Money and the future

[Guest RichLB]

Okay all you smart people. Conversations (when they stray off the topic of the boys) seem to be focusing on the sad state of economic affairs in the world today and how that will affect those of us who live in Thailand. The problem seems to be that the predictions range from "It's a temporary slump and will be corrected in a year or two" to "World wide depression and we'll soon be foraging in the jungle to find enough food to eat." What's it going to be and what can those of us living on a fixed income (large or small) do about it? What precautions make sense? If we're renting is it now time to buy here or if we own a home in Thailand is it time to consider trying to sell it and bail out? And if fleeing Thailand is the suggestion, to where?

 

I'm not the dumbest person in the world, but frankly I have no clue about this whole situation. I'd really like to know what others here think this all means to us.

[Gaybutton]

I have no clue about this whole situation.

I don't think anyone else does either. I have yet to read what any economist says or meet anyone who has a working crystal ball. I've always felt that renting is throwing money out the window, but other people feel completely different about it. On the other hand, the way things are going I wouldn't buy anything I couldn't afford to pay for as long as there is a likelihood of losing it if your source of income goes belly up.

 

The problem with an inquiry such as yours is that if people respond, you're going to get all kinds of conflicting answers. How do you judge who's right? In the end, it all boils down to "up to you" and hopefully you'll have good luck.

[fedssocr]

I agree no one really knows for sure.

 

I swing between the two extremes depending on what I have just read or heard. If you want to see real pessimism check out The Daily Reckoning http://www.dailyreckoning.com/ It's put out by a bunch of economists who have a fairly good track record of prediction although they tend to repeat themselves a lot and spend a lot of time telling you to buy gold. I am most depressed after I read their newsletters. They are definitely on the side of "this is a worldwide depression that is going to really hurt a lot of people." They recently produced a film called "I.O.U.SA" which is about American debt and how it will cripple our economy.

 

Then I talk to people like my financial planner who is more on the side of "this is a cyclical downturn that happens on average once a decade". Sometimes it lasts a year sometimes longer. This one is longer. Of course he has a vested interest in the current system so that likely colors his opinion.

 

So no one really does know. But I think the Daily Reckoning guys make a lot of logical sense. Their basic take, with regard to the American economy anyway, is that we have too much debt to be sustainable and that the value of our currency is wildly inflated and must at some point go into free fall. That makes sense to me. Hence their drumbeat of "Buy gold! Buy gold!" They also talk a lot about how the consumer is doing what the consumer has to do given the situation, which is to cut spending and increase saving. Which seems to be feeding into a self-sustaining downward spiral.

 

If you are living on a fixed income in Thailand I think you are probably in better shape than you would be if you were living on a fixed income in the UK or USA because your expenses should be lower. Unless your fixed income is so low that you are struggling even in Thailand. In which case you may want to move to the countryside and start growing your own food. :-)

 

I did notice that the USD is now fairly consistently above TBt35 for the last week or so and seems to be gaining.

[PattayaMale]

Money is a funny thing isn't it? Where did the money go that the banks lost? Is it floating around in space? Why are governments giving more to the banks, and where did they get it if the money was "lost"? Was it found by the governments of the world, who now are giving it back? Strange how this money thing works.

 

Maybe the key to the problem is not having much in the first place. That way you don't have much to loose.

 

As to housing, it might be wise to think in terms of what you have to spend and still be comfortable in what you have left over. The way I saw it when I bought my house; I looked at the years I might have left to live. I then took the monthly amount that was currently being asked to rent something I liked to live in, multiplied it by the years I thought I have to live and then decided based on that out come. I know I probably could not come up with the correct number of years I have left, but figured if I died earlier, I wouldn't miss the money. If I lived longer than I thought, I made out ok.

 

I have a friend in the US that sells real estate. He has been selling houses for several years and last year was one of his best years.

 

If the dollar gets stronger against the baht I will be happy. I can not think of the baht getting stronger than 30 -1.

 

So............what was the question?

[Guest fountainhall]

Then I talk to people like my financial planner who is more on the side of "this is a cyclical downturn that happens on average once a decade"

 

I agree with fedssocr's comment later in his post about financial planners having a vested interest. For that very reason, I'm inclined to discount their advice quite heavily. They live off their commissions and need clients to keep investing. I've certainly gained through their advice over the years, but I have lost more through taking that advice and not getting out of investments fast enough.

 

I agree with those who say we're now in uncharted waters.

 

Where did the money go that the banks lost?

 

Great post! Does anyone know? I sure don't.

[Guest pingalicker]

My thoughts on where the money goes. Some of the root problems of the financial situation of the USA are in the housing market. When a homeowner stops making payments and the home goes into foreclousure, the bank takes ownership and tries to resell the home to cover its loan. Typically a homeowner pays off the interest first, then the principal on a home loan, so that if a foreclosed home is resold, the principal is still intact, and the bank may have or may not have made money on the loan, after the home is resold, depending on how long the homeowner made payments. Here in Las Vegas, they were giving loans away to anyone it seemed, and now many have failed, only having been in the home for a short period. This leads to problems for the banks. If the bank fails, they are covered by the FDIC so that depositors get their money back (up to $100,000). On CNN news today, 3 more banks failed. There are alot of foreclosed homes on the market now. Just sitting there, waiting for new owners. So where does the money go? Some goes back to depositors, some is sitting on the market (as in homes for sale). Again, just my thoughts on this subject. This is a major downturn in the economy, that is going to take awhile to turn around. Here in Vegas a lot of people have lost their jobs, many have had their hours cut. The "trickle-down" of this continues in the way people are not spending money right now.

[fedssocr]

"where did the money go?"

 

Most of it never really existed in the first place. It was all just numbers on a page. Real estate prices got overinflated. Property was never worth what people were paying for it. And people who were buying it didn't have any money and no prospect of ever paying the money they borrowed back. So, when sanity finally started returning to real estate values (or they just simply couldn't go up any higher) the people who couldn't pay the money back also couldn't sell their house to pay off the loan. The banks bundled all of these bad loans together and sold them to greedy investors in a con game. For a while the "value" of those things went up. And I suppose if you managed to sell out of them you would have made a killing. But when the "value" dropped all of those paper gains disappeared.

 

And when you look at money in general, what is it really worth? The US dollar for example has nothing behind it. In the old days when we had the gold standard there was shiny metal behind every dollar. Now it just sort of exists. They call the system "fiat currency" because its value is determined simply by fiat...an arbitrary decree. It's all a big con game. And with all of this "stimulus" the Federal Reserve will have to start printing money which will drive down the value of the dollar because there will be more in circulation without anything more of value behind it. The Chinese have been buying up our bonds so we would have money to buy their manufactured goods. So they are going to be left holding bags full of American money that will be losing its value.

[Guest Soi10Tom]

Where did the money go?? That is an easy one to answer. And, yes the money REALY did and still exist. The real money is in the hands of the home sellers, developers, realestate agents, morgagebrokers, stock sellers, investments advisors, and everyone else who saw what was coming and sold into the rising markets and went to cash. Like a game of musical chairs, the only loosers are everyone and every institution that was left standing and "holding the bag" when the music stopped. Those of us who are retired with money in the bank because we sold our realestate and stocks when the market was up have the money. Those of us who decided to buy into the rising markets, hold, and wait for their value to go higher were left standing when the music stopped.

 

As to what comes next; it is possible to predict with a high degree of accurcy what comes next, just not the time line on which it will happen. History is the teacher. Massive spending will cause massive inflation. Little or no spending will cause massive deflation. Some combination of the two will walk the edge of a razor blade. Pick your poison!!!!

 

Inflation is good for the young and the poor. It gives them a chance to earn money, save, and make some leveraged investments in things like realestate that will rise in value with inflation: thereby creating new weath.

 

Deflation is good for the truely rich and those with money in the bank because their money is worth more.

 

We seem to be headed in the direction of massive inflation. So, what to do???? This is a great time to start buying, unless you plan on being dead in 5 years.

 

 

 

 

 

[KhorTose]

Where did the money go?? That is an easy one to answer.

I completely agree. Some things to add maybe:

If you are on a fixed income you may be screwed, if inflation takes off

Owning a house on a fixed income you may get killed by the raising property tax. as its value increases. Of course you can always refinance.

Houses may not be at their lowest at this time.

Metals may be a great investment right now, but at some point that may dramatically reverse and knowing when to get out is very wise. Gold has no real uses, silver is really just a commodity. Buy silver when industry looks to take off as it will go up. Sell gold when when the economy starts to be stronger.

No one set of advice fits all. Where you live and what your lifestyle is makes a lot of difference.

 

I don't know who soi10Tom is but would really appreciate if he would speak to the retired or soon to be retired in the future economy.

[Guest Soi10Tom]

If you're retired or soon to be retired and you have a guarenteed fixed income, bonds, or a pile of cash under your matress..the best thing for you personally is deflation. When everything gets cheaper your money goes farther. The cheaper things get the richer you are.

 

If you are retired on an investment portfolio of stocks and realestate....pray for inflation, and the success of Obama's stimulus package; it's your only way out.

 

 

Sadly the best thing for the world as a whole, in my opinion, is inflation, and that is the course that smart governments have chosen in the last 100 years. Borrow expensive money pay back cheap money...stay away from long term bonds. Inflation also helps create new wealth for the world's economy to grow.

 

Think about what a new car cost in 1970: about $2,500 US. In 2007 that same level car cost about $20,000US. Inflation is how wars and economic bust are always paid for. Rather than fearing inflation take advantage of it and grow your wealth. Pick some good stocks that are badly under valued in the current market or pick up a forclosed house or two and rent them out. In 5 years you will look very smart.

 

 

 

 

[Guest fountainhall]

Where did the money go?

 

So isn't this very similar to another giant Ponzi scheme - but of a whole different proportion? As long as confidence is there and people put money in (the Chinese pumping money in to assist US overconsumption which assists Chinese make more income from exports etc.), everything in the garden is lovely. Turn things around and everyone wants out, you're spectacularly bust!

 

Massive spending will cause massive inflation. Little or no spending will cause massive deflation. Some combination of the two will walk the edge of a razor blade.

 

Do you mean over the long term? I ask because from what I read many economists are predicting a collapse of inflation in 2009 and only minimal inflation in 2010. Is that just because the economic stimulus packages that many countries have put in place will take more time to affect rates?

[KhorTose]

Think about what a new car cost in 1970: about $2,500 US. In 2007 that same level car cost about $20,000US. Inflation is how wars and economic bust are always paid for. Rather than fearing inflation take advantage of it and grow your wealth. Pick some good stocks that are badly under valued in the current market or pick up a forclosed house or two and rent them out. In 5 years you will look very smart.

 

And if I am in Thailand or the USA for that matter, living on a fixed income????????

[PattayaMale]

And if I am in Thailand or the USA for that matter, living on a fixed income????????

 

It probably depends on how much the fixed income is and how much of it is discretionary income after housing and utilities.

 

A few years ago if you wanted to buy a property in Thailand that was completed you had to usually pay 100% up front.

 

Now many completed projects are requiring only 30% down and allowing you to pay the balance over 3-5 years.

 

Take a newly completed 1 million baht property. 30% down (10,000 US or 350,000 baht) payments over 5 years (440 us or 15,400 baht). If you rent the new property for 5 years at 15,000 baht a month, you will have a million baht property that you paid 350,000 for. I property values go up you be even further ahead. If property values go down 20% you have still made 450,000 baht.

[Bob]

Interesting and useful question, Rich. And, of course, nobody anywhere knows the answers with any sense of accuracy (I'd suspect gay prognosticators are no better or worse than straight ones).

 

For what it's worth, I suspect two things:

(1) That the US dollar over the long haul will head into the toilet. Too much debt and too many dollars being printed for that not to happen. It's happened before to every other country in that position and I see no reason why it won't happen to my own country. The strengthening of the dollar in much of 2008 against most other currencies made no sense whatsoever(other than, perhaps, a panic play based on historical prejudices for the US economic system); however, that trend ought to reverse itself over the long term.

(2) With respect to Thailand, I suspect that Thailand over the long haul will also head into the toilet especially in comparison to many of its neighbors (China, Indonesia, India, Malaysia, Singapore, Hong Kong, and even, perhaps, Vietnam). Why? Because the Thai education system is so inept and so poor compared to the education systems of those other countries and, additionally, because corruption is so endemic to the system.

 

The real question is how to "play" whatever trends you feel convinced are certain to occur. At the moment, hell if I know.

[Guest Soi10Tom]

 

If you are living on a fixed income with no capital to invest...hang on to your hat; it's going to be a bumpy ride. Sorry to say, there is no magic bullet or good news to report. You most likely will not be able to maintain the standard of living that you planned on when you retired.

 

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"So, isn't this very similar to another giant Ponzi scheme?"

 

No, this isn't similar to a Ponzi scheme. It is the typical economic cycle run wild because of greed and the near total destruction and incapacitation of all of the US government's regulatory agencies that were established with the express purpose of keeping the institutional players honest by George W. Bush's government.

 

I feel very bad for those caught in this brutal economic disaster. For those that voted for and believed in George W. Bush and the Republican controled government of the last 8 years...you got, and will continue to get what you deserve for a long time to come.

 

There are many, many people out there counting their money and smiling...it didn't take a brain surgeon to see this crash coming.

 

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As for the prediction of a collapse of inflation in 2009 and only minimal inflation in 2010....it is most likely an accurate prediction, BUT one has to see the larger picture. We are already in a deflationary cycle...oil, cars, consumer/retail good like TVs and computers, etc. All that these economist are predicting is the slowing and stopping of deflation before the inflationary cycle kicks in and prices explode to up the up side.

[Guest shebavon]

Great question.

 

My guess, based on history, is that the sky is not falling.

 

Even in the Great Depression, although it took 10 years for the market to again peak, it did reach 80% of pre-market high in the 2 years following the bottom.

 

I guess now the question is, when will we hit bottom? Or have we?

 

With stocks at 10 year lows, I am of the opinion that we are probably at or near the bottom now. Why do I say this, it is because this is the 3rd time in the last four months that the market bottomed around 7800 and bounced back.

 

I agree that high inflation is the most likely cure.

 

[Guest Astrrro]

I like renting furnished apartments by the month in Thailand because you can get out immediately if you need to.

 

I think condo prices will continue to decrease in 2009 in Thailand as well as the rest of the world.

 

But if one has a million dollar net worth (not me) it might be a prudent move to buy a million baht condo in Thailand as that's real diversification.

 

When financial planners talk about diversification they often go on about stocks vs bonds or small caps vs large caps.

 

But real diversification is CYA given all the worst case scenarios. Owning property covers the hyperinflation scenario to some degree.

 

But since deflation is the immediate threat, it might be better to wait as prices fall further.

[Guest laurence]

Metals may be a great investment right now, but at some point that may dramatically reverse and knowing when to get out is very wise. Gold has no real uses, silver is really just a commodity. Buy silver when industry looks to take off as it will go up. Sell gold when when the economy starts to be stronger.

 

Actually, both gold and silver have many commercial uses too numerous for me to list. One instance is the use of gold on electrical contacts because of its conductivity and corrosion resistant properties. Silver is used in photographic film.

 

[KhorTose]

Actually, both gold and silver have many commercial uses too numerous for me to list. One instance is the use of gold on electrical contacts because of its conductivity and corrosion resistant properties. Silver is used in photographic film.

 

Silver is used in everything from circuit boards to your catalytic converter. Hundreds of uses and places where it is used, as it is the very best conductor. Gold is often used only as a coating on some electrical contacts as it has no oxides and does not corrode. Gold is not a great conductor, compared to copper and silver---surprise.

 

Some electrical conductivities

Electrical Conductivity

(S·m-1)

Temperature(°C) Notes

Silver 63.01 × 106 20 Highest electrical conductivity of any known metal

Copper 59.6 × 106 20

Annealed Copper 58.0 × 106 20 Referred to as 100% IACS or International Annealed Copper Standard. The unit for expressing the conductivity of nonmagnetic materials by testing using the eddy-current method. Generally used for temper and alloy verification of Aluminium.

Gold 45.2 × 106 20 Gold is commonly used in electrical contacts

Aluminium 37.8 × 106 20

Sea water 4.788 20 Refer to http://www.kayelaby.npl.co.uk/general_physics/2_7/2_7_9.html for more detail as there are many variations and significant variables for seawater.

4.8(S·m-1) would be for an average salinity of 35 g/kg at about 20(°C) Copyright on the linked material can be found here http://www.kayelaby.npl.co.uk/copyright/

 

Drinking water 0.0005 to 0.05 This value range is typical of high quality drinking water and not an indicator of water quality

deionized water 5.5 × 10-6[1] changes to 1.2 × 10-4 in water with no gas present[1]

 

[Up2u]

....

I think condo prices will continue to decrease in 2009 in Thailand as well as the rest of the world.

 

But if one has a million dollar net worth (not me) it might be a prudent move to buy a million baht condo in Thailand as that's real diversification.

 

......

 

But since deflation is the immediate threat, it might be better to wait as prices fall further.

 

 

Bangkok condo prices have fallen but Pattya condo prices seem to be holding their own. It sems like sellers in Pattaya would rather wait for the market to turn around than take a low offer. I made 2 offers on shells that were 10% below asking price that were rejected.

 

If I had a million dollar net worth I certainly could go more up-market here. A million baht doesn't get you much in Pattaya.