On inflation and the Thai Baht..

PaulRen's picture


The inflation and the Thai Baht bears, got it wrong.  Of course you can keep predicting something and maybe one day you will get lucky and get it right?

Since 2007 a number of global investment “guru’s have written, so often in alarmist ways, how inflation and gold will soar in years to come. Not least because of all the money printing mainly by the US Fed.Reserve. Ever since these acclamations I here have my expressed my dissenting opinion.  Today, 7 years later we see how inflation has been subdued and of late, gold lost its luster.  Yet those fear mongers keep up their "tune and dance" by claiming inflation rates are understated while keeping up their stubborn view it will surge, “imminently”.  Well it has not.

Recently one such investor wrote me showing a list of price levels of various food commodities and oil since 1998 -and then concludes how in EU they way understate the official inflation rate shown at 1.5%  In fact in recent many years that is their argument: governments all over way understate the official rate of inflation.  I mostly disagree. In fact this is just another ill made argument to justify their (wrong) view point.

Below is how I answered this person whom has been taken for a ride by these inflation alarmists through taking an arbritrary date to prove a fallacy:

What you send is just a list starting from an arbitrary starting date (1998).  
This is the obvious trap of what people send whom want to trick others to believe a certain fallacy. Chose the date which supports the data to be shown.

Why 1998?  Had the date started say from 2007, when oil was at 140 US$ a barrel and so many other commodities where sky high, a very different picture emerges...like negative inflation (deflation) would show! Or say in 2011 when I think when Gold peaked at around 1850 an ounce, it would also show a very considerable yearly decrease.  Is the lethargic price of gold in recent times finally catching up to reality?

I could send you a list of many important things which have dropped in price over the years. Like just for starters: computers, cameras, internet connection, cars, international travel, all major appliances, mobile phones, international calling which through Skype has dropped to just about zero etc... Many big ticket items to many, some which dropped allot!

Consider also that food and oil in most developed countries make up only some 25% of average actual expenses (depending on the person's  income level of course, here I just state an average).  The poor surely have higher inflation, but not all are poor! And even to those the above list has some meaning, in any event we are talking about averages here.

Do you really believe professionals would get, pursue and others have any respect for PhD in economics when everybody thinks/knows inflation is regularly & constantly overstated!  And so a joke number.  No, only the un-educated or the fear mongers continue this tune.  Surely economist get it wrong all the time, like so do scientist and doctors and investment managers etc…but that does not mean they have some credibility and that all levels of official inflation rates are just nonsense.

Fact is, and contrary to that negative crowd out there, inflation has been way low for many years now, and may well be one key reason gold has finally given up its luster.  Some major economies like Japan, are still flirting with de-flation even while trying so hard to escape it.
Here is a letter I sent to the Bangkok Post today, April 2 2014.

Recently there have been a few letters by expats which are wondering why among all the political turmoil the Thai Baht has not weakened more?  As the Thai currency has weakened averaging along with other emerging countries for say the past 8 months. This after being a relative strong currency a year ago.

In my view here are some reasons why not more.  The Bank of Thailand is sitting on huge Dollar reserves to the tune of 4 or more times than before the Asian Financial Crisis of 1997, Thai commercial banks -contrary to many developed countries- are rather highly profitable, have low debts and sitting on high deposits. Banks here enjoy some of the highest deposit to loan interest-rate spreads and so are in great shape.  Thai listed companies for the most part are well under leveraged and the Thai inflation rate is below 3%.  While some food prices have increased, many other important prices have been stable or even dropping like oil, computers, appliances, mobile phones, cars, travel, which has been tame or dropping for many years.

The Thai economy while slowing is still growing faster than most developed countries and the tourism sector is and remains buoyant outside of Bangkok.  Markets are always forward looking and perhaps large institutional investors remain confident the current political malaise will pass in time;  and not least large global currency holders which can move markets, must always compare what are their alternatives.

Paul A. Renaud.