Thank God I am not making student loan payments.
The won dropped to its lowest point since the “IMF” financial crisis yesterday. It made a bit of a comeback today but may drop further in March as payments on foreign debt by some Korean companies are due. The Korean government says there will not be a problem.
With the USA reduced to begging China to support our debt (so we can go even further into debt rather than deal with the imbalances in our economy), Korea’s export-driven system may be shaky for years.
If you an expat and are not in a position to keep your money in Korea for at least a couple more years, you are probably in for a world of pain.
UPDATE: I’ve heard a rumor that the won might claim as high as 1,200 to the dollar this fall as the current debt crisis passes.
{ 43 comments… read them below or add one }
I hope that something happens. I am a prisoner of the exchange rate.
Even more significant to Korea than the five foreign dudes living in Korea who have California mortagage payments is how this exchange rate dilemna will affect the thousands of Korean families (Mom and kids) or single college age kids living overseas for education opportunities and supported by Dad working in 강남? Will families start to move back home? And how will this affect Korea’s lackluster educational system? Are there silver linings? Will KOreans invest more here?
I’m glad that I’m a long term resident here and don’t plan to head back to the UK anytime soon (except for a short holiday next summer). The won will only recover when the global economy does, so we’re looking at at least 2 years before things get close to decent again. The won is hovering around 2200 against the pound and the pound is incredibly weak at the moment.
On a positive note for us and people in our position, property prices will eventually tank and it’ll be a good opportunity to pick up some bargains. A lot of people globally are going to get screwed over, fortunately for me I’m not one of them.
#3,
Apartment prices were already dropping before the economy took a turn for the worse. The trend is to rent at the moment. Since leases are generally for 2 years, I predict prices will bottom out in a year and a half and return to current levels in 2 more after that.
I’ve been accused of panic mongering. But I don’t think I am.
Did anyone see Japan’s economic numbers today?
Wow! Exports down by over minus 46 percent and trade deficit for the month of January, of $10 billion. Japan must be in a shock right now. If Japan is having that much problem with exports, how many more countries with same problems? it tells us how bad this world economy is at, at this moment.
How is it that the US would rather “go even further into debt rather than deal with the imbalances in our economy” when the current administration has pledged to half the deficit while dealing with imbalances in the economy that have been been allowed to fester since the the Reagon administration?
#4 That might be quite an accurate prediction. A good friend of mine, who’s a bit of a property whiz, says similar. In two years as long as my missus and I continue to make OK money we’ll be able to afford to buy somewhere quite nice.
Property prices have come down a lot, but most properties are still way overvalued (a lot of it is not value based pricing, but rather speculation based). With more and more people losing their jobs, unable to maintain their high levels of debt and other factors. The property market here is going to get very interesting. A friend of mine recently picked up a big apartment in a formerly very expensive part of Seoul for something close to a bargain.
#7,
If I were planning to stay here for 10 to 20 more years, I’d wait a bit and buy land.
I work with a senior analyst at Samsung Securities. His predictions are usually spot on and his take on this is that in Spt/Oct. ’09 the Won will be as low as 1600. Hmmmm…good thing I’m here for the long haul.
foflappy, tell your friend to watch out before the government goons knock down his door for daring to speculate about the economy.
@ CM,
Japan’s numbers aren’t that surprising given the collapse of consumer spending (to include the knock on effect on components sold to other nations for their finished goods) plus the strong yen. Didn’t Toyota announce its first ever loss a few weeks ago? If Toyota can’t make money what manufacturer can? Only those companies that produce riot control gear as far as I can tell.
Questions for those expats who intend to remain “for the long haul”: how “long haul” is your visa status?
Anyone noticed what’s happened to the expats in Singapore and Dubai?
#9,
It’s almost at 1600 now. I haven’t paid much attention to the fluctuations, but it seems somewhat more unpredictable than in 1998. Back then, the gains and loses made by the won seemed rather easy to predict.
“Questions for those expats who intend to remain “for the long haul”: how “long haul” is your visa status?”
I’m a permanent resident. There is no expiration date on my ID card.
I will be traveling to Korea in mid-March for a vacation. Should I order Won now in America through my bank or bring dollars to exchange at a bank after I arrive? I imagine the transaction fees are comparable- just not too sure which option would afford a better rate.
Although staying in Korea helps to not get the negative impact of the low Won, another question comes to mind: most of us have our money in Korean banks. Does anybody there know how are these banks going? Is still safe to have our accounts at KEB, KB Star, Woori, etc. ?
I’m wondering if we are not in a catch-22 here: if we send money abroad, we loose due to the fx-rate; if we keep it here, there is the risk of banks going down.
Anybody with more info?
Sending money home really sucks these days, but it’s been bad since last October.
@14 no worries about your money in the korean banks… your savings account is most likely protected by the Korean gov’t's deposit insurance, analogous to the FDIC in the USA. …feeling better now, right?
Another way to look at things might be: in the past year, Kospi down 40% plus Korean won down 50% equals buying opportunity. Foreign ownership of Korean stocks has gone from around 45% to around 25%. The won is the industrialized world’s WORST performing currency. Thanks to a little statistical phenomenon call ‘regression to the mean’, the won must get stronger.
If you were a foreign hedge fund, you’d be looking at Korea fairly optimistically these days, because buying around now would give you the benefit not just of low won-denominated valuations of assets, but also a highly favorable exchange rate. Your dollar investment now would be likely to pay off not just in rising asset price, but also rising exchange rate.
The question, as ever with investments, is one of timing. If the current levels are just going to limp along for the next two years, why bother putting money in now? As someone planning to cash out of Korea this summer, I hope something happens soon, though.
PS – any investment strategy in Korea that is based on the expectation that Korea will shift away from an export-driven, chaebol-based economy toward a domestic consumption-driven, knowledge-based economy is, IMO, foolish.
…but I should also point out that my most recent investment decisions have also been pretty foolish – I thought last August was a bottom!
You got that right. And no babies to work in the factories, either. If you thought productivity in Korean manufacturing was sub-optimal before, well, look out below. Old people are not productive. This country faces some profoundly wrenching decisions, and a very bleak future.
I’m just hoping for a dead cat bounce around 2013, at which point I am definitely cashing out. Or if the US Dollar collapses earlier, thanks to Obama’s spending spree.
Most of the financial world, outside Korea (you know, in the real world) do not have a lot of faith in Korean banks. So much of their debt is based in USD which means right now, they are in potential deep doo-doo. According to CNBC, they are paying a premium to borrow USD now. A lot has to be paid back in March, so hang on to the toilet seat when you hear that sucking sound.
Linkd,
Re: 17, I think you’re essentially correct that the won cannot continue weakening at this pace.
It’s already overshot, fundamentally, IMO, and the fact that March dollar futures are trading negative basis as I write (and April’s aren’t trading at all) would seem to indicate that I’m hardly alone in that thinking. But the rub, as you point out, is how to time the correction.
But I confess I did smile a little wryly at the tentative “buy” recommendation, as it seemed like deja vu all over again, if I correctly recalled similar thoughts you expressed last fall. What was it, “kid in a candy store”?
So mad props to you for the modest, full disclosure in #18.
no babies to work in the factories, indeed.
When a REAL Korean in Korea decides to have a baby, one is sometimes ENOUGH.
the baby is viewed the following way, assuming the parents have even the barest level of responsibility.
1/ How am I going to get this baby to beat out other kids, and get into a desirable occupation as an adult, which usually requires a SKY education?
lots of money spent on tutoring…
it’s expensive.
it’s not that they don’t teach anything in school. They teach. They teach alright. They have basic ed down better than US inner city kids.
However, competition is a game where it matters how you do RELATIVE to the other guy.
i don’t think you’ll ever understand if you’ve never gone thru primary school in Korea.
leefr or mins0306 might. The rest are providing inaccurate ‘opinions’.
you are indeed doing the best thing for yourselves and your children, by basically ditching the country before your children have to enter REAL Korean school, or keep pumping them thru waegookin hakgwos.
to prove my point, I don’t think US citizen kids at those waegookin hakgwos are stressing out about hakwons.(I don’t know, actually) They already got the English down. Math on the SAT is laughable. The ACT is actually harder, I think. I think.
Sell the house !
Sell the car!
Move the kids!
I liked how you numbered your list starting, and ending, with 1/.
“I’m just hoping for a dead cat bounce around 2013, at which point I am definitely cashing out. Or if the US Dollar collapses earlier, thanks to Obama’s spending spree.”
Are you going to blame every Republican fuck up of the last decade on Obama?
Besides, the US dollar should have already collapsed.
“When a REAL Korean in Korea decides to have a baby, one is sometimes ENOUGH.”
Where’s your Korean passport? I’d be glad to show you my son’s.
Yes.
#26,
At least you’re honest about your of objectivity.
…or rather lack thereof.
your son’s Korean passport is due to expire when he’s age 18, and you damn well know it.
also, Mr. Multicultural, you damn well know that your half whiteness is enough to qualify your son as foreign enough to dodge the Korean military service. Unless there is a major legal change. I don’t foresee it.
I’d be in utter shock if your son’s not back in English speaking Canada by age 16 and doing things in Canada that he can’t in Korea.
I’m gonna stay out of trouble as best as I can.
This is what Obama is doing. He’s printing money. He’s got this threat that someday he’ll tax the ‘rich’. You know, people like Daschle and Geitner. You know how well that works. The 2 clowns were busy paying taxes when they were being reviewed. And he’s undertaxing the rest. This is of course giving birth to things like itunes tax, soda pop tax, etc in the state of New York. And he’s claiming he’ll balance the budget.
How? He plans to spend more on roads, transportation and healthcare.
These are objectively non feasible promises.
Carr is the smartest guy here. He should be a US politician someday.
“your son’s Korean passport is due to expire when he’s age 18, and you damn well know it.”
If that’s what your parents told you, they were lying.
The Korean government wants kids who have dual citizenship to give up their foreign citizenship when they turn 18 (I blame xenophobia and politicians trying to appear nationalistic when they and their own kids never served in the Korean military)…Not that there is any way they can force anyone to give up their foreign citizenship.
“also, Mr. Multicultural, you damn well know that your half whiteness is enough to qualify your son as foreign enough to dodge the Korean military service. Unless there is a major legal change. I don’t foresee it.”
Really?
My grandfather served (Navy), so did my father (special forces), so did my uncles (special forces), my cousin (fighter pilot), and I (secret stuff). Notice a pattern?
I’m guessing you didn’t serve.
What was your excuse?
“I’d be in utter shock if your son’s not back in English speaking Canada by age 16 and doing things in Canada that he can’t in Korea.”
Doing things he can’t in Korea? Too easy. I’ll pass.
“Carr is the smartest guy here.”
He may be smarter than you, but aren’t we all? Besides, as smart as he may be, I’m pretty sure Sonagi is smarter.
Cool article on how a chinese math wiz helped cause this financial crisis. Mr.wjk may be interested…
http://www.wired.com/techbiz/it/magazine/17-03/wp_quant
This comment confirms my long-held belief that wjk is a gentleman of special perceptiveness. But as for becoming a politician, I am unwilling to undergo the lobotomy that’s required.
“This comment confirms my long-held belief that wjk is a gentleman of special perceptiveness.”
That’s a comment that will return to haunt you.
I’d have to agree with Brendon’s assessment of wjk. He definitely perceives things in a special way.
Thanks for that link JW. I don’t know much about Li, as I’ve never met him, but I’ve had a long association with Gaussian copulas and I always thought they were a bit suspect (honest). The thing that I’d like to focus on is that everyone (not just me) thought they were dodgey and I’m surprised they were used as widely as they were. Money quote
“Another [reason for the problems] was that the quants, who should have been more aware of the copula’s weaknesses, weren’t the ones making the big asset-allocation decisions. Their managers, who made the actual calls, lacked the math skills to understand what the models were doing or how they worked.”
Oh boy, tell me about it. Felix Salmon is also the guy that wrote the article critiquing Kanjorski’s outburst that we were discussing a few days ago. Small world.
See, look at this 2005 post, well before the shit really hit the fan, from a physics blogger
“The model itself is almost certainly too simple, but is (hopefully) improved in proprietary ways by sophisticated traders and researchers.”
http://infoproc.blogspot.com/2005/09/gaussian-copula-and-credit-derivatives.html
The money quote for me was
1 to 62 trillion in span of 6 years. Damn, these wall street gangsters really know how to throw a party. You really gotta hand it to them.
You all know each other a bit too well. The level of discourse on this one betrays the gravity of the issue on our personal economic realities. Great postings!
The only way out of this hole is to invent new business models and create new industries to employ people. And if you think the next internet revolution scale business phenomenon will occur in the next two years… you’re dreaming. Biotech has been around since the 1980s, and although it is part of the more stable healthcare industry, don’t expect any big gains in the immediate future which could save the global economy. The supposed genomics revolution has been limping along for 10 years with little industry to show for itself. Nanotech is unlikely to revolutionize industry anytime soon and is really an industry of optimization of existing materials in existing industries (better riot gear anyone?). However, alternative energy and biofuels are a likely candidate to provide the bootstraps we need.
If you’ve got cash stuck in Korea until the downturn is over, start a business. There are lots of problems waiting for your intelligent solution and paying customers…
You can ignore the $62 trillion number, JW. That’s not real money, and the contracts net out to something around zero. That is, they net out to something around zero if all counterparties are able to meet their obligations. If some counterparty were to suddenly disappear into bankruptcy (not Chapter 11 or government receivership, but real-death liquidation bankruptcy), then you’d have a problem. Which is why the financial community was so aghast when the government let Lehman fail. Even so, the losses wouldn’t approach anything near the face value of the contracts.
Short reading for you:
http://derivativedribble.wordpress.com/2008/10/24/netting-demystified/
The value of the won has dropped so much that in an emergency I might use a few bills to wipe my ass.
Larger bills are coming soon, Gerry. Be careful when you wipe.
#41 and #42,
I like to see that SERE training paying off, shipmates.
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