Showing posts with label finance basics. Show all posts
Showing posts with label finance basics. Show all posts

Monday, October 12, 2015

Phisix 7,100: Risk of Global Recession Sends Global Risk Assets to a Frenzied Frothy Pump!

..the fiscal gap is all of the unfunded liabilities that the government owes. Medicare, Medicaid, Social Security, all the departmental programs, all the agency and sub-agency programs extending into the future, which is a lot of money, versus the amount of revenue that we expect to collect from taxes and other revenue sources. Now if we're being fiscally responsible, those numbers should be fairly close together. If we're not, a gap begins to occur. We bring that forward to modern day today's dollars, and that's the fiscal gap, which sits at over $200 trillion and is continuing to grow. Now the only reason that we can sustain that kind of debt is because of our artificial ability to print money, to create what we think is wealth, but it is not wealth, because it's based upon our faith and credit. You know, we decoupled it from the domestic gold standard in 1933, and from the international gold standard in 1971, and since that time, it's not based on anything. Why would we be continuing to do that? Ben Carson, GOP Presidential Candidate in an interview at the
In this issue
Phisix 7,100: Risk of Global Recession Sends Global Risk Assets to a Frenzied Frothy Pump!
-IMF Slashes 2015 GDP for the 2ND Time! World Bank and Fitch Joins Downgrade Bandwagon!
-After ALI, ICTSI Chops 2015 CAPEX by HALF!
-Rabid Denial Phase: Panicky Media Resorts to Celebrity Endorsement of Stocks!
-Growing Risks of Global Recession Sends US Dollar Crashing, Risk Assets Melt-UP!
-Phisix Underperforms Region; Volume Sputters at 7,100
-Quote and Images of the Week: Brazil’s Boom and Bust
Phisix 7,100: Risk of Global Recession Sends Global Risk Assets to a Frenzied Frothy Pump!
Note on the headline quote. To be clear, I am not supporting any US presidential candidate. The reason for the above excerpt is to show of the increasing recognition by the public on the relationship of debt accumulation with unfettered fiat money standard. (tip of the hat: Mises Blog)
IMF Slashes 2015 GDP for the 2ND Time! World Bank and Fitch Joins Downgrade Bandwagon!
The string of downgrades I predicted last August in response to the 2Q and 1H GDP appear to be snowballing
Here is what I wrote then[1],
Simple math tells us that at 5.3% for 1H, it would NEED the next two quarters to attain an average of 6.7% just to reach an annual 6%, which has been the floor of most of mainstream expectations.
The next question is can an average of 6.7% be reached? How?
With 6.7% seemingly seen as a Herculean task, it would be natural for the consensus to go about downscaling G-R-O-W-T-H expectations.
Here are the 2015 forecasts by some of the major international institutions: Moody’s 6.6% (2Q GDP at 6.88!), ADB 6.4%, and the IMF 6.2%.
So if these entities downgrade G-R-O-W-T-H, how will this affect headline bullishness?
Well, the World Bank joined the bandwagon to slash the Philippines’ 2015 GDP forecast[2], notes the Business World,
the Washington-based lender said it now sees the Philippine economy growing by 5.8% this year from the 6.5% forecast given in June, 6.4% in 2016 from 6.5% and 6.2% in 2017 from 6.3%.
Of course, media sterilizes or cushions this downgrade as still “among Asia’s best”. They fail to realize or acknowledge the implications of such actions.
Adding to this week’s G-R-O-W-T-H downside revision has been credit rating Fitch. From the Business World[3]
Fitch sees the Philippine economy growing by 5.6% this year and 6.1% in 2016, slower than previous projections of 6.3% and 6.2%, respectively. In 2017, economic growth could slow to 5.9% before picking up to 6% in 2018
My guess is that the annual G-R-O-W-T-H for the coming 2-3 years will be repeatedly revised significantly lower!
As possible clue, the IMF amended G-R-O-W-T-H forecasts for the Philippines LOWER for the SECOND time this year! From another Business World report[4],
In the October 2015 edition of its World Economic Outlook titled “Adjusting to Lower Commodity Prices,” the Washington-based lender now expects the Philippine economy to grow by 6% in 2015 from 6.2% previously, and 6.3% next year from 6.5% initially. GDP growth was logged at 6.1% last year.
The IMF first downgraded G-R-O-W-T-H outlook last July.
At the year’s start, the multilateral agency’s target was at 6.7%. So while the second adjustment may not signify much from the July revised outlook, the second revision translates to a 10.44% cut in G-R-O-W-T-H expectations from the initial target for 2015.
Though the IMF expects government spending to help the GDP numbers, these are statistical illusions that would only drag down real growth overtime.
What has popular been sold as ‘fiscal discipline’ will soon mutate into fiscal extravagance. This will be magnified by the coming fall in tax revenues relative to public spending which should perk up debt levels.
Nonetheless the above continues to reveal not only of the big misses on overly optimistic projections, but also why establishment forecasts will fail to predict important inflection points of an economic downturn. That’s because past performance projected into the future looks like the main basis of the establishment models.
I am not here to nitpick on the statistical data. I am here to point out of its implications.
You see, the entire spectrum of domestic asset market pricing (stocks, real estate, bonds and currency and even credit ratings) have almost entirely been predicated on expectations that there can be NO obstacles or NO hindrances to the credit fueled GDP G-R-O-W-T-H juggernaut.
And since asset prices has been underpinned by real (formal) economy developments manifested by the race to build supply side that had been fueled by a credit boom which have really been about borrowing demand from the future to spend today (as the basis of mainstream’s aggregate demand economic G-R-O-W-T-H model), these have been seen as moving in a perpetually linear motion that comes with hardy any costs.

This only means that the credit G-R-O-W-T-H illusions have incited a monumental mispricing or preposterous valuations of asset markets. As shown above, based on mostly March 15 PSE reported book value, the PBV (as of Friday’s close) reveals of a stunning valuation excesses.
Of course, mispricing doesn’t occur in random (or fall like manna from heaven) they are instead symptoms of accumulated imbalances in response to government policies.
Hence, such downgrades makes these “misalignment in prices” and economic maladjustments vulnerable to radical shifts in expectations. And such significant shifts in expectations exposes on the heightened sensitivity of asset prices to crashes (mainstream euphemism “volatility”).
And we are talking just of a scaling down of expectations from 7-8% to 5-6%. How much more if the GDP G-R-O-W-T-H ends up lower?
After ALI, ICTSI Chops 2015 CAPEX by HALF!
Of course, changes in expectations don’t just affect asset prices; there will be real economy ramifications too.
In response to deteriorating real economic events, headlines have now been incorporating these sanitized downgrades. And since headlines impact people’s thought and actions, these means that such lowered expectations will prompt for a reflexive feedback loop between expectations (incentives) and pricing (human action).
And such feedback loop will be expressed as real economic developments (investments, savings and consumption) that should eventually get manifested as GDP G-R-O-W-T-H.
Markets signify a process. They represent spontaneous actions of all economic agents. Thus economic entropy occurs in stages.
Last September, following ALI’s capex cuts I asked[5]
Will capex cut backs be limited to the real estate sector or will this spread into the other industries too?
Well developments appear to be confirming my hunch. Maritime terminal giant (quasi monopoly) ICTSI’s Big Boss says that the firm’s capex cuts will likely be cut in half, not next year, but this year!!!
From the Businessworld (bold mine)[6]:  INTERNATIONAL Container Terminal Services, Inc. expects to spend only half of the $530 million it budgeted for this year as the Philippine port operator limits its expansion amid slowing global growth, Chairman and President Enrique Razon said. “The growth picture of the global economy is not looking too great,” Mr. Razon, 55, said in an interview Oct. 2 in Manila. Profit at the company has mainly been driven by acquiring new terminals rather than by organic growth, he said…Capital spending in the first half of the year was $136.7 million, accounting for 26% of its $530 million annual budget, the company said in August.
A read between the lines of “Profit at the company has mainly been driven by acquiring new terminals rather than by organic growth” signifies a TRENCHANT revelation!
The more direct way of saying this: ICTSI’s ‘inorganic’ earnings have been fueled by cheap money through low interest rates subsidies as manifested by a weak US dollar regime (strong peso and emerging market currencies).
So the ICTSI chief tacitly admits that his company’s profits have been artificially inflated or “mainly been driven by acquiring new terminals rather than by organic growth’ that has been boosted by the FED and the BSP’s easy money regime.
Now that a strong dollar has impelled for a substantial change in his outlook, which prompted him to make this downshift, “global economy is not looking too great”. Said differently, the cheap money landscape is being threatened, thereby the capex cuts!  Capex cuts, again, for THIS year! Capex cuts with just a quarter to go! How much more for next year???!!!
Now as I pointed out before, lesser investments should translate to diminished earnings G-R-O-W-T-H (all things equal)!
Has ICTSI’s recent crash been factoring this? As of October 8, ICTSI sports a PE of 23.3 and a PBV of 2.58.
On ALI’s capex cuts, I also asked
What happens if cut backs on capex evolves or progresses into a national phenomenon? Will this not reinforce the ongoing slowdown in the statistical G-R-O-W-T-H or the GDP momentum?
And what would be the conditions of the built-in or accumulated leverage in the system when the G-R-O-W-T-H materially recedes? Will Non Performing Loans soar further?
Where will the much ballyhooed consumer spending growth model get its financing once the tapering of capex will result to lesser investments and therefore reduced jobs? And how will the few resident consumers continue with their spending binge once banking system tightens as consequence to a G-R-O-W-T-H downturn?
Of course, if the ICTSI’s head honcho is right that where the global economy slows, then what happens to the company’s recently raised $450 billion in perpetual bonds?
Moreover, what happens to the popularly held one directional G-R-O-W-T-H?
Rabid Denial Phase: Panicky Media Resorts to Celebrity Endorsement of Stocks!
Declining peso volume trade? Or faltering interests on the stock market? No problem. Media rides to the rescue! They have now involved or invoked star or celebrity power in their advertisement campaign to boost the stock market!
The Inquirer headline screamed “Stock market lures smart celebrities, REAL-LIFE GAMBLE PAYS OFF FOR MONEY-WISE STARS”[7] (all caps original)
The article opens with “But these celebrities are smart enough not to splurge on material things that could later represent a fragile—and to some extent—broken career.”
Aside from the anecdotes, the article goes on to pitch the virtues of “blue chips”!
Put in simple terms: money in stock market equals smart actions!
Wow!  Don’t you see how spectacularly vapid such reasoning has been?
Several insights from the above.
First, such assertion looks like a stirring indictment of the celebrities whom have NOT dabbled with stocks.
Let me frame the headline and the starting paragraph from a different angle: Celebrities who do NOT invest in the stock market are NOT only bereft of smartness but risks a broken career!  Or, if you do not invest in stocks, you are most likely damned!
To save face, the article likewise quotes an expert whose clients are allegedly celebrities but has opted to remain anonymous.
Second, stock markets have been projected as a one way street….up up up and away!
Third, stock markets have equally been portrayed as act of intellectual and financial brilliance. Unfortunately, the article provides no theory but questionable anecdotes on such premises.
Fourth, media confuses investments with gambling.
Intriguingly and ironically, the article goes to cite the payoff from “gambling” as financial security!
Well some basics.
Gambling, as defined by dictionary.com, is the act or practice of risking the loss of something important by taking a chance or acting recklessly.
So when has “risking the loss of something important by taking a chance or acting recklessly” been akin to the path of attaining financial comfort?  
The late financial historian and economist Peter L. Bernstein wrote to differentiate gambling from investing[8],  (bold mine)
Games of chance must be distinguished from games in which skill makes a difference. The principles that work in roulette, dice, and slot machines are identical, but they explain only part of what is involved in poker, betting on the horses, and backgammon. With one group of games the outcome is determined by fate; with the other group, choice comes into play. The odds — the probability of winning — are all you need to know for betting in a game of chance, but you need far more information to predict who will win and who will lose when the outcome depends on skill as well as luck. There are cardplayers and racetrack bettors who are genuine professionals, but no one makes a successful profession out of Craps.
Meanwhile, value guru, Warren Buffett’s mentor Benjamin Graham demarcates investing from speculation[9] (bold  mine)
“An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”
On the other hand Warren Buffett in a 2010 testimony at the Financial Crisis Inquiry Commission (FCIC) contrasts investments, speculations and gambling[10]. (bold mine)
Investments: “an investment operation in my view is one where you look to the asset itself to determine your decision to lay out some money now to get some more money back later on”
Speculation: “more focused on the price action of the stock, particularly that you buy or the indexed future or something of the sort. Because you are not really, you are counting on, for whatever factors, could be quarterly earnings, could be up or it’s going to split or whatever it may be or increase the dividend, but you are not looking to the asset itself.”
Gambling: engaging in a transaction which doesn’t need to be part of the system. I mean, if I want to bet on a football game, you know, the football game’s operation is not dependent on whether I bet or not. Now, if I want to bet on October wheat or something of the sort people have to raise wheat and when they plant it they don’t know what the price is going be later on. So you need activity on the other side of that and who may be speculating on it but it is not an artificial transaction that has no necessity for existing in an economic framework.
Meanwhile for Bodie, Kane and Marcus[11], the demarcation between gambling and speculation:
To gamble is “to bet or wager on an uncertain outcome.” If you compare this definition to that of speculation, you will see that the central difference is the lack of “good profit.” Economically speaking, a gamble is the assumption of risk for no purpose but enjoyment of the risk itself, whereas speculation is undertaken because one perceives a favourable risk-return tradeoff. To turn a gamble into a speculative prospect requires an adequate risk premium for compensation to risk-averse investors for the risks that they bear. Hence risk aversion and speculation are not inconsistent
So how can “gambling” be limned as “smart" when gambling signifies the “assumption of risk for no purpose but enjoyment of the risk itself”, “the outcome is determined by fate”, when the odds — the probability of winning relative to losing is brazenly ignored, or when “promises safety of principal and an adequate return” are nothing but presupposed?
In short, my major beef with the article would be the blatant misrepresentation of gambling as key to financial security. Gambling does NOT equal investment!
Fifth, why the star power?
Are celebrities supposed to be “smarter” when they are into ‘gambling’ in stocks?  Does owning stocks mechanically make one smart or even more financially disciplined? How? Or what’s the relationship between stock ownership and financial discipline or a positive payoff? The article doesn’t give an effort to explain.
Have celebrities been immune to stock market loses? Not from what I know of. For instance, the recent stock market crash in China stung several celebrities with big amount of losses.
To be fair to the article, one of the featured celebrities covers an experience with losses from 2008 crash. But this has been offset by accounts of recent gains with “blue chips”
More so, what guarantees that stocks would be a better option than “to splurge on material things”? Would it be better to lose money on the stock market than to have just spent it for personal satisfaction? What’s the theory and logic behind this? Again the article blindly assumes this dynamic.
To expand this thought, are celebrities been limited to the choice of spending on material things and stocks? Hasn’t this been a false choice, given that there are other options for  allocating money such as holding cash, commodities, bonds, US dollar or foreign currencies and or more importantly real business investments?
Sixth, why “blue chips”?
Does “blue chips” guarantee positive payoffs or provide larger probabilities of gains in the stock market “gamble”?  Are “blue chips” immune to valuation excesses, or to economic reversals and or to stock market cycles? In short, are blue chips invulnerable to losses?
What is the probability that “blue chips” at current valuations will deliver positive returns? The author should answer this.
Has history been supportive of such assertion? Why did Philippine blue chips crash by more than half in 2007-8 bear market?  What about the blue chip experiences of Enron, Bear Stearns and Lehman Bros? Does this not matter at all?
Why promote blue chips? Because these corporations are the major advertisers of media?
Because Philippine elites failed to make the prestigious top 10 ranking of the 2016 Forbes richest in Asia? Therefore, the need to pump up on their blue chips conglomerates in order to bolster the wealth standings of these elites? As previously discussed, stocks serve as major criteria in the calculation of Forbes net assets.
Should the public’s resources be transferred or redistributed in support of the vanities of the media’s clients?
Moreover, should soaring blue chips translate to G-R-O-W-H? How?
Seventh, the use of star power to promote stocks represents the logical fallacy called appeal to popularity.
Are celebrities supposed to ensure a positive payoff from “real life gambling” on stocks?
Why should Filipinos be inspired by their “idols”? What justifies the enticement of the lower wealth segment of society to join the bandwagon to bid up severely overpriced “blue chips”? In doing so, won’t the public unduly be assuming needless risks, while at the same time, transferring their wealth to the elite owners of “blue chips”?  Won’t this be Robin Hood in reverse?
Celebrities are not in the same financial position as their fans. Celebrities earn a lot of money relative to their fans where gambling losses could either be offset or just ignored or forgotten. But how about the average day toilers?
Additionally while celebrities frequently hail from the entertainment industry, stocks are for personal finances. In short, personal finance should NOT mixed up with entertainment!
Lastly, individuals (either for personal account or as commercial entities) treat stocks differently. Of those invested, which among the celebrities treat stocks “for the purpose of enjoyment” or for social status than for “favorable risk-reward tradeoff”?  Has media been privy to the celebrities’ account ledger?
In gist, what is the key to stock market success? Has owning stocks blindly or has owning stocks in order to follow their idols…automatically transform into financial nirvana? On what theory does this assumption stand on? Because media says X, therefore X? Or proof by assertion?


Such kinds of derring-do presumptions not only take all for granted risks associated with owning stocks whether blue chips or not, importantly it glorifies GAMBLING (which ironically the article admits to and which the article confuses with investments)! And the romantization of gambling through star power!
Has media become so so so so very desperate as to resort to cheap advertisement tricks? And has such desperation, or signs of denial, become so intense, such that they would allure even the least economically privileged segment of society such has household help to part ways with their hard earned money for nothing but to promote the interests of the media’s sponsors?
Growing Risks of Global Recession Sends US Dollar Crashing, Risk Assets Melt-UP!
One of the ironic developments of the contemporary stock market has been its devotion to central bank responses rather than the traditional focus on the fundamental function of reflecting on claims on expected stream of future cash flows.


Last week’s headlines from Reuters and from Wall Street Journal Asia embodied the global risk asset meltUP!
Yet the greater the bad economic news, the more piercing the stock market rally in response to the ferocious US dollar reversal.
Expectations of STIMULUS from the US Federal Reserves, Bank of Japan, European Central Bank and the People’s Bank of China splashed the headlines of international business outfits last Monday.
As shown above, the USD crashed against all Asian currencies except China. The collapse of the USD sent Asian stocks to the moon!
In my outlook last Sunday, I suspected that a rally would happen[12]; “Friday’s dismal US jobs reports fueled speculation that FED may once again defer from a “liftoff” this October. Steroid addicted stock market bulls, who sensed blood from the FED’s extended provision of monetary cocaine, went for the kill. So from a massive selloff at the opening bell, the realization of the provision of more monetary narcotics, prompted for an astounding reversal. US stocks closed significantly up Friday while Asian currencies rallied strongly too. The peso was unofficially quoted at 46.60-46.65. This may just juice up a relief rally in Asian stocks, as well as, the PSEi next week.
But the US dollar crash in the face of sustained weakening of the global economy had been nothing short of stunning.
This quote from an article[13] that depicted the gigantic rally in the ringgit-rupiah last Friday resonated on my hunch (bold mine): Disappointing U.S. jobs data that pushed back expectations for when the world’s largest economy would raise borrowing costs spurred gains in emerging-market stocks and currencies this week and that was reinforced by the overnight release of minutes from the Fed’s September meeting. Resurgent oil and commodity prices have also benefited Malaysia and Indonesia, and traders have been unwinding bets that the nations’ currencies would keep falling through the end of the year.“What we’re seeing is that people are continuing to cover their short positions in the two currencies,” said Divya Devesh, Standard Chartered Plc’s Asian foreign-exchange-strategist in Singapore. “It’s going to be critical to watch China data because that could be the turning point” and the rally isn’t supported by fundamentals, he said.
The FED September minutes revealed that authorities were concerned that “domestic financial conditions tightened modestly” and that “recent global economic and financial developments may have increased the downside risks to economic activity somewhat”[14]
This week’s response reveals of the following, global financial markets
-have become totally broken or have seen its price discovery function massively impaired,
-have signified as the modern day Pavlov dogs that have almost entirely been addicted to central banking’s monetary narcotics,
-have been frontrunning central banks or
-have been pressuring central banks to appease them or have held central banks hostage.
Since central banks have used stocks as a political economic tool this implies a no exit for them and for global financial markets hooked on stimulus.
Yet such deformation of the markets essentially underwrites market volatility, financial instability, violent unwinds or market crashes or crises, and economic contractions

Given the remarkable crashes in some of the emerging market currencies such as the ringgit –rupiah, volatile downside has transposed into volatile upside.
But the difference underpinning last week’s rally has mostly been a short covering. The same applies to US stocks which rally the Bank of America/Zero Hedge says constituted “The Biggest Short Squeeze In Years” (right)
Aside from the ‘biggest short squeeze’, US stocks as represented by the S&P 500 has largely been headed nowhere in 2015. Based on chart formation, the S&P even had a ‘rounding top’ formation prior to the August meltdown. So even if the S&P should rally back to the 2,050 level+, the overhead resistance that had been shaped from last February to July would likely serve as a critical sizeable barrier to overcome.
In addition, US stocks have been rallying in the face of soaring high yield credit spreads, surging corporate bond yields and faltering profit margins. The T-Bill-Eurodolllar spread (TED Spread) has been in an upsurge which continues to reveal signs of US dollar shortages.
And the current US dollar shortages have been aggravated by falling forex reserves as described by this Bloomberg report[15]: From Oslo to Doha, Riyadh to Moscow, governments that rode crude’s historic rise to unprecedented wealth are now being forced to start repatriating their rainy-day funds just to make ends meet.
Add to these, China’s September foreign reserves fell by $43.3 billion to $3.51 trillion reports the CNBC
In SEVEN years, political subsidies or redistribution had been channeled from more than a HUNDRED monetary policies around the world. According to Bank of America/Zero Hedge, global central banks have cut interest rates 697 times and bought $15 trillion during the last 110 months. These have been implemented to prevent economic decline and market collapses, yet the global economy seems once again at the brink of a recession.
So it would be interesting to see how the real effects of the trudging economies (earnings, valuations, credit conditions, capex, consumption, inventories and etc…) will sustain the one week melt-UP.
More example of bad news is good news, German August exports suffers biggest collapse since 2009 according to the Telegraph (-5.2%) as imports skidded too (-3.1%). This comes amidst report that August German industrial output sunk too. Yet the German DAX soared by a whopping 5.69!!!
Even the Philippines reported a SHARP CONTRACTION of exports (-6.3%) August. Philippine exports have been down in 8 out of 9 months! August decline covered all economic bloc or major trading partners, East Asia, US, ASEAN, Eurozone and others.
Since the accounting treatment of GDP in terms of external trade is (X-M) or exports minus imports this simply means that given the recent surge in imports (July), the GDP will be hobbled by the contradictory performance in external trade activities.
As side note, since voluntary trades are mutually beneficial thus enhance economic welfare of individuals, this means that imports shouldn’t be considered as deductible to economic activities.
Furthermore, from last semester of 2014 until the 1H of 2015 import activities has largely been listless. So given that manufacturing or industrial production has been down again in August or has been contracting in 7 out of 8 months based on value, this means that the Philippine economy has been drawing from inventories in order to provide supply to the economy. Hence the surge in July imports (which follows a big jump in June) represents most likely a restocking to cover formative inventory gaps, also an inventory buildup for Christmas holidays, partly foreign exchange effect and possible frontloading of inventory in anticipation of a weaker peso. I find it curious for media to become silent when imports reported declines, but suddenly engage in shrill cheerleading when imports soar! This was reported as “increase in demand”. Yes ‘demand is increasing’ even when government measures of September CPI and August retail price index continues to fall as bank credit growth in August continues to grow by double digits! So purchasing power generated from thin air (aggregate demand) doesn’t put upside pressure on prices even as inventories (from imports and manufacturing) dwindle. Yet the clarion chorus of G-R-O-W-T-H! Only in the economics of Sadako!
So this week’s trading activities has once again widened divergences or the conflicting actions of the stock market versus real economic activities. Distortions all predicated on central banking interventions.
Phisix Underperforms Region; Volume Sputters at 7,100
Back to Phisix 7,100.
The USD crash benefited mainly Indonesia’s JCI which was this week’s biggest Asian winner. The JCI posted an astounding 9.07% run!
And with a 7.35% jump, Singapore’s STI came in at far second place.
The next spot had been shared by a tight pack of other Asian national equity benchmarks that posted 4+% gains, namely Thailand’s SET +4.83%, Malaysian KLCI +4.77%, Vietnam’s Ho Chi Minh Index +4.57%, Australia’s S&P 200 +4.51%, Hong Kong’s HIS +4.43%, China’s Shanghai index +4.27%, the Philippines’ PSEi +4.21% and Japan’s Nikkei +4.03%.
In a probability distribution parlance, 4% advances, for last week, represented the normal distribution in a Gaussian curve, while the rest accounted for as “tailed” standard deviations.

With this week’s substantial 4.21% gain, the PSEi performed within the ‘normal curve’ in the ambit of Asian equities. This means that all the gloating about how this implies of national superiority had all been misplaced. Through the pecking order of weekly performance, the PSEi was a mediocre performer in the region.
Yet this week’s advance has sent the Phisix to test its resistance at 7,130. Though the benchmark did close higher than the said level, which implies of a technical breach, it has yet to do so in a convincing manner. If successful, the next stop would be at 7,300, which means a gap filling move. Otherwise, support remains at 6,790.
Meanwhile, the PSEi’s advance had been broad based.
Of the 30 composite members, 28 gained while the remainder was shared by a loser and by an unchanged issue.

With a spectacular weekly 8% advance, property sector commanded a significant share of the distribution of this week’s gains.
Yet most of the gains of the property sector had largely been due to the ferocious recoil from the near bear market levels by largest property and second largest PSEi market cap, Ayala Land which posted an remarkable jump of 11.57% this week.
Megaworld was next with a fantastic 7.95% boost while SMPH and Robinsons Land likewise scored considerable advances, 5.61% and 2.11%, respectively.  The four issues accounted for 18% of the PSEi’s market cap as of Friday.
Aside from ALI and MEG, the biggest gainers for the PSEi were Bloomberry +22.18%, Alliance Global +14.09% and LTG +13.98%.


The broad based rally was shared by the PSEi constellation. Advancers thrashed decliners on a clean slate or in all sessions for the week. On an aggregate basis, advancers led decliners with a score of 533 to 355 to highlight a gaping 178 margin.
Yet the sharp volatility in market breadth hardly suggests any long term improvement but one of emotional spurts from internal market dynamics.
Also, peso volume from the last week’s spike was at a lean Php 8.8 billion (see below top). This was even padded by the P 4 billion cross trade on FGEN F (preferred shares) last Tuesday. Outside the FGENF cross, daily peso volume would have averaged about only Php 8 billion which is very unimpressive considering the 4.21% spike by the PSEi.

Curiously, aside from uninspiring actions, daily peso volume shrivels significantly every time the PSEi enters the 7,100 area.
The bottom chart represents last week’s daily volume and the corresponding PSEi index close of the day. The general improvement in sentiment from the region has so far kept the index profit taking.
It would be interesting to see how all the recent downgrades and the likely escalation of capex cuts will lead to MORE valuation excesses that would subject the market to even more confidence tests as global and domestic liquidity diminishes.
More importantly what happens when the global risk ON tryst fades? Will reality regain its dominance?
Quote and Images of the Week: Brazil’s Boom and Bust
I have always been emphasizing how those artificial credit booms eventually morphs into a economic bust.
Brazil, one of the BRICs, that boomed earlier than the Philippines should be a wonderful example.
Brazil based Austrian economist Antony P Mueller on the nation’s predicament[16]
At first, the Brazilian government ignored the coming of the crisis and when it arrived, the government ignored its existence. Imagine Brazil like a family with a lot of inherited wealth that spends as if there were no tomorrow. Yet someday this family wakes up to the fact that its wealth has been squandered and its financial accounts are in the red. The government did not recognize that the boom would be temporary. The Brazilian economy began to sputter as commodity prices fell and the demand from China decreased. Yet in order to adapt to the new situation and cut expenditures, the Brazilian government spent even more.
Incumbent President Dilma Rousseff from the Workers Party, which has been in power since 2003, won a second term in 2014 with a campaign that deceived the population about the true state of the economy. The government implemented a series of cheap financial tricks such as delaying the rise of the prices for fuel and electricity and of other items in the large list of administered prices.
After the election, hell broke loose and the true state of the economy became visible for the broad public. The popularity of the president began to fall to single-digit approval ratings. The crisis is serious in itself, yet its psychological impact becomes more severe because of the shock of disillusion. In part, this shock also applies to foreign observers and investors who bought into government propaganda or based their outlook on the projections of the International Monetary Fund whose prognosis in 2013 said that Brazil would maintain economic growth rates of at least over 4 percent for each of the years to come up to 2018.
Pictures are worth a thousand words…

The Brazil boom bust cycle as splendidly captured by the Economist magazine cover in 2009 and in 2013. The bursting bubble process remain in progress.

[3] Business World Fitch cites PHL growth prospects, risks October 9, 2015
[4] Business World Philippine forecast cut, but state spending to help October 7, 2015
[6] Businessworld ICTSI cuts spending as global growth slows October 6, 2015
[7] Inquirer.net Stock market lures smart celebrities October 7, 2015
[8] Peter L. Bernstein, Chapter 1 The Winds of the Greeks and the Role of the Dice, Against the Gods, The Remarkable Story of Risk p.14 Wiley and Sons Matrix Training Files Wordpress.com
[9]  Benjamin Graham, The Intelligent Investor, 4th ed., 2003, chapter 1, page 18. (financial.am)
[10] Warren Buffett, Santagel’s Review Financial Crisis Inquiry Commission Staff Audiotape of Interview with Warren Buffett, Berkshire Hathaway May 26, 2010 dericbownds.net
[11]  Zvi Bodie (Author), Alex Kane (Author), Alan J. Marcus (Author) Chapter 6 Risk Aversion and Capital Allocation to Risky Assets  Investments, 7th Edition (McGraw-Hill / Irwin Series in Finance, Insurance, and Real Estate)
[14] US Federal Reserve Minutes of the Federal Open Market Committee September 16-17
[16] Antony P Mueller In Brazil, Free-Market Ideas Rise as the Economy Falls October 5, 2015 Mises Institute
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