Mania Galore: Panic Buying Day at the Philippine Stock Exchange!

Since the breach of 7,000 psychological threshold, there have been periodic panic buying bouts to bring the Phisix past 7,400. Just recently I wrote,

Market participants has not only been disregarding risks and flagrantly overpaying for excessively overvalued securities predicated on the “g-r-o-w-t-h” signals, importantly markets appear to have been conditioned to believe that prices will not only rise forever but will EXPLODE to the firmament soon. At any rate, the snowballing psychology from the 'fear-of-missing out' has been prompting for an orgasmic scramble to bid up prices AT ANY LEVEL!

Orgasmic scramble has indeed highlighted today’s trading activities at the PSE.

After perhaps a hearty lunch, the energized consensus collectively decided to bring the index closer to the May 2013 highs, so the relentless push by hitting up bids at almost any levels!

As one can see from the intraday chart from technistock.net, it had been vertical lift off after the lunch recess going to the closing bell. It was raw emotion in action!

As I observed before, the vertical ascent or scaling up can be analogized with Zombies in the movie World War Z. When zombies hear of humans chants across the Jerusalem Wall, they frantically pile on top of each other in a race to reach and infect their would be victims. 

No walls would stand in between the zombies and their victims.You can see the video below....

And similarly no walls will stand in between yield hungry bulls and the 7,400 or even 8,000 levels.  

Neither the BSP governor Tetangco’s warning on “chasing the markets” nor any bubble alarm bells from parties, like the BIS, IMF, OECD and even the ADB will matter. This time has got to be different!

All these are signs of an intensifying mania in progress. As I recently wrote:

Manias, which operate around the principle of the “greater fool”, signify a self-reinforcing process.

Rising prices induce more punts which lead to even higher prices as the momentum escalates. Suckers draw in more patsies into a mindless wild and frenetic chase to scalp for marginal “yields” and or from the psychological fear of missing out and or from peer pressures all predicated on the belief of the eternity of a risk-free one way trade. The intensifying hysteria will continue to be egged on by the beneficiaries from such invisible political redistribution both in public and private sectors, supported by bubble ‘expert’ apologists and media cronies.

Therefore, recklessness will compound on the accrued recklessness. Again this isn’t just a problem of overvaluations (from which the BSP’s perspective has been anchored) which merely is a symptom, instead this represents deepening signs of intensive misallocations of capital expressed through the massive contortion of prices and the disproportionate distribution of resources on a few sectors at the expense of the others that which has mostly been financed by debt accumulation, thereby elevating risks of financial instability or an economic meltdown. The BSP’s increasing use of communications with sanitized “alarm bells” signify on such emerging risks

And like typical Ponzi schemes, the manic process goes on until the ‘greater fools’ run out, or that every possible ‘fool’ has already been “IN” (crowded trade), or that borrowing costs has reached intolerable limits to expose on foolhardy speculative activities

But history’s lessons reveal that the obverse side of every mania has been crash. No instance in the past 49 years has disproved this axiom whether seen in cyclical or secular trends.