Take Advantage of Opportunities in Down Markets

2 October 2009 

A positive by-product of the global economic recession is that it is already pushing down rental and purchase prices for commercial and residential properties in Thailand.  If there is a further reduction in the economy (as we’re suggesting), it’s very possible that it will affect tourism further, which in-turn will negatively affect retail and thus Thailand’s GDP as a whole, which will trickle down to reduce rental and sales prices for real estate further.

The wildcard for Thailand’s economy will always be political instability and this could rear its head at almost any time and it would also have a negative impact on the economy.  However, when the economy bounces back (whenever that might be), real estate will again appreciate, as is natural.  But until then, enjoy the buyer’s market.

It used to be that property for sale in Thailand had very little to offer foreigners.  However, with the real estate market now accounting for 7% of their annual GDP, Thailand is openly encouraging property investment by abolishing withholding tax, reducing transfer fees from 2% to 0.01%  and specific business tax from 3% to 0.01%.

With real estate appreciation above 25% over the last 5 years, Thailand offers a great alternative for expats wanting to purchase overseas.  There are currently more than 20,000 freehold condominiums being built nationwide, with most being purchased before completion.

Discussing V-shaped Recoveries

1 October 2009

The economic engine in the US economy still hasn’t been fixed, despite talk of an economic revival and V-shaped recoveries these days.  So far, the only thing that’s really pushed market expansion has been government support and there’s been no hint of what potentially could replace the purse strings of the US government.

What is going to drive consumer spending, which will drive manufacturing, which will drive hiring and wage increases, which will again drive consumer spending in this required cycle?

It’s important to understand that the US government has gone far beyond what it has traditionally done to combat recession. Trillions have been thrown into the economy in an all-out effort to stop the slide into a depression and restore consumer spending. Bailout schemes involving hundreds of billions of (borrowed) taxpayer dollars has become routine.

At some point, something in the private sector is going to have to replace government support and there are no indicators pointing to this.  On the contrary, the indicators are pointing in the other direction.

Until something actually shows up, I will remain skeptical about any talk of V-shaped recoveries.

I Think I'm Turning Japanese...I Really Think So

30 September 2009  

Historically and across countries, according to the IMF, 86% of systemic banking crises have ultimately required government restructuring plans that included closing, nationalizing and merging banks. Yet the policy response of the U.S. has been akin to putting a band-aid on an untreated infection.  Worse, not only has the underlying infection been overlooked, but thanks to easing of FASB market-to-market rules earlier this year, we have at least temporarily stopped reporting on the status of the infection.

After the bubble burst in Japan in 1990, Japanese banks were not compelled to properly disclose their losses either. The predictable result was that the problems resurfaced later, but worse, because they had not been addressed.

That’s a major risk here, as well as a slow bounce-back, if not a deeper extended recession.

The majority of historical crises have been preceded by financial liberalization. For the five most catastrophic cases (which include episodes in Finland, Japan, Norway, Spain and Sweden), the drop in annual output growth from peak to trough was more than 5 percent and growth remained well below pre-crisis levels for more than three years.

Before we get there, we have a bit of a roller coaster ride.

On one side, you have the forces of a natural market correction…following a long period of expansion.  The easier money gets, the more people tend to mis-spend and mis-invest it.  Then, the inevitable catches up with them and their mistakes must be corrected.  That’s what bear markets and recessions are for.

Hope Won't Drive Market Expansion

29 September 2009

Stocks in the US will enter this data-heavy week in a tepid mood. The Dow Jones Index fell 1.6% last week, its worst week since early July. The S&P fared even worse, down 2.2%.

The main attraction for investors on this week’s busy economic calendar will be the Labor Department’s September employment report (coming out 2 October).  The health of the job markets will be especially important in the “recovery”, because of the collapse in household balance sheets.  Consumers will need more income to repair their finances and support spending growth.  Without a return to job growth, the second-half rebound will likely begin a serious nose-dive.

Currently there are 14.5 million officially unemployed people in the United States and only 2.5 million job openings.  In other words, for every six people looking for work, there is one job to fill – not including those already employed, who are looking for a new position.

What’s ahead?  We don’t know and neither does anyone else.  There really is no precedent for this situation.  Sure there have been past markets that had similarities to specific indicators, but never has a recession-based expansion lasted so long on such overwhelming negative market fundamentals.  Never before has the monetary base exploded so violently.  Never before have so many people with so many bills to pay, had to face such a downturn.

Another huge problem with this market is the utter lack of fear.  Everyone seems to be convinced that the economy is in a sustainable recovery mode and the worst is over.  But markets that rise on speculative hopes, rather than solid fundamentals tend to reverse violently.

Hope isn’t a good strategy and won’t drive market expansion.

Possibly the Greatest Economic Disaster Ever

28 September 2009 

It has been discussed as early as January this year that the coming great inflation may force the US government to fulfill international debts via gold, instead of paper dollars.  This could push the price of gold well over US$ 2,500 per ounce.

Again, remember this was originally discussed weeks before President Obama took office and by the end of January, it was reported how huge deficit spending would be during Obama’s term (more than doubling America’s previous deficit).

If we assume that Obama stays in office for two terms, then the CBO has calculated the deficit policy will increase the national debt by more than US$ 10 trillion by 2019.  Also, keep in mind that President Obama wants to borrow more money over the next eight years than all of the other previous presidents – combined.

The numbers defy belief.  Twenty trillion dollars looks like this – US$ 20,000,000,000,000.  How can anyone honestly believe this can be paid off?  When the Republicans were elected in 1980 the total US debt was US$ 930 million – less than one billion or not even five per cent of what Obama wants to cough out.

Even more important, this debt cannot be financed indefinitely.  Sometime, someone is going to want to have their money back – preferably with interest.  There is an argument to say this is already on the way. China, Russia and several other countries have put forward the idea of a basket of currencies to replace the US Dollar as the World Reserve Currency.  If this happens then panic could ensue, as more countries and individuals try to get out of the American currency.  Obama will have to act and the probability is he will cease free exchange of the US dollar into different currencies.

For any US expats, this may be an ideal time to get as much money out of the US as possible.  Regardless of this, it is a time for American expats (and anyone for that matter) to invest using the multi-asset class approach, thus creating a diversification of assets that they have never had before.  By doing this they will be guarding against large increases in personal and corporate tax, inflation, restricting movement of money and massive unemployment.

Come see the MBMG-hosted seminar on offshore investment opportunities for Americans, where John Sheehan, former Executive Director, Lehman Brothers, will also talk about the collapse of the global banking giant and what’s changed one year later.

The event will be Tuesday, 6 October at the Westin Grande Sukhumvit, Bangkok, beginning at 6:30 pm and Wednesday, 7 October at the Amari Orchid Resort, Pattaya, beginning at 6:30 pm.  Due to limited seating, please RSVP to nat@mbmg-international.com or call on 081 489 8995 by Friday, 2 October.