Monday, October 31, 2005

A Freeze on Mining will Lead to More Mt. Diwalwal Fiasco

The recent mining disaster at Mt Diwawal Compostela Valley which reported 18 fatalities is an example of what happens when mining is left to small scale local miners or to illegal miners.

Most of the bishops, priests and other members of the clergy who are anti-administration have been so due to their opposition of the passage of the Mining Act of 1995. They have adopted the leftist mindset in believing that mining should be left to the locals (xenophobia) and or that it is harmful to the environment.

However, they fail to realize that the local investors do not have the technology (for efficient and socially responsible mining) and the appropriate finances to undertake these capital intensive projects. By advocating a freeze on mining, they fail to understand too that high prices of metals would NOT DETER BUT RATHER INSPIRE ILLEGAL MINING to mushroom in a country richly endowed with metals and minerals! It is simply about economics. As long as it would be profitable to mine due to high metal prices, mining activities would continue to flourish, illegitimate or legitimate. Now with insufficient expertise, technology and finances, illegal mining would only lead to more environmental degradation and more deaths, as in the recent case at Mt. Diwalwal, a dichotomy to the cause which they have been fighting for. It is another case of a proposed cure which is much worst than the disease. These members of the faith should concentrate on redeeming the souls of their constituents rather than engaging in leftist politics.

Sunday, October 23, 2005

Integration of Asian Financial Markets To Improve Philippine Markets

``Everything you can imagine is real." -Pablo Picasso (1881-1973) Famous Spanish painter and sculptor

The gradual integration of the Asian Financial Markets could be gleaned as one of the bright spots or prospects for the domestic capital markets as savings could be channeled for efficient capital and investment allocations on cross border opportunities, provide for stronger financial linkages, better risk sharing and productive investments that may lead to a more resilient economic growth.

The region which holds more than $2.5 trillion in foreign currency reserves has also turned into a substantial holder of sovereign bonds of advanced economies. Aside, Asia received half of the world’s net private capital flows to emerging markets in 2003 and rising to about two-thirds in 2004. These are concrete evidences of the emerging relevance of Asia to the global financial markets.

In a recent speech at Melbourne, Mr. Takatoshi Kato, Deputy Managing Director of the International Monetary Fund, enumerated several key areas where developments for future integration could take place:

``Intra-regional financial integration has lagged. For example, the extent to which investors in Asia have internationalized their portfolios by investing in other markets in the region remains quite limited. With a few notable exceptions, money and capital markets in this part of the world are clearly still fragmented and disjoint. The trend is evident across three broad asset classes:

``Data on cross-border banking show that the major foreign lenders in emerging Asia are generally European, Japanese, or U.S. institutions, notwithstanding growing interest in recent years of regional banks in cross-border acquisitions.

``Local stock markets also have a large international presence, but few foreign players come from the rest of Asia. And, foreign listings on Asian stock exchanges have been on a declining trend nearly everywhere.

``Finally, in spite of initiatives underway to promote cross-border holdings, regional integration of bond markets remains underdeveloped by most metrics. According to the Bank for International Settlements, the expanding issuance of foreign-currency-denominated bonds by Asian sovereigns and corporates is for the most part in U.S. dollars--and is marketed outside of Asia.

The initiatives to integrate and deepen capital markets could be clearly seen with the establishment of ADB’s Asianbondsonline, an ASEAN+3 initiative funded by the Government of Japan, which provides investors centralized access to information on the region’s 13 bond markets as well as the indexation of select ASEAN publicly listed companies into FTSE/ASEAN 40 and FTSE ASEAN. Both indices are meant for performance benchmarking and to “brand” ASEAN as an asset class. These vehicles would be available for retail and institutional investors via Exchange Traded Funds (ETF) or through derivatives ‘OTC’ contracts.

The share distribution of the participant countries comprising the FTSE/ASEAN portfolio based on free float and liquidity screened considerations according to the FTSE International. Singapore gets the heaviest weighting while the Philippines the least.

So far, according to BSP data, foreign portfolio flows into the country has mostly been from the Euro zone which accounted for $268 million of the $517 million cumulative outflows in 2004. ASEAN accounted for $137 million with Singapore taking up the bulk or $134.96 million while Hong Kong among the Asian Newly Industrialized Economies contributed $138.6 of the $138.87 million. With the prospective ETFs and future cross listings, we could probably expect inflows to country’s capital markets to expand incrementally.

Further, the region has also embarked on a currency swap agreement via the Chiang Mai Initiative, which aims to reduce foreign currency crisis, support foreign exchange reserves of member countries and provide sufficient liquidity and exchange rate stability within the region. The swap agreement was designed as a contingent support for countries experiencing a foreign exchange crisis to access foreign currency, mostly in US dollar, from another member country to bolster reserves until the crisis has passed.

Lately the Philippines signed an agreement with the Bank of Korea to swap $1.5 billion worth of local currencies. According to a Dow Jones report, ``In May, finance ministers from Japan, China, South Korea and the Association of Southeast Asian Nations, or Asean, agreed to increase the size of their US$39.5 billion currency-swap program, and individual nations have since been negotiating terms of their particular deals. South Korea, for instance, has expanded its swap agreements with Japan and China as the previous arrangements expired.” In short, the region considering its horrific financial crisis experience in 1997 has undertaken measures to insure itself against the probability of a relapse.

In the continuing efforts to further integrate and strengthen the region’s financial markets, Mr. Kato further noted in his speech that it would require lengthy reforms as to induce the much needed cross border investments, these includes ``enhancing information disclosure and accounting standards, strengthening the role of minority shareholders, supporting effective creditor rights, tightening the prudential supervision of financial firms, and strengthening court processes and the judicial systems.” As well as on the regulatory side ``harmonizing the laws, regulations, tax treatment, and market structures that still prevent investors--from both within and outside Asia--from building pan-regional portfolios.”

Lastly, developing the bond market would also require the marketability of other products such as Municipal and corporate bonds, as well as Mortgage securities and other related instruments. This should provide alternative avenues for fund raising, hedging as well as market based valuations on the underlying securities.

In addition, compared to the previous commodity futures market, particularly the defunct Manila International Futures Exchange (MIFE), which traded foreign and NOT local commodities; in my opinion, a genuine local commodity futures exchange that deals with the country’s major resources or crops should be in place.

Where economics 101 tells us that “markets are usually a good way to organize economic activity”, the establishment of a commodity futures market that allows for pricing, delivery, payment and credit would essentially benefit producers and farmers. Through market based pricing, the farmers or producers would be able to realize the full value of their harvest or produce, eliminate or reduce the role of traders and middlemen and undertake hedging positions for seasonal volatilities in order to reduce risk. Posted by Picasa

Monday, October 17, 2005

Chart Buys: First Philippine Holding and Atlas Mining

Two interesting charts that I would like to share with this week.

First of which I believe that First Philippine Holdings has crossed a major inflection point, from which a state of indecision as reflected by the symmetrical triangle as shown in the chart below have been recently broken.

First Philippine Holdings

While some may argue that the developments in First Philippine Holdings (FPH) could be related to its proposed listing of its subsidiary First Gen or due to its dividend (P 1 cash ex-date October 18, special cash P 1 ex-date October 18), my inclination is that both these issues has little to do with the present breakout. I have been fundamentally bullish on the issue primarily because the company deals profitably with the sectors that I think would be the prime movers of the Philippine economy, particularly the energy and the infrastructure sectors, alongside my favorite the mining sector.

As you will note from the above chart, FPH is an uptrend given its one year outlook. However, since the Phisix peaked in March due to the spate of foreign outflows, FPH has moved lower during March to June and effectively consolidated from July to the present. It has formed what technicians would say as ‘higher lows’ where the bears have been unable to push prices lower than the previous. In effect, the symmetrical triangle is a manifestation of a stalemate between the bears and the bulls. However, it usually suggests of a continuation of the underlying trend, which in FPH’s case is an uptrend.

Last week, FPH broke out of the “sphere of indecision” with Friday’s activities built on heavy volume and a spike in share prices up about 6%. It tested its resistance level at 44.5 but closed a fluctuation lower or at 44. I believe that the momentum has switched greatly in favor of the bulls this time with a resistance breakout due possibly next week.

I would recommend a buy on breakout on this issue as it crosses the 44.5 level. The resistance levels are as follows 46.5, 49.5-50, 53-53.5, 61.5-63.5 and a stop loss on a break of 40.5 or 39 being key support levels.

Atlas Mining

The second issue which I would like to share to you is Atlas Consolidated and Mining Corp (AT).

Since its peak in February, the copper-nickel mining company has fallen in line with its industry mates but unlike the others has resolved to keep its uptrend intact as shown in the above chart. Since its recent peak in late August, AT has been on a decline forming a bullish ‘falling wedge’ pattern. As you would notice in the past, AT has the penchant for short term spikes, which incidentally allows you the opportunity for trades, if history would rhyme.

On Friday, it broke out of the falling wedge pattern on heavy volume. Aside, the technical indicators appear to support a next run. Relative Strength Index (RSI) shown on the upper window has bounced off its oversold levels while on the lower window the Moving Averages Convergence Divergence (MACD) appears to have crossed, emitting bullish signals.

If Atlas would replicate its recent two spikes, I think it has an upside potential of 7.5 to 8 before retracing again. I would recommend a trade, buying at current levels and selling at the support levels, which should translate to about 30% in returns. Again, a stop loss at a break of the 5.2 support level considered, which translates to a loss of about 10%. In effect, your reward risk ratio is about 3:1. Posted by Picasa

Monday, October 10, 2005

The BIG Four Hedgers

Today’s argument is about gold mining hedges. Let us examine chart performance of the BIG Four according to GFMS “The industry’s “big four”, Barrick, AngloGold Ashanti, Placer Dome and Newcrest (who account for two thirds of the global hedge book in nominal terms)”

Barrick Gold

Placer Dome


anglogold ashanti

They may underperform but they are all on the least over the interim.
Posted by Picasa

Wednesday, October 05, 2005 Free Markets and Social Welfare by Gabriel Openshaw

Our society’s penchant to ascribe effective governance or the lack of it to personality based politics leaves out the kernel of the country’s economic malaise. Mr. Gabriel Openshaw’s article published on Ludwig Von Mises ( correlates on a country’s economic straits, immigration patterns with that of social welfare states and those that adhere to free markets. As argued before, free markets and less governments are key to economic prosperity and NOT the other way around, Mr. Openshaw tells you why....

Free Markets and Social Welfare

by Gabriel Openshaw

Austrian utility and welfare theory [pdf] observes that all transactions in a free market economy take place only when both parties believe they will be happier as a result of an exchange. People act in ways that maximize their personal well being, subjectively understood. In contrast, in centralized economies the only way the state can enforce its economic decisions is through the threat of force for noncompliance, or fear.

We might say that capitalism is a happiness-based system where as communism (and all forms of interventionism) are fear-based systems.

This is a great idea in theory, but is there any way to validate its truth in practice?

If the thesis is correct, then we should expect to consistently see people wanting to move from fear-based economies to happiness-based economies.

According to the Index of Economic Freedom,[1] here are the 20 countries with the least economic freedom:

Congo, Republic of the



















Korea, North

These are not typically countries that people want to move to. In fact, in a number of them it is against the law to leave the country.

Net migration statistics confirm that these countries have a migration outflow of minus 1.12 per thousand.[2] In other words, every year these countries see 1.12 more people moving to another country per 1,000 in population than people from another country moving in. Clearly, this represents overall dissatisfaction with life in that country (especially since these numbers would be higher if it weren't illegal to leave).

On the opposite end of the spectrum, the 20 most economically free countries in the world are:

Hong Kong





New Zealand

United Kingdom






United States








Not surprisingly based on our thesis, these countries are much more desirable to live in and have a positive net migration inflow of 3.81 per thousand. And unlike those countries with extremely centralized economies where it was illegal to leave, in most of the economically free countries there are limits on immigrants allowed to move in due to overly high demand. If the restrictions weren't there on either side we would see an even bigger difference in net migration.

So our theory is holding: the most extreme centrally managed economies see either a net outflow of their population (or make it against the law to leave), while the most economically free countries see a strong net inflow of people from other countries.

This principle holds true not just for the extremes. Of the 154 countries that are ranked by the Index of Economic Freedom, comparing the top 77 with the bottom 77 you also see that the top half (more economically free) has an average positive net migration inflow of 0.83 per thousand, while the bottom half (less economically free) has an average negative net migration of minus 0.57 per thousand.

Migration patterns of people around the world clearly show that people consistently move from centrally-managed economies to free-market economies (and in fact the results of the analysis are statistically significant, with a P value of 0.0220).

Now, some may advance the argument that only rich countries can afford to be economically free, and thus it's normal to see migration from poorer countries to richer countries. This ignores the fact that rich countries are rich precisely because of their economic policies.

Here are the 22 "first-world" countries of Western Europe, Australia, New Zealand, the United States and Canada, ranked by order of most economically free:



New Zealand

United Kingdom





United States














These countries are among the most free-market-based in the world, including 7 of the top 10. Even the three least economically free of this select group (Portugal, France and Greece, ranking at 37, 44 and 59, respectively) are well above average in their free-market orientation.

If our thesis is correct, even among these we should be seeing migration from less economically free to more economically free. After all, if the spectrum analogy holds true, people will always gravitate toward the greater happiness found in more free-market economies.

Of these 22 first-world countries, the 11 most economically free have an average net migration rate of 2.68 per thousand, while the 11 less economically free have an average net migration rate of 2.01. In other words, even among these countries the most economically free show 33% more positive net migration than their less free peers. The principle holds.

Even within a country, we can see migration from more restrictive to more free market policies. In the United States, net migration is 23% greater to states that have a right-conservative governor than to states with a left-liberal governor, and in general the conservative political platform is more pro-free market.[3]

Even at the county level, 97 of the top 100 fastest growing counties in America voted conservative, or more free market, in the last election.[4] Again, the principle holds.

By analyzing the net migration of millions of people making individual decisions every year in every country around the world, we are able to objectively validate the thesis: that on the economic spectrum ranging from centrally-managed economies all the way to decentralized free-market economic policies, people will tend to shun central planning and gravitate toward the free market. In all cases, people are happier with freer markets and repeatedly demonstrate this by their choice of where to live.

Gabriel Openshaw [] is business-development director in Fairfield, Iowa, and runs the blog LogicalOpinion. Comment on the Mises blog.

[1] Source: 2005 Index of Economic Freedom.

[2] Source: CIA World Factbook.

[3] Source: National Governor's Association & U.S. Census Bureau 2000-2004 Migration Statistics.

[4] Source: Los Angeles Times, November 23, 2004.

Tuesday, October 04, 2005

Australian News: RBA warns of 'meltdown'

The Central bank of Australia recently warned of the risks of a major financial meltdown. Is this another case of Boy who cried Wolf? Quoting David Uren for the Australian News...

"FURTHER rises in oil prices, the collapse of a major bank or an unexpected jump in inflation could be all it takes to send the increasingly fragile global financial system into meltdown.

"The Reserve Bank of Australia warned yesterday that the current calm in financial markets could be the prelude to a storm that could wreak havoc in the world economy. "