When
you want to help people, you tell them the truth. When you want to
help yourself, you tell them what they want to hear—Thomas
Sowell
In
this issue
PSE’s
Fairy Godmother, The Rampaging Financial-Banking Index, Why Newton’s
Law Will Prevail
-PSE’s
Fairy Godmother in Action, Again
-Typical
Weekly Pattern, Friday’s Amazing Pump and Dump
-More
Evidence of the Price Fixing Dynamic
-Banking
Index in Vertical Ramp, Nears Record
-Rampaging
Bank Stocks in the Face of Growing Risks
-Why
Newton’s Law Will Prevail
PSE’s
Fairy Godmother, The Rampaging Financial-Banking Index, Why Newton’s
Law Will Prevail
PSE’s
Fairy Godmother in Action, Again
Last
weekend I wrote: Pumps
and Dumps Intensify, SM’s Friday Dump: A Gambit To Stir Bulls Into
Action? Or Signs of Backfiring of the Price Fixing Mechanism?
March 12, 2017
Does
such represent a gambit to stir incensed bulls into action? Or has
this signified a backfiring of the sustained pumps and dumps?
The
coming days should give us an answer
So
my suspicion was spot on.
The
other Friday’s DUMP transposed into a massive weekly PUMP this
week!
If
you haven’t noticed, each time turbulence comes into play, the
Phisix would see a violent meltup in response. The most conspicuous
of them were the two major selldowns, both in 2016, or the two
troughs of January 21 and December 23, which had been countered with
astonishing vertical pumps.
It
seems like the PSEi has an invisible fairy godmother, or might I say
an equivalent of the US Plunge
Protection Team (PPT), an unidentified group which provides
implicit support to the PSE.
From
this perspective, having replaced the fundamental functions of the
capital market with politics, free lunch rules the PSE. Demand and
supply be damned! The Phisix has been “mandated” to only go UP!
So
after last week’s 1.39% plunge, which was spearheaded by SM’s
9.24% crash on Friday, increased usage with intensified dosages from
magic spells by the fairy godmother, the PSEi generated a massive
2.78%, the second largest weekly increase for the year!
The
fairy godmother turns a pumpkin into a magical coach!
Typical
Weekly Pattern, Friday’s Amazing Pump and Dump
Yet
it’s not the headline numbers that have really been important.
Rather, it’s HOW these numbers have been attained or the MEANS to
the END.
Nevertheless,
it’s been a routine or a pattern for most of the year: a Monday
PUMP, defense of the Monday’s gains in the intermediary, and a
closing or a Friday PUMP or DUMP.
This
is all “legal” anyway, regardless of what’s been stated in the
BSP or the SEC’s regulations.
The
PSEi posted increases in four of the five trading days last week. The
bulk of these were accomplished in Monday (+1.21%) and Friday
(+.91%). The two days accounted for 76% of the week’s gain
Figure
1: Same Pattern, Friday’s Pump and Dump
The
only day where the Phisix corrected, was even met with a massive
“mark the close”! (see upper middle pane) And that’s after
another afternoon delight operation! The Phisix even almost closed in
green had the price fixing pumps not been offset by a single dump on
GTCAP.
For
this Friday, to ensure that the Phisix would close in the green, a
concerted enormous pumping operation went into action just right
after lunch. Four major sectors participated in the synchronized
operations (lower left window): property, services, financials and
holding firms.
The
Phisix raced to over 7,400 intraday, backed off from the near closing
highs, and ended the regular session with a stunning surge of 108.91
points or +1.5%!
However,
at the closing bell, mark on close orders rained down on the PSEi.
These lopped off a staggering .58% of the day’s gains for the
headline index to post only +.91%.
And
significant price changes from mark-on-close orders virtually
affected NINE of the top TEN issues! Seven issues were DUMPED, while
two issues were PUMPED! Truly astounding.
Perhaps,
those liquidations were made to finance Monday’s next bidding
frenzy.
You
see, the Philippines has accounted for as the only country whose
bourse has been characterized by wild pumps or dumps at the closing
bell!
But
don’t worry, it’s the best stock market in Asia! Destruction of
the elementary function of markets has been considered a virtue.
Well,
that’s familiar. War is peace, freedom is slavery and ignorance is
strength.
Yet
footprints of deliberately designed pumping can be seen in many
places.
Figure
2: Weekly gains concentrated on Top 5 issues
For
this week, the average increase by the top 5 biggest market cap was a
shocking 5.332%! The closing numbers for this group has really been
gigantic: SM +10.52%, JGS 9.53%, BDO +3.82% and ALI +2.96%!
The
average gain by the top 15 was at 3.07%. That includes ICTSI’s
striking 14.59% vertical nauseating climb!
In
perspective, the market cap weight share of the top 5 as of Friday
was at 39.58%. The market cap weight share of the top 15 as of
Friday was at 79.75%. This
shows that the concentration of pumping occurred mostly around the
top 5 issues with diminishing pumps at the farther end!
See
now how the 2.78% was derived?
Again
this is no stock market. Instead, this is a price fixing mechanism.
In
fact, the average gain by the benchwarmers, or the next 15, which
holds a 20.24% share weight of the PSEi, was only a mere .56%! Though
there were big rallies in the said group such as PCOR (+6.18%) and
LTG (+5.34%), they were hardly contributors to the headline. Yet
losers in the group largely offset such big gains.
And
another astounding fact: outsized
volatility has resurfaced to drive the index.
Among
the PSEi 30, gainers dominated losers 18 to 11 with an unchanged
issue. Yet, 16 of the 18 advancers saw increases of more than 1%!
Even more, 12 of the 18 advancers had gains of 2% and above!
In
the opposite end, 7 of the 11 decliners posted more than 1% loss!
Prior
to the last two weeks, while volatility had been internally present,
it was subdued in the context of the headline index. This went on for
a month or in four consecutive weeks.
But
time has apparently changed convictions. Bulls have become restless
and impatient
The
past two weeks has shown accelerations in price instability as
revealed by violent price actions! This
means that the current efforts to break 7,400 have been channeled
through forcible pumping!
And
here’s more. General market breadth went in the opposite direction
of the Phisix. Decliners LED advancers by a modest margin of 42 from
the weekly numbers of 486 to 444
Foreign
money remained net sellers for the ninth consecutive week. Foreigners
sold Php 1 billion worth of shares to locals. Interestingly, the
share of foreign trade to total volume spiked to 62.01%, the highest
for the year.
Meanwhile,
peso volume turnover jumped 12.7% this week to an average of Php 8.4
billion. The improvement in volume was partly helped by special block
sales which contributed to 9.45%. Special block sales for the week
tallied at the highest since December 15th.
What’s
the message here?
Despite
the enormous gains in the headline index, market sentiment was in a
state of paradox: a mix performance.
Here’s
why. Local
participants were mostly responsible for the aggressive bids that
gravitated mostly towards PSEi 30 issues.
Since
locals were buying from foreigners, as marginal price setters, such
forceful bids translated to larger volumes and magnified price
volatility. Remember, MORE pesos are required to buy PSEi 30 issues
at HIGHER prices.
And
because of the concentration of activities, perhaps rotation provided
the finance for such violent buying dynamic. In short, for
locals, the tactic used was: buy PSEi 30, sell PSE.
This
may partially explain the divergent activities of the broad market
from the PSEi 30.
Banking
Index in Vertical Ramp, Nears Record
The
Phisix may be still below the May 15, 2013 high of 7,400, but the
financial index as of Friday has now just been a hair away (-1.44%)
from April 10, 2015 summit of 1,888.8 and (-1.2%) from September 15,
2016 zenith of 1,883.79.
Figure
3: Financial Index Close to Landmark Highs, Divergent PSEi Bank
Performances
The
bank-financial index has taken a startling vertical flight! (see
figure 3)
It
was up 3.17% this week and 12.45% year to date, the second best
performer in terms of year to date; only eclipsed by the service
sector (+14.82%).
BDO’s
(red) string of record highs backed by BPI’s (green) ramp has
significantly boosted both the PSEi and the financial-bank index.
Prices
of both issues have virtually run amuck!
Interestingly,
SECB (violet) and Metrobank (brown) appears to have lagged the
leaders. Why?
Have
these been signs of a strictly a BDO-BPI dynamic? Or will the BDO-BPI
manic pumping spillover to MBT and SECB?
Figure
4: Little Signs of Rising Tide in Other Financial Index Members
When
seen from the broader financial issues, there have been little signs
of the rising tide lifting the other financial boats.
While
most issues improved compared to last year, it’s only UBP (blue)
that has made significant but gradual strides. Yet UBP’s actions
depart from the BDO-BPI vertical rocket ships.
The
rest, namely AUB (black), PBB (orange), EW (indigo), CHIB (red), RCB
(dark green) and PNB (gray) have substantially underperformed.
Again,
the 64 trillion peso question is why? Will BDO-BPI price rampage
diffuse into the rest? Or will this signify an act strictly for the
dynamic duo?
Present
developments reverberate with the record run of 2015 which peaked on
April 10, 2015.
In
that cycle, about half of the PSE firms were in bear markets while
only some of the PSEi’s top 15 were responsible for milestone PSEi
at 8.127.48. Again, signs of an engineered pump.
DéjÃ
vu?
Rampaging
Bank Stocks in the Face of Growing Risks
Figure
5: Financial Portfolio, Trade versus Property and BSP’s Portfolio
Exposure in Bubble Sectors
Yet
why the frantic bidding of select financial-banking stocks?
Could
recent money flows provide some clues?
What’s
the relationship between growth rates of the banking system’s
financial intermediary loan portfolio with the PSE’s near record
sprint by the financial index? (upper window) A seemingly tight
correlation can be seen above.
Perhaps
it’s more than just correlation; there could be a causal nexus. Or
to extrapolate, financial
institutions could have borrowed so much money to speculate in the
Philippine Stock Exchange.
The performance
of the PSEi, thus, has been coincident with the changes in the
banking system’s financial intermediary’s portfolio.
If
true, then such would serve as circumstantial evidence that point to
the likely parties responsible for ‘mark on close orders’ which
has resulted to the perpetual price system impairing, marking the
close.
Also
if true, this shows why financial institutions are vulnerable to a
PSEi crash. And that’s why they will do a Mario Draghi’s
“whatever it takes” to float the index.
No
wonder why the regulators (BSP, SEC) have been asleep on the wheel.
Yet
what happened to risks? Have banks been immune to risks?
I
have previously noted that based on government’s statistics, the %
share of the key bubble sectors—namely construction, real estate
and trade—have swelled to 38.61% of the 2016 GDP.
Add
the financial sector, the bubble sector’s share of GDP bulges to
46.7% over the same period! It’s
almost like putting all eggs in one basket! With nearly 50% of GDP, a
slowdown in these sectors would have a substantial detrimental effect
on the economy and on the banking system! Such represents signs of
growing concentration risks!
And
even more fascinating has been the ratio of trade/gdp vis-Ã -vis the
property sector/gdp. The ratio indicates which of the two sectors
have grown faster. (middle window)
Since
the BSP began its subsidy program through trickle down negative real
rates in 2009, the property sector has almost consistently outgrown
the trade sector.
Yet
the cumulative share of loan portfolios of both sectors plus the
construction vis-Ã -vis total banking loans has burgeoned to 38.92%.
Or
the share of loans of such bubble sectors comprises nearly two fifths
of the total loan portfolio of the banking system!
To include
financial intermediary and hotels would spike the accrued sector’s
share of loans to 51% or half of the banking system’s loan books!
And
growing anecdotal accounts of saturation or oversupply in both retail
and the property sector tell us that the banking system IS vulnerable
to credit risks despite the much ballyhooed statistical but untested
“capital reserve” base as declared by the government and the
mainstream.
So
banks shares have soared even in the face of mounting risks!
Figure
6: Construction and Wholesale Prices Soar Past 2014 Highs
To
add spice to the paradox, the Philippine Statistics Authority
reported last week their surveys of real economy prices via
February’s construction material
wholesale (upper right) and retail
prices (upper left), as well as January general
wholesale prices (bottom).
Prices
of all three statistics have zoomed past 2014 highs!!!
And
surging real economy prices will boost bank lending conditions????
I
don’t have to repeat what I have been saying about the adverse
impact of rising inflation on the economy. Here’s a clue on how
inflation will hurt earnings, from McKinsey.com, “How
inflation can destroy shareholder value”
Why
Newton’s Law Will Prevail
In
so many words, quality (economic and financial foundations) will
matter more than quantity (PSE’s price levels) overtime.
For
the moment, the establishment PPT or the PSE’s fairy godmother may
generate the momentum required to push the headline index higher.
Part of which could be a breakout by the banking financial index to a
milestone. But this, like its two predecessors, would be
unsustainable.
And
to repeat, manic
bidding of domestic stocks have occurred even as endogenic systemic
risks continue to escalate.
These
internal risks includes the massive leveraging of balance sheets, the
sustained frantic race to build supply, deepening signs of
overcapacity, rising concentration risks, surging real economy
prices, the crowding out effect from a leftist government, increased
government interventions in the marketplace, the falling peso and
emergent interest rate pressures—which account for the most
fundamental reasons.
Such
risks are not isolated but are intertwined and interdependent.
And
that’s
aside from a multitude of external risks.
Even
in the PSE, signs of entropy have been intensifying. Such
includes the rampant and brazen (desperate) manipulations, the
divergent performances of PSEi components which likewise have been
manifested in the broader market, growing accounts of unstable prices
manifested by vertical pumps (BW-SSO syndrome), the concentration of
activities to a few issues and amplified price gyrations in the face
of faltering volume.
At
the end of the day, since vertical price trends are symptoms of
mispricing founded on a maladjusted economy and (pseudo) markets
operating on falsified prices,
Newton’s
Law (via mean reversion) will eventually rule.
Newton’s
Law has governed solidly the past 50 years. What should make this
time different?
