Debt and the Economy

[Mike Lister]

Consumer based Non Performing Loans (NPL's) figures just released show they have increased by 15% in the first quarter, primarily because of auto loans. Critically, Special Mention Loans have also increased by over 7% YoY, these are loans that are in default by more than 30 days but less than  90 days.

 

NPL's equall 91% of GDP but this figure can be misleading. The NPL/GDP ratio  will fall if GDP increases or if lenders lend less, a falling ratio headline doesn't necessarily mean the debt picture has improved, just that the base calculation components have. If the 10k giveaway scheme ever materialises, it will be interesting to see what impact, if any, it has on the delinquent loans picture.

 

In tandem with the above, Government debt is also increasing, it stood at 64% of GDP at the end of the first quarter this year. That debt increased by 10%, from 50% of GDP in 2021,  and by almost 10% again in 2022. In the past two years it has increased by 2% per year but the digital wallet scheme looks set to force another large increase.

 

Historically, Thailand's economy has had three major strings to its bow:

 

1) Low government debt and extremely low overseas borrowings (4%), this was a throw back to the 1997 crash and a determination that it wouldn't be repeated.

 

2) An export led economy that provides a ready market for Thai products and produce and maintains Foreign Currency Reserves levels.

 

3) Tourism, International Tourism of which which is in itself an export, which maintained consumer spending levels.

 

BOT's Foreign Currency Reserves started to decline in 2020 and by 2022 had fallen by over 25%, to a seven year low of circa USD 200 bill. Increased tourism receipts saw this number increase to their current level of approximately USD 220 bill. But even this valuation is not all it seems since the foreign currency assets are held in a range of currencies plus gold and SDR's, and valued in USD against an overly strong USD.

 

It now appears that the financial discipline required to keep government debt levels low has been eroded and increased government debt is no longer a taboo. If that debt continues to increase, as it has in the past 5 years and is not matched by an increase in industrial output, the value of the Baht will remain weak and imports such as oil will continue to be expensive, which will mean higher inflation and greater consumer debt. I don't know about anyone else but I don't hear anyone talking about increased industrial output and productivity, apart from economists and the Central Bank, certainly not the politicians.

 

 

 

 

https://www.pdmo.go.th/en

https://tradingeconomics.com/thailand/government-debt-to-gdp

 

[newbee2022]

5 hours ago, Mike Lister said:

Consumer based Non Performing Loans (NPL's) figures just released show they have increased by 15% in the first quarter, primarily because of auto loans. Critically, Special Mention Loans have also increased by over 7% YoY, these are loans that are in default by more than 30 days but less than  90 days.

 

NPL's represent 91% of GDP but this figure can be misleading. The NPL/GDP ratio  will fall if GDP increases or if lenders lend less, a falling ratio headline doesn't necessarily mean the debt picture has improved, just that the base calculation components have. If the 10k giveaway scheme ever materialises, it will be interesting to see what impact, if any, it has on the delinquent loans picture.

 

In tandem with the above, Government debt is also increasing, it stood at 64% of GDP at the end of the first quarter this year. That debt increased by 10%, from 50% of GDP in 2021,  and by almost 10% again in 2022. In the past two years it has increased by 2% per year but the digital wallet scheme looks set to force another large increase.

 

Historically, Thailand's economy has had three major strings to its bow:

 

1) Low government debt and extremely low overseas borrowings (4%), this was a throw back to the 1997 crash and a determination that it wouldn't be repeated.

 

2) An export led economy that provides a ready market for Thai products and produce and maintains Foreign Currency Reserves levels.

 

3) Tourism, International Tourism of which which is in itself an export, which maintained consumer spending levels.

 

BOT's Foreign Currency Reserves started to decline in 2020 and by 2022 had fallen by over 25%, to a seven year low of circa USD 200 bill. Increased tourism receipts saw this number increase to their current level of approximately USD 220 bill. But even this valuation is not all it seems since the foreign currency assets are held in a range of currencies plus gold and SDR's, and valued in USD against an overly strong USD.

 

It now appears that the financial discipline required to keep government debt levels low has been eroded and increased government debt is no longer a taboo. If that debt continues to increase, as it has in the past 5 years and is not matched by an increase in industrial output, the value of the Baht will remain weak and imports such as oil will continue to be expensive, which will mean higher inflation and greater consumer debt. I don't know about anyone else but I don't hear anyone talking about increased industrial output and productivity, apart from economists and the Central Bank, certainly not the politicians.

 

 

 

 

https://www.pdmo.go.th/en

https://tradingeconomics.com/thailand/government-debt-to-gdp

 

With a strong economy a debt of 64% GDP should not be any problem. Compare UK, EU and US 🙏

[mfd101]

Produkdibity? Wot dat?

[Mike Lister]

9 minutes ago, newbee2022 said:

With a strong economy a debt of 64% GDP should not be any problem. Compare UK, EU and US 🙏

There are several problems with that:

 

The first is, for the debt to be acceptable, the economy would not only have to be strong, it would have to be a durable economy and tourism is not durable. 

 

The second is that whilst 64% is not high, there's nothing to show for the debt apart from repeated political giveaways and subsidies. For example, there has not been any meaningful  investment in education. 

 

The third concern is the speed of increase from 50% to 64% and soon to be much higher, again as a result of political giveaways rather than inward investment. 

[Purdey]

While the Bank of Thailand appears conservative, unfortunately the government is running hell-for-leather to add more debt via their THB10,000 free money giveaway.

[blazes]

Is there any possibility of a devaluation of the yuan/remnibi?  If the latter happened, what would be the effect on the Thai economy?

[Mike Lister]

6 minutes ago, mfd101 said:

Produkdibity? Wot dat?

"Productivity is a measure of economic performance that compares the amount of goods and services produced (output) with the amount of inputs used to produce those goods and services".

 

https://www.bls.gov/k12/productivity-101/content/what-is-productivity/home.htm

[Mike Lister]

5 minutes ago, blazes said:

Is there any possibility of a devaluation of the yuan/remnibi?  If the latter happened, what would be the effect on the Thai economy?

It's happening as we speak, PBOC has already weakened the CNY/USD rate to keep the Yuan more in line with regional peers.

 

The impact on the Thai economy is unlikely to help exports that much because most of the trade between China and Thailand is paid for using currency swap agreements. That said, a weaker RMB would pair more easily with a weaker THB and ensure continuity of existing trade.

 

 

[Ben Zioner]

21 minutes ago, Purdey said:

While the Bank of Thailand appears conservative, unfortunately the government is running hell-for-leather to add more debt via their THB10,000 free money giveaway.

This isn't a government is it? It is an unelected mob trying to secure popular vote for the next election. The Adolf/Benito doctrine reenacted 90 years later.

[Confuscious]

Long ago, I had a conversation with my Employer.
He lived in a big villa in the TOP neighborhood; he was driving in an expensive luxuary car; he had a 50 meter yacht wich he used to go on holidays; etc.
When I asked him how he made so much money, he told me that he had no money.
Only debts.
Everything he "had" was leased.
Every year, he got a return from the taxman for the debts he paid.
That was his little "dirty" secret.

His company went broke on a big 500 million Eur projekt.
He filed bankrupcy and 2 months later he was back in businness with another company.

[J Branche]

My limited knowledge with some Thai people I know is they are not paid a 

living wage.  I am trying to understand if they list their expenses how much they are underpaid.  These are people living the life of someone you consider poor in the United States.  

 

As we know Math is challenging for some Thais and most people never write and track a budget to understand their income and expenses.  Additionally in Thailand the cultural believe of going to temple or performing a task could bring you good luck.  Lastly some Thais do Not know that resources are available on the internet and seldom look for answers on internet 

 

[Mike Lister]

Still very much on the same theme of the Thai economy:

 

Last nights US CPI report came in better than expected, that means the Fed interest rate increases are having the desired effect and US inflation is falling. But look look what else happened as a result:

 

The YEN strengthened over 1%
US Equities surged
Long dated bond yields fell
Long bond values increased, AND, critically,
USD fell in value by 1% overnight, down from 106 to 104 in two weeks

 

Markets are now increasing bets that the Fed will cut rates, sooner rather than later. The current estimate suggests 85% certainty of a quarter point by September.

 

All of which means, the Baht will strengthen slightly this morning, the cost of imports, including oil, is down slightly and the chances of improved FDI have increased. It's only a small change but the impact is significant and suggests the future of the Thai economy is improving, even if the cause is reduced US inflation rather than anything Thailand or its government has done. "One swallow does not a Summer make", but.....! 

 

This is the big problem this year. US inflation could/should cool further this year and all the things listed above will improve further. The result will be a stronger baht/cheaper imports and the government can throw up its hands in glee and claim to have saved the day, without having changed or improved anything and really, without needing to do anything whatsoever!
 

[blazes]

If I had to put money on it, I would bet that the FED will not cut until the November and/or December meetings of the FOMC.

All good for gold, though.....

[Mike Lister]

7 minutes ago, blazes said:

If I had to put money on it, I would bet that the FED will not cut until the November and/or December meetings of the FOMC.

All good for gold, though.....

I don't think that matters that much because FOREX reacts to the news rather than the fact. Overnight, the USDI fell to 104 and USD/THB weakened to 36.27 spot, and that's before BOT has woken up.

[swissie]

On 5/14/2024 at 7:58 AM, newbee2022 said:

With a strong economy a debt of 64% GDP should not be any problem. Compare UK, EU and US 🙏

64% ? About same as Switzerland. BUT: Thailand (with the help of China) still has the potential of strong economical growth.

In Switzerland, if ever we should see annual economic growth over 3%, our 65 year old women will dance naked in the streets. Exclaiming: Halleluya , the Gods are with us.

[newbee2022]

13 minutes ago, swissie said:

64% ? About same as Switzerland. BUT: Thailand (with the help of China) still has the potential of strong economical growth.

In Switzerland, if ever we should see annual economic growth over 3%, our 65 year old women will dance naked in the streets. Exclaiming: Halleluya , the Gods are with us.

Wow, tell me when it happens🤗

[swissie]

Brothers, let's face it. Not much economic growth in the west and meager productivity increases for the last decade.

What kept the party going? 0% interest rates (money for free). In the meantime the world has accumulated a mountain of dept, that would even make John Wayne shake in his boots.

To keep the party going, we need "free money" again, one way or the other.

It's an addiction. What does the world need? Cocaine, Heroin, Extasy? No, what the world needs is "free money" once more. Otherwise the party will end.

[Mike Lister]

3 minutes ago, swissie said:

Brothers, let's face it. Not much economic growth in the west and meager productivity increases for the last decade.

What kept the party going? 0% interest rates (money for free). In the meantime the world has accumulated a mountain of dept, that would even make John Wayne shake in his boots.

To keep the party going, we need "free money" again, one way or the other.

It's an addiction. What does the world need? Cocaine, Heroin, Extasy? No, what the world needs is "free money" once more. Otherwise the party will end.

79% of companies that reported in the latest US earnings season, reported increased profit, that's good.

[swissie]

10 minutes ago, Mike Lister said:

79% of companies that reported in the latest US earnings season, reported increased profit, that's good.

If they eventually have to "roll-over" their 1% loans to (new) 5% loans, their balance-sheet may not look so good anymore.

[Mike Lister]

7 minutes ago, swissie said:

If they eventually have to "roll-over" their 1% loans to (new) 5% loans, their balance-sheet may not look so good anymore.

Yes I agree with that. Small caps are a particular problem in that respect with over USD 600 bill in loans needing refinance in the next few years..........few people want to buy US small caps as a result.

 

https://www.riotimesonline.com/a-looming-financial-storm-the-600-billion-debt-challenge-for-u-s-small-caps/

[BigBruv]

29 minutes ago, Mike Lister said:

79% of companies that reported in the latest US earnings season, reported increased profit, that's good.

 

 

Massively inflated money supply = increased profits.

 

$1,000,000,000,000 of new 'money' every 100 days

 

Maybe not so good for society

 

 

[swissie]

13 minutes ago, Mike Lister said:

Yes I agree with that. Small caps are a particular problem in that respect with over USD 600 bill in loans needing refinance in the next few years..........few people want to buy US small caps as a result.

 

https://www.riotimesonline.com/a-looming-financial-storm-the-600-billion-debt-challenge-for-u-s-small-caps/

While the US Russel 2000 is holding up quite well.

 

Who is buying the "small-caps"? Or: Who is not selling the "small caps"?

[Mike Lister]

2 minutes ago, swissie said:

While the US Russel 2000 is holding up quite well.

 

Who is buying the "small-caps"? Or: Who is not selling the "small caps"?

Er, I confess, I bought GBP 5k of Vanguard Global Small Caps only today. My wife can't resist a sale or a discount, some of it must have rubbed off on me. 🙂

[swissie]

As I like to buy low and sell high I am not really a happy camper these days, as "everything" seems "high".

I am trying to focus on "fallen angels /turnaround situations". I found out that it takes a lot of work for the individual investor to find such (viable) situations. Usually "run of the mill" advisories find turnarounds only after they have risen 30% already.

Question: Any research institute / broker / newsletter that spcialises in fallen angels / turnaround situations, BEFORE they have gained 30% ? Anyone?

[swissie]

On 5/16/2024 at 2:03 PM, swissie said:

64% ? About same as Switzerland. BUT: Thailand (with the help of China) still has the potential of strong economical growth.

In Switzerland, if ever we should see annual economic growth over 3%, our 65 year old women will dance naked in the streets. Exclaiming: Halleluya , the Gods are with us.

Eureka, it has happened.

Went to an old folks home and declared that the swiss economy will grow by 9.5% this year. Predictably, the old ladies tore off their clothes and asked for some "Chippendale" dancers.

Enthusiasm total. Within this environement it was easy to sell some life insurance to a bunch of 95 year olds. Backed by a insurance company, domiciled in Eastern Timbuktu.