Socialism: ‘Endgame’, Sharpfokus78
February 13th, 2019
⏰ 2 minute read
⏰ 2 minute read
The final battle
In case you haven’t been watching the news, the world is winning the final battle against socialism. It’s playing out in full blown communist China, which now suddenly doesn’t matter, in socialist Europe which is collapsing with the U.K. about to get our first. Brazil just did a 180 pivot & as if it needed saying, Trump just reiterated the US will never be socialist.
GDP no growth
Full blown socialism
Here in SE Asia we have had our socialist leanings too. A mix of following Europe, then China with some American free market capitalism in the mix too. In Indonesia the traditional lighter model turned full blown starring around 2011 & went off the charts from 2014. The effect was predictably negative & economic growth collapsed.
GDP slowdown
Back in the years from 2000 up to 2011, our economy grew very rapidly from a mix of government preoccupied with fuel prices, tax cuts & privatizations, GDP grew over 20% a year in rupiah & almost 20% in $ terms too. We quadrupled in size & reached $1 trillion. We grew as fast & domestically faster rhan China did, but nobody noticed.
0% growth
Then from 2012 things started to slow down. Of course, you don’t notice these things at the time & it’s easy to see now with hindsight. But GDP growth didn’t just slow down a little bit, it dropped sharply & relentlessly. In rupiah growth slowed to single digits & in $s it slumped (on a moving average basis) close to 0%.
Budget deficit
Small deficit
What changed? Government got bigger, much bigger. We can now laugh about the concerns over the budget & government debt in the late 1990s financial collapse. They look so small. But for a while, they meant that the government stayed small & even shrank. Budget deficits stayed close to zero for years. Before 2009 the biggest deficit was just Rp30 trillion.
In case you haven’t been watching the news, the world is winning the final battle against socialism. It’s playing out in full blown communist China, which now suddenly doesn’t matter, in socialist Europe which is collapsing with the U.K. about to get our first. Brazil just did a 180 pivot & as if it needed saying, Trump just reiterated the US will never be socialist.
GDP no growth
Full blown socialism
Here in SE Asia we have had our socialist leanings too. A mix of following Europe, then China with some American free market capitalism in the mix too. In Indonesia the traditional lighter model turned full blown starring around 2011 & went off the charts from 2014. The effect was predictably negative & economic growth collapsed.
GDP slowdown
Back in the years from 2000 up to 2011, our economy grew very rapidly from a mix of government preoccupied with fuel prices, tax cuts & privatizations, GDP grew over 20% a year in rupiah & almost 20% in $ terms too. We quadrupled in size & reached $1 trillion. We grew as fast & domestically faster rhan China did, but nobody noticed.
0% growth
Then from 2012 things started to slow down. Of course, you don’t notice these things at the time & it’s easy to see now with hindsight. But GDP growth didn’t just slow down a little bit, it dropped sharply & relentlessly. In rupiah growth slowed to single digits & in $s it slumped (on a moving average basis) close to 0%.
Budget deficit
Small deficit
What changed? Government got bigger, much bigger. We can now laugh about the concerns over the budget & government debt in the late 1990s financial collapse. They look so small. But for a while, they meant that the government stayed small & even shrank. Budget deficits stayed close to zero for years. Before 2009 the biggest deficit was just Rp30 trillion.
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Big deficit
From 2000 to 2011 the total cumulative deficit was just Rp150 trillion. Then things got much bigger. The government had always had subsidies & to this were added free health & education, infrastructure spending, a huge tax grab & loads more regulation. The negative effect on the economy should have been easy to predict.
2018
The cumulative deficit from 2012 to 2018 reached Rp1,609 trillion or 10X the whole decade before! The 2017 peak of Rp300 trillion also 10X. But during 2018 we changed. The rupiah fall to 15,000 & rise in the oil price refocused government attention on cutting spending & by the end of 2018 we finally had a lower deficit (Rp260 trillion) for the first time since 2010.
Indo vs Apple
Winner
As we’ve mentioned before, the Indonesian economy performed extremely strongly in the 2000s & equity investors were able to make huge money. Apple was the big global equity story of the decade as trey launched iPod, iphone & iPad. But it was the Indonesian economy which quietly performed better than Apple market value.
Loser
Then as government here expanded out of control, our economy slowed. Meanwhile Apple went from strength to strength. The most incredible relative performance occurred. From less than half the value of the Indonesian economy, Apple caught up with us in just 6 short years & then overtook, reaching almost $1.1tn,
Winner again
But as we have written, Apple’s own success bred hubris (Tin). Within just a few months, the effect of an improving Indonesian budget helped the rupiah recover strongly which resulted in a return to $ economic growth (5% in the last 3 months of 2018). Apple went the other way (down) & suddenly Indonesia is out performing again.
Next oil
The huge socialism experiment in Indonesia has played itself out over a relatively short period (7 years) & now it’s finally over. Yes you will still see signs of it, but the direction is now firmly up. With such a cheap market to GDP ratio, equity performance here can now boom again. The next stage is a soaring oil price which will keep the government tied up in raising energy prices which will boost stocks (especially commodity) even more.
Be a great investor!
Sebastian
From 2000 to 2011 the total cumulative deficit was just Rp150 trillion. Then things got much bigger. The government had always had subsidies & to this were added free health & education, infrastructure spending, a huge tax grab & loads more regulation. The negative effect on the economy should have been easy to predict.
2018
The cumulative deficit from 2012 to 2018 reached Rp1,609 trillion or 10X the whole decade before! The 2017 peak of Rp300 trillion also 10X. But during 2018 we changed. The rupiah fall to 15,000 & rise in the oil price refocused government attention on cutting spending & by the end of 2018 we finally had a lower deficit (Rp260 trillion) for the first time since 2010.
Indo vs Apple
Winner
As we’ve mentioned before, the Indonesian economy performed extremely strongly in the 2000s & equity investors were able to make huge money. Apple was the big global equity story of the decade as trey launched iPod, iphone & iPad. But it was the Indonesian economy which quietly performed better than Apple market value.
Loser
Then as government here expanded out of control, our economy slowed. Meanwhile Apple went from strength to strength. The most incredible relative performance occurred. From less than half the value of the Indonesian economy, Apple caught up with us in just 6 short years & then overtook, reaching almost $1.1tn,
Winner again
But as we have written, Apple’s own success bred hubris (Tin). Within just a few months, the effect of an improving Indonesian budget helped the rupiah recover strongly which resulted in a return to $ economic growth (5% in the last 3 months of 2018). Apple went the other way (down) & suddenly Indonesia is out performing again.
Next oil
The huge socialism experiment in Indonesia has played itself out over a relatively short period (7 years) & now it’s finally over. Yes you will still see signs of it, but the direction is now firmly up. With such a cheap market to GDP ratio, equity performance here can now boom again. The next stage is a soaring oil price which will keep the government tied up in raising energy prices which will boost stocks (especially commodity) even more.
Be a great investor!
Sebastian
Sharpfokus78 is based on 4Q GDP data & the December budget data released last week.
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