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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (29340)	2/11/2008 10:37:05 PM
From: Amark$p	Read Replies (1) \| Respond to of 218799

Maintaining a peg when your currency is under attack (as the HK$ was in 1997-98) costs you real money because you have to use up your reserves to defend the currency. As such you can only do it for so long and, at some point, you run out of cash (England in 1992 when Soros pounced, Thailand in 1997…). But maintaining a peg against a “weak currency” is very easy to do, and in the literal sense, does not “cost” you anything—all you have to do is print a bunch of money. You could however say that it “costs” you higher inflation (since you are forced to print lots of money). Today, HK’s peg to the US$ is thus not costing the HKMA anything. They are making money out of it, printing a lot of HK$ and accumulating ever more US$ reserves. Meanwhile, the weak HK$ means that HK assets (especially real estate) become ever more attractive to people whose currencies are rising (most notably China), which triggers more capital inflows into HK. I guess that what I am trying to say is that when you are pegged to a strengthening currency, it is tough on the central bank and they have to spend a lot of money to defend the peg. But when they are pegged to a weak currency, the central bank’s reserves grow. The market can break the peg of a weak currency against a strong currency (i.e.: Argentina in 2001, Italy in 2008?), but the market cannot break the peg of a strong currency against a weak currency (HK$ today). Thus, only policymakers can decide to scrap the peg. With that in mind, I would look at the HK$ long positions as cheap call options… but ones which still have low odds of coming due in the very near term. Indeed, it seems likely to me that the peg will stay until at least 2009. After 2009, however, we may get a different story. Here are the reasons: a) China is unlikely to massively change its current RMB peg for the next 18 months. And the pattern you would expect would be for china to move first, to be followed by HK. Indeed, if HK moved first, all the speculators in the world would pile into the RMB making the situation difficult for the Chinese authorities. Thus, Chinese authorities have made it very clear to HK that they needed to wait for the green light from Beijing to let go of the peg. And our contacts in Beijing feel that this is nowhere near happening. b) Inflation is not yet too much of a problem in China and HK. It is undeniably higher than it has been in the past few years, but it is not yet become massively problematic c) With the US slowing down, the Chinese authorities will not want to see their currency rise too fast, less they get the sting from the US economic slowdown… The same is somewhat true of HK. d) Most importantly, Joseph Lam, the current head of the HKMA, is a tooth and nail defender of the peg. After all, he was one of its architects. And he is not leaving until 2009. I think you’d have to go “over his dead body” to remove the peg. e) HK went through a LOT of sacrifices in 1997-2003 to keep the peg. Now that the peg is bringing good times, it would be politically unpopular to remove it. f) Politicians in HK can’t fight their way out of a wet paper bag. DO NOT expect any bold and controversial measures from them. They are by and large very well paid, and efficient, bureaucrats. They are not visionaries, nor risk takers. They are in place to maintain the status quo (which happens to work pretty well) but few of them believe in changing the status quo. Once again, they are first and foremost bureaucrats. Not visionaries. For all these reasons, I would think that the peg would not go. However, the call option is cheap, so why not…. I think the likelihood of a stronger revaluation in MALAYSIA and SINGAPORE, or even CHINA, INDIA and TAIWAN are much stronger. Post Edited (Louis Gave) : 2/11/2008

To: TobagoJack who wrote (29340)	2/12/2008 4:06:25 AM
From: elmatador	Respond to of 218799

Rule of the law, rule of the law! Brazil should be the destination of such wealthy people. Peple -totally unrelated to this person- would riot down here if a older person is threatened to be thrown out of the family because of someone stupid law. Real estate is booming here as foreigners discover the land. That is marketing for us here.

To: TobagoJack who wrote (29340)	2/12/2008 4:09:24 AM
From: Maurice Winn	Respond to of 218799

TJ, it's ridiculous that the 101 year old good bloke is to be evicted. He's flush with cash, big income coming in each year, well off son. Unless there's something not shown, the immigration rules are crazy. We have just had NZ's first airliner [small] hijacking by a knife-wielding Somali woman who has been a constant problem since she arrived 14 years ago [more or less]. We have many immigrants doing murder and mayhem. The chance of the self-funding 101 year old being a problem is zero. If he needs medical care, it'll not be much and he'll probably fund it himself anyway. It seems we agree on some aspects of immigration. Mqurice