Monday, January 11, 2016

Phisix 6,575: Good Bye 2015: Year of Propaganda! Hello 2016: Year of the Grizzly Bears?

The riskiest thing in the world is the belief that there is no risk. When people think there is no risk, they do risky things. By contrast, when people think there is risk than they behave in a safe manner and the world becomes a safer place. That’s why I welcome the recent developments. They remind us that today the risks are substantial and they should be undertaken only with considerable forethought. My dad used to tell the story of the gambler who went to the race track and said: “I hope I break even because I need the money.” The market is not an accommodating machine. It will not go where you want it to go just because you need it to go there. So if you’re talking about money that you can’t afford to lose then you can’t say: “Just give me the highest yield.” Howard Marks

In this issue
Phisix 6,575: Good Bye 2015: Year of Propaganda! Hello 2016: Year of the Grizzly Bears?
-Happiness: The Freedom of Choice
-My Predictions Came True in 2015; Tremors from the Chinese Bubble Fault Line
-Goodbye 2015: A Year of False Expectations, Propaganda and Manipulations
-False Expectations, Manipulations and Deceptions
-Government’s Propaganda Through Statistics
-Media’s Worship of Bubbles
-Mainstream’s Peso Babble; My 2016 Target for the USD-PHP 50, Crisis Target Over 56.45
-Technical and Behavioral Perspective: 2015 The Transition From Overconfidence to Doubt
-First Week of 2016: The Shift from Doubt to Nascent Fear; The Story of 2016
- Will History Rhyme? Will 1979 Serve as Template for Seven Years of Famine?
Phisix 6,575: Good Bye 2015: Year of Propaganda! Hello 2016: Year of the Grizzly Bears?

Happiness: The Freedom of Choice
It may be late for me to greet you a happy new year. But it is better late than never.
But for some, because stock markets have been sinking, they see 2016 as signs of coming unpleasantness. It shouldn’t. Not even a crisis should stop anyone from being happy.
Let me just say that happiness is about one’s expectations of life. And expectations are shaped by our preferences and values. Yet for as long as expectations can be adjusted, one can remain happy regardless of the environment. And changing expectations represents a CHOICE that is available to everyone.
World War II holocaust survivor Viktor Frankl, an Austrian neurologist and psychiatrist, during the dreariest moments of his incarceration or darkest moments of his life found the essence to live1: The FREEDOM to CHOOSE (bold mine)
We who lived in concentration camps can remember the men who walked through the huts comforting others, giving away their last piece of bread. They may have been few in number, but they offer sufficient proof that everything can be taken from a man but one thing: the last of the human freedoms—to choose one's attitude in any given set of circumstances, to choose one's own way.

And there were always choices to make. Every day, every hour, offered the opportunity to make a decision, a decision which determined whether you would or would not submit to those powers which threatened to rob you of your very self, your inner freedom; which determined whether or not you would become the plaything of circumstance, renouncing freedom and dignity to become moulded into the form of the typical inmate
Aside from the suffering from imprisonment, Mr. Frankl lost his mother, brother and wife in the holocaust.
And applied to my headline quote above from the Chairman and co-founder of investment firm Oakwood capital Horward Marks2, where many have come to think that gambling in the central bank distorted stock market represents an ENTITLEMENT or an ESCAPE MECHANISM from their financial, social or personal dilemmas—a source of rigidity in expectations—then it’s where these people will find themselves in deep disconsolation. Reason? The markets as pungently stated by Mr. Marks, are not an accommodating machine. They will do what they are supposed to do regardless of your desires.
I hope that my readers will find Mr. Frankl’s enlightening insight as a guiding light, not only for investments but for facing personal challenges in 2016 and beyond.
My Predictions Came True in 2015; Tremors from the Chinese Bubble Fault Line
Pls allow me a moment of triumph.
In going against the populist boom or the one way trade or where every single mainstream “expert” forecasted the Phisix to zoom or where nada, zero, zilch, zip among the same “experts” saw a negative outcome for 2015, here was my prediction at the start of 20153
At the start of 2014 I wrote of potential black swans
The potential trigger for a black swan event for 2014 may come from various sources, in no pecking order; China, ASEAN, the US, EU (France and the PIGs), Japan and other emerging markets (India, Brazil, Turkey, South Africa). Possibly a trigger will enough to provoke a domino effect.
The black swans have arrived. Crashes have become real time events. But so far they appear as fragmented series of events than a global systemic issue. 2015 will most likely see the spreading and acceleration of this process.
Bingo!

Market crashes have indeed been spreading, converging and accelerating, the Phisix notwithstanding. I warned that the post August 24 crash, one day crashes have hardly been a one day event. This week’s actions only fulfilled and validated my admonitions.
2016 will most likely be an extension, and importantly, an escalation and aggravation of the unraveling of the massive malinvestments that has manifested itself initially with the taper tantrum, and segued or transitioned into the intermittent tremors of 2014-15 and now as a global seismic dynamic.
More.

On the Chinese yuan’s exposition of the global bubble malaise as manifested by its depreciation (not purposeful devaluation by the government), I wrote last December4
Defending the US dollar soft peg required access to US dollars. Unfortunately, such window has been closing for the Chinese economy. Moreover, outflows and or capital flight have been compounding on the supply conditions of an already scarce US dollar. Finally, domestic credit expansion to save the stock markets translates to relatively more money supply vis-a- vis the US dollar (whether the Fed tightens or keeps policies at current levels). This implies supply side influences on the yuan’s weakness.
Hence, inflationism PLUS the scarcity of US dollar supply reveals why the US CNY soft peg cannot be sustained. Acting like a relief valve, China’s central bank, the PBOC, simply relented on the building pressures on the peg. The PBoC responded by allowing the markets to partially revalue the yuan. Hence the devaluation! ...

And it may not just be about capital flight but likewise, imploding bubbles should translate to money supply destruction. And this can be seen through the slack in money supply (M2) growth, slumping growth of CPI and deepening deflation in manufacturing input prices or the PPI

Importantly, considering China’s immense US dollar debt exposure, borrowing to pay back debt will only reduce US dollar supply. How much more when highly leverage companies default?

And this compounds on the US dollar dilemma which has now become a global phenomenon.

So while the USD CNY’s advance may not have been as steep as last August, the USD-CNY broke out from its allotted bandwidth.

The last time the USD-CNY materially advanced (again last August), the USD Php spiked, and global financial markets tremored.

Despite the Chinese government’s whac-a-mole policies, financial pressures have been ventilated somewhere in China’s porous financial markets.

Not only has the yuan been depreciating, the spread between the less controlled offshore yuan (CNH) and tightly controlled onshore yuan (CNY; +1.56% week on week) has been dramatically widening. The Chinese government has responded by imposing tighter capital controls by suspending banks, particularly DBS and Standard Chartered Bank in conducting foreign exchange transactions.
Even more, Hong Kong Interbank Offered Rate (HIBOR) has been skyrocketing (lower left chart courtesy of Alhambra Partners), despite the government effort to facelift the markets last week.

Further, Chinese stocks dived 9.97% last week despite heavy state intervention last Friday January 8.

The Chinese government’s latest imposition of circuit breaker has even exacerbated the crash this week. The circuit breaker consisted of a 15 minute trading pause when a decline of 5% have been reached and adjourned trading for the day when stocks fall to the 7% level. The result of the new rule was to halt trading activities in just a stunning 29 minutes (29 minutes includes the 15 minutes hiatus from 5% trigger) after the opening bell last Thursday! The January 7 panic spawned “chaos and a race to sell” as the yuan dived. January 7th was a swift KO of the bulls by the bears.
The Chinese government quickly suspended the circuit breaker mechanism. Moreover, the harried Chinese government extended the share sale ban on major shareholders last week.

And last December, where everything looked calm and placid, the Chinese government paid a heavy price for cosmetic stability. The Chinese government drained a whopping record $108 billion of her much vaunted forex reserves!

The China’s soft peg regime is being undone, under the cover or propaganda of “liberalization”. In reality, current market events have indicated of the intensification of China’s imploding bubble. Such bubble implosion has mainly been expressed as liquidity shortages through the USD. Liquidity woes will eventually become solvency issues.
Simply put, the Chinese government seems to have lost control in restraining its colossal bubble from bursting.
The Chinese bubble fault line continues to and will continue to emit tremors.
At the height of the Phisix bubble, I recall that someone in the internet circle sarcastically labeled me as “the boy/man who cried wolf”. Apparently, the wolves have arrived.
Goodbye 2015: A Year of False Expectations, Propaganda and Manipulations
While imprisoned for “political crimes” for mounting a failed putsch in Munich, Nazi leader Adolf Hitler completed a two series book, Mein Kampf, which partly dealt with how to successfully implement propaganda5.
All propaganda must be presented in a popular form and must fix its intellectual level so as not to be above the heads of the least intellectual of those to whom it is directed. Thus its purely intellectual level will have to be that of the lowest mental common denominator among the public it is desired to reach. When there is question of bringing a whole nation within the circle of its influence, as happens in the case of war propaganda, then too much attention cannot be paid to the necessity of avoiding a high level, which presupposes a relatively high degree of intelligence among the public.

The more modest the scientific tenor of this propaganda and the more it is addressed exclusively to public sentiment, the more decisive will be its success. This is the best test of the value of a propaganda, and not the approbation of a small group of intellectuals or artistic people
It appears that 2015 was characterized by Hitler type of propaganda.
Thus I bid good riddance to the year of intensive false expectations, manipulations, propaganda, and deceit
The story of 2015 can be seen from the charts below.


The above exhibits on the valuations, in terms of PER and PBV of the 30 issues comprising the headline index, PSEi. The EPS had been based on PSE’s website as of January 7 and the BV from the second quarter reports as indicated on the PSE’s November monthly report.
Basically the above issues represent the PSEi at 6,600. That’s about 8% lower from the close of 2014, which became the base for 2015.
Even at today’s 6,600, the numbers above have generally signified nosebleed levels of valuations. To read high cap rates on such valuations will be tantamount to committing financial hara kiri.
And it’s not just the Philippines, the ASEAN majors, Indonesia, Thailand and Malaysia have all been plagued by massive mispricing, based on average and median Price to Cash Flows, Price to Book Value, Price to Sales and Price to Earnings.

All ASEAN 4 majors have virtually ranked within top 10 as the priciest in ALL categories among emerging markets based on Gavekal’s end of the year calculation.

The Philippines ranked second highest based on average price to cash flow, and fourth based on average price to sales.
I warned in 2014 that valuation levels then were reminiscent of valuations of pre-Asian crisis levels. Today, valuations of Philippine and the other major ASEAN equity bellwether have been at par or have exceeded the 1996 or pre-Asian crisis benchmarks!
As reminder, the respective denominators for the said ratios have been calculated during times of the fading artificial boom. How much more will valuations skyrocket if denominators fall without or with little accompanying decrease in the numerator?
Yet the above 6,600 valuations represented much of the story of 2015. A year that featured false expectations, deceptions, propaganda and manipulations.
False Expectations, Manipulations and Deceptions
Coming off 2014’s 22.76% returns, mainstream ‘experts’ were right to forecast that the PSEi would hit the 8,000 mark, but went awry when they predicted 8,000+ as a yearend target for 2015. Media quoted on the crystal ball readings of some these experts to justify their equity market targets with expectations that PSE’s earnings would zoom to an incredible 16%!
The PSEi ended the year 2015 at 6,925.08 down 3.85%. Way way off their targets.
These ‘experts’ hardly provided any economic explanation as to how these will be attained except to generate wild assumptions predicated that money grows on trees.

They have ignored the effects of 10 months of 30%+++ money supply growth and the subsequent inflation on profits and consumer spending, and likewise, the effects of a massive flattening of the Philippine yield curve.
For these experts, the only prices that mattered were stocks and property. And rising prices of the principal objects of bubbles, all premised on statistical G-R-O-W-T-H, have been perceived to travel in a sustained trajectory.
Hardly anyone has given any afterthoughts to the possible consequences of soaring prices of these assets on the real economy or on the financial system.

Almost every market participant and economic observer had been enthralled by rising prices which they associated with a sustainable boom. Apparently, none have learned from history.
Since the January breakout from the May 2013 highs, officials of the PSE celebrated each fresh highs until the “26 record finishes”.

Yet they have ignored how record highs have been a product of repeated rampant and massive manipulations, particularly by serial employment of “marking the closes”. Even the last three trading days of 2015 had been sullied by brazen headline price fixing through marking the closes.
The PSE regaled the public with “this time is different” as the Phisix sailed to 8,127.48. Yet hardly they or anyone from the mainstream reported on how record highs had been attained by rotational pumps from 10 of the 15 biggest market caps, even when HALF of the PSE universe had been sliding into the fold of the bear market!
Some people love to talk about how the public should avoid scams, but how about scams perpetuated by the establishment?

The PSE even hailed that the milestone highs as derivative from political dynamics that has led to “investor confidence”. Really? Now at 6,575 where oh where has the politics based “investor confidence” been? Just what happened to farcical G-R-O-W-T-H and all the inflation worship?
Palpably, a deafening silence from the PSE.
And yet what happened to all those massive price fixing all year round? What happened to all those third party (depositor, fiduciary or tax) money used to prop up the index?
And when events turned against their favor, the PSE’s reports showed of a startling blackhole on how listed firms of the PSE performed in 2Q.


Importantly, 1Q performance already paved way for the 2Q performance. Even when profits in 1Q jumped 13.9% primarily due to extraordinary gains from a few issues, 1Q NGDP rose by a measly 1.6%! 1.6% transitioned to -3% which led to a 1H NGDP of -.85%.
Thus, the August 24th crash was barely about China’s currency revaluation but about the deteriorating fundamentals in the face of a one way trade!
Government’s Propaganda Through Statistics
The same dynamic can be seen in the government’s reported GDP.

The government reported an improvement in 3Q GDP which rose to 6%. It turned out that for the past three quarters government statisticians have used cascading CPI to magnify statistical GDP via base effects! So even when NGDP has dropped to 4.5% in 3Q, constant based GDP flew to 6%! Given the record low CPI prior to November 2015, it would seem the first time ever for constant based GDP to surpass NGDP!

Constant GDP technically is called real GDP. But given the statistical artifice, phony GDP just cannot be reckoned as real. It’s a lie.
Moreover, statistics can turn stones into bread or negatives have been made positive by the same statistical alchemy. The negative performances of manufacturing and exports had remarkably been upgraded into positives also during the 3Q!

Importantly, government’s NGDP and the PSE’s NGDP can’t even square…or even at least reflect on some consonance, as they appear to be pointing at opposite directions!
In addition, government statisticians declared that employment and unemployment rates rose to record highs in 2015. Curiously, this comes in the face of a striking collapse in online job postings for three major online job platforms.

Just where has jobs been coming from to fill the record employment levels? A reversion to the traditional means of advertisement—the newspaper? Viral or direct ways of recruitment ala multi-level marketing? Or through mental telepathy? Or has this been another statistical ruse to keep the façade going?

And funny how establishment rationalizes online job crash from a slowing of investments with a prospect of recovery due to the ‘strong consumer spending’ meme. Yet if there are little jobs and where OFW remittances growth has been flailing, just where will consumers get resources for them to spend? Manna from heaven? Or from statistical Sadako?

Such represents 2015’s bubble logic.
And speaking of OFWs, 3Q GDP has even rendered the contributions by the OFWs as inconsequential. Government statisticians have essentially stripped away the glorious role of OFWs as economic heroes.

It’s bad enough for OFW’s remittance growth to have languished. It’s even worse when the Saudi-Iran feud may turn into a full scale war. And it would be the end of the world if and when the proxy wars of US (Saudi) and Russia (Iran) morphs into a direct confrontation between them, where both have been armed with nuclear weapons to the teeth.
Bizarrely, the BSP sees this brewing Saudi-Iran feud as “some temporary setback” on remittances, “because of logistical difficulties and deployment may slow”. If war erupts between Saudi and Iran, then this will translate to a wide scale turmoil that will likely spread and wreak havoc on most of Middle East. Such mayhem will have no precedent.

And this may even involve direct participation of superpowers. So it won’t be just logistical difficulties, because since war means economic dislocation, it means OFWs will be streaming back home. Has the BSP been blind to how the Syrian civil war (really another proxy war between US-Russia) has incited a refugee crisis in Europe?
Again, another outlandish relic of bubble logic.
And speaking of the BSP, earlier the BSP reported a spike in NPLs of auto and real estate consumer loans in 1Q 2015. This should signify a natural consequence to a slowing GDP. However, in the 2Q, suddenly NPLs of auto and real estate consumer loans vanished even as statistical GDP hardly improved. These are kinds of twisted logic being presented to the public as economic facts.
Media’s Worship of Bubbles
Of course, bubbles have also been amplified by media.
Mainstream publishes only information that reinforces biases in favor of the boom. As explained before that’s because media protects the interests of their major clients or advertisers.
For instance, domestic media virtually censored the warnings of ICT magnate Enrique Razon that another financial crisis is coming. It took an overseas media outlet to air Mr. Razon views. Perhaps domestic media believes that the Philippines will be immune to one.
Yet the bigger the denial, the greater the risks.
Press releases masquerading news became a dominant character of news reporting.
Examples.
An outrageously laughable survey commissioned by an insurance company depicted that a third of the Philippine residents believed that the nation had attained first world status! Paradoxically, this comes even as only a third of the population are banked and where a third of the population reportedly believes that they are self-poor (ironically this comes from the same pollster)
Celebrity endorsement of investing in blue chips (regardless of how expensive they have been).
Endorsement by buyside experts that the “perfect time to invest is today” (published August 19, 2015 Phisix 7,344.73)

A two week media blitz that simultaneously promoted the property sector on various media outlets. I suspected that such concerted action manifested a sign of emerging weakness. Apparently I have been validated!
Media kept pontificating that due to G-R-O-W-T-H, Philippine auto sales growth continues to rip even when the 3Q 17Q report from GTCAP showed that sales growth of Toyota Motor Philippines crashed during the quarter!
As a side note, media has been totally obsessed with everything with a Philippine tag on them. The recent crowning of Ms Universe to a Philippine based candidate has prompted them to profusely rave over her victory. It appears that the question and answer segment was pivotal in delivering the crown to the Philippine representative. The Philippine candidate seemed like the statist exemplar of the five candidates. The winning answer; she says that she welcomes a US military presence in the country. This was music to the ears of the neocon and military industrial complex which has a stranglehold over Washington!

At the close of December, media also celebrated Rizal’s Day or the commemoration of the death of the Philippines national hero. Mr. Rizal was a staunch nationalist who fought and died for independence of his homeland against Spanish colonialist. If Mr. Rizal would be alive today, would he cheer over the victory of Ms. Universe 2015? Or would he condemn or lambaste her for selling out her country to imperialist? Media appears to be caught in a severe cognitive dissonance.

For mainstream media, it’s about any ‘feel good’ thing that sells.
Mainstream’s Peso Babble; My 2016 Target for the USD-PHP 50, Crisis Target Over 56.45
Media even swaggered about how the Philippines will NEVER run out of US dollars due to BPOs and OFWs. Media’s extremely prejudiced views or bubble zealotry ignores Saudi Arabia or China or even global forex reserves conditions which have been in a slump.
Add to this myth mainstream’s view that a weakening of the peso would be beneficial to the economy. In 46 years or from 1959 to 2005, the USD soared from Php 2 to Php 55. Just where exactly can we find prosperity from consumption spending or from G-R-O-W-T-H driven by a crash of the peso?
Also if true, then hyperinflation should miraculously transform every society from poor to rich. Yet empirical evidence or reality tells us the opposite, the way to poverty is to crash the currency. Modern day examples: Zimbabwe, Venezuela and Argentina.
The USD Php closed the year at 47.06 up 5.02% from 44.72 at the close of December 2014.
I saw only UBS as having accurately predicted the peso’s close at Php 47 in 2015. Congrats to them.

In citing strong macro fundamentals, all the rest of mainstream analysts substantially underestimated on the peso’s fall. The mainstream spent the year revising on their outlook as the peso plumbed lower through the year.
The BSP forecasted the peso at Php 43-46 range for 2015, while the Philippine government’s Development Budget Coordination Committee (DBCC) saw the peso at P42-45 “based on the recommendation of the Bangko Sentral ng Pilipinas (BSP)”.
If these guys got the forecasting of the peso all so terribly wrong, then why does everyone seem to think that they can accurately see where the system’s risks are? Because they say so? Because media and their bevy of apologists says so?

Moreover, can government not be subjected to regulatory capture, aside from the knowledge problem, for them to overlook on balance sheet risks? Or how about the public working around regulations via legal loopholes?

Now to my crystal ball.
My crystal ball portends that the USD PHP in 2016 may hit 50 or may even jump past 50. USD Php 50 would be my end of the year target. At 50, the USD PHP would translate to an annual 6.02% gain.
Should a crisis (regional or global) surface, then the 56.45 high during October 13, 2004 will most likely come into picture. For the USD PHP to reach the 2004 level means that the USD will soar by 19.95% against peso.

Let me put a historical context on this.

When the Asian crisis emerged in 1997, the USD Php vaulted 12.42% or from Php 26.216 to 29.471 (average BSP data). The following year or in 1998, where crisis went in full motion, the USD skyrocketed to Php 40.893 or by a terrifying 38.76%! Thus, in two years or 1997-8, the USD spiked by a staggering 55.98%!
Applying the historical complex to my current projection: an emergence of a crisis will likely send the peso past 50. However, it may or may not hit 56.45 this year. This will largely depend on how the crisis evolves. Nonetheless, the USD PHP 56.45 threshold will be a cinch to break should a regional crisis occur. The 56.45 target, thus, represents my secondary target subject to a crisis in motion that is not limited to an end of the year target.
And speaking of crisis, last week billionaire crony and investing savant George Soros has warned of the likelihood of a China triggered global crisis that echoes 2008 this year.

Additionally, corporate debt downgrades in Korea, according to a report from Forbes, have already reached 1998 or the Asian crisis levels.
I may miss on the timing, but in observation of the economic process, a (global or regional) crisis seems now inevitable.

And it’s more than just the risk of economic crisis, 2016 could likely be the year of a major geopolitical crisis.
Technical and Behavioral Perspective: 2015 The Transition From Overconfidence to Doubt
Let us look at the domestic markets from a behavioral and techical viewpoint.
2015 was a showcase of radical changes in sentiment.

The year started with confidence oozing from the establishment.

The sucessful breakout from the record high set on May 2013 in mid January led the Phisix to a string of record highs…yes 26 of them (according to the PSE)…which climaxed at 8,127.48 last April 10 2015.

From then, events segued from overconfidence to doubt. Sellers began to reassert their presence as the strenght of the bulls faded. The Phisix lurched about first by consolidation, then eventually followed by decline.
Yet what you see depends on where you stand. For the optimist, a pattern of alternating returns may yet deliver the goodies for 2016. Since 2010, returns of the Phisix had rotated between outperformance to underperformance. Nonetheless all underperformances were positive.

Still for optimist, 2015’s deficit may yet turn out to be a staccato of resplendence. Hence, the Philippine national elections have become the fountain of hope for a recovery in the eyes of the mainstream.
Yet as Alexander Pope observed of the nature of man, hope springs eternal.
Even so, the patterns of the rate returns suggests of a dwindling base. 2016 may end the year in positive but it would less likely in the way that the optimist would want them. Since 2009, the rate of returns has not only been very volatile, but importantly, these have been in a decline (see blue trend lines)
Furthermore, historical numbers of the rate of returns translate to little significance in projecting future outcome/s. Reason? The myriad and complex factors that shaped the past are fundmanetally DIFFERENT in the future.

Although of course, there are connections between the past and the present. Connections that are predicated from the action-reaction feedback mechansim of the millions of moving parts of the economy.

For instance, a general dearth of investments will mean little income, earnings or jobs growth in the future.

On the other hand, overinvestments will lead to excess capacity, which again will be a prospective drag.

Or high price inflation (affecting all prices in the economy) will also mean reduced profits and investments for commercial entities and disposable income for consumers.
So if there were fewer investments or overinvestments or high inflation in 2014-2015 then the effects from these should be manifested today.
Understand that economic activities signify a process. They do not emerge out of the TV screens.
Going back to 2015.

The negative returns by the headline index was hardly shared by all the sectors. Reason? Because most of the BUYING activities going into the April record high had been concentrated to a few heavyweight issues. So when doubt emerged, the big gains racked up by these during the first quarter pump were merely clipped.

That’s unlike most of the issues which were down and hardly participated during the buying pumps even when the headline index stormed to landmark highs.
In particular, the general softening trend at the last half of the year allowed the the holding and the property sectors to keep some of their gains.


And broken down into specifics, the distribution of returns for the composite members of the headline index largely favored the top 10 largest market cap issues. That’s because as noted above, most of them had been beneficiaries of targeted or concentrated buying activities that led to April’s milestone.
So at the close of 2015, SM’s annual return of +6.01% and AC’s +8.93% cushioned the index from bigger losses. Both had a combined market weight share of 16.16% at the close of the year. Yet these two were supported at the flanks by peers: AEV (+9.96%), GTCAP (+27.91%) and MPI (+13.04%).
Meanwhile, SMPH almost had singlehandedly been the force behind the gains of the property sector in 2015 with a fantastic return of 27.35%, the second largest next to GTCAP. SMPH closed the year with a market weight share of 6.2%
On the other hand, stock prices of its rival, the largest property firm, ALI, while closing the year still on a positive note with +2.23%, has sputtered and consumed much of the enormous gains at the early year.
To top it all for the Phisix 30, in 2015: 12 issues posted gains, 17 issues were in the red while one was unchanged.
First Week of 2016: The Shift from Doubt to Nascent Fear; The Story of 2016
2016 has signaled a seismic shift from Doubt to Fear.

If 2015 ended with a masive swelling of doubt, the first week of 2016 has evinced that doubt has morphed into nascent fear.
The PSEi tailspinned by a shocking 5.42% at the first week of 2016! What a way to greet the new year.
This week’s massive loss ranks the third largest since the 2013 taper tantrum. The 2013 antecedents: August 23 -5.59% and June 14 -6.86%.
In the last week of August 2015, where the PSEi crashed by 6.7% in a single day, the PSEi closed down by only 2.48%. This meant that the bulls fervidly fought to recover more than half of the losses from the August 24 meltdown.
It’s a different character last week. Instead of a single day crash, two sessions combined to deliver the gist (84%) of this week’s loss. There was little signs of past aggressiveness by the bulls.
Curiously, in the two days where the bulk of this week’s losses were accrued, particularly on January 4 (-1.7%) and January 7 (-2.86%), foreign trade registered positive. This meant that the stampeding sellers came from the locals.

Yet Friday’s big net foreign selling brought upon an outflow of Php 641.34 million for the week.

Moreover, last week’s carnage was broad based. From a sectoral performance perspective, all sectors bled. This was led by the mining (-7.04%) and property sectors (-6.82%).


For the property sector, Ayala Land’s entry to the bear market with this week’s -7.84% crash, spearheaded the property sector’s decline.

Yet where ALI goes, the market goes. This can be seen from the chart of ALI (black candle) and the Phisix (red line). ALI’s has the second largest market weight share on the PSEi basket: 8.18% as of Friday.

And of the 30 component issues of the Phisix, 28 posted deficits while 2 issues; GTCAP and SMC bucked the trend.


Declining issues walloped advancing issues in all five sessions, to tally the LARGEST ever (since I began tabulating these in 2011) margin at 366!
And what’s even more remarkable has been the sustained shrinkage of peso trading volume (bottom)
Average daily volume has shrivelled to a mere Php 4.445 billion, the lowest since January 2014.

January 4th or Monday’s 1.7% loss came with just Php 2.99 billion of peso trades!

It would be easy to say that last week’s volume may be due to holiday hangover. But falling volume has been the overall trend throughout 2015. (blue trendline)
Volume during April’s record 8,127.48 temporarily spiked but generally came amdist a declining trend.
Yet volume during the first week of January 2013 and 2015 registered Php 6.5 billion and Php 10.3 billion, respectively. Hardly a holiday issue. That’s largely because performance as seen in volume then represented a carryover from the upswing of the closing period of the previous year.
This shows how the peso volume reflects on du jour investor sentiment.

January 2014’s lethargic volume came during the bottoming phase from the May 2013 taper tantrum.

Today’s deepening slack in volume amidst an accelerating price downtrend simply means that buying support at current levels appear to be losing ground…fast
In other words not only has doubt been spreading, doubt appear to be now accompanied by fear.
Price actions reinforce such message.

The two consolidation phases (blue rectangles) during the second half eventually broke down. All these reinforces the transitional dramatic time induced changes in the market’s psychology.

This week’s breakdown has only underscored the shifting behavioral dynamic balance which has been underpinning actions at the PSE.
And as noted above, foreigners have hardly been the culprit for the downcast mood now. Locals have began to question the viability of the boom. If sustained, eventually headlines will exhibit the same mood shift.
And it’s not just the Phisix.


The strong USD or the USD PHP (blue candle) has only highlighted their inverse relationship: Strong USD Php translated to weak PSEi, and alternatively, a strong PSEi extrapolated to a weak USD Php.

The USD PHP closed this week at 47.165 up by .2%
The peso, the Phisix and prices/yields of sovereign bonds have been converging. Philippines financial markets appear to be in symphony.
With this week’s close at 6,575.43, PSEi is just 73.446 points or 1.1% from the bear market threshold at 6,501.48 or 6,500.
And as remindeder: bear markets in stocks have hardly been an isolated phenomenon too. By isolated this means ramifications of bear markets will be manifested on real economic activities, and will likewise have social-political consequences.

Even those brazen price fixing actions will have consequences.
This will be the story of 2016.
Will History Rhyme? Will 1979 Serve as Template for Seven Years of Famine?
Will history rhyme?
Remember this?
In September 2014, I transposed the generational highs of the previous market tops into the May 2013 levels to get their contemporary “high” equivalent.
Then I wrote6:
The two generational or secular highs (1969-79 and 1994-97) during the topping process showed how previous highs had been exceeded. The cyclical top of 2007 likewise reveals of the same dynamic but at a more muted dimension.
As I have been saying the issue is about financial instability rather than of reaching specific price levels. The two generational/secular stock market bubble cycles did not only result to a stock market crash but metastasized into financial crises.
The cyclical top of 2007 only resulted to a stock market crash but not to an economic event. But the 2007 top which has been a cyclical phenomenon has connected with current developments from which originated in 2003. 2003-2014 marks the secular bull market to the topping phase.
In the economic context, 2014 has been associated with 2007 because the policies implemented then (automatic stabilizers) to forestall a recession on the formal economy and the ensuing shift to aggregate demand (monetary easing) paved way for both the 7,400s of 2013 and 2014 undergirded by the property and property related bubbles.
In short, the higher the price levels, the greater the financial instability. 
Eerily, the first row seem to have resonated with this year’s milestone record at 8,127.48 last April

Will history rhyme with 1979 as template, where the Phisix may fall by 80%?

Will there be seven years of famine after 7 years of plenty (Genesis 41)? It took about 7 years for the secular stock market crashes of 1979 and 1997 to bottom out.

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1 Viktor E. Frankl Man's Search for Meaning AN INTRODUCTION TO LOGOTHERAPY, Beacon Press p.33, http://ir.nmu.org.ua/
2 Mark Howards, The Risks Today Are Substantial Finanz and Wircshaft December 28, 2015
5 Adolf Hitler, Mein Kampf p 156 greatwar.nl
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