Monday, November 16, 2015

Phisix 6,900: APEC’s Cost: Php 20 Billion, ALI's Cash Flow Strains Explains Capex Cuts!



…the fact that economists, respected or not, are not anything like economic experts. They are, almost in total now, simple mathematicians and statisticians. Their world consists not of flesh and humanity, but of overly simplified, though elegant, regressions and equations that are supposed to represent the impulses of shorn human behavior. Thus, their correlations especially of the past few decades have forced an attentive drift away from the direct focus upon wages and productive investment and into asset prices and financials because that is what their numbers tell them has been driving wages and productive investment. From that point, there has been no evaluation about whether such correlations are at all appropriate and consistent with a truly healthy and advancing economy; the math banishes all such judgment—Jeffrey P. Snider

In this issue:



Phisix 6,900: APEC’s Cost: Php 20 Billion, ALI's Cash Flow Strains Explains Capex Cuts!

-APEC Will Cost Php 20 Billion Just To Rehash 1996 Statements!

-APEC’s Illusions of Free Trade

- ‘Free Trade’ Versus Inflationism

-China’s Free Trade Automotive Bubble

-Paris Attacks: Blowback from ECB Financed French Government’s Geopolitical Interventionism

-The UNSEEN Legacies from APEC PLUS Central Banks’ Policies

-Despite Magnificent Profits, ALI’s Cash Flow Strains Explains Capex Cuts!

-MEG, FLI and CPG: More Evidences of Growing Strains at the Real Estate Sector!

-Snips: OECD Frets Over Global Recession, September Philippine Exports Tailspins, November 9 PSE Volume Falls to January 2014 Lows!





Phisix 6,900: APEC’s Cost: Php 20 Billion, ALI Cash Flow Strains Explains Capex Cuts!



APEC Will Cost Php 20 Billion Just To Rehash 1996 Statements!



The Philippine government will be hosting the Asia Pacific Summit next week.



The Asia-Pacific Economic forum represents a forum for 21 Pacific Rim members intended to “support sustainable economic growth and prosperity in the Asia-Pacific region” by “championing free and open trade and investment, promoting and accelerating regional economic integration, encouraging economic and technical cooperation, enhancing human security, and facilitating a favorable and sustainable business environment”



While I am all in all for free trade and economic freedom (as well as for civil liberties), I believe that such events really showcases the aggrandizement of the egos of domestic and international political leaders rather than what they have declared to accomplish.



The Philippine quack boom has also been sold as part of this ego boosting campaign.



Another, the summit represents a wholesale junket for political leaders along with their bureaucratic entourage, as well as cronies. This will all come at the expense of taxpayers and currency holders.



To be fair, the locations of the APEC annual meetings are rotated among members. So apparently, 2015 marks the turn of the Philippines.



Curiously, the last time the Philippines played host to the APEC at Subic was in 1996. Guess what happened a year later or in 1997?



Of course, it would be a post hoc fallacy to say APEC caused the Asian financial crisis. Nonetheless, the sequence of these events could have signified untimely coincidence, a jinx, or a symptom of wanton overconfidence or all of the above packaged into one.



Playing host to the APEC summit entails massive real and opportunity (aside from social) costs: the suspension of (most of) government offices from November 17-20, a declared non-working public holiday on November 18-19, the cancellation of over 1,100 flights to give way to the delegates, more checkpoints and tighter security measures and even Manila Bay declared as a no sail zone! Remarkable.



The Philippine Stock Exchange will be closed during the designated holidays, but remain open on November 17 and 20 because the BSP, despite being a government office, will keep Philippine Payments and Settlements System (PhilPaSS) operational during these stated dates.



Yet all these privileges coming at the expense (and even convenience) of the public!



Most of these officials have been elected to supposedly serve the voters. But in high profile events as these, real priorities are demonstrated. Voters and the other non-voting constituents have been waylaid to accommodate for the convenience of political authorities.



At the rudiment, free trade represents decentralized social activities. But modern day politics are centrally structured. In essence, forces of decentralization and centralization collide or are diametrically opposed. So this has NOT been and will NOT be about free trade.



As Alisa Zinov'yevna Rosenbaum popularly known as free market champion Ayn Rand wrote[1]:



Wealth, in a free market, is achieved by a free, general, “democratic” vote—by the sales and the purchases of every individual who takes part in the economic life of the country. Whenever you buy one product rather than another, you are voting for the success of some manufacturer. And, in this type of voting, every man votes only on those matters which he is qualified to judge: on his own preferences, interests, and needs. No one has the power to decide for others or to substitute his judgment for theirs; no one has the power to appoint himself “the voice of the public” and to leave the public voiceless and disfranchised.



Let us go back to the costs.





This data from the government’s Philippine Statistics Authority exhibits that in 2014, the average daily GDP for the National Capital Region was at Php 12.82 billion a day (current prices)



So if the APEC holiday would reduce output by conservatively 50%, then this means Php12.8 billion lost! That would represent only nominal losses. How about the other costs, higher wage burdens from holiday payments, lesser profits, lost investment opportunities, lesser trading fees, among many other economic factors?



And how about the dislocation on commercial activities that depend on government offices which will be closed in four days?



The mainstream will say but this will mean ‘holiday economics’! Yet as I have explained before, aside from the mistaken focus on the (SEEN) gains/benefits which on the other hand, disregards on the (UNSEEN) costs, real economic growth comes from growth in productivity, income and capital accumulation and not from spurious spending from the impression that these are funded by ‘manna from heaven’.



Not only that, the government has reportedly allocated Php 10 billion for this event which politicians hail will benefit the economy over the long term.  Really?



Yet who pays for the Php 10 billion junket of domestic and international leaders? Yes it is us, the taxpayers and the peso holders. And for what type of benefits should society reap? Abstract benefits?



Interestingly, what economic benefits did the 1996 APEC summit deliver to the Philippines? An economic crash which lasted several years for bubble excesses to clear?








Even if I reckon that the crash was coincidental with the APEC summit, measured in terms of external trade, Philippine exports and imports hardly improved in the aftermath of the 1996 summit from a ten year perspective.



Moreover, it was even worse in terms of merchandise trade as % of gdp, the Philippines became less about external trade but more about OFW diaspora ‘exports’! This should even be magnified today where the BSP, in response to the great recession, acted to pivot monetary policies with the objective to “end its dependence on exports,” and to “boost domestic consumption



And so whatever happened to ex-President FVR’s “Manila Action Plan for APEC 1996 (MAPA ?96), strengthening economic and technical cooperation and engaging the private sector in the APEC process”…and to…”recommendations of the various APEC fora as measures of APEC's progress toward free and open trade”?



Hasn’t such 19 year old rhetoric sound eerily familiar today?



And for APEC 2015, media and politicians should specify on the details of benefits rather than just to make general statements?



Or will benefits accrue and be disbursed to just a few?



Examples. To the hotels where the political guests will be billeted?  To politically connected travel firms who will facilitate part of these trips? To the private security and security related firms whom will be hired to complement the government’s security measures? To politically connected elites on cross border deals?



The Philippines will incur more than Php 20 billion of costs for what? To rehash statements made in 1996 premised on abstract benefits and from promises made to be broken?



APEC’s Illusions of Free Trade



APEC 2015’s theme is  Building Inclusive Economies, Building a Better World” through four priorities: -Enhancing the Regional Economic Integration Agenda, - Fostering Small and Medium Enterprises’ Participation in Regional and Global Markets,-Investing in Human Capital Development and Building Sustainable and Resilient Communities



Let us see how in essence free trade/markets apply to them.



I quote the four priorities along with some of their explanations:



On Regional Integration



APEC initiatives will focus on connectivity and trade facilitation, particularly in areas that will promote trade in services and the ease of doing business. 



Ease of doing business? What’s the cause of the unease or difficulties of doing business? Haven’t these been mostly about politics: regulations, mandates, welfarism and taxes? And haven’t the solution to the easing of doing business been plain and simple deregulation? Does the Philippine government need the APEC for this?



On regional SMEs’ Participation: APEC will continue to support SMEs through trade facilitation measures to link SMEs to global value chains and promote their full participation in markets by removing barriers to entry and promoting greater access to finance, technology, training programs and tools.



Barriers to entry?  Again, have these not been mostly about domestic politics and its natural consequences? Aside from dirigisme, have institutional deficiencies, infrastructure barriers, underdeveloped capital markets among many others not signified as an offshoot to these?



The Philippine informal sector is a testament to SME’s free market dynamics operating under economic repression. Simply stated, the main cause of the informal economy is economic repression. Yet they have proven to be resilient even without political support. The informal sector has even mitigated the effects of the bursting bubble and buoyed the Philippines during the Asian crisis.



For the SME’s to flourish, the government should just get out of their way or to stop harassing them. If they grow enough, they will join the mainstream.



More importantly, by scraping those trade barriers, the informal sector migration to the formal economy should hasten. Just liberalize.



Furthermore, domestic SMEs will find ways to connect with her external trade partners if these trade barriers are junked. We don’t need free trade agreements for these. People from Zamboanga and Mandaluyong don’t need free trade agreements to conduct exchanges. In the same way, the Philippine government can UNILATERALLY liberalize. Political borders should not be an obstacle for voluntary exchanges. It’s an obstacle created by politics.



Access to finance. Aside from possible cultural quirks, haven’t this been about suffocating capital controls?



On Human Capital Development: APEC’s human capital development initiatives will be designed to foster economic competitiveness coupled with equal opportunity. APEC looks to enhanced cooperation between education providers and businesses as employers—to help realize human resource development goals.



Why the lack of economic competitiveness and equal opportunity? Have these not been due to protectionist laws embedded in the system? Do the Philippines need a behest from Obama–Xi-Putin-Abe to emancipate the economy from these domestic barriers?



Why are OFWs still streaming out of the Philippines in spite of the supposed boom? Have these dynamic not been due to the lack of economic competitiveness and deficient economic opportunities that subsequently, has led to deficient job and income growth due to political interference and barriers?



The peso’s slomo crash from 1960 should serve as primary evidence for such policy interventionist failures.



Yet even without the government’s prodding, OFWs act and take risks to seek better future in the wake of such handicaps. OFWs are merely responding to an economy shackled by protectionism and state-crony capitalism.



On Sustainable and Resilient Communities: Preparedness such as investing in resilient infrastructure, rather than just relief and recovery, are coming to the fore of APEC’s agenda. APEC looks to create and promote risk reduction and management, build SMEs’ resilience to disaster, and ensure business continuity.



What’s the cause of the lack of infrastructure? Yet is the government only the sole provider of infrastructure?



Well let me say that the major causes of the lack of infrastructure have again been political: regulatory, legal, institutional and funding barriers among many others. Had government liberalized infrastructure, infrastructure investments would have surged. But the government wants to control everything. And so they prefer the Public Private Partnership route. A route which essentially politicizes the infrastructure resource deployment that leads to cronyism.

  

The political mission by the APEC hardly has been about the “championing free and open trade and investment, promoting and accelerating regional economic integration, encouraging economic and technical cooperation, enhancing human security, and facilitating a favorable and sustainable business environment”, but rather represents political control of trade in the guise of free markets.






Yet rules and regulations covering the TPP, according to the Breitbart, accrue to a shocking 5,544 pages long! The bundle of TPP documents weigh more than 100 lbs! It is also represents 3,500 pages more than Obamacare!



With all the stunning byzantine of rules and regulations, incentives of people engaged in voluntary exchange will shift! Instead of focusing on satisfying consumers, producers or service providers will be more concerned on lobbying for favors from unelected bureaucrats who essentially will play gods (choose winners and losers). The horrifying maze of rules and regulations will only whittle away competition, solidify the interests of politically connected entities and or invite a boatload of lawsuits! All these will extrapolate to less and NOT more trade.



This is government’s version or definition of free trade. War is peace. Freedom is slavery. Ignorance is strength.



Government dictated trade is free trade.



As the great Austrian economist Ludwig von Mises wrote[2] (bold mine)



It is vain to expect anything from purely technical changes in the methods applied in international negotiations concerning foreign-trade matters. If Atlantis is resolved to bar access to cloth manufactured abroad, it is of no importance whether its delegates must negotiate directly with the delegates of Thule, or whether the subject can be dealt with by an international board in which other nations are represented. If Atlantis is prepared to admit a limited amount—a quota—of cloth from Thule only because it wants to sell a corresponding quota of wheat to Thule, it is not likely to yield to a suggestion that it allot a part of this quota to other nations. If pressure or violence is applied in order to force Atlantis to change its import regulations so that greater quantities of cloth can be imported, it will take recourse to other methods of interventionism. Under a regime of government interference with business a government has innumerable means at hand to penalize imports. They may be less easy to handle but they can be made no less efficacious than tariffs, quotas, or the total prohibition of imports.



Under present conditions an international body for foreign-trade planning would be an assembly of the delegates of governments attached to the ideas of hyper-protectionism. It is an illusion to assume that such an authority would be in a position to contribute anything genuine or lasting to the promotion of foreign trade.



It is in the same context for so-called competition enhancing laws like the Philippine competitive act. Instead of promoting economic activities, it bogs down parties with bureaucratic red tape and therefore reduces economic activities which defeat the very goal that it purports to achieve. For instance, the PSE’s proposed takeover of the operator of the fixed-income exchange, the PDS Holdings, Inc has been hobbled by the said anti-monopoly law.



Some game changer.



‘Free Trade’ Versus Inflationism



Unless one is engaged in barter, most trade whether free (voluntary) or forced (e.g. political services such as taxes, fines and etc) are coursed through a medium of exchange or a currency.



Said differently, HALF of every trade being conducted is made through a medium of exchange.



And because medium of exchanges, such as the peso, has a price (exchange ratio between currency unit and specific goods and services), changes in the pricing of the medium of exchange would also alter the incentive for trade.



In short, the pricing mechanism expressed through currency units coordinates the ever dynamic balance between demand and supply of goods and services.



So when government, through their respective central banks, meddle with the price of the currency, they effectively influence a change in the incentives to trade.



And since tinkering with the price of a currency is a result of policy (backed by an underlying political and economic motive/s), this means that certain groups are being accorded privileges through invisible redistribution at the expense of other groups.



Financial repression through the suppression of interest rates is an example of intervention in money prices.



Suppression of interest rates rewards borrowers and speculators that come at the expense of savers and pension holders.



Furthermore, suppression of interest rates serves as subsidies to the government and to the big borrowers in the banking system and in the capital markets.



And because suppression of interest rates translates to an expansion of money supply brought about by the credit expansion, which lowers the value of a domestic medium of exchange relative to foreign currencies, this effectively represents subsidies to foreign currency revenue earners (exports, tourism, for the Philippines BPOs and OFWs) which comes at the expense of domestic purchasing power.



And because suppression of interest rates translates to an expansion of money supply brought about by the credit expansion rewards speculative activities, it fosters malinvestments or economic disequilibrium.



And since suppression of interest rates represents a political redistribution scheme, which again protects (through subsidies) certain segments of society and which is paid for or taxed or transferred from the rest, such political redistribution scheme channeled through the monetary channel represents implied protectionism.



And so when governments engage in suppression of interest rates (zero bound, negative bound or QE) they are engaged in subtle protectionism.



And when the assault on interest rates becomes a de facto standard for global central banks, where they have been labeled as ‘currency manipulation’ or ‘currency wars’ or ‘beggar thy neighbor’ policies this again implies protectionism.



So trade activities will correspond to the consequential changes in money prices from monetary inflationist ‘protectionist’ policies that would have offsetting functions to the ‘trade agreements’ based on conventional tariffs and non-tariff barriers. This won’t be visible on the surface.



In short, protectionism in government’s rhetoric is Free Trade.



But a wolf in a sheep’s clothing remains a wolf.



China’s Free Trade Automotive Bubble



China’s massive automotive malinvestments should be a worthy example of monetary distortions from political interventions on money prices that has masqueraded as free trade.












China has been the largest car producing country as of 2013.



China’s vehicle output, which includes foreign producers, exceeds the overall share of European Union and accounts for one fifth of the global passenger car production, according to Statista.com.  Yet only about 3% of domestic production has been destined for exports (see left). Additionally, China’s major car exports have been to developing or emerging markets.



Car exports accounted for a third largest traded goods in the world as of 2013 based on a report from UNCTAD (United Nations Conference on Trade and Development). So this highlights of the importance of the industry to global trade.



In other words, credit easing policies around the world artificially expanded demand for motor vehicles that prompted for a colossal expansion in China’s domestic capacity, as well as, cross border trade for motor vehicles.



I might add that other parts of the world could have added to the industry’s capacity.



Now that domestic demand for cars has been slowing, Chinese producers have been undercutting prices through “margin-destroying discounts” and are considering to “tapping the brakes” on expansion.



Yet with such amazing degree of overcapacity, selling through “margin-destroying discounts” will not only be limited to domestic markets but will likely be exported abroad. But that’s if there will be demand for Chinese cars. As of September, year on year change in China’s car exports have plunged: passenger vehicles -24.7% and commercial vehicles -35.7% according to China Association of Automobile Manufacturers



Like steel, China will likely be exporting abroad price deflation from the industry’s excess capacity. And like Chinese steel, which now is subject to US protectionism that has reportedly contributed to slowing global trade, Chinese cars may vulnerable to conventional protectionist policies imposed on her by her trading partners.



Accounts of rising protectionism, according to analysts quoted by the Wall Street Journal Real Time Economics Blog, have mainly been from the following nations: India, Russia and the U.S. have imposed the most “trade-distorting” measures since 2008.



Ironically, haven’t the two of them, namely US and Russia been part of the APEC summit? Two supposed champions of free trade as the top protectionists? War is peace? Freedom is slavery? Down is UP?



As a side note: Two presidents of APEC member states, Russia’s Putin and Indonesia’s Widodo, have reportedly begged off the summit.



The exporting of deflation will also apply when Chinese vehicle producers cut capacity, as this will ripple across the supply chains and credit networks directly and indirectly attached to the industry.



So ‘globalization’ has not only transmitted bubbles from one nation to another, but more importantly abetted in the inflation of bubbles across the globe.



These are NOT products of laissez faire capitalism (free markets) but one of STATE capitalism.



Again a wolf in a sheep’s clothing remains a wolf.



Paris Attacks: Blowback from ECB Financed French Government’s Geopolitical Interventionism



It saddens me to see civilians needlessly slaughtered due to wars.



Yes media calls the concerted bombings that claimed 129 lives in Paris acts of terrorism. Yet terrorism is a form of warfare. Like guerilla warfare, since terrorists are inferior in organization and equipment, they confront their adversaries through unconventional or irregular means. But unlike guerilla warfare, their targets have been civilians. Such has been intended to sow fear, which according to a Rand Corporation paper, are carried out by an organization, and devoted to political ends—which could be about “narrow goals of payment of ransom or release of prisoners to the broad goals of worldwide publicity for a cause”



Yet wars have to be funded. They are either funded by plunder, taxation or inflation.



Since 2008, the ECB has engaged in various stimulus measures. For instance, the ECB has deposit facility rates (overnight deposit) from a high of 3.25% in October 2008 to -.2 in September 2015. Marginal lending facility (overnight lending) was likewise cut from a high of 4.25% to just .3% over the same span of time.



The ECB’s serial interest rates cuts plus other easing measures have provided significant subsidies for the French government to fund her ladder like increases in spending activities through debt. (Austerity, really? Where?). These included military spending which steadily accounted for 2.2-2.3% of GDP from 2006-2014 based on World Bank data. And even prior to the Paris attacks, the French government announced a hike in defense spending for 2016.  Hence, French public debt to GDP has risen from 68.2% in 2008 to 95% in 2014 and will continue to rise.



And because the French has been active in geopolitics, historian Eric Margolis recently noted that[3]: To put things in context, France has emerged as one of the most active interveners in the Muslim world,  conducting military operations in Libya, Mali, Chad, Ivory Coast, Central African Republic, Djibouti, Abu Dhabi, Afghanistan, Iraq and Syria.   Critics accused France of a new era of Mideast and African colonialism.   



Naturally with about 5-6 million of Muslims residing in France most of them North African and Black African in origin, these Muslims are “third class citizens marginalized by French society and discriminated against, living in poverty with no prospects for their futures.  They have become an angry, dangerous, alienated sub-class seething with resentment and prone to criminality.”



Thus the unfortunate January 7, 2015 shooting Charlie Hebdo incident which claimed 12 lives could have been a precedent or was a prologue to yesterday’s attacks but at a larger scale.



Aggravating the French political drama has been the refugee crisis as an offshoot to the Syrian civil war. The French government actively supported rebels that fought to topple the Syria’s Assad regime. On the same plane, the French government joined the US on airstrikes against the Islamic State last September. Paradoxically, the ISIS has been also at war with the Syrian government.



The French government’s response to the Paris attack has been to declare a state of emergency which included the closing of her borders. Such action essentially violates the Schengen Agreement which calls for free movement of people within EU member nations. The Schengen Agreement is a core part of EU law wherein all EU member states are without an opt-out option.



Even prior to the Paris attacks, in response to the brewing refugee crisis, the EU gave a go signal to the governments of Germany and Sweden for them to institute temporary border controls. Meanwhile Austria announced that it would build a fence across its borders with Slovenia. So one of the core creeds or pillars of the EU’s integration have been dissipating.



In other words, the blowback from ECB’s funding of political will not just be about refugee crisis and terrorist attacks but likewise the increased risks of social instability, protectionism and more importantly the dismantling of the EU!



Thanks to the unelected bureaucrats at the ECB, what was sold as free markets, free people movements and a currency union will now be in jeopardy due to free lunch financing of pet projects of power hungry politicians.



A final note on geopolitics. While it is terrifying to see the carnage from the Paris attacks, what media has not shown have been the bloodshed of innocent victims from Western interventions in the Middle East, Africa or elsewhere. This is with the exception of the US government’s deliberate bombing of a hospital run by the volunteers from Doctors Without Borders at the Afghan City of Kunduz that claimed 22 lives.



Where’s the outrage?



The UNSEEN Legacies from APEC PLUS Central Banks’ Policies



This brings me back to the free trade rhetoric versus inflationism



Do you know what has been the legacy from APEC in combination with current central banks inflationism?



This Bloomberg report has the answer[4]: (bold mine)



Debt in developing markets is estimated to have reached $58.6 trillion at the start of 2015, with credit in China, Hong Kong, India, Indonesia, Malaysia, Singapore, South Korea and Thailand exceeding that of Latin America, emerging Europe and the Middle East, according to the Institute of International Finance.



Emerging-market debt has grown $28 trillion since 2009, according to the IIF, which on Monday introduced a database tracking 18 developing markets. Global debt has soared $50 trillion during the period to surpass a total of $240 trillion, or 320 percent of gross domestic product, in early 2015.



While credit has increased for almost all countries included in the new monitor over the past decade, debt-to-GDP ratios in developing Asia for non-financial corporate, household and financial corporate sectors have risen the most. Debt in Asia topped all categories except in the public sector, which has “limited” exposure across emerging nations compared with developed markets, the report said.



Non-financial corporate sector debt in emerging markets has risen $13 trillion since 2009, increasing more than five-fold over the past decade to surpass $23.7 trillion in the first quarter of 2015. The advance has been most concentrated in emerging Asia, where it rose to 125 percent of GDP.



The above have accounted for the ramifications of the collective actions of global central banks. Global central banks have cut interest rates 697 times and have bought $15 trillion of financial assets in 110 months, according to the Bank of America as quoted by Zero Hedge. And such easing policies have partly led to the amassment of the gargantuan debt stocks based on the financing of carry trades, cross border investments and cross border trades.



I am tempted to ask: 1997 déjà vu?



Oh when this whole thing blows up (on the process now), pls don’t blame free markets for this. There have NO been free markets in today’s politicized money.



Despite Magnificent Profits, ALI’s Cash Flow Strains Explains Capex Cuts!






Curiously, last September, they slashed their capex by 20% in 2015 or this year!



ALI officials already knew much of the sales performance for the Quarter. So why the capex cut given the huge profit gains?



Their publicized reason for the capex cut: tighter cash management.



Why the need for “tighter cash management” in the face of magnificent profit growth?



The same question I asked on SM’s playing with fire last week[5] applies to ALI.



Just what happened to all those supposed “strong earnings”?  Just where exactly are those earnings to be found? Why haven’t the firm been generating enough cash flows enough to cover internal debt refinancing to prompt them to borrow externally?



Apparently Ayala Land shares much of SMPH’s conditions.



Such marvelous profits are really just accounting profits that have been brought about by money illusions.







First and foremost, despite the rip roaring headlines, topline real estate sales have been slowing significantly. 9 month growth for 2015 has fallen to just 10.02% from 2014’s 16.42% (left). 10% is still a big number though.



Second, trade receivables now account for an astounding 40.43% of current assets (right)



ALI has declared in her aging of receivables as Php 50.1 billion will be due in 6 months, Php 8.1 billion will be due on 6 months to 1 year and Php 24.98 billion over one year.



According to ALI’s 2014 annual report (p 39), “Titles to real estate properties are transferred to the buyers only once full payment has been made”. My impression is that the installment payments for the units that have been technically sold may have still been accounted for as part of their inventory. If my reading is right then this would entail a double counting in their current assets.



Nonetheless, even if this hasn’t been so, ALI’s inventory shows of a massive inventory buildup indicative of oversupply. Receivables PLUS inventory now accounts for 73% share of current assets.






Third and most important. Based on her 3Q 17Q, ALI has apparently insufficient cash flows from their operations, so they have to rely heavily on short-long term loans to bridge finance her operations, as well as to pay outstanding due debt.



In the 3Q, ALI raised Php 15 billion which padded her debt proceeds from Php10.5 billion (2Q) to Php 25.991 billion






As a side note: Now if ALI’s share falls below 33 then sorry to these investors who provided the company with Php 16 billion. This would be an example of how ALI transferred market risks to the subscribers of this year’s equity top placement offering.



The Php 16 billion raised from their January offering now serves as cash reserves.



From the above, we see why the need to implement “tighter cash management”.



Aside from the risks of a slowdown in real estate, ALI appears to prioritize COLLECTION more than sales.



ALI’s parsimony can be seen as a shift to a defensive conservation mode.



MEG, FLI and CPG: More Evidences of Growing Strains at the Real Estate Sector!



Now let me just demonstrate more incidences of the money illusion profits based on the balance sheet of the other real estate companies.





Megaworld’s 3Q17Q.



Quick numbers. 3Q sales grew by 10.9%. 9 months sales grew by 11.4%. 9 month DEBT surged by an incredible 50%! Trade receivables soared by 23% in 9 months.



Awesome leveraging!





Filinvest 3Q17Q



Quick numbers. Real estate sales grew by just 2.75% in 3Q! In 9 months topline sales added 6.5%. Interestingly, rental revenues DROPPED -1.9% in 3Q but expanded 8.4% in 9 months.



Meanwhile 9 month debt swelled by 21.8%!





Century Properties 3Q17Q



This looks as the most interesting of all. 3Q real estate sales PLUMMETED by a fantastic 33%! 9 month sale was down by 8.38%.



In the meantime, debt expanded 5.6% in 9 months.



Now my suspicions on the latest media concerted barrage to promote the real estate industry have partially been proven.



The real estate sector appears to showing increasing signs of strains!



Snips: OECD Frets Over Global Recession, September Philippine Exports Tailspins, November 9 PSE Volume Falls to January 2014 Lows!



ICT magnate Mr. Enrique Razon’s call "another crisis is coming" has company. The OECD worries that global trade has fallen to recessionary levels



The Quartz on OECD[6]



Secretary-general Angel Gurria elaborated in a speech summarizing the group’s forecasts: “Global trade, which was already growing slowly over the past few years, appears to have stagnated and even declined since late 2014, with the weakness centering increasingly on emerging markets, particularly China. This is deeply concerning as robust trade and global growth go hand in hand. In 2015 global trade growth is expected to grow by a disappointing 2%. Over the past five decades there have been only five other years in which trade growth has been 2% or less, all of which coincided with a marked downturn of global growth.



presentation accompanying the forecast (pdf) was more pointed, saying that such depressed trade levels are usually associated with global recessions:



Add to this dour global trade sentiment, the 24.7% collapse in Philippine September exports.






Except for Hong Kong which posted a 13.4% gain, Philippine exports to the top four trading partners have all crashed: Japan 47.7%, USA 19.4%, China 28.9% and Singapore 38.4%



At the Philippine Stock Exchange, the Phisix fell by 3.1% this week. If momentum holds then we should see a test at 6,800 and 6,700.







But here is what captured this week’s trade activities. Monday November 9 volume shriveled to just Php 3.73 billion! This level was last seen in January 2014.



It appears that the bid, in support of these extremely overvalued securities, has been fast losing ground.







[1] Ayn Rand “America’s Persecuted Minority: Big Business,” Capitalism: The Unknown Ideal, 47 Aynrandlexicon.com


[2] Ludwig von Mises, Omnipotent Government: The Rise of the Total State and Total War [1944] oil.libertyfund.org


[3] Eric Margolis Attacks of the Lone Wolves January 10, 2015 Lew Rockwell.com




No comments: