The Philippine Phisix suffered its second major weekly decline for the year, down 2.04%.
Two consecutive weeks of hefty losses has brought the Phisix off 4.62% from the recently etched milestone highs. Such losses have shaved the year-to-date gains to only 12.15%.
Yet the local benchmark appears to have bounced off the 50-day moving averages supported largely by domestic participants.
Two weeks of the manic bullish reprieve has translated to net foreign selling.
Yet foreign selling does not necessarily translate to fund repatriation. Selling proceeds could be held in cash at the banking system or could have been shifted to other domestic assets (local bonds or properties). The paltry decline of the Peso over two weeks from 40.68 per USD to 40.84 per USD as of Friday’s close may have manifested on such dynamics.
But so far, domestic participants seem to have used technicals to provide support on the Phisix. This seems to manifest on the “refusal to retrench” and “this time is different” mentality.
We have seen this before.
I have been writing about how I think today’s deepening of the manic phase may partly resemble 1993[1].
Then the Phisix returned an eye-popping 154% in nominal currency gains. Following a sharp run up, there had been two sporadic corrections. Ironically, over the same period today, in March and in May where the index fell 6.1% and 5.8% respectively (see 2 red ellipses).
The gist or 63% of the astounding year-to-date 154% return came during the yearend rally that began in October.
While I am not a fan of searching for patterns, whether charts or statistics, to predict the markets, I believe that the psychological framework undergirding today’s boom represents a good approximation of what may happen during a manic phase.
When the prevailing bias has been to think that the current bullrun has been about “good governance” economics, “robust earnings” and that domestic markets “are financially resilient from stresses abroad” while at the same time blissfully ignorant of the baneful impact of expansionary credit from artificially induced interest rates and other credit easing measures, all these are symptoms of “Wow I am smart” (left window) and the “new paradigm” (right window) of the deepening mania phase.
Again mania, for me, signifies as the yield chasing phenomenon that have been rationalized by voguish themes or by popular but flawed perception of reality, enabled and facilitated by credit expansion.[2]
So if I correctly pinpoint the stage of our stock market cycle, then we should expect the Phisix to use the current corrections or consolidations as potential springboard to reach the bear “capitulation” phase where the Phisix may or could reach the 10,000 level. This may happen this year or the next (2014), and again, is strictly conditional.
And the manic phase will be accompanied by an intensive accumulation of systemic credit which will most likely be supplemented by last week’s easing of the 1.86 trillion peso Special Deposit Accounts (SDA) by the BSP[3].
Remember, the BSP explicitly desires that the banking system’s money deposited at the BSP be “withdrawn” and “circulated” in the economy, since according to them SDA money will hardly extrapolate to inflation risks.
In other words, the BSP’s recent SDA policies will account for as providing implicit support to the domestic asset markets, in addition to its current record low interest rates.
So unless domestic monetary officials make a reversal on these credit easing policies, there is a strong likelihood for the Phisix to playout on the final stage of the boom phase of the domestic bubble cycle.
Let me be clear, I am not suggesting that the Phisix will yield 154% this year. Instead I am saying that since social policies ultimately shapes bubble cycles, we are likely to see current policies sustain the domestic bubble process, unless the BSP reverses current policies—most possibly in response to the market signals, e.g. price inflation pressures—or if exogenous “shock” events will be substantial enough to undermine the current prevailing bias.
[1] see Global Financial Markets Party on the Palm of Central Bankers January 21, 2013
[2] see Phisix Amidst the Global Pandemic of Bubbles February 18, 2013
[3] see Phisix and the BSP: This Time is Different? March, 17, 2013
A market top has been reached, and that shock, or at least slip events are coming soon to cause investors to derisk and deleverage out of stocks.
ReplyDeleteJesus Christ, is God’s economic and plan administrator for every dispensation, that is for every age, as presented in Ephesians 1:10. He has shifted the tectonic plates of sovereignty that produce seigniorage, that is moneyness, has broken the bedrock of prosperous financial experience, and has terminated the experience of the US Dollar, as being the international reserve currency, with the result that the diktat money system is rising to provide diktat as currency, money, wealth and power.
More specifically, we are witnessing the fulfillment of bible prophecy in the news, as the Beast Regime of Revelation 13:1-4, which is destined to have headship in all of the world’s ten regions, as regional governance ..... and dominate in all of mankind’s seven horns, that is institutions, as totalitarian collectivism, and debt servitude ..... is rising not only from the Mediterranean nation of Greece, but now also from the Eastern Mediterranean Sea island of Cyprus; this monster will replace the Banker Regime that came into existence in 1931 with the Federal Reserve Act.
For the week ending March 22, 20123, World Stocks, VT, traded 0.6% lower, Nation Investment, EFA, -0.8%, Small Cap Nation Investment, IFSM, -0.6%, and Global Industrial Producers, FXR, -0.7%, reflecting that an inflection point for risk markets was reached, and indicating that the world has entered into a global bear stock market, as Cyprus leaders and EU Finance Ministers wrangled for a solution to prevent a sovereign default in Cyprus.
Confirmation of a global bear stock market comes from The Morgan Stanley Cyclicals, $CYC, trading 0.9%, lower, Transports, IYT, -1.3%, Industrials, IYJ, -0.7%,global Industrial Producers, FXR, -0.7%, Small Cap Pure Value, RZV,-0.9%, and Small Cap Pure Growth, RZG -0.9%
The EUR/JPY traded lower this week and Action Forex, which surprisingly is long term bullish this carry trade, reports a close at 124.91. Carry trade investing has coming to an end, as reflected in the consolidation triangle seen in the chart of the Optimized Carry Traded ETN, ICI.
Monetization of debt by the world central banks has commenced debt deflation globally. With the trade lower in Major World Currencies, DBV, and Emerging Market Currencies, CEW, competitive currency devaluation is underway. Inasmuch as the US Dollar, $USD, is trading higher and currencies trading lower, the Milton Friedman Free To Choose Floating Currency System, also known as the Fiat Money System, is an epitaph on the tombstone of Liberalism. The diktat money system, where diktat serves as currency, money, and power is being established as Authoritarianism’s Banner.
Risk aversion has commenced, as is seen in the Risk On ETN, ONN, falling, and the Risk Off ETN, OFF, rising. Volatility, ^VIX, is rising with VIXY and VIXM trading higher. Investors will be massively disinvesting out of stocks, and deleveraging out of carry trade investments. A see saw destruction of fiat wealth is underway, as bonds, BND, have traded lower and now stock, VT, are trading lower on falling currency values. The age of fiat asset deflation is underway. The Proshares 200% ETFs seen in this Finviz Screener are trading higher; and the Direxion 300% ETFs seen in this Finviz Screener are trading higher as well. As Liberalism’s Inflationism is giving way to Authoritarianism’s Destructionism, the world is pivoting from credit based prosperity to debt servitude based austerity.