Here’s a model article for all budding analysts and pundits out there (excerpt):
I recently wrote about how Indonesia’s economy has devolved into a classic credit and asset bubble-driven growth story, and its neighbor Malaysia is on the same path along with most other Southeast Asian economies, which are part of the overall emerging markets bubble that I have been warning about in the last couple of years.
The emerging markets bubble began in 2009 after China pursued an aggressive credit-driven infrastructure-based growth strategy to bolster their economy during the global financial crisis. China’s economy quickly rebounded as construction activity flourished, which drove a global raw materials boom that greatly benefited commodities exporting countries such as Australia and emerging markets. Emerging markets’ improving fortunes began to attract the attention of global investors who were seeking to diversify away from Western nations that were at the epicenter of the financial crisis.
Rock-bottom interest rates in the U.S., Europe, and Japan, combined with the Federal Reserve’s multi-trillion dollar quantitative easing programs encouraged a $4 trillion torrent of speculative “hot money” to flow into emerging market investments over the past four years. A global carry trade arose in which investors borrowed at low interest rates from the U.S. and Japan, invested the funds in high-yielding emerging market assets, and pocketed the interest rate differential or “spread.” Soaring demand for EM assets led to a bond bubble and ultra-low borrowing costs, which resulted in government-driven infrastructure booms, alarmingly fast credit growth, and property bubbles in numerous developing nations…
His main thesis is that QE and loose monetary policy in the West has flooded emerging markets, and fostered asset and property bubbles through cheap credit. And he builds an ostensibly persuasive case with lots of data and charts.
Here’s the trick:
Ultra-low interest rates have caused Malaysia’s private sector loans to increase by over 80 percent since 2008…
Malaysia’s M3 money supply, a broad measure of total money and credit in the economy, shows a similar worrisome trend:
Malaysia’s household credit bubble is helping to fuel a consumer spending boom:
Malaysian car registrations are up by 50 percent since 2008:
Accounting for nearly half of all household debt, soaring mortgage loan growth is a primary reason why Malaysia’s household debt is increasing at such a rapid rate.
Malaysia’s rapidly deteriorating current account surplus due to weaker exports is another worrisome development.
Every one of the charts accompanying these comments are in levels, not in annual % change. You don’t see trends, all you see are big numbers getting bigger. The comparisons are all in total change from a given year, which naturally inflates the numbers you present.
Here’s what happens when you actually check out the trends:
- Credit growth has dropped from 12% in 2011 to under 10% this year, and household borrowing growth has similarly dropped from 13% to about 11% currently. Fast growth? Credit growth in both Singapore and Indonesia is at least double that;
- Ditto M3 growth, which peaked at 14.7% in Feb 2012, and is now below 8%;
- Private consumption growth has fluctuated between 8% and 6%, below the 8%-10% growth rates seen before the 2008-2009 crisis;
- Car registration rates dropped from 13.9% in 2010 to 1.6% in 2011, before rising slightly to 5.6% in 2012.
- Actually, personal loans from non-banks is the primary reason for higher household debt. And the higher household debt to GDP ratio is also partly due to slowing NGDP growth.
- The current account surplus is deteriorating largely due to higher imports of capital goods. Exports have been flat, not really declining.
In other words, the facts and data are creatively presented in such a way as to support the case he’s trying to make.
Dude, the bubble’s already deflating. You’ve missed it.
I also had to laugh at this one:
Since 2010, Malaysia’s public debt-to-GDP ratio has been hovering at all time highs of over 50 percent thanks to large fiscal deficits that were incurred when an aggressive stimulus package was launched to bolster the country’s economy during the Global Financial Crisis.
Malaysia’s all time high is actually 103% in 1986. The “aggressive stimulus package” was neither aggressive, nor particularly stimulating.
So if you’ve got an argument that you want backed up by “facts”, just remember there are lots of ways to package data up even if it says something quite different.