge that no single asset class tanking will send you to the poorhouse.

[tracker]

The best investment you can make:

Invest in yourself: e.g. learn, read and practise. That investment can never be taken away from you. If you end up being peniless due to some situation, you will have the brain-power to get yourself up and making money again. If that situation does not arise immediately, you will know how to survive. So start spending on your own abilities.... beats any stock-price!

[Martin]

In post #3, 'tracker' said:

"Better to plant a tomato or two. Food and shelter are the basics, Whatever happens."

This last couple of decades have been exceptional in that so many of us have been very lucky to experience luxuries way, way beyond being just secure in our basics.

But they have been exceptional in terms of the prospects for the future as well as the history of the past.

My investment plan is:

"Have the house paid for. Have enough rice fields that will grow quite a bit more than twice the rice that we need, and then let a family who are landless grow the rice in return for half the crop. Put our savings in physical gold."

I expect that my pensions will convert, in due course, at $US1=25 THB and GBP1=50THB, but diesel for the four-door pickup will cost 100THB per litre.

And I must forget about being able to afford long-haul flights.

When it is "Back to Basics" time, Thailand will be a great place to be---and luxuries will be but memories for a few oldies, and folklore for the young.

[TRIPxCORE]

I got unceremoniously cut off replying to the WWIII thread! This is a very relevant topic to Thailand! Let an economist moderator at it next time!

That said...

The Baht is one of the strongest currencies in the world at the mo. Maybe the US will go to war with Thailand!

a

As for the American economy being in trouble, you'd better tell that to the US stock market; currently trading at or about record levels.

But still, I think I'd rather believe a young girl from the PI than a bunch of highly paid economists on Wall Street.

The American economy is in huge trouble.

My dentist told me today that if I don't get my wisdom tooth pulled in the next six months I'll be in for a root canal. But it sure feels fine now. Just like the US economy.

The stronger the baht gets, the more trouble for Thailand. I can't fathom the ignorance regarding this point. A quick survey of the Bankok skyline should surely disabuse the punters who think this is not relevant! Those eyesores are from the last baht crash in '97. I know many people who lost their shirts (and a whole lot more) on that one.

If & when China starts dumping its trillion in UST's, it will mean a panic for the exits wrt the UST's from all of the other players holding treasuries, and a concomitant devaluation of the USD. This has a very direct impact on the well-being of rice-farmers living in Isaan or elsewhere. There was an article not a couple of weeks ago in a Thai publication with Thai farmers crying for tariffs because of the weakening dollar.

And forget the folks living in the LOS from the USA living on fixed incomes denominated is US dollars. They are not impacted by the weakest dollar in over a decade. Not a little bit!

This is the changing of the guard, the change from the USD as the world's reserve currency vs. the Euro. And once oil is repriced in a more sustainable currency like the Euro, the luxury of being the world's reserve currency the USA holds now will evaporate. It already is.

Once the reserve currency status flies to the Euro or other investments, the USA all of a sudden loses its cheap borrowing power. And nothing the Fed can do to sell UST's will make a difference. There will be inflation--there already is, it's just been hidden by the so-called "core" index that excludes energy and housing (which is an insane index of inflation given the impact of both energy and housing for the average consumer).

Once the USD loses its reserve currency status (a total inevitability given the profilagate spending of the US as a whole and its massive account and trade deficits), it spells big trouble for the global economy.

I am personaly bearish on the USD and the implications of the change in reserve currency from USD to Euro, and the Chinese's plan of dumping UST's. This could easily create a "black swan" event (like the Russian default that caused Long Term Capital to tank in '98 ,which required a Fed bailout sponsored by several major banks) that no one is taking into account now, since most traders foolishly adhere to the idea that the past is an accurate reflection of the future.

The USA is not "too big to fail.", regardless of the meetings the G8 holds. It is a mathematical certainty the US is headed into at least a recession very soon, if not a depression. I would be quite interested to see how the USD tanking would impact the Thai baht. This would not be a pretty scenario.

Good post Ripka. Many thoughts that I agree with and have said myself on here many times.

[dave111223]

A recent article pointed out that the USD/Baht conversion rate prior to the Asian Crisis of the late 90'a was 1 to 25. The baht has been strenghening steadily from over 50 to 1 USD to the present 36 and why shouldn't it continue to 25.

While I was fortunate to bring in three years expenses at 44 to the dollar, those baht are now gone and I am looking at 35 to 1. Quite an impact on a retiree living on U.S. pension, and that doesn't take into account the inflation in Thailand and compared to the U.S.

The dilema for me now is do I bring in three years of expenses now anticipating 25 to 1 or bring it in dribles hoping for a short term reversal. There were many, like OP, who felt that the Japanese would dump the dollar at one time, but they didn't for the same reason China won't do it now or in the forseeable future.

As globalization intensifies, my view is we are looking at a world economy with highly interdependent nations who can't afford to allow any one country to "go down".

I will bring in only dribbles of USD until I see a pullback from the "strongest baht in seven years".

I'm constantly struggling with the same question, should i leave my money in USD and hope things start looking up, or transfer now...

I think leaving the money is my decision, as even if the baht continues to strength and i lose out atleast it wouldn't be as big a slap in the face as transfering money only to have the Baht tank.

P.S Makes me feel ill looking at this picture

Edited December 2, 2006 by dave111223

[Martin]

Currencies look as if they are going to be quite volatile for a while, but the fundamentals are that the Thailand economy is small, but strong, and the US economy is big but weak.

IMO, the chance of Thailand letting a similar situation to '97 build up (overseas money being borrowed to finance property speculation, and then the bubble bursting) is very low, now that the bureaucrats have taken over the reins of government. So the chance of the baht 'tanking' is also very low.

However, the dollar looks to be in for a big decline, now that faith in it as the world's reserve currency is ebbing very fast.

Added to that, the housing bubble deflating in the States, and stock sell-offs building up as the 'baby-boomers' start retiring and drawing their pensions, will have 'knock-on' effects that can be expected to do anything but help the dollar.

And there are fears of some of the big hedge funds 'tanking', which really would take us all 'back to basics' with a vengeance.

Leaving dollars abroad in the hope that the exchange rate will improve looks risky to me. Better to bring them here and hold them in the form of physical gold. (Not that any of us are likely to have anything like the quantity in the photo above!!!)

[whopper]

You can purchase gold in 5 and 10 baht bars at any gold shop. Easy to cash in, put in a saftey box or bury it in your backyard. The price is calculated by the price of gold in dollars and the thai baht.

[rikpa]

However, the dollar looks to be in for a big decline, now that faith in it as the world's reserve currency is ebbing very fast.

Added to that, the housing bubble deflating in the States, and stock sell-offs building up as the 'baby-boomers' start retiring and drawing their pensions, will have 'knock-on' effects that can be expected to do anything but help the dollar.

And there are fears of some of the big hedge funds 'tanking', which really would take us all 'back to basics' with a vengeance.

Martin,

It sure seems that the popping US housing bubble is going to have a major impact. I think in the next 2-3 years the full scope will become evident. This is the time-frame for a lot of the ARM lockups to expire and reset, meaning that folks paying $1,000 for their mortgate today at ridiculous "teaser" rates may find themselves out on their asses when that $1,000 mortgage payment turns into $1,500. That is obviously gloing to create problems as the reverse wealth-effect of declining property values locks folks into mortgages larger than their homes' market value and impoverishes them with high interest payments.

The hedge funds are particularly at risk. Amaranth took a $5Bn loss a few weeks ago because of stupid risk management on their part. A lot of these hedge funds have very risky bets open that could whack them big-time when the economy turns south, as is happening.

http://www.thefirstpost.co.uk/index.php?me...1&WT.srch=1

Long Term Capital is a perfect example of the sort of hubris infecting the hedge funds, except they had Nobel-prize winning economists on their team, unlike most of the other hedge funds. The past few years being a successful hedge fund manager has been easy. That can change very quickly.

[tropo]

Leaving dollars abroad in the hope that the exchange rate will improve looks risky to me. Better to bring them here and hold them in the form of physical gold. (Not that any of us are likely to have anything like the quantity in the photo above!!!)

That is exceptional advice for someone living permanently in Thailand who fears a big drop in the US dollar. It's particulary easy and cheap to invest in gold in Thailand as there's only a 1% difference between selling and buying price...it probably the easiest country in the world in which to buy gold.

You better hurry though as the price has increased about $85 per ounce in just under a month since it's recent low at around $560. Gold price fluctuations are not for the faint of heart, as they can really bounce around....quite stressful if you have a lot of money invested....and make sure no one knows where you've buried it.

[Nam Kao]

From the traders i follow, all say US recession sometime in 07, they have been pretty

accurate in the past. My Ewave guy called this recent top to within 15 cents on the Qs. I was

nervous as heck shorting 7500 shares seeing all the bullishness.

I was nervous about all this baht stuff until i found a simple/neat way to trade on my own, so far made

well over 4$ on SMH in the last 22 days running, thats not protecting profits/no stops, just signal to

signal (always in/reversing), holding overnight exposing myself to gaps, etc, etc, kind of like

the worse case trading. I need 40 cents a month to live well in LOS, about 1/10 of what i averaging

so i am feeling pretty good. If i add in some parameters like a 20 cent stop and protecting deep

move profits it should get alot better. Still turning the knobs and fine tuning. So far SMA=25

does the trick.

regards

nam

[qualtrough]

From the traders i follow, all say US recession sometime in 07, they have been pretty

accurate in the past. My Ewave guy called this recent top to within 15 cents on the Qs. I was

nervous as heck shorting 7500 shares seeing all the bullishness.

I was nervous about all this baht stuff until i found a simple/neat way to trade on my own, so far made

well over 4$ on SMH in the last 22 days running, thats not protecting profits/no stops, just signal to

signal (always in/reversing), holding overnight exposing myself to gaps, etc, etc, kind of like

the worse case trading. I need 40 cents a month to live well in LOS, about 1/10 of what i averaging

so i am feeling pretty good. If i add in some parameters like a 20 cent stop and protecting deep

move profits it should get alot better. Still turning the knobs and fine tuning. So far SMA=25

does the trick.

regards

nam

Nam, could you put that in plain English for those of us unenlightened ones?

[Nam Kao]

Qual, thats pretty basic, which part throws you?

-nam

[Douggie Style]

The theory the USD will eventually lose it's 'safety' premium (primary currency) has been around a long time, I first heard of it 15 years ago (it was supposedly an imminent happening then).

The Euro is attracting a safety premium; it represents the largest economy and is composed of a multitude of different economies, so it appeals.

However, in the short to medium term, I do not see it as entirely replacing the USD as the currency of safety because the European economies are generally very exposed to energy shocks. Secondly it takes time to change demand at a basic level. The questions is how rapidly? I don’t know but tend to think it will take some time.

I would think a prudent fund manager would like to keep both currencies for some time to come.

Short term currency predictions are entirely different and personally avoid that area (not enough brains).

I think it is always good to consider the fundamentals behind a countries currencies first.

This is just an opinion only.