The Philippine Government’s New Method of Controlling Inflation: Censorship of Inflation Reports! Another Sy Led Historic PUMP!

The Philippine Government’s New Method of Controlling Inflation: Censorship of Inflation Reports! Another Sy Led Historic PUMP!

In the National Government’s (NG) attempt to manage the fiscal policy of ‘spend, spend, spend’, I wrote last May: [See Why Interest Rates Will Rise: 1Q Fiscal Deficit Blowout Financed by BSP’s Debt Monetization (QE) and Spiking Public Debt! May 6, 2018]

5) The last option would be for the NG and BSP to manipulate markets and statistics in the hope that the markets will conform and comply with their political targets.

A principal repercussion of the fiscal policy of spend, spend and spend has been street inflation. The NG’s statistical CPI has also manifested the government-made fiat-money inflation or the effect of the NG’s aggressive spending financed by the BSP and banks on the prices.

As such, desperately looking for a scapegoat, Department of Finance (DoF) officials have trained their guns on establishment economists.

From the Inquirer (December 19, 2018) [bold added]

Finance Secretary Carlos Dominguez III said the government would continue to keep tabs on economists’ inflation and economic growth forecasts next year to make them accountable for their projections which were used as basis for consumer and business decisions.

Dominguez told reporters Monday night that the Department of Finance (DOF) only wanted to compare projections with actual numbers.

 “All I want is the score. [For example, as in basketball] we want to score how many of the three-point shots of Curry go in,” Dominguez said, referring to basketball star Stephen Curry.

While these forecasts have margins of error, Dominguez said analysts and economists should be made accountable when they put their projections out in public.

Early on, DoF officials went into a verbal scrimmage with mainstream analysts.

From the Bloomberg: (December 16, 2018)

The Philippines Department of Finance blamed analysts for "faulty" forecasts that drove up inflation expectations. Now some analysts are fighting back.

The fracas started on Sunday when the finance department issued a statement saying projections by analysts and economists from 13 institutions were “off the mark” by as much as 0.4 percentage points from the official inflation rates for January to November. It suggested the estimates were "weak".

 “These forecasts have also driven inflation expectations that, as we know from global experience, have a tendency tobecome self-fulfilling prophecies,” Finance Undersecretary Karl Kendrick Chua said.

The response was swift. In a country where the central bank uses social media to communicate policy, the financial community isn’t shy about challenging the official view on the same platforms.

Analysts were quick to point out that the government itself has had to revise its own forecasts for inflation, economic growth, and trade.

The next day, mainstream experts gathered forces to scoff at the DOF’s accusations.

From the Business Mirror (December 18, 2018)

LOCAL economists have dismissed the results of the study released by the Department of Finance (DOF) that the “off-the-mark” forecasts of over a dozen analysts actually served to fuel inflation in the past few months, saying it was not right for the government to point fingers at this time.

Yogi Berra once said “It’s tough to make predictions, especially about the future.”

I am reminded of the government of Argentina which has been notorious in the manipulating statistical CPI.

Back in 2011, the Argentine government even “fined two private consultancies $120,000 over the publication of inflation estimates that more than double the official rate”, according to Reuters.

Has the Argentine government been successful in controlling CPI by punishing forecasters?

Argentina’s CPI climbed in 2011 and continued ascent up to the present. Argentina’s information controls or censorship hasn’t thwarted the laws of economics.

Of course, the Philippines isn’t Argentina. But what would matter is of the policies undertaken by the government. Since the Philippines has embraced a socialist path reminiscent of the latter, similarities in outcomes have surfaced.

Or, the Philippines may end up like the latter unless there would be substantial changes in the direction of the present socio-political-economy path. 

So the subjugation of CPI forecast would signify an exercise in futility

And here’s the thing.

The establishment's bickering over the CPI exposes their perspective on inflation: a statistical contraption!

Perhaps such information bears significance for the finance world and the businesses of the elite.

But do street vendors, the sari-sari and carinderia store owners or small and medium business scale enterprises use the GDP and CPI in their business calculations?

Up to what extent have the GDP and CPI been used by entrepreneurs for making decisions?

The DOF gives too much credit to these analysts for their “self-fulfilling prophecies”.

By such allusion, have these analysts attained rock star status? 

According to the BSP’s deposit liabilities, Php 12.152 trillion in total deposits are from 47.54 million depositors who maintain some 59.6 million deposit accounts as of June 2018

With half of the population not having deposit accounts from the banking system, the thrift, and rural and cooperative banks, how (the heck) can these ‘experts’ hold sway on the public’s inflation expectations?

Like Argentina, the DOF is looking for a fall guy for their policy failures.

Yet, of course, the other policy perspective here is control of information. The NG wants to filter out politically unacceptable forecasts. It believes force is necessary to control economic outcomes which play by the book of totalitarianism.

Here is an interesting side note.

Deposits with over Php 2m have grown fastest even when they represent the smallest share of the total accounts. In contrast, growth in the 5k and below accounts, which consists of the biggest share of total accounts, continues to ebb. Such highly skewed distribution of bank deposit liabilities reveals of the dispersion of wealth in favor of the “have’s”.

Finally, it’s hideously naïve for anyone to expect precise outcomes through quantified forecasting in the same manner as predicting natural sciences.

Economics isn’t natural science.

As the great Ludwig von Mises explained,

Economics can predict the effects to be expected from resorting to definite measures of economic policies. It can answer the question whether a definite policy is able to attain the ends aimed at and, if the answer is in the negative, what its real effects will be. But, of course, this prediction can be only "qualitative." It cannot be "quantitative" as there are no constant relations between the factors and effects concerned. The practical value of economics is to be seen in this neatly circumscribed power of predicting the outcome of definite measures.

And of course, economic theory shouldn’t be confused with econometrics. As Economic blogger and Professor Donald J. Boudreaux wrote,

The ultimate test of any theory is not how impressive it looks or even how well its predictions are borne out by the quantitative data.  Rather, the ultimate test of any theory is how well it improves our understanding of reality.  

And one last thing.

The PhiSYx attained a second record today!

That milestone embodies another historic PUMP!

What can’t be attained in the regular session will have to be accomplished by an orchestrated move at the close!

53.3% of today’s gains from an eight-company pump. The Sy group having the largest market cap were the main beneficiaries aside from the stunning JGS push (+5.84% to deliver 87.5% of the 6.67% gains of the day! Awesome!). The 8-firm pump had a total market share of 55.54% as of the day’s close.

Desperate times calls for desperate measures!

And yes, the CPI forecasting censorship is tied with the brazen stock market manipulation: these are designed to control, by force, the laws of economics!

War on “the Probinsyano”: Will ABS-CBN Be Nationalized? Or Will Lopez Be Forced Out in Favor of a Political Favorite?

War on “the Probinsyano”: Will ABS-CBN Be Nationalized? Or Will Lopez Be Forced Out in Favor of a Political Favorite?

The leadership’s thrust to muzzle, repress or subjugate press freedom escalates. This time the administration is picking on a highly rated fiction series as a means to exercise controls over the industry.

From the Inquirer (November 18, 2018):

The Department of the Interior and Local Government (DILG) on Saturday denounced the portrayal of policemen in the popular TV series “Ang Probinsyano” and threatened to sue the show’s producers.

“I am dismayed at how ‘Ang Probinsyano’ depicts the [Philippine National Police]. They are intentionally sending a wrong message, which is demoralizing the ranks of the PNP,” Interior Secretary Eduardo Año said in a statement.

The administration is taking various measures to stop the show.

From the Inquirer (November 18, 2018)

The Philippine National Police (PNP) has ordered all its units to stop allowing the teleserye “Ang Probinsyano” from using their personnel, equipment, and facilities, following the show’s alleged negative portrayal of the agency.

“All units, offices, and personnel are advised to immediately refrain from assisting, to withdraw their support to the production of the said teleserye in terms of PNP resources like patrol cars, firearms, personnel, venues, and other items and gadgets being used in the teleserye,” Police Community Relations Director Eduardo Garado said in a memorandum dated Friday, Nov. 16, 2018.

From the CNN (November 16, 2018)

The Department of Interior and Local Government (DILG) on Friday expressed dismay over a popular police drama's portrayal of the country's police force.

DILG Assistant Secretary and Spokesperson Jonathan Malaya said the government may look into possible legal action against ABS-CBN's "Ang Probinsyano" if the show does not change its plot anytime soon.

"We will seriously consider filing legal action and imposing sanctions including the prohibition on the use of PNP uniforms, properties and even using the acronym of the organization (PNP) if "Ang Probinsyano" continues with their grossly unfair and inaccurate portrayal of our police force," Malaya said in a statement Friday.

A week back, the Philippine President threatened the non-renewal of the ABS-CBN franchise

From the CNN (November 9, 2018)

President Rodrigo Duterte slammed TV network ABS-CBN anew, saying he would object to the renewal of its franchise.

In a speech Thursday during the ceremonial distribution of Certificates of Land Ownership Award to agrarian reform beneficiaries in Malay, Aklan, the President went on a tirade against the network and its chairman emeritus Gabby Lopez, saying they were thieves.

ABS-CBN's franchise is up for renewal in 2020, or two years before the end of Duterte's six-year term.

"Alam mo yung ginawa ng mga p*****g i*a kayo, ikaw Gabby. Inuna mo pa yung advertisement ni Trillanes na hindi ikaw. Pinaniraan ako ng mga bata, ay si Duterte killer yan. Sa batas, there was an injunction na hindi pwede yan kasi bawal na gamitin mo ang bata. And yet pumunta talaga kayo, went ahead with the show and made it public," he said.

[Translation: You know what you sons of b*****s did, you Gabby . You went ahead and showed Trillanes' advertisement. Children said, Duterte is a killer. There was an injunction in the law which said that was not allowed because it involved children. And yet you went ahead with the show and made it public.]

The administration has painted this to be an election issue. It could be, but it could be more.

Isn’t it a coincidence that the assault on Probinsyano occurred just as ABS-CBN reported a sharp drop in net income growth?

From the Inquirer (November 16, 2018)

Media giant ABS-CBN Corp. saw earnings drop in the nine months through September this year as revenue was relatively flat while costs increased.

From January to September 2018, ABS-CBN posted a net income of P1.48 billion, down almost 35 percent. Total revenue slid by 0.1 percent to P29.5 billion.

Advertising revenues, comprising 50.45% of the firm’s overall gross revenues, have contracted for two straight years (-2.83% in 2018, 16.42% in 2017).

The other major component of ABS-CBN’s revenues, the sale of services, which took up a 41.5% share of the total, have hardly been growing at all (+.72% 2018, +5.36% in 2017).

And because of the rapidly shrinking net income, ABS borrowed Php 7.8 billion over the period, as reported by its 3Q 17Q. Total debt now stands now at Php 28.25 billion or 96% of its 9-month revenues!

ABS-CBN’s fundamentals have decayed from mostly changes in market preferences. How much more when politics forces the issue?

Mr. Duterte’s recent actions against other media institutions critical of his administration provide a blueprint of the fate of ABS-CBN

Mr. Duterte laid siege on the Prietos of the Inquirer, forcing the latter to sell their stake in it to a crony in November 2017.

But the Prieto’s exit from the Inquirer hasn’t appeased Mr. Duterte. Not only has the Prietos been charged with tax evasion on their Dunkin Donuts franchise, but Mr. Duterte has also revived his plunder threat against them.

Accused by Mr. Duterte of peddling fake news, tax evasion case has been leveled against Rappler officials a week back. A year back, because Mr. Duterte charged Rappler as having been owned by Americans, the SEC revoked the media outfit’s incorporation papers, a ruling which the Court of Appeals upheld.

Such accounts bring us back to the misfortunes of the Probinsyano.

Do you know the likely effect of the closure of the Probinsyano to ABS-CBN?

Here is a clue…

"The Probinsyano" is one of the principal (if not the biggest) profit centers of ABS-CBN’s, unfortunately, declining revenue and income stream.

That said, should the show be taken off the air or have its popular plot vitiated, the debilitation of ABS-CBN will only accelerate!

Then what?

Will ABS-CBN be nationalized?

Or will the Lopez be forced out in place of whom?

Or, will ABS-CBN be added to the collection of trophies of a political favorite granted by the patron’s unrelenting conquest of the domestic economy?

Attachments area

The Phisix Jinx In Motion…; Media Censors BDO’s Earnings Drop; PSE 1Q EPS at CPI Rates!

The Phisix Jinx In Motion…

Again, PSE officials can’t help but indulge in a shindig even when the Phisix has YET to make a breakthrough into new records. When the Phisix hit 8,071.47 on July 28, the PSE’s press release noted correctly that this was a “one year high” and also that this was the “highest for the index since July 27, 2016, when the PSEi finished at 8,100.48”.

Intuitively, such eulogizing had been alluded by the PSE to “positive investor sentiment ahead of the release of second quarter earnings results”.

It is as if earnings had anything to do with the THIRD most expensive stock market in the world

PRICES are EVERYTHING!

And because of record price highs, PSE officials likewise feted SM Prime as “the first Philippine listed company to record a one trillion-peso market capitalization in the history of the Philippine stock market during a simple ceremony”.

Even after this week’s 2.86% retrenchment, SMPH’s PER (eps 2016) stands at a staggering 41.16!!! Here is SMPH’s quote page at the PSE’s website. Even if we apply the annualized 1Q 2017 PER, SMPH retains the mind-boggling obscene valuation of 37.12!

It has never been a concern how the Sy Group of companies had signified as the major beneficiaries of rampant pumping including marking-the-close

For PSE officials, instability is divinity. The end justifies the means.

All told, like 2015 and 2016 such institutional worship of asset bubbles seem to signal its culmination

Media Censors BDO’s Earnings Drop

Oh, more proof that the stock market has hardly been about G-R-O-W-T-H!

 

BDO was the first of PSEi 30 firm that presented its 2Q and 1H performance. Stunningly, when presented in media like this,this and this, everything was at least positive.

The focus was on the 1H aggregate… (Inquirer)

The country’s leading lender BDO Unibank chalked up P13.3 billion in net profit in the first six months, little changed from the same period last year on lower trading gains and one-off items from the acquisition and consolidation of subsidiaries.

Underneath the facade, there appears to have been a deliberate omission of many critical factors  

For instance, 2Q profits DROPPED by 4.12%!! Such drop in 2Q earnings led to the unchanged profits in the first semester. But again, such decline never seemed to have existed.

Even more, earnings per share DIVED in both 1H (-10.62%) and 2Q (-14.71%). That was mainly from the Php 60 billion stock rights offering (SRO) that was held in January.

Curiously this eps decline has duly been noted under the comprehensive income category of the BDO’s management and discussion:

“Basic earnings per share went down P 0.36 year on year to Php 3.03 for the first half on a larger number of common shares outstanding due to SRO

Though stock rights don’t affect income statement directly, the additional number of shares issued from SROs has a dilutive effect, which naturally reduces the eps!

But like the 2Q performance, BDO’s SRO seems to have happened in a vacuum!

In fact, BDO share prices soared by 2.0% this week to hit an all-time HIGH at Friday’s close! It has all been about prices.

Dilution, thus, has been NO MORE!

Perhaps BDO’s offering of Php 5 billion long-term negotiable certificates of deposit (LTNCD) could have impelled for the public sterilization of the firm’s financial conditions.

This offering essentially signifies FREE lunch for BDO.

BDO’s LTNCD has interest payments that are about CPI rates! The public thereby would be subsidizing BDO with free money, but would also bear the burden of the risks attendant to such long-term CDs!

So when financial performance has been bleak, there will be less enthusiasm to participate in such wealth transfer mechanism. Media, therefore, has to project only G-R-O-W-T-H!

This offering could likewise have served as the reason behind the push to record high prices of BDO shares: to signal to the public that everything has been hunky dory!

Eerily, such public raising of funds would account for the second (after the SRO and now LTNCD) this year!

Courtesy of the BSP, stock prices have now been used as a marketing tool for implicit wealth transfers!

1Q PSE and Listed Firms Performance at Par with CPI rates!

Let me further note that the PSE released the performance of listed firms in their June 2017 report.

The PSE noted that eps of PSEi 30 grew only by 3.9% while all listed firms registered a 2.5% growth. Ironically, these growth rates had almost been at par with the 1Q CPI rate of 3.2%, based on BSP data.

While the inflation rates did boost the top line, apparently, operating costs were adversely affected too. As I have noted here many times, an inflationary environment has hardly been helpful to corporate earnings.

Think of what would have happened if the BSP’s emergency measures were not in place.

As a side note, the PSE seemed to have arrived at these numbers, not from earnings, but from published profits computed from the average.

Yet the Phisix went berserk to surge by 6.9% while the all shares raked in 5.8% over the same period. In other words,returns effortlessly trounced earnings by 76% for the Phisix and by 132% for the ALL shares!

 

You see, share prices of listed firms have not been permitted to reflect on their actual earnings. Share prices have been aggressively bid or have vastly outperformed their respective earnings performance. Thus, earnings essentially have a smidgen of relevance to their pricing.

Even more, the almost daily brazen pumps and dumps have certainly added to mounting imbalances in pricing, values and capital deployment in the real economy.

And as a function of causality, the metastasizing of the stock market into a loaded casino has been the primary reason why the Phisix has become the MOST expensive in Asia and the third MOST expensive in the world!

And as a function of causality, the primary reason why the Phisix has morphed into the MOST expensive in Asia and the third priciest bourse in the world has mainly been from metastasizing of the stock market into a loaded casino!

While many believe in free lunches, the paradox is, we live in a world of scarcity.

Something will have to give.