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Fooled By Inflating Economic Bubbles: Credit Suisse Wrong About Coming Global Millionaire Boom; Growing housing bubbles in Australia and many European countries
Topic Started: 11 Oct 2013, 11:30 AM (337 Views)
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Credit Suisse Is Wrong About The Coming Global Millionaire Boom

Jesse Colombo, Contributor

Credit Suisse released its annual Global Wealth Report yesterday that includes their audacious prediction of a 50 percent increase in the global millionaire population by 2018. The bank is quite bullish on emerging markets, and projects a 72 percent increase in the number of millionaires in the Asia-Pacific region, an 88 percent increase in China, and a 64 percent increase in Latin America and Caribbean countries. In fact, there is no region or country where they don’t expect to see high double-digit growth in the number of millionaires. Even ailing North America and Europe are expected to see 41 percent and 47 percent respective increases.

Here is the full list of Credit Suisse’s projections by country and region:

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I am extremely skeptical of Credit Suisse’s prediction of a coming wealth boom because I believe that they are being fooled by the inflating post-2009 economic bubbles that I am currently warning about, which include China, emerging markets, Australia, Canada, European housing, and American housing and equities. These latest bubbles are helping to create the illusion of a global economic recovery as they drive a bull market in investment assets, boost corporate earnings, create new jobs, and provide a reason for optimism.

Many countries’ post-2009 economic bubbles are even worse than the U.S. housing and credit bubble at its peak in 2006. Norway, which is frequently lauded for its economic performance in recent years, has a growing housing bubble that dwarfs the U.S.’ bubble in comparison:

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Canada, another country that is receiving praise for its booming economy, is making the same mistake as Norway:

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Canada's Housing Bubble Canada and Norway are hardly isolated examples of this phenomenon: Australia and many European countries show the same pattern, while new property bubbles are ballooning across the developing world from Indonesia to Brazil to India. In my last report, I showed that U.S. stocks and a good portion of our economy are experiencing a bubble as well.

Economic bubbles create temporary wealth booms until they pop, which causes non-bubble savvy observers like Credit Suisse’s Wealth Report researchers to make simple linear projections of current wealth trends far into the future; unfortunately, linear extrapolation is rarely effective in the world of finance and economics. Take Iceland, for example: from 2005 to 2007, commentators were extremely bullish on the country’s prospects, they had recently jumped to the very top of the U.N.’s list of world’s most desirable countries to live in, and it seemed as if they could do no wrong. Of course, it was revealed shortly after that Iceland’s economic boom was actually fool’s gold as it was driven by a credit and asset bubble that led to the country’s horrifying financial crisis in 2008. I truly believe that anyone who is currently expecting a global wealth boom is making the same mistake that Iceland bulls made in 2007.

Some people may believe that Credit Suisse’s wealth boom prediction is likely to come true as a result of inflation, but this logic is flawed because it assumes that the global asset bubble can continue growing indefinitely without experiencing a shock or a collapse. I distinctly remember the same argument being used to justify the U.S. housing bubble as well.

When analyzing and projecting economic trends, it is imperative to question where growth is coming from (is it genuine growth or bubble-driven growth?), as opposed to simply looking at the end results (rising global wealth, in this case) and making linear projections into the future.

Please follow me on Twitter and Facebook to keep up with the latest bubble news and my related commentary.

Read more: http://www.forbes.com/sites/jessecolombo/2013/10/10/credit-suisse-is-wrong-about-the-coming-global-millionaire-boom/
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