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VIDEOUS Credit Turbocharging Emerging Asia
Washington is stimulating market speculation in South Asia while depriving American savers of the opportunity to make a return on cash.
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Or take the 1997 Asian crisis; 13 years ago, the Thai baht (THB) became all the rage when it went down the tubes and eventually carried the Indonesian rupiah, Philippine peso (PHP) and others with it. Part of that crisis originated with huge extensions of Japanese credit to these economies and their use of the yen carry trade. When the bill came due, Thailand had one of those “uh-oh” moments.
Well, as Santayana said something or other about forgetting history, the dollar carry trade has replaced the yen carry trade in a reprise of “To the Moon, Alice!” starring Ben Bernanke as Ralph Kramden. Let’s map the relative performance of Thai stocks measured in US dollars to the US market against the excess carry return of borrowing three-month USD and lending three-month THB. The December 16, 2008 date when the US went to its version of zero-interest-rate policy is marked with a green line.
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If it seems like the cheap dollar is propelling Thai stocks higher relative to US stocks, it is. Now let’s duplicate the exercise with another one of 1997’s chalk outlines on the pavement, the Philippines.
The song remains the same: Filipino stocks have been feasting on cheap dollars; just borrow the USD, lend the PHP, rinse and repeat. The Philippines actually get a twofer for our policies as the stimulus increases demand for Filipino expatriate workers throughout the region; their remittances are one of the top sources of export earnings for the nation.
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It seems as if our magicians in Washington are doing an outstanding job of stimulating market speculation in South Asia without doing much for the US economy other than depriving American savers of the opportunity to make a return on cash.
For those of you who wish to join the party after it's been going on for a couple of years -- and who doesn't wish to chase performance? It ranks behind only baseball and football as a national sport -- you can buy the Thai market with the iShares Thailand Index Fund (THD).
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