Aging populations with soaring debts.

PaulRen's picture

The decline of West and the rise of the East.  Debts and decadence is the problem.

In the past few articles we discussed just some of the macro horror problems the developed West has brought upon themselves over the past 20 to 40 years. Going forward it does look grim. With the West, I mean principally the US, much of the EU and even Australia. Called them the laming UEA.  Just now all this is getting some deserved global attention with Time Magazine's latest issue and solid books like  "How the West was Lost"  by Moyo Dambisa (2011).

The demographics of UEA are hugely disturbing looking over the say next several decades; where likely there will be more people retired there, then are working. Younger people in the future will have to work for their own pensions plus on top, pay for the pensions and health care benefits of their retired now old baby boomers.  Many future pensions are hugely underfunded especially in the US and UK,….the number there are simply mindboggling and so a catastrophic future liability.  

Not only are their populace numbers huge but the likely increases in average longevity, along with ever more expensive (western) diseases (like diabetes and Alzheimer to name just 2), will enormously increase the health and pension liabilities to those societies for years to come.  I read some of the studies, projections and realistic numbers on this -and its absolutely mind boggling.  Further, modern/western life style diseases prominent in UEA, like diabetes, are increasing at an alarming rate from an already high base. One credible source projects there will be an explosion of 160% over the next 10 years.  Diabetes, to single just one out, in itself is an expense health problem to any society where million have it and their number are spiraling out of control.

Huge unprecedented levels of debt.

While many of us are aware of the huge debt problems in many of the UEA, I think few of us realize their magnitude.  In the US it’s a profound problem where the numbers are so high that to many don’t mean anything anymore, just see this link and get nauseous. 

The outstanding debt per individual US tax payer is shown there at US$128,061, when I checked a moment ago on March 5th. '11.  36 hours later it was shown 128,144. Maybe this is the number we should all be monitoring in the future.

According to a recent Financial Times article “in cash terms , the UK government expects to borrow more in 2009 and year 2010 then the entire borrowing of all centuries of British governments, between 1692 and 1997”.  Between 2001 and 2007 the US public debt burden grew from US$ 3.32 trillion to 6.5 trillion, this is an increase of 96% in just six years.  From those same years US public debt rose from 33% of GDP to 47% in 2007, and this even before their induced financial crisis of 2008, which spiraled debt even more. 

In recent times the average US household owns 13 credit cards, of which 40% has debts outstanding, this vs. around only 3 with only 6% having a debit balance in 1970, just before I moved to the US.  At the above us debt master clock, total credit card debt is shown at 805 billion US$; not counting home mortgages this comes to over US$52,010, personal debt per person -and its still growing.  The only debt that is falling is home mortgage debt, but not as fast as home prices are. 

By 2008 household debt had grown from US$ 680 Bill., in 1974 to US$ 14 trillion in 2008 and now 16.1 trillion. That is about the size of the total American economy. Since 2007, their national debt has been rising at a 3.6 Billion a day since year 2007. Its been calculated that every American would have to work for one full year for free, just to cover their debts. Enough on that as its more then scary and as much as global potential destabilizing factor as any.

Regardless if you talk about: outrageous Western executive compensation, UEA liability suits/risks, lack of new engineers and huge misallocation of resources in more then just one sector, it all boils down to a combined clear decline of the West going forward. 

Consider for example the US banking/finance industry. In year 2007 it spent some 42 Bill. US$ just on “IT infrastructures”, which mostly went yes for and better, faster and ever more complicated financial trading and instruments infrastructure. And the following year it spent a similar amount despite, all despite financial crisis! What good to society overall are all those derivatives, mammoth currency trading tools, Quants, ETS’s and more bringing to society? And all at huge salaries and bonuses! 

So many MBA’s, MS, PhD’s and other educated/smart people end-up on Wall Street or in big banks for years already with high paying “careers”. When instead their education and livelihood could be employed to solve the world’s real problems, like pollution, global warming, food shortages, speed trains, failing infrastructure and more.  In the meantime, the number of new engineers are dwindling in UEA along with neglected infrastructure; even while lawyers and psychologists just to name 2, are exploding in numbers. Just the opposite of what is happening in China and so many other developing countries.  As investors besides global citizens we must all ask ourselves what this means in time. Surely its one reason why I view holding high yielding Thai values shares is a good place to stay put.

While western visitors and residents often point out to the occasional Thai oddities, like stray dogs or bad drivers, not to mention corruption, there are plenty of oddities in the developed countries, the UEA’s!  

I will spare you a cultural list/comparison but here are a couple of them anyway. was run through a Swiss company until 2009.  The Geneva certified accountant confirmed in front of 3 adults that our yearly accounting bill would be, at most 1,500 SFR.  It was so for the first year.  A year later we received a bill of over 5000 SFR, (155,000 Baht), when asked why he just told us “extra billing hours, at 280 SFR, per hour”.   (1 SFR is 32 Baht).  No other reasons, clarification were given. When I said I would not pay this, the Swiss resident administrator said we have to pay, or his name would be tarnished in Swiss society.  Having no choice, I so paid the equivalent of 7-8 of your annual memberships, to this crooked accountant for nothing, and then we fired him. 

In the US, many Zoo's there charge 40$ to 60$US, per family admission. Wow. But wait, as then you get to feed the rain deers peeled carrots.  The cost of a US worker in a Zoo is around 50,000 $ per year, inclusive of all fringe/health/holidays and pension benefits, and this for a better part of each day to peel these carrots?  I did not know that rain deer’s only eat peeled carrots?  Also, we don’t want to feed the rain deer’s, only visit the zoo.  Or it used to be that in the US if you stopped your car insurance (say due to an absence overseas),  they then have your insurance record start from scratch again,  i.e. rating you the same as a new driver with high premiums.  They do this because when they ask where your current insurance is you have to say “none”, just now. So they rate you as a new driver. 

Anyway, we all know Thailand has problems and shortcomings like every culture it has its issues, political problems, inequities, absurdness and differences contrast which it also has many strengths. The problem so many foreigners make when considering Thai stock investing or living here is in not balancing these. This with or as compared to their own culture’s shortcomings.  Too often they consider their own cultures shortcomings normal or accepted while that of Thailand’s as bad.  Where is the balancing?

Belgium, a developed country in the EU, has not had a working government for 266 days now, even surpasing Iraq's. So political instability is not just reserved for Thailand!

Here just below is how one financial advisor just wrote one of our members, this is so typical:

" Neil has mentioned that he does not recommend holding too much funds within Thailand, firstly due to the political instability & secondly due to the fact that once you bring the money into Thailand, is it very difficult (if not impossible) to send the money out again.  His views are that you should still keep a large part of the IWA funds offshore in a tax-free environment (as currently set up with Zurich International). "

This is so typical of foreign financial advisers here -and abroad which go around talking nonsense for years;  just so to keep their clients money from investing directly into Thai stocks where they cannot charge any fees!  So with their plain misinformation along with "fear mongering",  so talk foreigners out of doing anything here.  Plain lies as foreign funds transfered to a Thai broker account, can always get their money back out, with gains and tax free!  If this was not so, no foreigner would invest here.  Its one reason why so many miss out here, at their own perril, as they are exposed to lies from Western hooligans.

Regardless, the realities are moving forward.

Already studies from Merrill Lynch and Capgemini expect the Asia –Pacific region to overtake North America as the largest concentration of wealthy people in the world by 2013.  ¾ of all currency reserves are now owned by the emerging economies with China itself owning 1/3 of this entire reserve pool.  India has the largest middle class in the world and as posted in our member lounge, this country is by a long shot the largest single depositor of private funds to Swiss bank accounts.

Even while we will here have our investor limitations/weakness/setbacks, I for one remain convinced superior returns will continue over time and that our hard earned capital deserves to own a few good Thai value shares, with their high dividends, low debts and reasonable executive compensation.  Not least in a growing continent with low debts, along with so many young people.

Today, at 09:45 Bangkok time I added STPI (26.25, the opening price) back to my current running model portfolio, as noted.

Best Regards,

Paul Renaud.

PS.  Cultural differences or arrogance?  Consider this story regarding tourists which often come to Thailand and complain about stray dogs which on rare occurrences can be a nuisance here.

A few years past a horrific crime happened in Patong, Phuket.  An Englishman murdered a mother and daughter, then stole their credit cards, just so to get cash. This criminal had done this a number of times in other countries before, including in Singapore.  His line of attack was to burry his victims 5 foot deep, after killing them with a high voltage device. But not long after his last attack a stray dog smelled and then digged up the corpses. The police came and investigated instantly.  Only because of this stray dog, did they find the killer!  The bad guy was extradited to Singapore so they can do the dirty business of sentencing him to death there, as he had done this there as well as well as other places for some years. It so took a stray dog in Patong to end this horridness.  Stray dogs can save lives…but that never made any headlines.

It took a stray Thai dog to end this. Likely saving future lives by catching this monster.  This is not to sanction stray dogs, only to give another side to the casual observer whom never knew this story or another angle.  Oh well, back to Thai stocks.