Wednesday, June 30, 2004

Cross-border stock trading has a long way to go

Cross-border stock trading has a long way to go
Posted: 2:41 AM | Jun. 30, 2004
Inquirer News Service

OFFICIALS of the Securities and Exchange Commission are keen on allowing cross-border trading on the stock exchange but they admit that there is still a lot of work to be done before they can go ahead with listing and trading of companies registered in other countries.

Registration requirements related to cross-border trading still have to be established in the Philippines, SEC Chairperson Lilia Bautista said.

The law requires companies to be registered first with the SEC before they are traded or listed on the stock exchange.

Bautista, who attended a June 19 ASEAN capital markets forum meeting in Bangkok, said most ASEAN members were still consulting one another on the standards that would make an integrated capital market possible.

According to a working paper discussed in the forum, integration of capital markets would make the ASEAN region more self-reliant, and development of a regional capital market in Asia would improve the region's economies by reducing reliance on bank loans.


The Prudent Investor: Cross-border stock trading should be one of the priorities of the SEC and the PSE in the pursuit of the development of our largely outmoded capital markets.

First it allows local investors to tap opportunities within the region which has thus far been the primary beneficiary of the US-China centric global growth engine. Second, it would dissuade domestic funds from habitually fleeing the local market out of the perceived 'lack of opportunities' and lastly, volume turnover would most likely improve as dometic investors would gradually learn of the intricaties of stock market investing. As volume improves, the sophistication of new products or instruments for investments would eventually emerge which should likewise expand the access of capital by local investors and entreprenuers.

June 30 Philippine Stock Market Review

On PGMA’s inauguration as the 14th President of the Philippines, the Phisix or the country’s major stock market bellwether fell 6.95 points or .44%.

While others may opt to oversimplify today’s market activities to exogenous factors, like the much awaited decision by the US Federal Reserve to raise its Fed rates later today, or internal events like the yesterday’s dispersal of the rallyists or die-hard supporters of vanquished presidential candidate action movie icon Fernando Poe Jr., looking closely, the 30-company Phisix slipped mostly due to foreign selling of Globe Telecom and Metrobank shares.

Of the eight major market heavyweights, the advances in property issues Ayala Land (+1.75%) and SM Primeholdings (+1.66%) failed to counterbalance the hefty declines in Globe Telecoms (-2.95%) and Metrobank shares (-3.57%) which practically weighed on the general market sentiment, as evidenced by declining issues dominating advancing issues 34 to 20. The other key index heavyweights closed unchanged.

Volume was light to moderate at P 493 million with foreign trades accounting for 68.29% of the aggregate output. Overseas money recorded a net positive inflow of P 30.784 million with the thrusts of buying limited to companies such as PLDT, Bank of the Philippine Islands, Ayala Land, Sunlife, Empire East and First Philippine Holdings. Aside from Globe and Metrobank, which registered the major foreign outflows for today, Petron (-1.61%)and Jollibee Foods (-2.04%) likewise succumbed to profit taking from overseas investors.

By industry basis, the commercial and industrial, banking and finance, and the oil index closed lower, while the mining, property, and the ALL index recorded slight gains for the day.

Incidentally, the rise of the ALL shares index was mainly due to gains in Sunlife which as of today's close accounts for 23.46% of the All share index, while its competitior the Manulife Financial accounts for 43.46%. Combined these two Canadian insurance titans represent 66.92% of the All shares index. The All share index, which supposedly function to reflect the broad market has been skewed towards the two insurance giants. The PSE should be replace the ALL-share index to MFC-SLF index instead.

World Bank: High Oil Prices Cause ASEAN to Look at Renewable Energy Sources

Rising oil prices have prompted ASEAN members to take a serious look at renewable energy sources, despite concerns over the cost of developing such resources, reports Agence France Presse. Renewable energy was among the key topics raised at a forum of energy ministers of ASEAN and Pacific Rim countries held in the Philippine capital this month to discuss ways of dealing with the high price of imported fuel.

The Philippines has one of the most ambitious plans. It wants to double its capacity for renewable energy from the present level of 4,500 megawatts or 37 percent of the total to 9,000 megawatts or 60 percent of the total by 2013. Energy Secretary Vicente Perez said this would involve wider use of geothermal energy, with the Philippines eventually overtaking the United States as the world's biggest producer of such energy. The Philippines also aims to be the biggest producer of wind power in Southeast Asia by the end of the decade and a leading producer of solar cells, while further tapping energy from bio-mass or organic waste materials like rice husks and sugar cane scraps.

Guillermo Balce, outgoing head of the Jakarta-based ASEAN Centre for Energy, said a study he had conducted found that ASEAN's demand for renewable energy was estimated at 68 million tons of oil equivalent (MTOE) in 2005 or about 1.8 percent of total energy demand. By 2020, demand for renewable energy was expected to rise to only 74 MTOE or 12 percent of the total. In contrast, demand for oil is expected to shoot up from 166 MTOE in 2005 to 292 MTOE in 2020. Even under ASEAN's energy plans, investment in renewable sources from 2001 to 2020 will only amount to about $15.44 billion or barely two percent of all ASEAN investment in the power sector, the centre said. In contrast, investment in natural gas will hit 85 billion dollars or about 43 percent of the total in the same period, its figures showed.

Tuesday, June 29, 2004

CBS Marketwatch: China beats U.S. as investment draw

China beats U.S. as investment draw
By Rachel Koning,
Last Update: 1:48 PM ET June 28, 2004

CHICAGO (CBS.MW) -- China has passed the United States as the recipient of the most foreign direct investment, luring $53 billion from developed countries in 2003, according to the Organization for Economic Cooperation and Development.

In all, as foreign capital flowed into emerging areas including China, developed countries saw investment slide 28 percent, to $384 billion last year from $535 billion in 2002, according to findings released Monday by the OECD, a group that tracks trade, economic and development issues for its 30 member countries.

The United States felt the biggest sting from a preference for headier, if often riskier, returns on development and investment in emerging markets. Investment flowing into the United States declined to $40 billion last year, down from $72 billion in 2002 and $167 billion in 2001.

This was the second consecutive year that the United States was a bigger provider of investment abroad compared to the investment it attracted.

Overall, a weak global economy in 2003, international security instability and a preference among firms to consolidate acquisitions rather than buy more companies contributed to falling direct investment among the OECD's 30 members.

By contrast, China offers investors the market size of developed nations, but developed areas in general can no longer entice business with the lower wages and production costs to be found in China, the group said. See more on the organization.

Foreign direct investment in China dipped only slightly, to $53 billion from $55 billion the year before, placing it as top recipient. The results typically exclude tax haven Luxembourg, which continues each year to draw vast capital flows.

India attracted $4 billion in foreign direct investment from OECD members in 2003. Russia lured just $1 billion, the lowest amount since the mid-1990s, as businesses were detracted by risks of regulation, the OECD said.

Among its European counterparts, France remained the biggest draw of foreign capital, seeing inflows of $47 billion in 2003, a sliver below that seen a year earlier -- but about three times the amount invested in Germany and the United Kingdom. It is relatively easier for foreign firms to buy French companies, at least conventional manufacturing, or "old economy" firms, than those in many other European countries, the OECD said.

Rachel Koning is a reporter for in Chicago.

The Guardian: Greenspan tiptoes on a tightrope

Greenspan tiptoes on a tightrope
Ashley Seager
Monday June 28, 2004

This week will almost certainly see the definitive end to the cheap money that refuelled the US and world economies in the dark days of the dotcom bust, September 11 and the war in Iraq.

The US federal reserve, the world's most powerful central bank, will on Wednesday finally raise interest rates for the first time in four years and by a quarter point from a 46-year low of 1%.

The move has been so widely hinted at by Fed officials in recent months that anything else would be a major surprise. Markets should be unperturbed. So far, so good.

For the past year the Fed, led by the redoubtable 78-year-old Alan Greenspan, sworn in a week ago for a fifth and final term, has sought to ensure the economy is firmly back on track after its three-year slowdown by keeping rates rock bottom. In real terms, adjusted for inflation, they are negative.

That job looks done or, possibly, as Greenspan's detractors say, overdone. Economic growth is steaming along at an annualised 4%, factory output is booming, and confidence among consumers and businesses is high.

And the recovery, long dubbed "jobless", is now generating a quarter of a million jobs a month, offering President Bush the chance to avoid becoming the first president since Herbert Hoover to preside over a net loss of jobs. Indeed, some argue that Greenspan, whose rate rises in the early 1990s have been cited as one reason George Bush Sr did not win re-election in 1992, has delayed tightening policy this time because an election is looming in November.

While Greenspan has retorted that he wanted to wait until the economy was creating plenty of jobs, there is no doubt that inflation is now rearing its ugly head. The headline measure has moved up to 3.1% from 2.1% a year ago while even core inflation, which strips out rising oil prices, is up to 2.0% from 1.1%.

The crucial question now is how the Fed weans the economy off the medicine of ultra-cheap money without causing nasty withdrawal symptoms such as a collapse in the over-heated housing market. The US economy is also carrying some other nasty imbalances apart from the the housing market. There is a record current account deficit and huge budget deficit, thanks to Bush's big tax cuts and spending on the war in Iraq.

Thus Greenspan is walking a tightrope and arguably without a safety net beneath him. Rates are clearly too low, say the critics, and have been for too long.

As the Bank of England's governor, Mervyn King, pointed out this week, rates in Britain have been rising since November and have only had to move from 3.5% to 4.5%, not far from where they probably need to be. And the economy here is only growing at an annualised rate of 2.5%, a lot slower than the US, as is inflation. In the US, Mr King said, rates will have to rise much further and faster than here. But the last time the Fed raised rates quickly, from 3% to 6% in 1994-95, financial markets suffered a meltdown, with knock-on effects on the economy.

It is clear that policy makers around the world are casting nervous glances across the sea to the US, fearful of the impact on their own economies if the Fed should mess up. Alistair Clark, a key aide to Mr King, crystalised the concerns last week: "Managing the process in a way that generates minimum disruption will call for considerable care both in determining monetary policy and in its presentation."

Small wonder, then, that Greenspan has stressed the Fed's gradualist approach and has used the word "measured" to describe the likely pace of rate rises. He has also argued that "inflationary pressures are not likely to be a serious concern in the period ahead", but that the Fed will do "what is required to fulfil our obligations to achieve the maintenance of price stability". In other words, "rates are going up slowly but we'll speed up if we have to".

A key part of controlling inflation is controlling workers' and firms' expectations about it. Give the impression that you have lost your grip on it and people demand bigger pay rises and companies raise prices. But stamp down too resolutely with rate rises and you can tip the economy off the edge.

So all eyes will be on the language the Fed uses to accompany its rate rise, particularly how the word "measured" is used, for any hint that the Fed may raise rates more quickly than markets are expecting.

For now, at least, economists think the Fed will bide its time, raising rates in quarter-point increments to 2% by the end of this year and 3% a year from now. But after that things are murkier. It is clear from statements from Fed officials that there is little agreement about how high rates may have to go to no longer stimulate the economy, known as the "neutral" rate. They have offered their own ideas in recent times, ranging anything between 3% and 5%.

"They are starting off on a journey but they don't know what the destination is," says Stephen Lewis, chief economist at Monument Securities in London. "I think they will carry on raising rates until the economy shows signs of slowing down, then they will stop."

The key lies with inflation. The gradualists on the Fed's rate-setting committee argue that the recent rise is only temporary and will pass. Oil prices appear to have stabilised below $40 a barrel and unemployment, at 5.6%, shows that the economy still has lots of slack to be used up before the labour market, in particular, starts to generate any upward pressure on wages and prices.

But the pessimists point to the fact that as inflation was very low last year, so-called "base effects" will mean some high reported numbers through the summer and autumn this year.

That could have a big upward effect on Americans' views about inflation. Figures show inflation expectations have already picked up to above 3%.

So if inflation does take off, Greenspan could well be proved to have been behind the curve. And if he has to play catch-up, talk of rates peaking in the 3%-5% range may be overoptimistic. The last peak, four years ago, took rates up to 6.5%.

Having said that, whichever candidate wins the US presidential race in November, there is likely to be a period of belttightening. Both Bush and his Democratic challenger John Kerry have promised to halve the budget deficit in the next few years.

So, just as the fiscal and monetary loosening of the early years of the new millennium have bought America, in the words of former IMF chief economist Ken Rogoff, the "best recovery money can buy", so a combined tightening may just slow things down nicely. But if things go wrong, Greenspan will go down in history as the Fed chief that lost the plot.

June 29 Philippine Stock Market Review

The Philippines' largest market cap and leading telecom company, the PLDT, buoyed the key 30-company benchmark by .38% on light but improved volume. Market turnover in Pesos swelled by 54.78% to P 414.660 million from yesterday’s sluggish P 267.892 million.

There were only two gainers among index heavyweights; PLDT’s modest advance of 2.2% plus Metrobank’s significant 1.81% gain more than offset the declines of Ayala Corp, down 1.72%, and Globe Telecoms, slightly lower by .58%. The rest of the heavyweights, Ayala Land, San Miguel A and B shares, SM Prime and Bank of the Philippine Islands closed unchanged.

Market sentiment was generally upbeat as advancers beat decliners 31 to 19 and these help support the gains of the select heavyweight issues. Moreover, foreign capital flow yielded a net positive P 13.674 million with the bulk of these directed to choiced companies, i.e. PLDT, First Philippine Holdings, Ayala Corp, Ayala Land and Jollibee, respectively.

The movements of the local market seem to mirror those of our neighbors; Thailand and Malaysia like us had marginal gains while Indonesia posted a slight decline, as of this writing.

As for the domestic industry indices, only the oil and the property issues reported declines, while the Commercial Industrial, Financial, the Phi-All and Mining Index posted gains. The Small and Medium Enterprise Index was untraded.

The oil index dropped by a significant 4.26% solely based Oriental Petroleum’s hefty fall. Other oil issues were unchanged. The Property index fell by a slim .15% on Filinvest Land’s 3.77% drop.

Monday, June 28, 2004

June 28: Philippine Stock Market Review

Lethargy could possibly be the appropriate word to describe today’s activities. Significantly reduced volume and mixed market breadth, despite a slight uptick recorded in the Phisix (.05%), reflected selective buying by local investors, as foreign capital recorded an outflow of a paltry P 5.580 million.

Among the blue chips Ayala Corp. (+3.57%), Ayala Land (+1.78%) and Bank of the Philippine Islands (+1.17%) lifted the Philippine benchmark, the Phisix, while major telecom issues PLDT (-1.31%) and Globe (-1.16%) declined on technical profit taking after last week’s blistering climb. San Miguel, SM Primeholdings and Metrobank closed neutral.

The market’s inertia could possibly be traced to the mixed performances of the US benchmarks on Friday, which sort of spilled over to the region’s bourses. As of this writing, among our neighbors, only Thailand and Singapore have manifested moderate gains, while Indonesia and Hong Kong, like our bourse, are almost unchanged. On the other hand, the bourses of Malaysia, South Korea and Taiwan are all modestly down.

The Asian region had an outstanding performance last week and today’s consolidation could possibly reflect a reprieve from the recent spurt. Aside, it looks as if the global markets are keeping a cautious eye/stance until June 30th when US Federal Reserve is expected to initiate the restoration of its Fed rates to ‘normal’ levels.

Stock exchanges to promote UN goals for business

Stock exchanges to promote UN goals for business
23 Jun 2004
By Irwin Arieff

UNITED NATIONS, June 23 (Reuters) - Ten stock exchanges from around the world will announce plans on Thursday to promote U.N.-backed environmental and labor standards among the 3,000 companies whose shares they list, U.N. officials said.

The initiative is part of a U.N. effort to expand the reach of the Global Compact, a four-year-old program that aims to help businesses become better corporate citizens.

U.N. Secretary-General Kofi Annan wants Thursday's Global Compact Leaders Summit to sharpen the focus of the program, which has grown since its birth to more than 1,400 firms in over 50 countries, making it the world's largest voluntary corporate citizenship network.

Hundreds of government, business and civic leaders involved in the compact are expected to attend the summit.

The 10 stock exchanges will announce plans to send the Global Compact's guiding principles to all their listed companies, with a total market capitalization of $3 trillion, the officials said.

The participating markets are Brazil's Bovespa, a grouping of European stock exchanges known as Euronext , and the German, Istanbul, Italian, Jakarta, Johannesburg, Luxembourg and Toronto stock exchanges, the officials said.

In addition, Bovespa and the Jakarta market are to become the first two stock exchanges to join the compact, they said.

Compact participants also plan to adopt a new guiding principle that "business should work against corruption in all its forms, including extortion and bribery."

Until now, the compact has had nine guiding principles in the fields of labor standards, civil rights, and environmental stewardship. Among them are developing environmentally friendly technologies and ending sweatshop conditions, child labor and discrimination against minorities and women.

"Adoption of the 10th principle commits compact participants not only to avoid bribery, extortion and other forms of graft but also to take action to prevent their occurrence," the program said in a statement.

Among those attending the conference will be Brazilian President Luiz Inacio Lula da Silva and about 150 corporate chief executives from around the globe.

Annan first proposed forming the Global Compact in 1999 as a way to encourage corporations to commit to key principles embodied in U.N. treaties or risk a backlash from poor nations left out of the benefits of globalization.

Participating firms have been asked to post their techniques for dealing with labor, human rights and environmental challenges spawned by globalization on the program's Web site (

Most members are from Europe and just 8 percent come from North America, reflecting U.S. firms' concerns that the compact's labor rights provisions could lead to lawsuits, compact officials said.

But membership is growing in the developing world, reflecting poor nations' desire to become more competitive in an increasingly global economy, they said.

Some labor, environmental and human rights groups criticize the compact, however, for not imposing binding standards or ensuring that participants live up to the guiding principles and the commitments they make on the program's Web site.

OPINION ON THE SPRATLY ISLANDS DISPUTE:Deflate tension with dialogue


I noticed that this June 2011, there has been quite a number of visits on this page. Nevertheless, this is an old (2004) but relevant article, not from me but from the Japan Times. This article was one of my test-experimental posts prior to my 'calling' to go blogging.

My personal opinion on the concurrent (2011) Spratly's dispute can be read here and here.

Deflate tension with dialogue
Special to The Japan Times

HONOLULU -- Recent events confirm that maritime territorial disputes in the South China Sea remain an issue for East Asian governments. Ownership of the Spratly Islands is claimed, in whole or in part, by Brunei, China, Malaysia, the Philippines, Taiwan and Vietnam.

In the first quarter of 2004 alone, the claimants took turns building up anxiety, raising concerns about the sustainability of the status quo and whether the 2002 Delaration on the Conduct of Parties in the South China Sea could ensure the claimants' self-restraint.

First came the Philippines' announcement of the Balikatan exercises with the United States in the South China Sea in February. The Philippine action appeared to be driven by Manila's growing uneasiness over an increasing number of visits by Chinese research vessels and warships in the Spratly Islands, as well as the sudden appearance of new Chinese markers on the unoccupied reefs late last year. The mounting tension did not dissipate until Philippine President Gloria Macapagal Arroyo assured the region that the military exercises did not have anything to do with the maritime territorial disputes.

Then came Taiwan's turn. On March 23, a Taiwanese speedboat carrying eight individuals landed and carried out the swift construction of a makeshift "bird-watching stand" on the Ban Than Reef. Vietnam strongly condemned Taiwan's move and demanded an end to the construction activities. Vietnamese Foreign Ministry spokesperson Le Dung branded Taiwan's handiwork "an act of land-grabbing expansion that seriously violated Vietnam's territorial sovereignty" and warned of possible consequences from Taiwan's "adventurism."

Taiwan's action didn't go unanswered. Two days after the Ban Than Reef incident, Vietnam reaffirmed its sovereignty over the Truong Sa (Spratly) and the Hoang Sa (Paracel) atolls by announcing that it would hold the inaugural tourist boat trip to the contested islands. China decided to conduct a Navy drill in the South China Sea on April 12, sending signals to the other claimants to back off.

The Chinese display of naval capability in the South China Sea didn't stop Vietnam. Unfazed, Hanoi gave its white navy ship HQ988 the go signal to sail for the atolls with about 60 tourists and 40 officials on April 19. Many saw the controversial eight-day round trip as the beginning of more Vietnamese tourism activities in the area -- a development that follows the Malaysian lead of a few years ago.

The maneuvering for advantage in the South China Sea reveals the frailty of the nonbinding declaration. In November 2002, the region celebrated the signing in Phnom Penh of the landmark declaration between the Association of Southeast Asian Nations and China in which the claimants agreed to avoid actions that could raise tension in the South China Sea. The nonbinding nature of the declaration, however, has been a concern for some of the signatories. Two years after it was signed, the parties are almost back to where they started. Most, if not all, do not seem ready to allow regional concerns to supersede their national interests. This is why, at least for some critics, the declaration has been reduced to a "flimsy piece of paper."

There are two views on the value of the declaration. Mark Valencia, an ocean policies expert at the Honolulu-based East-West Center, typifies the skeptic's view. He anticipated that the declaration was doomed, considering it a flawed attempt to reduce the heat over territory in the South China Sea. This view sees the declaration to be a self-deceiving exercise that satisfied ASEAN's thirst for political accomplishment, but did not offer profound changes in the security situation in the South China Sea. Valencia emphasizes that no loose agreement would prevent claimants from positioning themselves strategically in the lingering dispute.

The other view takes a more cautious position. Aileen Baviera of the University of the Philippines' Asian Center, for instance, cautions against a rush to judgment and outright dismissal of the declaration, arguing the claimants' constant reference to it whenever there is a problem suggests that parties continue to find value and purpose in its spirit. In this sense, the declaration has value as a referent, and modifies the behavior of the parties to the dispute. The Philippines' and China's efforts to downplay their navy drills as either part of a regular security routine or unrelated to the maritime territorial disputes indicate a turnaround in their more self-assured positions of the past.

Recent moves by Taiwan and Vietnam cannot be downplayed, however. It's time to reassess the declaration and see how similar incidents can be avoided. For one, the parties should start molding a set of guidelines that will diminish the gray areas in the declaration. The declaration should define the 10 points that the parties have agreed on and seek strategies to put them into operation them as soon as possible. The mounting criticisms of the declaration should create momentum for greater interest in a more binding agreement.

In addition, the parties should build on the prospects for regional cooperation that emerged out of China's decision to sign the Treaty of Amity and Cooperation with ASEAN on Oct. 8, 2003. Not only does the treaty commit ASEAN and China to a nonaggression pact, but it also increases the possibility of a more binding agreement on the South China Sea in the future.

Optimists and skeptics share the view that dialogue is a basic need in the South China Sea. But any fresh initiative should emphasize the need for progress in cooperative endeavors, rather than dwell on infractions. The parties can begin with the six proposed areas of cooperation in the declaration, which include marine environmental protection, marine scientific research, safety of navigation and communications at sea, search and rescue operation and combating transnational crime.

Taiwan will continue to be a problem. To date, China has refused to allow Taiwan to become a signatory to any legal accord in the South China Sea. Yet any failure to consider Taiwan's interests will enable it to play spoiler. A peaceful resolution to the disputes requires effective management of the Taiwan problem.

In hindsight, it was probably the lack of sustained dialogue that has weakened the foundations of the declaration. The parties overlooked the fact that continuous interaction is an equally important element of the signed declaration. While an informal working group still convenes, the gradual retreat of catalysts like Canada and Indonesia, as well as key individuals like Hasjim Djalal, has had an impact.

The parties may not readily agree, but it appears that the South China Sea needs another intermediary. Takers anyone?

Ronald A. Rodriguez, head of the Northeast Asia program and officer in charge of the security and strategic studies program at the Center for International Relations and Strategic Studies, Foreign Service Institute of the Philippines, is currently a Vasey Fellow at the Pacific Forum CSIS, a U.S. think tank based in Honolulu. These are his personal views.

The Japan Times: June 28, 2004
(C) All rights reserved

Japan's soaring debt now more than 700 trillion yen

Japan's soaring debt now more than 700 trillion yen

Japan's outstanding debt rose 4.9 percent from a year ago to a record 703 trillion yen as of March 31, the government said Friday.

At 1.4 times gross domestic product, Japan's public debt burden is the highest in the industrialized world. Per person, the government's liabilities total 5.5 million yen.

Japan's debt has risen in recent years despite cuts to the country's bloated public works budget, with the cost of caring for an aging population having climbed and an economic slump having squeezed tax revenue.

Deficit spending surged in the 1990s as the government poured cash into successive public works projects to boost the economy after the collapse of a real estate and stock market bubble. Prime Minister Junichiro Koizumi capped spending of this kind when he took office in 2001, arguing it was doing little to spur continued growth.

Still, the government plans to rely on bond issues to cover 44.6 percent of its budget for the current year through March 2005.

The Finance Ministry forecasts that fresh bond issues will total 36.6 trillion yen during the year, little changed from 36.45 trillion yen in the previous term. Analyst say, however, that Japan can hope for a boost in tax revenue this year due to an economic rebound powered by surging exports to China, among others.

The Japan Times: June 26, 2004
(C) All rights reserved

Sunday, June 27, 2004

Philippine Daily Inquirer on Jollibee's Tony Tancaktiong: This Jolly man deserves his 'langhap sarap' success

This Jolly man deserves his 'langhap sarap' success
Posted: 8:54 PM | Jun. 26, 2004
Margie Quimpo-Espino
Inquirer News Service

A FEW months ago, Jollibee Foods Corp. founder Tony Tan Caktiong was sitting beside a lady who was telling him about her meetings with top leaders like the Emperor of Japan and even President Gloria Macapagal-Arroyo.

He politely asked who the lady was and was told she was a Rockefeller in charge of the Foundation of one of the richest families in the US.

At that time, Tony Tan was in a bit of a quandary. Jollibee had become international food firm and had beaten McDonald's in the Phillippines as the number one hamburger chain in the country. Its overseas expansion had been set in place and its local acquisitions seem to be dominating in their respective niches.

Tan, whose family could not even afford to go to then, already had enough personal wealth to set him for life.

The problem was friends had been prodding to do more social works and a part of him wanted to do so.

But the Rockefeller heir told him, "If you focus on your business and you do good, that's charity because you employ people and you generate revenues for your country. People think that charity is just attending socio-civic activities and raising funds. If you do that and your business goes down, people will lose their jobs."

Tan says those words set him straight and although he can leave his job right not and not go hungry the rest of his life; and although his wife wants him to retire and enjoy their fruits of their 25 year labor, hanging his coat is still far from the 53-year-old's mind.

Entrepreneur of the year

Tan granted SundayBiz a rare one-hour interview recently. This came in the wake of his winning the 2004 World Entreprenuer of the Year award of Ernst and Young, one of the world's top accounting firms.

"It was shocking," says the chemical engineer graduate of UST of his feelings when the winner was announced. Jollibee bested 31 other entrepreneurs in the world including the US, Britain. Although Tan says they were not really told of their scores, he says the judges told him later that their decision was unanimous.

More surprising still was the stir the win created in the Philippines. Major newspapers (including the Inquirer) splashed their front pages with the story and a photo of a victorious Tan with his family.

"I was really surprised at the stir it created. My friends said it uplifted their spirits. And especially since this came in the wake of the win of Gerry Ablaza as Telecom CEO of Asia, and that student who won the speech contest, and before all these, Manny Pacquiao. . . "

Winning an international award was not really part of the vision of the Tan siblings when they set up a food venture 29 years ago. Although Tony says going international was.

Humble beginnings

Tony's beginnings are as humble as the lives of some of the people Jollibee serves everyday.

He is the second of seven siblings. His parents came from the Fujian province of China. His father was a cook in a Chinese temple. Which was why he and his siblings studied in a Buddhist school-the Philippine Sakya Academy. His father's employ was their ticket to getting an education. They were all given scholarships to study.

All of them did well in school and lack of money was not a hindrance to their getting top grades. Nor to enjoying life.

"We were poor but my mom did not make us feel we were. We had no new clothes but our clothes did not have holes. She made sure we did not beg. We could not afford going to movies so our enjoyment during weekends was going to Rizal Park and playing there. We did not have too much food but walang sayang (nothing was wasted). As a family, we did not feel poor. We managed to make ends meet."

When Tony was 11, his father was invited by a friend to set up a Chinese restaurant in Davao. The family packed their belongings and took a boat to the South.

By Grade 6 he was enrolled at the Davao Chinese High School where he finished secondary school. The restaurant did well. He and his brothers and sisters were made to help-just little things like bringing water to the customer. At times he admitted they created more mess than help but they all learned the restaurant business.

Tony had always excelled in math. He was among the top three best in Math in his school. His Math teacher told him, "If you want to pursue this and you want to go overseas, you go to school with a name."

He took his teacher's advice and took up engineering at the University of Sto. Tomas. He was the only one who studied in Manila. But plans of going abroad had to be shelved. He got married right after graduation and Tony says pressure to earn was immediately there.

Inheriting his father's entrepreneurial streak, Tony saw a poster in school about an ice cream parlor looking for franchisees. He decided to go into business. His father lent him the initial capital and he immediately set up two ice cream parlors-one in Cubao and the other in Quiapo.

Typical of Chinese families, his siblings went to Manila to help. He and his wife managed the Cubao branch while his brother and a sister handle Quiapo.

That was the era of the ice cream parlors-where families would have their chocolait parfaits or milkshakes, or the students would give their birthday treats.

Tony says the ice cream business did well. And being hands-on, they always talked to customers. "They would tell us, you know sometimes, we are hungry, we cannot just eat ice cream."

Guarded secret

The father's culinary talent came out in his children and Tony's sister had a good recipe for hamburgers. This was used and soon the sales of the burgers were outpacing ice cream.

Today this recipe remains a guarded secret. Only a few people in the company know and they are all required to sign a confidentiality agreement, according to Tony.

In 1978, the family decided to become a burger restaurant and changed its name to Jolly Bee from Magnolia Ice Cream House. After a few months, they shortened the name to Jollibee or happy bee with the animal symbolizing industriousness and spreading sweet things while moving around.

The choice of the word jolly is very appropriate to Tony who admits he rarely gets angry. "Mistakes don't make me angry but dishonesty does."

The bee has been working non-stop and today Jollibee has 467 branches with eight branches overseas including the US, Hong Kong and Brunei. It also has acquired other foods businesses-Chowking, Greenwich, Delifrance, Tom's Teriyaki and recently it acquired 85 percent of Yonghe, a fastfood chain in China with 91 branches.

In 1981, McDonald's the giant American burger chain, invaded Philippine shores. Tony says the US firm actually helped boost their business. Jollibee adjusted and adopted many of the systems of McDo.

Later on it adopted a two to one strategy-building two Jollibee outlets for every McDonald's branch. In 1981, Tony says they spent the whole year's profits on advertising.

What made him believe in marketing was observation. "I saw that all the big companies advertised. So I thought it must be right to do so."

But while they are ahead of McDo, he likens their competition to boxing, "McDonald's created competition and made us alert. We can't relax. The last punch can knock you down."

Asked how he has been affected by his success, Tony says "I enjoy it not in terms of money to spend but that I can create something."

He adds that the frugal yet comfortable lifestyle he had growing up has remained. And this has been acquired by two of his three children. And even her mother still expects the same conservative lifestyle.

"When we travel with my mom, and we book business, she'll complain. We tell her we want her to be comfortable but she replies that if she thinks of the additional expense she feels uncomfortable!"

His two children, who studied in the US, also complain if they are given business class tickets when they go home. His son who finished computer and business is now working in China; his eldest daughter has the desire to help people and is now teaching English in China. The youngest is still studying.

He can very well afford to buy the latest equipment for his new hobby-photography. His favorite genre is people. "I try to learn people but I don't have time!"

Tony admits raising of the children was left largely to his wife who had initially helped him in business. He says his wife still remains a valuable advisor in Jollibee although she no longer gets involved in the day to day operations.

On the whole, Tony says they were quite lucky at the growth Jollibee achieved. There is really no secret except taking to heart what his father told him decades ago, "If you're a tailor you make sure the shirt fits your client; if you're in the restaurant business, you make sure your food tastes good."

This is the secret of Jollibee-better tasting burgers and extremely crunchy chickenjoy (which actually sells more than the burger) than the relatively bland taste of its competiors. Thus the phrase "langhapsarap" has endured for over 20 years now.

copyright ©2004 all rights reserved

The Prudent Investor: Not only is Mr. Tan reaping raves and plaudits in the media; in the stock market Jollibee shares are being propelled by foreign and local investors to new heights, as testament to Jollibee and Mr. Tancaktiong's success. Indeed, a toast for Mr. Tan!

Solita Monsod: Simple Arithmetic

Simple arithmetic
Posted:9:35 PM (Manila Time) | Jun. 25, 2004
By Solita Collas-Monsod

MEMBERS of the FPJ/Angara faction of the opposition (as distinguished from the Lacson faction) joined by all the knee-jerk Gloria-hating crowd (e.g., Sanlakas), plus some of the losers who are trying to justify their poor showing (e.g. Eddie Villanueva), have repeated their charges of "massive fraud" so often that they are beginning to believe it themselves.

That is no problem. What is disturbing is that people of good will who did not have the time to monitor the canvassing and who just hear the sound bites are also expressing doubts about the validity of the Macapagal victory.

The opposition's most telling blow is the "they (the majority)-wouldn't-even-allow-one-single-Election-Return-to-be-examined" complaint, which hits two birds with one stone: It casts the majority as tyrants and as hiders of truth. Milking the issue, comparisons were drawn (with an implied threat) between the refusal to open the ERs and the refusal to "open the envelope" during the Estrada impeachment trial.

It was so effective that it erased from the memories of otherwise thinking men and women the surveys conducted by opinion research firms with proven track records showing Gloria Macapagal-Arroyo trailing at first, then gaining, then pulling ahead, and finally winning (in the exit polls).

Thus, you have Walden Bello saying that while his original opinion was that Gloria had won, his suspicions were aroused by the majority's refusal to open "just three" ERs (he meant, of course, the ERs of three provinces). And others asking, what is wrong with opening these ERs if it means getting to the truth? Why hide behind technicalities?

Let's look at the issues. First is the comparison between the refusal to open the ERs and the refusal to open the Estrada envelope. That is an odious one, and entirely without basis. In the impeachment case, the contents of the envelope were a mystery to everyone. With the ERs, the parties concerned--the Comelec, the majority coalition, the dominant opposition, the citizen's arm--had access to their contents. By law, they get a copy of every document in the counting process. Not only were the ERs available for inspection at the precinct level, they could have been questioned and the counts corrected at the municipal level and then at the provincial level. In effect, the opposition had three opportunities to examine those ERs, complain and have the counts corrected. The truth was there for them to pursue.

Maybe their watchers and lawyers were sleeping on the job or incompetent. But, they argue, this should not result in the Filipino voters being "punished" by the victory of a candidate who "did not really win." What is wrong with opening these ERs one more time in the interest of truth?

Opening the ERs of three provinces seems eminently reasonable; after all, the original opposition demand was to examine all the ERs, which was scaled down to the ERs of 25 provinces, and finally to three.

Let's do some arithmetic to appreciate what is involved in examining those ERs. Start with 216,000 ERs in the country. Divide by 102 (provinces and cities with Certificates of Canvass; the rest of the 177 CoCs were from abroad with one percent of the votes). Rounding off, we get an average of 2,000 ERs per province.

Assume six minutes to examine each ER, an assumption which may be a gross underestimation. Multiply 6 minutes by 2,000 ERs and you have 12,000 minutes. For one province. That is equal to 200 hours. Thus it will take, on the average, 200 hours to examine one province's ERs. How many days? If you are talking of a 24-hour day, with no rest periods, that is 8.3 days. A more reasonable (but still unrealistic) 12-hour day means 16.7 days per province.

Now multiply that by three, and we realize that to examine the ERs of three provinces will take at least 50 days or seven weeks (working seven days a week) to eight weeks (working six days a week). And that time doesn't allow for any but the most cursory examination of the ERs.

That period would extend beyond June 30. The terms of office of the legislators would have expired, except for 12 senators, and the new Congress does not convene until the third week of July.

Let's not even go that far. It turns out (per Romy Makalintal, election lawyer par excellence) that the number of ERs for which the opposition seemed to have some evidence of irregularities totaled--is the reader ready for this?--1,390. Yes, Virginia, all that ranting and raving of someone like JV Bautista was actually, as Makalintal described it, nothing but "kuwentong kutsero (barbershop talk)." There were only 1,390 questionable ERs out of 216,000. Does that constitute "massive fraud"?

Would it have materially affected the results? Let's do some more arithmetic. Say that the number of questionable ERs was actually 2,000, instead of 1,390. On the average, precincts have 200 voters. Assume that all the votes in those ERs were for FPJ, zero for Ms Macapagal. That means 400,000 (2,000 ERs x 200 voters) votes more for FPJ and 400,000 votes less for Ms Macapagal or an 800,000 vote swing.

She won by more than 1.1 million votes. Which means that those questioned ERs would not have materially changed the results. It would be very close, but Ms Macapagal would still be the winner. Which was why they did not need to be opened for purposes of the canvassing.

No conspiracy. No tyranny. No cover-up. Just the plain, bald truth, and some simple arithmetic.

©2004 all rights reserved

The Prudent Investor: As Monsod shows us, all the fuss about the CoC's is simply an argument of rhetorics vs. plain commonsense. Unfortunately a lot of us fall prey to the former's appeal to the emotions 'argumentum ad populum' rather than the latter. Emotions have clouded alot of people's reasoning out of political partisanship yet plain commonsense is the rudimentary requirement for us Filipinos to succeed.

CBS Marketwatch: Gold tallies a nearly $8 weekly gain

Gold tallies a nearly $8 weekly gain

By Myra P. Saefong,
Last Update: 4:24 PM ET June 25, 2004

SAN FRANCISCO (CBS.MW) -- Gold futures posted a modest loss Friday but logged a gain of nearly $8 an ounce for the week.

Gold for August delivery closed at $403.20 an ounce, down 30 cents for the New York Mercantile Exchange session. It was up $7.50, or 1.9 percent, from last week's $395.70.

Thursday's gain was the reason for the weekly advance, with prices closing near $404 in racking up a 2 percent gain to end at its highest level since mid-April. See the latest futures prices.

"The market may have overreacted with [Thursday's] price gain -- it is overbought," said John Person, head analyst at Infinity Brokerage Services, adding that traders were more prone to "take money off the table" ahead of the Federal Reserve's expected decision next week to raise interest rates by a quarter-point.

Still, "buyers may come back in the market if [gold] demonstrates strength by forging to higher levels," he added. See more of comments.External factors may also lead to further gains. "Considering the geopolitical and economic backdrop, the short-term bias for gold is up," said Brien Lundin, editor of Gold Newsletter.

Dollar dictates

Friday's strength in the U.S. dollar, following sharp declines in the previous session, also helped ease investment demand for the precious metals. See Currencies.

The dollar's rebound came despite news that the U.S. economy grew at an annual rate of 3.9 percent in the first quarter, slower than the 4.4 percent growth rate previously estimated, according to the Commerce Department. The downward revision to GDP was unexpected. See full story.

Other metals futures also closed lower on Nymex. The July silver contract closed at $6.127 per ounce, down 4.8 cents. It still closed above the week-ago close of $5.982.

July copper shed 1.4 cents to close at $1.2095 per pound, modestly higher than the week-ago close of $1.1925.

September palladium fell $2.70 to end at $227.20 an ounce, while July platinum lost $6.50 to close at $806.50 an ounce. Both contracts closed below the levels they closed at a week ago.

Supplies of copper, silver and gold were lower as of late Wednesday, according to Nymex data.

Copper supplies were down 2,084 short tons at 103,256 short tons. Silver stocks were down 9,984 troy ounces at 117.7 million troy ounces. Gold inventories stood at 4.21 million troy ounces, down 182,818 troy ounces from the previous day.

A more recent update on supplies wasn't available on the exchange's Web site.

'Erratic' week to come

Traders are also wary ahead of the North Atlantic Treaty Organization summit that starts this weekend in Istanbul and continues into the coming week, said Frederic Panizzutti, a gold analyst at MKS Finance in Geneva.

"Istanbul was supposed to be at its highest threat level, but still terrors [acts are] possible," he said. "The situation is expected to remain critical over the coming few days, and it seems very likely that some further safe-heaven gold buying will be seen over the coming days," he said.

Given all that, "markets are expected to be very volatile and erratic next week," he warned.

Gold Newsletter's Lundin argued, however, that a correction in prices expected after the Fed's likely announced of a rate hike next week has already occurred.

"In fact, the market has at this point discounted more severe interest rate increases, and we are very likely to see a relief rally in gold upon the Fed's announcement," he said.

Mining shares little changed

Mining shares closed little changed Friday, but indexes ended the week with a gain.

"Whether it is next week, next month or early next year, the current price of gold and the current levels for mining and exploration stocks will be considered bargains," said Lundin.

A 1.7 percent retreat in shares of Apex Silver Mines (SIL: news, chart, profile) led the Philadelphia Gold and Silver Index ($XAU: news, chart, profile) lower by 0.1 percent to close at 88.44. For the week, it was up 2.9 percent.

The CBOE Gold Index ($GOX: news, chart, profile) rose slightly, adding 0.1 percent to close at 79.49. It was up 3.5 percent for the week. And the Amex Gold Bugs Index (HUI: news, chart, profile) closed at 194.25, up 0.2 percent for the session and up 2.6 percent for the week.

The indexes had closed out Thursday's action at their highest levels in at least two weeks.

Myra P. Saefong is a reporter for in San Francisco.

Friday, June 25, 2004

June 25 Philippine Stock Market Review; Jollibee and Oil Issues

Three of the blue chips or major index heavyweights buoyed today’s trading activities leading the Philippine benchmark index, the Phisix, to close slightly higher by 5.74 points or .36%. PLDT (+1.33%), SM Primeholdings (+1.69%) and San Miguel B (+.68%) were largely responsible for lifting the index, as Bank of the Philippine Islands being the sole decliner, down by 1.16%, with the rest (Globe, San Miguel A, Ayala Land, Ayala Corp and Metrobank), closing unchanged. Over the week the Phisix is up by a hefty 3.05%.

Overseas investors were net buyers today, accumulating P 47.560 million worth of equity assets. Aside from the key telecom issues, it seems that investors abroad took heavy positions in Jollibee (+2.04%), which for today, posted the largest amount of net capital inflows. Jollibee has been on a winning streak, since coincidentally, Mr. Tony Tancaktiong, Jollibee’s head huncho took home the prized 2004 World Entrepreneur of the year award in May 29, 2004, held at Monte Carlo Monaco. Jollibee share prices are up 21.95% since May 28 and have attracted P 85.362 million of foreign money or 39.92% of the company’s accrued turnover during the said period. So aside from being blessed with a prestigious global award, Mr. Tancaktiong is likewise being rewarded by a vote of confidence from overseas and local investors. A case of hitting two birds with one stone.

Oil issues took a drubbing today on probable ‘profit taking’. After a sizable climb over the past weeks due to oil drilling speculations, the oil index plummeted 11.63% weighed down by index heavyweights Oriental Petroleum, which fell 16.66% for the foreign shares and 12.72% for the domestic shares. Perhaps what the prompted the fall was Basic Consolidated’s disclosure that it had assigned 1.45425% of its 4.155% share in the Zebra-1 and Rhino-1 wells, which means Basic’s share to the project will be reduced to 2.70%. Basic Consolidated was the second largest day loser plunging by 15.21%. Basic opened the day’s trading gap down, eventually dragging along Oriental Petroleum shares.

Today’s action by investors on Basic Consolidated was quite bizarre. It is as if the recent price of Basic presumed cash flows from an EXISTING commercially producing oil well such that a reduction in its share in the drilling project would mean greatly reduced revenues, hence the logical fall in prices. But what seems to be lost among the local investors is that oil HAS YET to be found, hence the prices of Basic Consolidated has not yet factored in cash flows from the oil well simply because these have yet to be ascertained.

The recent spike in these issues means that investors were positioning for a possible oil discovery. If the oil well comes out as a dud then the recent price action is justified, however, since the drilling is still in progress with no defined outcome, my discernment is that the current steep drop in its prices reflected mere ‘profit taking’ or a ‘knee jerk’ fickle reaction to something yet to be determined. Unless, of course, the insiders who are in the know have started unloading due to advance knowledge of the status of the drilling project.


by John Myers
for the Daily Reckoning

"The days of cheap energy are gone."— Michael Hershey, president, Landis Associates LLC

The only shock about the surging price of oil these days is that Wall Street is shocked by it. If professional investors didn't see this one coming, they must have either been locked up in an Iraqi prison or in a coma. We certainly saw it coming.

For as much as we have talked about the impact of growing demand for petroleum from China, India and a cavalcade of SUV drivers in North America, the biggest reason for the bull market in oil is a shortage of supplies. From bottlenecks caused by aging refineries and a supertanker shortage to depleted production from non-OPEC producers, the price of crude is being pushed higher because of one simple fact: There isn't enough of it.

One of the biggest bottlenecks — one that can't be overcome quickly or easily — in the industry, is the lack of refining capacity in Canada and the United States. The U.S. Energy Department reports that refining capacity in the United States has grown by just 2.4% since 1977, while demand for gasoline has risen 27% during the same period.

And the cruel fact is that no major new oil refineries have been built in the United States or Canada since the early 1980s, and many of the ones that used to exist have been shut down. That's left the continent's existing refineries stretched to capacity, just as North American gasoline markets are heading into the heavy demand summer driving season. According to one estimate, U.S. refineries are running at about 97% capacity.

In fact, many of the refineries that disappeared in the past 20 years were closed because it would have been too expensive to upgrade them to meet new environmental rules. It's not a coincidence that no new refineries have been built since the U.S. Environmental Protection Agency brought in its Clean Air regulations, which placed limits on refinery emissions. How expensive is expensive? Just meeting the various local, state and federal environmental and planning requirements for a new refinery could cost as much as $100 million, according to some estimates — if a site could even be found. And if the permits were acquired, the U.S. Senate Committee on Environment and Public Works estimates the cost to build a new refinery at a whopping $2.5 billion. And, oh yes, it could take seven years to complete.

If you want to understand the world's oil supply problem, simply look at what happens to a single oil field. Whether you are talking about Prudhoe Bay in Alaska or Leduc in Alberta, the life cycle of an oil field is the same. It takes several years after an oil basin is discovered to achieve maximum production as the field continues to be developed with additional step-out wells.

As a good rule of thumb, after half the recoverable reserves have been pumped from a field, there is a rapid decline in the field's oil reservoir. It becomes less and less economical to pump oil from the field, until a break-even point is reached — a point where the expense of operating the oil field equals the revenues produced by the field.

The physics that apply to a single field also apply to a region or an entire country. Consider the continental United States. The rate at which new oil was discovered hit its peak in 1957. By the early 1960s, the nation's total proven reserves reached their all-time high. Less than a decade later, U.S. production peaked. Production was relatively stable until the mid-1980s and then began to fall precipitously.

Year after year the Americans have made up the shortfall in oil production by importing foreign crude. But what happens when the world's output begins to fall? The price impact of dwindling supplies will meet surging demand — a formula for incredible profits in oil and gas stocks.

What is so bullish for oil is that, while world discovery rates peaked in the 1960s, global oil reserves have not increased since 1990. In fact, over the past four decades, exploration efforts have yielded a diminishing return.

In the 1960s the industry discovered 375 billion barrels... in the '80s, 150 billion barrels were discovered. Even fewer barrels were discovered during the 1990s.

Perhaps this year, and certainly by no later than 2005, world production will hit its apex. That means that over the second half of this decade world oil output will begin to decline... just as global oil demand is surging.

And each year, the world pumps and burns 26 billion barrels of oil, this nonrenewable resource. That means that every four years, more than 100 billion barrels of oil — five times the total reserves of the United States — are consumed.

Of course, not all oil-producing nations will experience a reduction in output at the same time. As I mentioned, U.S. production began to fall in the 1970s. Mexico and North Sea productions are now in decline, and few expect a major discovery in those regions.

The only other major non-OPEC oil region is Russia. But new oil discoveries in the former Soviet Union have been in decline since the late 1980s. The expectation of most oil executives is that we are on the verge of declining Russian oil production.

Oil production from non-OPEC countries has kept oil prices in check until just recently. But nowadays, oil supplies outside OPEC don't gush to the surface the way they once did. The really plum oil fields are in the Persian Gulf.

In 1973 — the eve of the first oil crisis — there were 15 giant oil fields in the world producing over 1 million barrels per day. They accounted for almost 30% of the world's daily supply. Moreover, their average age was only 23 years.

Today 13 of these 15 giant fields are still producing, though their average age is now 50 years. Only two of these original fields still produce over 1 million barrels of oil per day, and the 11 remaining fields each have an average production of around 200,000 to 300,000 barrels per day.

Today, only two fields in all non-OPEC countries produce over 1 million barrels per day. Another three produce about 500,000 barrels per day.

As production in these regions enters into decline, more power falls to OPEC, particularly Arab OPEC. Already countries around the Persian Gulf produce one-third of the world's crude oil and control two-thirds of the world's reserves... and make up the only major oil-producing region in the world that is not yet close to its oil reserve half-life.

Turning to our ally in the Middle East — Saudi Arabia — brings up a new question: Just how effective can Saudi Arabia be in easing the supply crunch?

Put aside for a moment the frightening terrorist activities in that country — like the recent killing of 22 people in Khobar. When you look at the issue of supply versus demand, you have to recognize that not even Saudi Arabia has the oil capacity to ease the world's supply problems.

Twenty-five years ago, Saudi Arabia stood ready to pump 14 million barrels per day. Currently, the Saudis say that, if necessary, they can raise oil output over time from 8.35 million barrels per day to 12 million barrels per day.

But a Calgary geologist, who has spent extensive time working in Saudi Arabia over a career that has spanned 25 years, told us that while the Saudis could raise production to 12 million barrels per day for a time, they certainly couldn't keep that output going for long. Oil simply doesn't flow the way it did 20 years ago. Not even for the Saudis.

All this just tells us that oil prices aren't ready to stabilize, let alone retreat... even though much of the world doesn't believe prices will stay at these levels. The conventional thinking is that oil prices will fall, but I'm certain they'll go just the opposite way... higher!


John Myers
for The Daily Reckoning

Thursday, June 24, 2004

June 24, 2004 Philippine Stock Market Review

After a vivacious start, the Phisix succumbed to a late day selling which could be characterized as profit taking on a “sell on news”.

Recall that since the onset of the election campaign period in February the Phisix have climbed by as much as 8.04% in April 28th which probably means that the market has factored in a peaceful conclusion to the national elections with a victory by the incumbent administration.

Today’s early morning proclamation for PGMA and VP De Castro basically put to fact to these anticipations hence, the mixed performance among heavyweights leading to the marginal rise (.02%) of the benchmark Phisix.

Of the eight index heavyweights that comprise more than 75% of the Phisix, three issues advanced, four issues declined while 2 remained unchanged. Key telecom issues PLDT (+.89%) and Globe Telecoms (+.58%) together with Ayala Land (+1.81%) cushioned the declines of Ayala Corp. (-1.75%), San Miguel B (-.68%), SM Primeholdings (-1.66%) and Metrobank (-1.78%). Meanwhile, San Miguel local shares and Bank of the Philippine Islands closed unchanged.

Incidentally, PLDT has surpassed or overtaken San Miguel Corporation as the largest listed company based on market capitalization on the Phisix. As of today’s close PLDT constitutes 17.48% of the 30-company benchmark, with the combined San Miguel shares accounting for 16.52% and the third spot going to the telecom issue, Globe Telecoms which took up 11.04%.

Despite the rather mixed performance of the index as reflected by the major index heavyweights, overall market breadth showed underlying bullishness with advancing issues dominating declining issues by almost 2 to 1, i.e. 42 to 24.

Moreover, the number of traded issues have reached past 100 (exactly 119 today) for the fifth consecutive trading day which means investors optimism have prompted for a broader degree of accumulations.

Furthermore, foreign money, which made up half of today’s turnover, remained on a bullish note injecting some P 47.680 million worth of equity asset acquisitions.

If these underlying bullishness should prevail in addition to the accelerating upside momentum, crossing the April 28th threshold of the 1,610 to 1,620 level could be sooner than expected.

Benson Te

Prof. Sennholz: Democracy Does Not Beget Prosperity

Democracy Does Not Beget Prosperity

A recent report by the World Commission on the Social Dimension of Globalization, sponsored by the International Labour Organization, is long on pious advice and short on economic reasoning. It lists l6 developing countries, with 45 percent of the world's population, where the gross domestic product is rising by more than 3 percent a year. Among them are the world's giants, China and India. But in 23 countries, with 5 percent of the world's population, GDP per head is falling. In another 14 countries, with just 8 percent of the world's population, incomes per head are rising by less than 1 percent a year. In short, the age of globalization which has brought significant economic advances to many countries is not reaching 37 countries with some 750 million inhabitants. Lingering in dearth and want, many millions continue to struggle for food and shelter.

The report admonishes poor countries to pursue social and economic policies that characterize all Western democracies. It urges prompt adoption of a democratic form of government, of national independence and sovereignty, and high labor standards enacted and enforced by government. Unfortunately, the advice is apt to be as unrealistic as is its explanation of high standards of living in more productive countries.

Democratic institutions surely provide a broad basis for popular government and give people the noble notion and pride that the country belongs to them. Whenever they grow weary of their government, they can exercise their right to change it. Yet democratization is not a necessary condition for economic development. The most startling economic progress, over the past two decades, has been in China which labors under an authoritarian regime. And many new democracies, from Azerbaijan to Kazakhstan, show little ability to progress economically. Even established democracies stagnate economically, with millions of workers condemned to unemployment and declining standards of living when guided by economic ideologies hostile to economic productivity. Government by the people may be as injurious to economic well-being as any other form of government.

Similarly, national independence and self-government are no guarantee of economic progress. The world's poorest countries, such as the Democratic Republic of the Congo, Burundi, and Ethiopia, are as independent as the wealthiest countries, but are poorly governed. In fact, the world's poorest countries may even be poorer today than they were in ages past when they labored under foreign rule. In contrast, many countries that until the twentieth century lacked complete independence and self-government, such as Australia (1901) and New Zealand (1947), expanded rapidly as colonies of the British Empire. They enjoyed the ideological and legal preconditions of economic development, that is, safety of private property, entrepreneurial freedom, and the spirit of enterprise. The poverty of many countries, which moves wealthy countries to pity and foreign aid without end, obviously lacks these preconditions; the suffering of the people is likely to continue as long as the sovereignty of their disfunctioning governments remain unchallenged.

It cannot be surprising that the Commission report also acclaims stringent labor legislation while it condemns the omnipresence of informal, illegal labor markets. It obviously ignores the harmful consequences of labor legislation that creates huge surpluses of unskilled labor and thereby gives rise to informal labor markets, commonly called "black markets." Legal labor markets tend to be characterized by standards and benefit costs that exceed actual employee productivity and, therefore, condemn millions of workers to chronic unemployment. While some victims readily content themselves with lives on unemployment benefits and other forms of public charity, many prefer to descend to the underground economy where services are rendered at true market rates and contracts are concluded by word of mouth and a handshake.

Stringent labor legislation, such as that in old welfare states, invariably gives rise to dualistic national economies with a highly-paid legal sector and a huge illegal market sector. The former, stunted by legislation and regulation, generates the surplus of labor for the large underground economy which tends to grow with every new law and regulation that grant costly benefits to labor. In the old welfare states of Europe, where the official rate of unemployment rarely falls below ten percent of the official work force, the informal underground sector may exceed one-third to one-half of total economic production. Without the underground economy, many people would be immeasurably poorer.

The chronic conflict between the legal economy and the unregulated market – which is immune to regulation – begets corruption and decadence. Where the authorities are determined to enforce the myriad of labor regulations they turn their countries into "police states" that prosecute feverishly and meet out fines and imprisonment for petty infractions. To offer unregulated employment to unemployed workers is a grievous employer offense that is punished with heavy fines. They are rather effectual in maintaining high unemployment rates.

The Commission's report clearly reflects its sponsorship by the International Labour Organization. It spurns market economics and sows class conflict. Democracy, sovereignty, and labor regulation give no assurance of economic development; only private property in the means of production and the unhampered market order will encourage economic development and ever-rising standards of living.

Hans F. Sennholz

The Economist: America's Trade Deficit

How to slay America's monster trade gap?
Jun 22nd 2004
From The Economist Global Agenda

America’s trade gap is growing again. Worse, it may be extremely hard to close it without causing much economic pain—and not just for Americans

LAST year, when the dollar resumed its steady decline after a brief spring rally, many observers felt vindicated and a little relieved. The world had grown too dependent on selling its goods to America. For its part, America was too dependent on flogging its assets to the rest of the world to finance its addiction to imported goods. To be sure, America’s willingness to spend more than it could strictly afford on other countries’ manufactures was welcome at a time when most of these countries’ economies were sluggish. But deficits of over 5% of GDP in America’s current account could not be sustained. Having carried the world economy through the first, crucial leg of recovery from the slowdown of 2001, some economists felt it was time for America to “hand over the baton” to the rest of the world and pause for breath.

But America is refusing to let go of the baton. It continues to import much more than it exports while investing more than it saves. According to figures released last Friday, its current-account deficit, having narrowed to 4.6% of GDP at the end of last year, has widened again in the first quarter of this year (see chart), to 5.1% of GDP.

Were we expecting too much from a fall in the dollar? In other countries, a swift depreciation of the exchange rate has worked wonders. A fall of 20%-plus, in real terms, in the Swedish krone after 1992, for example, turned a deficit of more than 3% of GDP into a surplus of about 4%. But Sweden is a relatively small economy. Providing it remains outside the euro, it can depreciate, gaining competitiveness against its neighbours, without beggaring them. The United States, on other hand, is such a crucial destination for the imports of so many countries that they may struggle to find alternative sources of demand.

A recent study* by economists at the OECD illustrates the difficulty. To narrow the deficit by two percentage points by the end of the decade, they reckon the greenback would have to lose about a quarter of its current value (as measured against the currencies of America’s major trading partners) by the end of this year. Since China and Malaysia peg their currencies to the dollar, and many other Asian countries track it closely, Japan and the euro area would bear the brunt of the dollar’s fall. They would not bear it easily. America is such an important export market for both that neither would cope easily with such a loss of competitiveness. The European Central Bank (ECB) has some scope to ease the blow by cutting interest rates but the Bank of Japan has already cut them as low as they can go. As a result, the strengthening yen would cut Japan’s output in 2009 by more than 2% and condemn the country to another six years of falling prices, the study reckons.

Earlier this month, at the summit of G8 heads of state in the American state of Georgia, France’s President Jacques Chirac worried out loud about the future implications of America’s spendthrift ways. The Europeans point the finger in particular at President George Bush’s government, which is projected to run a budget deficit of 4.7% of GDP this year. America’s outsized trade deficit, the Europeans argue, is the “twin” of this giant budget deficit. One cannot be dealt with, without the other.

But even as Europeans accuse the United States of throwing the world economy off balance, Americans accuse an arthritic Europe of holding the world economy back. Europe’s firms and workers are too cosseted, they argue, and as a result the continent’s economies are unable to pull their weight in the world economy. America is prepared to hand over the baton; but Europe must be ready to take it up.

Neither side of this debate is much willing to listen to the other. But what if they did? The OECD’s economists shed light on what would happen if each side took the advice of the other. Suppose, for example, that the governments of the euro area (and America’s other OECD trading partners) heeded Uncle Sam’s lectures and passed liberalising reforms that raised their trend rates of growth by 0.5%. This would do wonders for the euro area itself, but it would do little to narrow America’s trade deficit. The OECD economists reckon it would cut the deficit by just 0.2% of GDP by 2009. Despite what many Americans would like to believe, America’s trade gap is not simply an expression of its faster growth rate. The study found that America’s appetite for foreign goods is so much stronger than the rest of the world’s desire for American goods that even if the other rich countries raised their growth rates to match America’s, they would still sell more to America than it would sell to them.

Now suppose America gave in to the hectoring of Mr Chirac and others and put its finances back in order. The OECD’s authors imagine an administration prepared to raise taxes by 4.5% of GDP over the next six years while cutting spending by 1.5%. This would put the government into the black to the tune of 1.7% of GDP by 2009. But even such a massive fiscal turnaround, amounting to 6.6% of GDP, would knock only 2% of GDP off the trade deficit. Why? The OECD economists point out that private saving tends to fall when public saving increases. Between 1992 and 2000, for example, the Clinton administration turned a worrying budget deficit into a handsome surplus. But this only helped to unleash a private investment boom. Public saving was offset by private dissaving, ensuring that the country’s trade deficit continued to deteriorate. America’s budget and trade deficits may be twins but one, it seems, can survive without the other.

America’s deficit will not resolve itself without much pain, suggest the OECD economists. America must beggar its neighbours with a competitive devaluation of the dollar, or beggar itself with a massive fiscal contraction—or both. The consequences of letting America’s deficits continue are certainly worrisome, as Mr Chirac suggests. But he should be equally worried about the consequences of bringing them to an end.

From Forbes Magazine: Dumbest Business Ideas

Dumbest Business Idea Of The Year
Tatiana Serafin, 07.05.04

Recycling entrepreneur Bernie C. Karl thought he had a cool way to lure tourists to remote Chena Hot Springs, 60 miles east of Fairbanks, Alaska. He would erect the world's first and only year-round hotel made of ice. Three other ice hotels, in Finland, Sweden and Canada, offer winter-only ice capades.

Karl's six-room Aurora Ice Hotel opened in December. Before spring was over, it was melting, along with his $20,000 investment. He somehow miscalculated the effect of 24-hour summer sun and 90-degree heat on the structure.

"I had a frozen asset. It's now a liquid asset," confesses Karl. He plans to rebuild, this time with thicker insulation.

Wednesday, June 23, 2004

June 23, 2004 Philippine Stock Market Review

The Philippine benchmark index, the Phisix, recouped its post election losses and surged past the pre-May 10 levels. Foreign and local buying highlighted the session as advancers beat decliners 51 to 7, for its fifth consecutive positive market breadth with volume peso turnover expanding by P 666.410 million, the highest turnover since June 2nd. Net foreign buying accounted for P 42.768 million with the gist of the volume going to market leader PLDT(+2.29%), followed by bank heavyweights BPI (+3.61%) and MBT (+3.67%). The largest net foreign selling was accounted for by Meralco B (-1.66%) and SM Primeholdings (unchanged).

Only the mining index closed marginally lower among the other indices, taking a reprieve from its recent blistering run.

The Phisix, since its trough in May 19, has crept higher, probably due to positive expectations of peaceful conclusion to the recent national elections. Since May 19 the Phisix has grown 7.15% or 105 points. Chartwise, today’s gain of 30.65 points or 1.99% advance came at a significant break from its minor resistance level of 1,551 which may indicate that the momentum would mostly likely persist in the following days.