The Ugly American
The goblins of 'Black October' are upon us, and while Halloween looms like a bad joke, the world has been struck by a wave of panic and fear reaching nearly every nook and cranny of the planet. I was standing in line at the airport a few days ago clutching my travel documents when a fellow traveler eyed the words 'United States of America ' on my passport; and launched a ferocious tirade about how I, along with my compatriots, had pushed the world into a global recession that was now teetering on the very fringe of ending civilization as we know it. As it was an early morning flight I ignored him, moved up in the queue and retreated to a welcome cafe latte in order to more adequately reflect upon my own key role in the market meltdown.
Without a doubt, the sub prime crisis and ensuing credit crunch were the unseen hand of an anonymous hit man who pulled the trigger of a shot heard round the world. But let's face it: While for the past 30-40 years America has been the Chairman of the Board in the theater of free market enterprise, though this is a big-budget picture with a cast of hundreds spanning a multitude of countries from A to Z. While the US role is undeniable, its role as puppet master looks to be slightly overblown.
While we Americans are undeniably savvy, we simply aren't smart enough to have total control in some sinister plot akin to those unnamed evil powers in a James Bond film. Take one look at our President; he speaks volumes about our nation's 'best and brightest' tagline. All jokes aside, the fallout within the Phuket property market, together with the impact on the development and associated industries from external events, is very real. Jobs will be lost, livelihoods affected and companies closed.
These are grim realities that no one can deny. For many foreigners who have moved to the island to develop property or invest, early retirement has been moved back off the horizon and the future is as unclear as a Sunday morning hangover. Local Thais have found themselves in the same fuzzy netherworld as well, and in many ways will be harder hit than the foreigners. One thing for certain is that we're all in the same boat on this one, adrift in a sea of uncertainty.
I was at a hotel investment conference in Hong Kong recently with one of the region's most well respected risk analysts doing a country-by-country knock-down on prospects going into, and coming out of, the looming recession. The comments on Thailand, while personally disappointing, echoed the stark truth of the moment. As most of Asia's countries are fervently working on economic, banking and inflationary reforms, the government here has its head so deeply buried in political infighting that there is little-to-no recognition of what's happening outside its boundaries (with the exception of flying bullets in Cambodia). It's like a deer in the headlights of a speeding car on a dark country road. Unfortunately, all we can do now is root for deer.
Economic policy has to be high on the agenda and we can only retain hope that some sanity will prevail. Issues such as letting the baht devalue in order to spur exports may look good at face value, but ultimately hyper inflation will counteract any positives from such a policy. The existing plan on government bank deposit insurance, which currently stands at 100 million baht per account, with the amount to be reduced over a five-year period to only one million baht in 2013, remains a key concern.
Warren Buffett has garnered headlines in taking personal risk and investing a large portion of his personal net worth into quality stocks in the US. While it's common to hear that hording cash is the best and safest bet for now, new economic reforms will without a doubt erode the value of cash. Those holding it may be liquid, but the value of cash could potentially decrease at a rate far greater then other alternative investment.
As to where this entire story is leading in the context of prospects for the property market, I believe that solid property investments remain as secure as anything out there. For existing purchasers, now is the moment to keep your nerve. It's not a time to drop your pants and run for the hills. It's easy to panic and try to sell your real estate for a fraction of what you paid, but for the moment, prices, on the whole, are not dropping. Fire sales only create poor sentiment and a chain link of reactions that get the industry nowhere. We've seen what the herd mentality has brought to Wall Street, yet in most cases taking a longer term, more pragmatic approach would help investors retain capital values.
For those holding cash, it might well be an opportunity to capture substantial upside and diversify investment risk across the board. Certainly the long-term fundamentals of Phuket and Thailand in general remain the same as what drew us here in the first place. It remains a good place to weather out the storm and prosper. As for the guy at the check-in counter at the airport, perhaps his rhetoric would have been more suitable for a bar, which is where he might be headed to nurse his miseries while stock portfolios continue to tank. Maybe for him property would have been a wiser investment.