Short the Baht to Profit From Thai Inflation Woes
Jul 29th, 2008 | By Jack Crooks | Category: Featured, Financial NewsThailand’s fairytale of growth and prosperity is over, says currency expert Jack Crooks in The Sovereign Society.
Fuel and food costs are pushing inflation towards double-digit levels. The central bank is behind the curve in tightening monetary policy, and it doesn’t look like it will catch up anytime soon.
All this makes the Thai currency, the baht, look very vulnerable, says Jack. Short-selling is the best option in the weeks to come…
Not long ago, emerging markets were the Cinderella story of growth and newfound prosperity. Now they’re biting and scratching their way through inflation just like the rest of us. But some may not come out alive.
Take Thailand, for example. In April, the Finance Minister raised the country’s inflation target by two full percentage points. Last month fuel prices pushed the cost of food and other important items up 7.6% from just a year ago. That’s a 10-year high.Not to mention surging consumer spending has officials worried that inflation could hit double digits this year.
In this light, it’s my concern that the Bank of Thailand (BOT) has found itself behind the curve. They did decide to hike their benchmark interest rate by 25 basis points this month, but that won’t be enough.Thailand’s central bank cut rates five times in the beginning of 2007. And up until this month interest rates remained stagnant.
Needless to say, the BOT has a lot of catching up to do.
Sure, their economy is still moving forward, but the potential for inflation to reach or exceed 10% this year is not comforting. At those levels consumer confidence would surely sink. It would also be tough for Thailand to maintain economic stability and global market competitiveness.
It makes sense to expect the BOT to stay behind the inflation curve for a while. If that’s the case, growth would surely hit the brakes, or at least apply some pressure. With that in mind, the Thai baht is very vulnerable. That means short-selling could be the order of the day in the weeks to come.
Source: The Magic Is Gone for This Cinderella Story
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Jack Crooks is editor of World Currency Options, and a contributor to the World Currency Watch blog. Jack is a seasoned investment adviser, who has held key positions in brokerage, money management, trading, and research. He is the founder of Black Swan Capital, a currency advisory and management firm, and of Ross International Asset Management.
