US needs a rethink as the dollar sours

       Treasuries should no longer be considered free of risk.The dollar should no longer be the key global currency.
       The US should lose its golden credit rating. Bankers and investors around the world should dump dollars. Read any economics textbook and you come to that conclusion.
       Massive government spending and money creation to rescue the nation from the Great Recession have deluged the US Treasury market with new securities - exacerbating the country's already massive debt load.
       Chronic US trade deficits have led to the accumulation of vast stores of dollars in foreign bank accounts.
       Classic economics theory says supply should overwhelm demand in both markets. Treasuries should no longer be considered free of risk. The dollar should no longer be the key global currency.
       The US has balanced its budget only five times in the past 50 years. The four straight years of surpluses, starting with 1998, now look like a statistical error.
       Total government debt at the end of 2008 was US$10.7 trillion (352 trillion baht), compared with $5.53 trillion 10 years earlier. A bit of nostalgia: In 1978,the debt was $789 billion, with a "b".
       There's little relief in sight. The latest budget deficit forecast for the new fiscal year that began yesterday is $1.4 trillion,according to the Congressional Budget Office.
       While the recession has curbed the US appetite for foreign goods, Americans still spend more overseas than they sell,as they have consistently since World War II ended in 1945. The deficit in July was $32 billion.
       Using an index based on how much business the US does with other countries, the value of the dollar has plunged about 13% since March 4.
       World Bank president Robert Zoellick,a former US trade representative, said last week that though the dollar remains the dominant global currency,"nothing's guaranteed".
       The double whammy of soaring Treasury sales and the decline of the dollar should stop governments such as China and Saudi Arabia from investing large chunks of their trade-earned dollars in US securities.
       Instead, they are buying more. Foreign investors bought 43% of the $1.41 trillion of Treasury notes and bonds issued so far this year versus 27% of the $527 billion sold in the same 2008 period.
       China more than once has said it might move away from Treasuries. Still,its purchases have increased by 10%this year and it now owns $800 billion of Treasuries, the most of any foreign country.
       During the credit crisis, investors still considered America the safest bet. They were so eager that at one point they bought short-term US paper that guaranteed them a small loss.
       As the economy begins to recover,they are buying Treasuries on the bet that inflation will stay tame even though the Federal Reserve is creating money rapidly in its recovery efforts.
       Pacific Investment Management Co's Total Return fund, the world's biggest bond fund, has increased its holding of government-related securities to 44%of its total investments, up from 27% in July. Bill Gross, the funds boss, says he views the move as protection against deflation, prices actually declining.
       Notions about inflation will change if the US and other industrialised nations can't figure out when to ease off from their massive stimulus spending. No easy task.
       To protect the safety of Treasuries and the dollar, the US government must soon get its budget under control. History suggests this is impossible.
       Hard-pressed Americans now are saving more than they did a few years ago,curbing the demand for imported goods.How long will that last?
       Textbook economics suggests that before long, Japan and other Asian nations will start converting their dollars into euro-denominated securities - or perhaps a new international currency backed by a basket of, say, euros and yen along with dollars. That would mean a significant decline for Treasuries and the dollar.The US no longer will be supreme.

New offers from banks and funds

       - Siam Commercial Bank has rolled out 'SCB My Home My Cash', a personal loan backed by a borrower's home. It provides up to Bt5 million in credit with a maximum 15year period and interest starting at the minimum retail rate - currently 6.45 per cent.
       - Krung Thai Bank will put more than 1,500 nonperforming assets worth Bt2.5 billion on sale at the 20th Housing & Condo Festival tomorrow and Sunday at the Queen Sirikit National Convention Centre. Those who purchase its NPAs at the fair will get a mortgage at zero interest for the first year and then the minimum lending rate minus 0.25 percentage point throughout the remaining term. The bank's MLR now stands at 5.85 per cent.
       The bank will finance up to 110 per cent and requires a minimum deposit of Bt10,000.
       - GH Bank offers mortgages with a zero down payment or zero interest rate for the first year for takers of its NPAs at the 20th Housing & Condo Festival. The bank will make 50 properties available at the fair at a maximum disฌcount of 20 per cent.

       - United Overseas Bank (Thai) has unveiled the UOB Visa Debit Card with two features - one UOB Rewards Plus point for every Bt20 spent and a free monthly statement to moniฌtor spending.
       - UOB Asset Management is launching an initial public offering of UOB Korean Bond 12/1 until October 8. The fund has a policy to mainly invest in South Korean government bonds and all investment is fully hedged against foreignexchange risk. The minimum subscription is Bt10,000.
       - Asset Plus Fund Management is launching the initial public offering of ASPSmart 2 until October 8. The twoyear fund has a polฌicy to invest in big marketcap stocks, includฌing energy, banks, communication and stocks benefiting from the government's Thai Khemkhaeng scheme. The fund features auto redemption when net asset value increases every Bt0.50 per unit.
       - Manulife Asset Management offers special promotions to those who invest in its MS Core LTF or MSFLEX RMF until the end of the year. Those who buy into the company's LTF and RMF at Bt50,000 will get Bt400 cashback and an organiser, while a Bt100,000 investment means Bt800 cashback and an organiser, Bt150,000 means Bt1,200 cashback plus an organiser, Bt200,000 means Bt1,600 cashback plus a G2000 bag, Bt250,000 gives entitlement to Bt2,000 cashback plus G2000 bag, and Bt300,000 to Bt2,400 cashback plus G2000 bag. Investment of Bt350,000 leads to Bt2,800 cashback, Bt400,000 to Bt3,200 cashback, Bt450,000 to Bt3,600 cashback, and Bt500,000 to Bt4,000 cashback - all of these also entitling the investor to a G2000 bag.
       -TMB Asset Management is launching TMB South Korean Treasury Fund Series 33 and TMB South Korean Treasury Fund Series 35 until Monday. Both funds have a policy to invest in South Korean government bonds and treasury bills, and all investment is fully hedged against foreignexchange risk. TMB South Korean Treasury Fund Series 33, a nine-month fund, is expected to yield a return of 2 per cent per annum and TMB South Korean Treasury Fund Series 35, a six-month fund, is expected to provide return of 1.85 per cent.
       -Tisco Asset Management offers special promotions to those who buy its retirement mutual funds and longterm equity funds until December 30. Those who invest in Tisco LongTerm Equity Fund, Tisco Dividend LongTerm Equity Fund, Tisco China India Retirement Fund, Tisco Equity Growth RMF and Tisco Flexible Portfolio RMF in amounts between Bt50,000 and Bt99,999 will receive a Bt200 Central Department Store voucher, while investors of Bt100,000 to Bt199,999 will get a Philips radio clock, between Bt200,000 and Bt499,999 will receive a Jabra Bluetooth, between Bt500,000 and Bt999,999 will get a Nokia 2323 handset, and from Bt1 million will receive 25satangweight of gold necklace.
       Those who invest between Bt50,000 and Bt99,999 in Tisco Secured Fixed Income RMF and Tisco Fixed Income RMF will receive a foldable travel bag, between Bt100,000 and Bt199,999 will get a Bt200 Central Department Store voucher, between Bt200,000 and Bt499,999 will get a Philips radio clock and from Bt500,000 will get a Philips DVD player.
       - ING Funds (Thailand) offers a special promotion to those who invest in ING Thai Greater China until October 15. Those in greater Bangkok will get a Bt500 Central gift voucher for every Bt200,000 in investment, while those in provincial areas will receive a Bt500 Tesco Lotus voucher. To be eligible for the vouchers, they must hold the investment for at least three months.

GPF posts 7.8% return for first nine months

       The Government Pension Fund reported a 7.8% investment return for the first nine months of the year, thanks to recovering local and global financial markets.
       The country's largest pension fund posted a return of 24.742 billion baht to Sept 30, a sharp turnaround from losses of 16.997 billion, a 5.17% decline, in the first nine months of 2008.
       Net assets excluding reserves totalled 348.15 billion baht at the end of September. Annualised returns for the 12 months ending in September were 7.3%.
       Sathit Limpongpan, the GPF chairman and permanent secretary of the Finance Ministry, said three factors drove the turnaround in the fund's performance.
       First was the improving global economy, driven by expansionary fiscal policies. Second was the recovery of Thai exports, domestic consumption and private investment. Third was the turnaround in investor confidence and a rebound in the local capital market, including a nearly 60% gain for the Stock Exchange of Thailand index over the first three quarters of the year.
       The GPF, which manages retirement assets for 1.17 million civil servants,maintained 69.3% of assets in Thai debt instruments as of Sept 30, with another 5.6% held in foreign debt.
       Deputy secretary-general Variya Wongpreecha said Thai equities accounted for 8.9% of the fund's portfolio, with foreign equities of 8.6%, Thai property assets 4.1% and alternative investments 3.5%.
       "Our investment strategy for the rest of the year will remain conservative,"she said."We will continue to closely monitor trends in the money and capital markets, as well as risk factors related to economic recovery."
       "This includes the effect of fiscal stimulus programmes across the globe, oilprice and inflation trends and the possible tightening of monetary policy."
       She said that in anticipation of higher interest rates next year, the GPF's bond portfolio now had an average duration of 2.4 years, compared with three years at the end of 2008. Average duration over the first nine months was 2.6 years.
       Investors will typically shift their fixedincome investments to shorter terms if interest rates are likely to rise to mitigate their future risk.
       Mrs Variya said domestic political stability remained another major risk factor that could undermine investor confidence going forward.
       The GPF meanwhile is continuing its search for a new secretary-general.
       Mr Sathit said the GPF's board will ask a recruitment agency retained to assist in the search to submit two new names for consideration within 30 days.
       A previous list was rejected as the suggested candidates failed to meet GPF criteria. The process was complicated further when the chairman of the recruitment panel retired this past month,forcing the GPF to appoint a new panel.
       Mr Sathit said the GPF would place ethics high on its list of criteria for the new secretary-general.
       "The new secretary-general must not use the position to invest in the Stock Exchange of Thailand for personal gain.This is a new requirement that we have added for this appointment," he said.
       The GPF board fired Visit Tantisunthorn as secretary-general in June for violating fund regulations. A Public Sector Anti-Corruption Commission investigation accused Mr Visit of personally investing in stocks also related to shares invested in by the GPF, a practice known in the industry as front-running.