Commercial Real Estate Finance

There is, actually, an interesting ‘etymology’ to that idiom; if you like to believe what they say on Wikipedia anyway.  One of the versions is, “What’s that got to do with the price of tea in China?”  If the subject at hand is US interest  rates, the answer is ‘everything’.

Singapore revalued it’s currency earlier this week.  This effects the price of money across the globe and it will, eventually (if not sooner), mean higher rates in the US.  Most, if not all, Asian currencies have rallied on the news, except the Chinese Yuan.  Needless to say, this puts even more pressure on the PBOC to let the Yuan appreciate and it will be happening soon.

See,  all this nonsense about China “manipulating” it’s currency, is just that: nonsense.  Since the Asian Financial Crisis of the late 90′s, all of the Asian economies exert some degree of control over their currency.  Letting the markets run wild with your primary means of economic congress proved disastrous.  The key take-away: firmly control your own currency and worry about the rest later.  They are all pegged to the USD, not trade-able off shore, a managed float, in a band, or some combination thereof.  So, of course China manipulates its currency, but so do all of its competitors!

All of these economies are also export oriented.  That means, all else being equal, the one with the weakest currency has a competitive advantage.  So, when one of them throw in the towel and allows for an ‘un-expected’ appreciation (Singapore this week), it’s a big deal.

It’s an indication that business is booming in Asia;  which means, given their aforementioned export focus, that business must be booming somewhere else.  Who is the biggest consumer of goods in the world?  The US of A.  What the Asian central banks are saying is, ‘the cost of potential inflation is outweighing an incremental loss in competitiveness’. (get it?  inflation –> price of tea?).  Allowing their currencies to appreciated will make the cost of their products more expensive in dollars; i.e. inflation in the US (it will at least contribute to it).  From there, on to higher rates: my point all along.

Nouriel Roubini has a different view.  He thinks the Fed is going to be on hold for a while.  Sure, he’s a well respected PhD who’s been largely prescient on economic matters for the last three years (at least);  but I’ve got a blog!

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