More Statistical Hocus Focus in EU, Emerging Asia and Japan?

Have governments been desperate enough to resort to statistical trickery to boost up economic growth or downplay risks? 

Europe’s data management from Wall Street Real Times Economic Blog: (bold mine)

Sometimes, the absence of data is a data point itself.

Take, for example, a paper published Friday on transparency trends in the International Monetary Fund’s surveillance.

The paper — see Table 4 — reveals that the European Union and its member countries deleted sensitive information about their financial sector in more than a quarter of the IMF’s reports on their economies last year.

Emerging Asia also previously engaged in the same data mining activities…

It also shows that emerging Asian countries are more confident about public scrutiny of their exchange-rate policies than they were in 2010, when they deleted sensitive references to their exchange rates in nearly one-fifth of the IMF’s country reports on the region’s emerging market economies.

The fund’s annual reports on member countries’ economic policies—called Article IVs in a reference to the specific IMF bylaw that created them–are a hallmark of the global lending institution’s analysis. The reports are designed to ensure both domestic and international economic stability.

IMF’s justification of statistical data "management"….

Member countries have the right, however, to delete material in the reports they deem too sensitive, delay publishing of reports, and even prevent the IMF from publishing reports altogether. The deletions are to help rid surveillance reports of market-sensitive and potentially market-damaging data and preserve the IMF’s role as a trusted adviser. (See Table 8 for publication lags.)

See, when statistical data doesn’t fit with the political agenda, then data management have been rationalized or justified as “market-sensitive and potentially market-damaging data”. This means hiding, censoring or editing or data mining by governments, similar to the Chinese government experience, so as to purportedly “ensure both domestic and international economic stability”

We achieve “stability” by misrepresenting data? 

The logical relations flows the other way around. Phony or inaccurate data, which most likely underpins politically induced imbalances, motivates more mismanagement by politicians. And despite censorship, a continued buildup of such misallocation of resources will eventually reach a tipping point or a critical mass that will then be vented on the marketplace. Economic reality will expose on such whitewashed data.

And it may not just be about EU, emerging Asia and China.

Has Japan been managing statistical data too?

From another Wall Street Real Times Economic Blog:

In recent months, the government has been proudly trumpeting rises in consumer prices, including energy, as proof of its success in ending deflation. Yet non-believers have said that’s cheating, as the yen’s 11% fall against the dollar this year has naturally pushed up prices of imported energy.

The following quote on statistics attributed to Prussian born Austrian surgeon and amateur musician Theodore Billroth says it best…

Statistics are like women; mirrors of purest virtue and truth, or like whores to use as one pleases.

JETRO: Rapid Globalization To Spur Emerging Asia’s Outperformance

In the latest monthly outlook “Japan Looks for Economic Growth in Emerging Asia” by Japan External Trade Organization (JETRO), a Japan government owned trade organization, JETRO cites Emerging Asia’s economic prospects as very promising. (hat tip: Keith Rabin of KWR International)

The reason: (bold emphasis mine)

The dynamics of the global economy are changing. During the past century, global economic growth was primarily driven by activity in the “the three locomotives,” the US, EU and Japan.

Rapid globalization, however, is leading to new innovations, such as the proliferation of highspeed telecommunications and enhanced logistical infrastructure. This is resulting in a more connected, multi-faceted world. Economically, these changes allow companies to coordinate over long distances to optimize their supply chains and reduce their cost structure by moving production to developing economies. Building from a lower income baseline, stronger growth is helping to raise living standards and turn these developing economies into markets in their own right. As a result, they are now becoming the primary incremental drivers of global consumption and production.

And Emerging Asia's thrust towards deeper globalization have been anchored on manifold Free Trade Agreements (FTA) which would not only integrate Asia but foster more free trade with the world.

Emerging Asia Surpasses EU As Top US Export Destination

This should be a very interesting and promising development-Asia has surpassed the EU as the biggest US export market!

As reported by the Wall Street Journal Blog, (all bold highlights mine)

``Yet John Lonski, chief economist at Moody’s Investor Service, points out an interesting nugget within the March trade figures, released on Wednesday by the Commerce Department, in a note to clients today. March was “a watershed month,” he says, as “For the first time in recorded history, the moving 12-month sum of $227.6 billion of U.S. merchandise exports to Asia’s emerging market countries surpassed the… $223.7 billion of such exports to the European Union.”

``In the year through March, he notes, U.S. merchandise exports to emerging Asia — which includes China, India, Hong Kong, Taiwan, Korea plus a handful of smaller nations — rose by 3.7% while shipments to the EU dropped by 13.9%. In other words, U.S. exports to Europe have already been dwindling while Asia has become an increasingly important destination for U.S. goods. That should help U.S. companies avoid too much of a hit from euro zone woes.

``But the development carries risks of its own: Asian economies are growing so strongly at the moment that China in particular is scaling up efforts to damp inflation through tighter monetary policy. While a “soft landing” outcome in which the Chinese economy slows to say at 8% annualized growth rate would be ideal, a harder landing whereby higher interest rates slow demand precipitously can’t be ruled out. Indeed, it’s one of the top risks to the global growth outlook. Though much attention has been focused across the Atlantic lately, it’s actually the Pacific Rim which perhaps should merit closer scrutiny."

As we'd habitually point out, social actions are always dynamic, where people respond to ecological changes rather than being static-except in the eyes of retrogressive anti-development protectionists.

Moreover, the trade and competitive issues are not predicated solely on currency values (or the pixie dust economics for mercantilists), but on many many many factors such as the willingness or openness to trade, economic freedom, hurdle rate, market size and composition and relative costs in terms of tax and regulatory compliance costs, transaction costs, accessibility to finance, raw materials, technology, communication, labor and infrastructure, quality of communication and infrastructure platforms, accessibility to labor, relative labor costs, labor regulations, labor productivity and etc...

Otherwise this shifting trade development wouldn't be happening.

Moreover, this also goes to show of the broadening importance of Emerging Asia's role in global trade.

So yes the composition of world trade is changing, so will geopolitics.

Has The Deleveraging Process Culminated? Where’s The Next Bubble?

``Many shall be restored that now are fallen and many shall fall that now are in honor.”- Horace, leading Roman lyric poet in Ars Poetica

Global markets rallied furiously over the week, setting stage for what perma bears call as the sucker’s rally. For all we know, they could be right. But I wouldn’t bet on them. Not especially when central banks start to use the first of its available nuclear option of monetizing government debt. Not when government central banks start running the printing presses 24/7 and begin a Zimbabwe type of operation.

We also don’t know to what extent of the forcible liquidations of the deleveraging process is into, what we do know is that governments are today starting to unveil their long kept ‘secret’ final endgame weapons. We appear to be at the all important crossroads. Will it be a deflationary depression outcome? Will it be a recovery? Or will hyperinflation emerge?

What we also know is that forcible liquidations from the ongoing debt deflation process have been responsible for the “recoupling” saga we are seeing today.

Figure 4 stockcharts.com: Gold leads Rally

In figure 4, compared to the previous failed rallies (2 blue vertical lines), gold, oil and commodities haven’t joined the bullish rebellion in global equities as shown by the US S & P 500 (spx), Dow Jones World (djw), and Emerging Market Index (EEM).

This time we see gold leading a broad market rally. The Philippine Phisix too has obliterated its 10.73% one week loss by surging 11.65% this week. And even our Peso has joined the uprising by breaking down the psychological 49 barrier.

In short, this week’s rally does look like a broad market rally. And broad market rallies usually have sustaining power.

The Philippine Stock Exchange’s market internal tells us that even during the other week’s meltdown, the scale of foreign selling appears to have diminished. It had been the local retail investor jumping ship. This week’s rally came with even less foreign selling even if we omit the special block sales of Philex Mining last Friday.

My ‘fallacy of composition’ analysis makes me suspect that perhaps the issue of deleveraging has ebbed, simply because as the US markets cratered to form a NEW low, just about a week ago, key Asian stocks as the Nikkei 225 ($nikk), Shanghai composite ($ssec) and our Phisix have held ground see figure 5.

Figure 5: Stockcharts.com: Asian stocks Show Signs of Resilience

To consider, even as streams of bad economic news keeps pouring in, as Japan has reportedly entered an official ‘technical’ recession or two successive quarters of negative growth, its main benchmark the Nikkei appear to be holding ground.

It’s been said that once a bear market has stopped being weighed by more streams of bad news or despite this they even begin to rise; this mean that markets may have digested all negative info and may have signaled that a bottom has finally been established. As we quoted Jim Rogers on a video interview, ``When people say it is over and when we you see more bad news and stocks stop going down. But when they go up on bad news, that’s when we are gonna hit bottom. We are not gonna scream I don't know."

Although it could be too premature to decipher recent events as a bottom, we’d like to see more improvement in the technical picture and even more participation from major benchmarks of the region (djp2) aside from sustained rise from the market leader-gold.

Furthermore, if indeed the deleveraging process is beginning to fade, then the next phase should be markets factoring in the repercussions from the recent credit crunch to the real economy. But considering the steep fall during the October-November carnage, it is our impression that most of these had already been factored in.

Moreover, the downturn in the real economy should reflect divergences because not all of the Asian region’s economy will experience recessions see figure 6.

Figure 6 IMF: Emerging Asia Quarterly Growth Forecast

As you can see from the IMF’s regional outlook, except for Industrial Asia (Japan, Australia and New Zealand) which is the only class expected to flirt with an economic recession 2009, the rest of Asia’s economic growth engine is expected to only moderate with the Newly Industrialized Economies (Hong Kong Korea Singapore Taiwan) experiencing the most volatility (steep fall but equally sharp recovery). Most of the Asia is expected to strongly recover during the second half of 2009.

Now if the IMF projection is accurate and if stock markets are truly discounting economic growth to the streams of future cash flows of companies, then we should begin to see today’s rally as sustainable, reflective of these projections and at the bottom phase of the market cycle.

This also means sans further deleveraging prompted liquidations, we could expect some stark divergences in market performances. Unless, of course the headwinds from the collective efforts to inflate impacts every asset class simultaneously, which we think is quite unlikely. But as we earlier said, the bubble structure in the US isn’t going to revive and that any new bubble will come from elsewhere, for example the US dot.com boom bust cycle shifted to the housing industry in 2003 as an offshoot to the inflationary policies applied against a deflating tech industry led market and economic bust.

Boom-bust market cycles always involve a change of leadership. And considering that gold has been the frontrunner during the recent bounce, we suspect that precious metals, energy, commodities, emerging markets and Asia as the next bubbles to blow.