Sunday, June 14, 2015

Record Phisix in Big Jeopardy! BSP 2Q Survey Reveals Bearish Consumers! More Cracks on Fundamental Headlines!

Credit-driven boom-bust cycles are temporally asymmetrical. The buildup is slow and long, the collapse quick and sudden. In Hemingway’s The Sun Also Rises, one of the protagonists asks his friend: “How did you go bankrupt?” “Two ways,” went the answer, “gradually, then suddenly.”—Axel Leijonhufvud, Swedish economist

In this issue:

Record Phisix in Big Jeopardy! BSP 2Q Survey Reveals Bearish Consumers! More Cracks on Fundamental Headlines!
-Record Phisix Breaks, Index Managers Fights Back!
-In Bullmarkets Watch The “Bid”, In Bear Markets Watch The “Ask”
-Divergence to Convergence: Shriveling Liquidity and the Transition from Risk Seeking to Risk Aversion
-Divergence to Convergence: The Faltering Peso
-Market Inflection Point in the Perspective of the Reflexivity Theory
-BSP 2Q Consumer Survey: Statistical G-R-O-W-T-H Don’t Put Food on the Table!
-More Headline Fissures: Exports and Industrial Output Falls, The Economics of Job Safety Politics

Record Phisix in Big Jeopardy! BSP 2Q Survey Reveals Bearish Consumers! More Cracks on Fundamental Headlines!

Record Phisix Breaks, Index Managers Fights Back!

What an incredible rollercoaster week!

And it’s more than just rollercoaster, it’s a week where record Phisix broke down, and where index managers mounted a frantic counterattack to restore the freshly lost ‘glorious’ C-O-N-F-I-D-E-N-C-E from G-R-O-W-T-H!

Here is how the week played out.

The selling momentum from the previous three weeks of losses apparently carried over to the first two sessions of the abbreviated week.

June 8th Monday (upper left window). From the opening bell, losses incrementally deepened through the first quarter of the post lunch trading period. And in an attempt to mitigate the losses, index managers resorted to their regular ‘afternoon delight’ pump but had been repulsed. Thus, they were left to use “marking the close” pump. The last minute pump shaved off about 35% of the day’s losses! For the day, the Phisix posted a loss of 41.81 points or .56%. Decliners drubbed advancers 97-64 with 46 unchanged. Peso volume was a mere Php 5.339 billion which marks the LOWEST for the year!

June 9th Tuesday (upper right window). Selling momentum picked up speed from the session’s start. And like Monday, losses intensified to climax at the first quarter of the post-lunch period. And from the start, the grizzly bears nimbly sliced through the record threshold of 7,400 and almost effortlessly crashed through a major support at 7,350, but lost momentum after breaking beyond 7,300. At the depth of 7,272.36, intraday losses tallied an astounding 2.84%! 

Sensing deeply oversold conditions, index managers went on with their task to stanch the bleeding. They deployed the ‘afternoon delight’ pump which culminated with a mini last minute push. The accrued interventions pared down 24% of the day’s losses. At the final bell, the Philippine benchmark had been drained of a massive 161.45 points or 2.16%.

Decliners crushed advancers by a stunning 151 to 30 or 5 to 1 margin! Interestingly among the top 20 most actively traded issues, 7 issues suffered a quasi-crash where 6 of them were part of the major index

Perhaps June 9 will be remembered as the day of infamy or the day the Phisix record broke.

June 10th Wednesday (lower left window). Wearied bears took recess and allowed index managers to make their move. However, seemingly dazed from the severe battering, bulls appear to have been reluctant to make a significant push. The bulls even lost momentum twice from morning and from the afternoon pump. It took another “marking the close” pump to buoy the Phisix by 60.83 points or .83% for the day. The end session pump accounted for a fantastic 57% of the day’s gains! Advancers beat decliners by 94 to 61 with peso volume at Php 6.002, the SECOND LOWEST for the year!

June 11 Thursday (lower right window). Aided by the prodding of index managers, bulls finally got some shade of confidence going. Both pumped the index from session start to the session end. Of course, the bulk of the gains came from the traditional ‘afternoon delight’ thrusters. 


I was expecting a last minute pump to lead to the complete neutralization of this week’s losses. Unfortunately it didn’t happen. 

While index managers did push several key heavyweights from two sectors, specifically the holding and property sectors (lower windows), three other sectors –namely finance, industrials and services (upper windows) did the reverse, they were dumped! (charts above from colfinancial)

For the day, the Phisix jumped 119.45 points or 1.62% on a relatively light volume of Php 7.44 billion plus Php 1.12 billion of special block sales for a total of Php 8.548 billion. Meanwhile gainers beat advancers 103 to 58.

And the reason for the chronicled account of last week’s daily activities is to exhibit the quality of actions.

For the week, the Phisix was down by only .31%. Even if we discount the intraday moves, last week’s roundtrip exceeded 5% in the context of fluctuation. This was a significant move.

Meanwhile year to date returns by the Phisix have been reduced to a mere 3.78%.

Additionally from the record 8,127.48 in April 10, the Phisix has been down by 7.62% as of Friday’s close, and 10.5% based on June 9 lows in just 2 months! This marks the biggest retracement since 2013.

To recall, the record run from 2014-2015 has signified as a headline ramp (rotational push in 15-20 issues) that has little to do with the broad markets. In reality, record headlines DIVERGED with broad market actions.

Thus, this week’s heavy volatility signifies a seeming transition from what has been painted as a one way trade, and now to growing questions over the sustainability of prices at current levels, particularly of the headline stocks.

Additionally, it has been interesting to see of the divergence in the last minute responses by different sectors in Thursday’s actions.

What happens if the forced hoisting of prices of key issues from the property and holding sectors endure profit taking episodes next week? Will the other sectors commiserate or will they digress to levitate or cushion the index? If it is the former, then we will likely see a retest of 7,400. If it is the latter, then the degree of relative activities will determine the outcome of the headline numbers.

Furthermore, in four straight days index manipulators had to use all the tricks up their sleeves to cushion the index from a brutal pummeling, yet the Phisix still lost .31% for the week

Again this week’s activities further demonstrate that the Phisix cannot stand without actions an orchestrated-manipulated pump by stock market operators.

In Bullmarkets Watch The “Bid”, In Bear Markets Watch The “Ask”

Little has been appreciated that the headline index DEPENDS on the OVERALL health conditions of the entire population of listed stocks.

Thus divergences arising from manipulations only deepen the underlying imbalances impelled by financial repression policies.

Moreover, because manipulators are constrained by the availability of resources, the economics of manipulation ensures that divergent actions between headlines and the overall market activities are unsustainable.

And because they are economically unjustifiable, the accumulated structural disproportions would render market activities susceptible to violent reactions.

In the perspicacious perspective of the former economics and international professor and present mutual fund manager Dr. John P Hussman[1] (bold mine, italics original)
The fact is that valuations drive long-term returns, but over shorter horizons, stock prices are the result of whatever investors collectively believe, however reckless or detached from historical evidence those beliefs may be. As long as enough market participants are attached to the idea that risk is their friend (or enemy) regardless of the price, there is no natural limit to how overvalued (or undervalued) stocks can become. There is only one way to address this: measure investor risk preferences directly through observable market internals. Don’t expect an overvalued market to crash until internals deteriorate; don’t embrace an undervalued market too aggressively until internals improve.

It’s a lesson that value-investors have learned and re-learned throughout history. Even the legendary value investor Benjamin Graham discovered it, in his case by becoming constructive far too early during the market collapse of the Great Depression. The collective risk preferences of investors rule the short run, but valuations ultimately rule the long run. Graham famously summarized that lesson in one sentence: “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”…

The feature that distinguishes an overvalued market that continues higher from one that collapses is the preference of investors toward risk. Across a century of historical evidence, the most reliable observable measure of investor risk preferences proved to be the behavior of market internals based on prices, trading volume, and risk-sensitive securities. Put simply, when investors are risk-seeking, they tend to be risk-seeking in everything, which results in a measurable uniformity of speculation across a wide range of risky assets. The best indication of a shift toward greater risk aversion is a gradual deterioration in the “uniformity” of price action and the appearance of "divergences" across a wide range of individual securities, sectors, and risk-sensitive asset classes.
The lesson: In bullmarkets watch the “bid”, in bear markets watch the “ask”. The conditions underlying the bids or asks—which represents the investor risk preferences—will determine the direction of momentum. Remember, the long term represents the sum of short actions. As an old saw goes, the journey to a thousand miles begins with a single step (Laozi).

Applied to Philippine stocks, once again, the intensifying decline in the trading volume highlights heightened clues of dissipating bids.

Since so much of resources of stock market operators have been locked up in the desperate push to record 8,127.48, shrinking volume amidst the cratering benchmark bespeaks of such resource limitations. 


This week’s average daily volume marks the SECOND LOWEST for this year. Add to this last week’s volume which also ranks the THIRD LOWEST (upper window), this means that plunging Phisix has emerged from the weakening support of bids. 

Said differently, buyers at current price levels have been erecting less and less barriers against mounting sellers.

Additionally, another potential sign of resource limitation could most likely be from the inability by the establishment to attract new deposits/funds enough to propel or maintain prices at current levels.

The trauma from the camouflaged bear market on MORE than HALF of the population of listed issues of listed may have discouraged influx of funds.

Recent broad based slowdown in credit growth by banks which includes loans to the financial intermediation sector may also serve as an indication of the narrowing source of financing in support of prices at current levels.

Hence, index managers along with active market participants have most likely relied on rotational activities of selling losers in the broad market (thus the bear markets) in order to chase winners (index and a few non-index issues).

In addition, foreign money has also been NET sellers since March as seen in both PSE and BSP data.



Foreign money posted net outflows of $569 million in May compared to US$31 million in April according to the Philippine central bank, the Bangko Sentral ng Pilipinas (BSP). 

The BSP attributed this to “profit taking and outward remittance of sales proceeds of investments in PSE- listed stocks and Peso Government Securities” which was further rationalized as[2]: Registered foreign portfolio investments for May 2015 amounted to US$1.6 billion, reflecting a 17.8 percent decline from US$1.9 billion level in April arising from: a) disappointing first quarter corporate earnings; b) poor manufacturing data from China; and c) weaker-than-expected first quarter GDP growth of 5.2 percent vis-à-vis 6.6 percent in the previous quarter. The level is also lower compared to the US$2.0 billion recorded a year ago when public offerings were made by a food, beverage and tobacco company and a properties firm.

Huh? Disappointing first quarter corporate earnings? Didn’t the BSP just brag about “strong corporate earnings boosted investor optimism during the quarter” in their April 24th 1Q inflation report? So all of a sudden, or in barely 2 months, the adjective “strong” made a volte face to the adjective “disappointing”?

Yet haven’t the mainstream been pontificating that earnings growth for the PSE in 2015 will be in the mid double digits such that this should justify the acceptance of higher than historical earnings level or ‘this time is different’?

And how has “poor manufacturing data from China” influenced foreign outflows when Chinese stocks have been on fire? Why the discrepancy? And why should such divergence not influence foreign fund flow movements?

Also weaker-than-expected first quarter GDP growth of 5.2 percent has NOT been new. 3Q 2014 GDP announced last December which was reported at 5.3% entailed net foreign inflows. Does this imply that the miniscule .1% (a tenth of one percent) variance between 3Q 2014 and 1Q 2015 GDP has been strong enough to send foreign money packing out of the country?

You see the BSP has been reasoning from price changes. They cite “after this” (net outflows), “therefore because of this” (disappointing earnings, 1Q GDP and China slowdown). This is known as the post hoc fallacy that has been premised on the recency or available bias. Fallacies and biases decorated with economic variables have been presented or paraded as economic reasoning.

And the irony is that the public seem to trust the BSP’s competence and guidance even when the latter’s publications have been premised from what psychologist Daniel Kahneman calls as the “law of least effort” or intuitive thinking or mental short cuts. I might add that in the context of politics this can be seen as sloganeering.

And just how can the BSP be right in their assessment of financial conditions when they resort fallacies and biases?


Going back to the portentous signals from diminishing volume, the inability of domestic buyers to match foreign sellers at record price levels illuminates on the balance of market leadership. Fading volume in the face of the cascading index means that foreign money has seemingly overwhelmed the ability of stock market operators to rig the index. 

Foreign money now has taken the upper hand.

Divergence to Convergence: Shriveling Liquidity and the Transition from Risk Seeking to Risk Aversion

Now whether this has been about reduced support from locals, lack of resources by stock market operators or a drastic change in sentiment by foreign funds, current developments evince of potential changes in the structure of the market’s outlook.

As reminder, every transaction consists of a buyer and a seller. Hence demand for securities come from new funds (from savings or credit) and or from recycled funds (proceeds from previous sales) relative to supply—the existing share owners as sellers. Therefore, fund inputs from increased participation by the public increases the exchangeability or liquidity of the markets that theoretically increases pricing efficiency. However political interventions or manipulations distort on the price discovery mechanism of markets.

And since prices of financial securities are set on the margins or are determined by marginal buyers and sellers, the direction of prices are thus decided from the actions depicting the dominant sentiment of either the marginal buyer or the marginal seller.

This means that shriveling volume amidst falling prices translates not only to debilitating conditions of the bids, but also to the draining of stock market liquidity at current price levels.

And the sapping of liquidity can be traced to the time lag from the recent money supply growth collapse which had been preceded by a 10 months boom in money supply growth at 30%+ in the second semester of 2013 until the first semester of 2014.

On the weekend when 8,127.48 was hit, I quoted Austrian economist Frank Shostak[3]
The effect of previously rising liquidity can continue to overshadow the effect of currently falling liquidity for some period of time. Hence the peak in the stock market emerges once declining liquidity starts to dominate the scene.
Importantly, aside from liquidity concerns, the synchronized fall in price and volume can be construed as the deepening corrosion of C-O-N-F-I-D-E-N-C-E to support prices at current levels. 


This deterioration can also be interpreted as an epiphany by the marketplace: the transition from index based risk-seeking to risk aversion that will eventually be rationalized on massive overvaluations and reinforced from the coming changes in the headlines.

Advancers beat decliners ONLY ONCE in the 9 weeks since record 8,127.48 in April 10th! Yet the winning margin signified only a single digit—7 in particular during the week ending May 15! This means losers continue to intensely pull away from winners. Also the relentless selloffs at the broader markets have only magnified on the dominance of bear markets at the PSE.

And the tenacity of the bears has now percolated into headlines.


Divergences have swiftly been transforming into a convergence at the headline index.

There are now 9 issues in bear markets (red font) out of the 30 issues in the PSEi basket. So 30% of the headline index has been in bear markets even when the index remains at record 7,500. Stunning divergence right?

But there are 5 securities at the front door of the bear markets. Four of the five has entered the bear market domain during the market carnage last week but had been pulled out by the furious relatively low volume rally last Thursday.

So should there be accounts of substantial weakness in the stock markets in the coming week/s, some if not all of them are likely to join the bear market. And should they become full recruits then almost HALF of the index issues will be on bear markets! And there are three issues that have crossed into the nowhere land which may become additional recruits for the bears!

The rotting core has now spread to affect the Potemkin surface.

Divergence to Convergence: The Faltering Peso

And this has not just been in stocks. Both the financial markets and the real economy have been manifesting of such divergence

The Philippine peso began to weaken during the 2H of 2014. The BSP reported signs of capital flight from residents in 2014. The sharp flattening yield curve emerged during the last quarter of 2014. Money supply growth has crashed in 2H 2014 from the outrageous 30+% highs for 10 successive months. Banking loan growth continues to drop. Prices in the real economy (consumer CPI, retail, wholesale, also PPI-manufacturing and construction wholesale and retail prices) have been reeling.

In other words, all these developments have been consistent with the bear markets in more than HALF of listed stocks.

But headlines had been made to contradict or camouflage the degradation process through market interventions and in the padding up of G-R-O-W-T-H statistics.

And part of that headline management has been to push the PSEi to 8,127.48 that climaxed with the Philippine president’s visit at the PSE.

Now divergence has been transitioning into convergence.

Aside from faltering stocks, for the week, the USD-Php rose by .62% to 45.15. I believe that the suppressed losses by the peso have been due to BSP interventions.

And for the week, the peso has been the second weakest currency in the region, next to the Malaysia’s ringgit, where the USD-MYR soared by 1.13%.


Given that Friday was a holiday here, the peso continued to be traded at the global currency markets. Bloomberg quotes the USD-peso at 45.408 where the peso was dumped at the last minute! Talk about karma.

And USD PHP 45.41 has practically been at the same level when the BSP used up nearly 7% of her forex reserves to support the domestic currency during the taper tantrum in 2013. So the BSP should be expected to do the same in the coming sessions. So goodbye price discovery.

As a side note, investing.com and google finance has USD-Php at 45.297 and 45.2955 at Friday’s close

And technically speaking, a break from the resistance of 45.4 will send the USD-peso to test 46!

Just think of how this will affect all debts denominated in USD and how this will affect imports and domestic prices based on imports.

I predict that there will be imbecilic rationalizations where the weak peso will associated with more purchasing power from USD based OFW and BPO remittances. The coming rationalizations will omit the insight of the transmission mechanism of import prices into the system. It’s the kind of same nonsensical popular imputations that says low oil prices equals stronger consumption spending.

Think oil. Since the Philippine political economy imports most of its oil requirements (reportedly 90%), even at low oil price levels a weaker peso means more expensive oil. Say oil at US$60/bbl, at 45 peso this would translate to Php 2,700/bbl at 45.5 this would mean Php 2,730/bbl. So the rise in the peso oil bill reflects on the weak peso. Ceteris paribus, conditions of the domestic currency, the peso, will also be manifested on domestic oil prices.

Again, the rotting core has now spread to affect the Potemkin surface.

Market Inflection Point in the Perspective of the Reflexivity Theory

Again the transition from risk-seeking to risk-aversion will be anchored on changes in sentiment. And changes in sentiment are psychology driven.

Therefore, it is important to understand the reflexivity component in the market’s psychology that shapes the boom bust cycle.

Billionaire crony George Soros describes his reflexivity theory as a two way feedback loop dynamic between outcomes and expectations: There is a two-way feedback loop between them: the cognitive function runs from outcomes to expectations, the participating function from expectations to outcomes. Both functions operate continuously and in opposite directions. The arrow of causation does not run from one set of outcomes to the next; it crisscrosses from outcomes to expectations and vice versa[4].

We can apply this to the price-expectation/action loop. The cognitive function illustrates the influence of prices to expectations. For instance, rising prices have been popularly attributed to G-R-O-W-T-H.

On the other hand, the participating function limns on how expectations vented through actions influence prices. Again, G-R-O-W-T-H expectations encourage market participants to compete in the bidding up of prices of a specific security or the general stock markets. 

So price trends will depend on the sustained validation of the feedback mechanism between prices of securities and G-R-O-W-T-H expectations.

But eventually, outcomes and expectations will diverge and the feedback mechanism emaciates. Hence, market perceptions will first emerge out of reality then segues into divergences and finally to misperceptions.

The psychological phases of the reflexivity boom bust cycle runs[5] as follows:
1. The unrecognized trend
2. The beginning of a self-reinforcing process
3. The successful test
4. The growing conviction, resulting in a widening divergence between reality and expectations
5. The flaw in perceptions
6. The climax
7. A self-reinforcing process in the opposite direction

So the manipulation of the headlines via market or via statistical pumps has mostly been designed to perpetuate the climaxing misperceptions.

They have been meant to stimulate expectations or cognitive function via HOPE in order to inspire actions (participating function) that will sustain the status quo.

For instance, in the past rising stocks backed by G-R-O-W-T-H led to credit upgrades that allowed the government and firms owned by the oligarchy easier access to cheap credit. The credit boom, which has been seen and interpreted as organic G-R-O-W-T-H, has also provided the government indirect subsidy to finance deficit spending via inflated taxes.

Yet the adverse ramifications of the credit bubble have already emerged to impact the core.


The path to convergence from the present divergences or from the brazen misperceptions which signify as “the unrecognized trend” will undergo a “self-reinforcing process in the opposite”.

As I recently wrote[6],
The reason why the Philippine assets remain relatively sturdy has been because sellers have NOT yet been aggressive since the HEADLINES tell them so. The establishment believes that the boom can still be maintained even when the core has been eroding.  They are relying on HOPE. And this is the reason behind the headline management. They manage statistics and the markets to keep intact what they see as ‘animal spirits’. The exposé on DBP’s wash sale should be a wonderful example.

Besides, headlines shows of no crunch time yet, here or overseas. But no one can guarantee how long this endures.

But when reality eventually filters into the headline; perhaps as in the form of economic numbers or a surprise missed interest payment by a major company, or the appearance of a major global event risk, then bids will evaporate.
So from the reflexivity framework will emerge the stages of the Kübler-Ross Grief Cycle that will characterize the transitory process in the shaping of market expectations at this juncture—a major inflection point: From euphoria to anxiety to denial to fear to desperation to panic and finally to capitulation. 

Or seen from the Kübler-Ross Grief Cycle—denial, anger, bargaining, depression and acceptance.

BSP 2Q Consumer Survey: Statistical G-R-O-W-T-H Don’t Put Food on the Table!

I have been repeatedly saying here that statistics is NOT economics. So whatever that has been touted as statistical G-R-O-W-T-H will not and has not put food on the table for the average citizenry.

Surprisingly, the BSP’s 2Q survey confirms all what I have been saying here.

The BSP report which has even been entitled “Consumer Confidence Turns Bearish for Q2 2015”[7], has been a revelation of the GLOOMY outlook from resident consumers.

To repeat: The BSP says consumers have turned BEARISH!

Let me quote the BSP: (bold mine)
Consumer sentiment weakened for Q2 2015 as the overall confidence index (CI) fell to -16.2 percent from -10 percent for Q1 2015. This indicates that the number of pessimists increased and continued to exceed the number of optimists for Q2 2015. The CI is computed as the percentage of households that answered in the affirmative less the percentage of households that answered in the negative with respect to their views on a given indicator.

According to respondents, their bearish outlook during the current quarter was due to the following: (a) anticipated higher prices of commodities due to increase in domestic oil prices, power rate hike and higher tuition fees, which could lead to higher household expenditures; (b) expected increase in the number of unemployed persons as new graduates enter the labor force; and (c) perceived graft and corruption in the government. Respondents also cited their concerns on the peace and order situation in the country following the death of 44 members of the Special Action Force (SAF 44) and the political issues behind it, occurrence of calamities such as fire, typhoons, and floods as well as the impact of the El Niño dry spell on agricultural output as reasons behind their weaker outlook.

The less favorable consumer sentiment was carried to the next quarter as the CI reverted to negative territory at  -0.4 percent for Q2 2015 from 4.4 percent for Q1 2015. Consumers attributed their less optimistic outlook to concerns over the perceived graft and corruption in the government and expected occurrences of typhoons and other calamities as well as the effects of the El Niño phenomenon. Meanwhile, consumer confidence for the next 12 months remained broadly steady at 16.4 percent from 17.3 percent in the previous quarter’s survey.

The quarter-on-quarter decline in confidence was broadly observed across the three component indicators of consumer confidence—the country’s economic condition, family financial situation, and family income. Respondents’ outlook was lowest on the economic condition of the country, followed by family financial situation, and family income. The more pessimistic view of respondents on the current condition of the economy was largely behind their lower consumer confidence for Q2 2015. For the next quarter and the year ahead, the biggest drop in consumer sentiment was also reported in the outlook on the macroeconomy. Consumers’ outlook on the economic condition of the country was weighed down by concerns over expectations of higher prices of goods and unemployment. Meanwhile, the outlook on family income as well as on family financial situation was more buoyant for the year ahead as respondents anticipated increases in family income due to higher salary and better harvest.


Why the pessimism? Again from the economic perspective: anticipated higher prices of commodities and expected increase in the number of unemployed persons! 

Behold: the people in the survey do NOT believe in the government’s statistics or myths peddled by the establishment!

They DO NOT believe that price inflation has been falling! They do NOT believe in May’s 1.6% CPI!

This adds to the confirmation of my thesis that the legacy of the hidden tax on the citizenry in order to redistribute resources as ‘stimulus’ in support of the government and of the oligarchy channeled through financial repression (zero bound- negative real rates) policies has only led to consumer distress.

As I recently wrote[8],
And because of the Cantillon Effects of money—where initial receivers of money supply expansion (bank borrowers, particularly the elites) benefit from present prices as against the latter recipients of money (the average residents) and where relative price changes work against the latter through higher prices—the massive credit expansion in the domestic financial system which has been highlighted by 9 successive months of 30% money supply growth has only harassed and reduced the standards of living of the average citizens with no access to the formal institutions.
The surveyed participants DO NOT believe in the popular wisdom that falling oil prices EQUALS spending!

Like me, they DO NOT believe in 5.2 1Q GDP! The negative consumer sentiment has been an extension from the 1Q but has only deepened in 2Q.

People in the survey also DO NOT believe that unemployment rate has improved to 6.4% in April! To the contrary, because they are afraid of economic conditions, they have been worried over the risks of rising unemployment! Thus anxieties over price pressures AND unemployment have prompted them to be fretful of their family’s financial conditions and on their income.

The BSP report validates SWS’s Mr Mangahas recent tirade against statistical G-R-O-W-T-H where I noted[9]
It’s nice to see Mr. Mangahas punctuate his message with an all caps “the Gross National Product, of itself, does NOT improve the lot of the poor”.
I would propound that the BSP’s hands may have been partly influenced by the SWS Self Poverty ratings survey. The government’s concealing of reality at the grassroots cannot last forever.

Besides, even the BSP’s own job and wage data in 2014 already attested to the marginal job gains and real losses in the purchasing power of wages of workers. And those numbers have likely even been inflated.

And bleak consumer activities can be seen in the real world through rising store vacancies at shopping malls which has not been because of ‘renovations’.

Even the government’s own statistics exhibits falling prices in retail and wholesale industries that corroborates the morose consumer sentiment.

At the end of the day, financial repression—credit expansion policies has already resulted to severely harried consumers. This should put a lid on BSP’s actions, otherwise economic mayhem will intensify.

As the great Austrian Economist Ludwig von Mises warned[10] (bold mine)
Sooner or later, credit expansion, through the creation of additional fiduciary media, must come to a standstill. Even if the banks wanted to, they could not carry on this policy indefinitely, not even if they were being forced to do so by the strongest pressure from outside. The continuing increase in the quantity of fiduciary media leads to continual price increases. Inflation can continue only so long as the opinion persists that it will stop in the foreseeable future. However, once the conviction gains a foothold that the inflation will not come to a halt, then a panic breaks out. In evaluating money and commodities, the public takes anticipated price increases into account in advance. As a consequence, prices race erratically upward out of all bounds. People turn away from using money which is compromised by the increase in fiduciary media. They "flee" to foreign money, metal bars, "real values," barter. In short, the currency breaks down.
The BSP’s BEARISH CONSUMER report highlights on the emerging fissure in the fundamental headlines.

The more the bearish publications, the lesser bids there will be for Philippine financial assets, thus the “self-reinforcing process in the opposite direction”

More Headline Fissures: Exports and Industrial Output Falls, The Economics of Job Safety Politics

Look at this bizarre industrial production data from the Philippine government’s Philippine Statistics Authority. I say ‘bizarre’ because after two months of negative output, the March numbers posted a growth spike of 7.4% then April’s data reveals of a sharp 4.2 decline! Fantastic volatility!


Here is what I wrote then[11]
Also, the Philippine industrial production amazingly leapt by 7.4% in March. Ironically too, such gains have been preceded by two months of negative growth.

Has the recent slumps in OFW remittances and Industrial production been a product of statistical quirks from which current gains has smoothened out?

Or has the current data been another statistical pump to justify the end of May release of 1Q 2015 GDP of 6+% and above?
The Philippine government sees or treats manufacturing businesses as if they were financial markets subject to high volatility. Suddenly there were big orders to fill, and then abruptly those orders just vanished! That’s what March-April data shows.

For April industrial volume grew slightly by 1.4% in April (year on year), but industrial output in terms of value shrank (-4.2%) and worst, sales in terms of value (-8.9%) and volume (-3.6%) all contracted. If current sales means partly future output, then this mean bad news for the sector. In addition, PPI also has been in DEFLATION.

The April data confirms of a broad based slowdown in manufacturing activities.

Now going back to the statistical pump. The spike in March data—which I suspect may have been partly borrowed from April—plus the contraction of January and February doesn’t square with sector’s GDP data.

In short, 1Q GDP may have overstated manufacturing activities.

To add, the sector’s downtrend looks like a trend. Such a trend, if sustained, would mean more job, financial and output losses.

Of course, domestic politics will play a role in the downturn too.

Due to populist politics as a result of an unfortunate fire accident which killed a number of workers, the government launched a crackdown on job safety violations on the industrial sector.

Populist politics almost always emphasize on the form rather than the substance. Never has it been raised of how regulatory mandates have led to job safety violations. For instance, how much money has been used as payoff (or as bribes) to regulators that could have been part of the installation of job safety measures? How much resources have been channeled to government favored construction and consumer projects (shopping mall, hotels, condos) from zero bound rates that could have been part of the job safety projects by the industry? Populist politics almost always demonize the private sector.

Yet the increased politicization will likewise extrapolate to rising compliance costs for the sector. Therefore this will lead to reductions in capital expenditures, diminished output and even job losses. Some may even close shop. And because of reduced competitiveness, some firms may even be forced to transfer abroad.

And when the controversy fades from the limelight, new mandates will lead to even more corruption, more violations and less safety. The vicious cycle only grows.

Thus, job safety politics will surely lead to LESS jobs but NO guarantees of safety.

And paradoxically, populist politics expects G-R-O-W-T-H, when businesses, especially the small ones, have been vilified??!!

Economic or financial bubbles are about the belief in something from nothing. That’s why bubbles burst.

Yet more bad news for Philippine exports.

Philippine exports plunged 4.1 year on year in April. The PSA notes[12]: the decrease of eight major commodities out of the top ten commodities for the month which include other mineral products; other manufactures; woodcrafts and furniture; metal components; chemicals; ignition wiring set and other wiring sets used in vehicles, aircrafts and ships; articles of apparel and clothing accessories; and machinery & transport equipment

In short, the slowdown in exports has been broad based. Philippine exports have been struggling since December 2015 (see left).

In addition, nominal export value has dropped to 4Q 2013 levels.

For April, only exports to the Eurozone increased as exports to East Asia, US and ASEAN declined.

Philippine exports highlights of the fragile conditions of the global economy.

Tanking industrial production and struggling exports serve as additional sets of current developments which highlights on the emerging fissure in the fundamental headlines.



[1] John P. Hussman, Ph.D. Voting Machine, Weighing Machine May 25, 2015 Hussmanfunds.com

[2] Bangko Sentral ng Pilipinas Foreign Portfolio Investments Post Net Outflows in May June 11, 2015


[4] George Soros, The Alchemy of Finance p .19 John Wiley & Sons p.19

[5] Ibid p.58


[7] Bangko Sentral ng Pilipinas Consumer Confidence Turns Bearish for Q2 2015 June 11, 2015



[10] Ludwig von Mises Cyclical Changes in Business Conditions Mises.org February 13, 2012


[12] Philippine Statistics Authority Merchandise Exports Performance : April 2015 June 10, 2015
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