Category Archives: Global

Advanced financial engineering

An article in the Bangkok post  leads me to believe that Thailand is in trouble financially, and that they are trying to manage it using advanced financial engineering. That is akin to Fannie Mae and Freddie Mac, two US examples that scare the heck out of me.

I hope they can pay that debt when due, otherwise it’s crack up the printing press and devalue the currency time. That’s what they are trying to avoid with these swaps.

Loosen currency controls

The main problem for the Thai Baht is that it was fixed to the dollar. This seems like a good idea, especially in the short term, but when you think about it a bit, you’ll see that when an imbalance occurs, instead of the market moving slowly in tiny increments, the adjustment is a crisis. This is basically what happened. Instead of the baht devaluing slowly over time, slowing the economy over a period of years, the pain all came at once in a matter of days.

This is exactly why China must start to loosen it’s currency controls now. If an imbalance were to occur, it could be a global disaster.

Globalization

Globalization can be taken in a number of ways. Such as, the underlying issue of American companies growing due to globalization. Also, there is some degree of diversification that can be had though purchase of foreign securities. To what degree would be dependent on what securities were purchased, yes? A Taiwan semiconductor company could be tied closely to our tech market but a Brazilian construction company wouldn’t necessarily be so closely tied. Of course the easy play would be the Country ETF as a basket. This would more closely tie to our markets as contagion often occurs.

Some countries are more risky than others and their equities will be more volatile but offer more potential. There is far more potential in China than Germany, but Germany is more stable. So risk and reward are once again at issue and the choice is how much risk do you want to take?

British Question Hour

Have you ever seen the British Question Hour? They put Tony Blair in front of the house of commons and they ask him questions on TV. He usually has a binder full of notes with him and he has to respond right there, right then. No where to hide, no where to run. They are on a regularly scheduled basis so there’s no avoiding them. The house of commons often boo’s, sometimes applauds, both the questions and the answers. Quite entertaining even if the politics isn’t directly applicable to anyone in the US for the most part. That might provide some improvement in the current situation. Entertainment at least.

The Euro

As for the Euro, I can’t believe it has lasted this long. To be a sovereign nation and yet have someone outside tell you what your monetary policy is seems to be very tenuous at best. I still think that it will be a bone of contention before long and the UK was wise to bow out and not participate. However, it makes it easier for many to do business, mostly them with each other.

Foreign exchange

 Foreign exchange is a great topic.  The most important aspect is to understand how companies use the market to hedge their exposure.  They do this in multiple ways including swaps, futures, and options.  Almost every international company has a line in their annual report that says they use the markets to hedge forex but not to speculate.