Sunday, February 21, 2016

Phisix 6,800: Shocking! BSP Hid Data of OFW Remittances as October and November Monthly Reveals of CONTRACTIONs! PSE Censors 3Q Performance of Listed Firms!

The shift to negative interest rates is all the more problematic. Given persistent sluggish aggregate demand worldwide, a new set of risks is introduced by penalizing banks for not making new loans. This is the functional equivalent of promoting another surge of “zombie lending” — the uneconomic loans made to insolvent Japanese borrowers in the 1990s. Central banking, having lost its way, is in crisis. Can the world economy be far behind?—Stephen S. Roach, former chairman Morgan Stanley Asia and Senior Fellow at Yale University

In this issue:
Phisix 6,800: Shocking! BSP Hid Data of OFW Remittances as October and November Monthly Reveals of CONTRACTIONs! PSE Censors 3Q Performance of Listed Firms!
-Shocking! BSP Revamps 2014-5 OFW Remittances Data, Concealed October and November 2015 Massive Contractions!
-Negative Numbers Spur PSE to CENSOR 3Q 2015 Performance of Listed Firms as Philippine NGDP and PSE’s NGDP Goes on DIVERGENT Directions!
-Philippine Bonds: The Fascist Crony Political Economy and The Escalation of the Yield Curve Inversions!
-Robinson’s Land Corp: Leveraging UP on a Vulnerable Topline
-Phisix 6,800: Global Central Banks Talk Up Risk Assets as Philippine Stocks Approaches Overbought Conditions
Phisix 6,800: Shocking! BSP Hid Data of OFW Remittances as October and November Monthly Reveals of CONTRACTIONs! PSE Censors 3Q Performance of Listed Firms!
Shocking! BSP Revamps 2014-5 OFW Remittances Data, Concealed October and November 2015 Massive Contractions!
Just what has been going on with the Philippine central bank, the Bangko Sentral ng Pilipinas (BSP)?

Have they been panicking over the state of OFW remittances?
The BSP disclosed that they have reached their yearend target1: “Personal remittances from overseas Filipinos (OFs) amounted to US$2.7 billion in December 2015, posting a 4.9 percent growth year-on-year. This is the highest monthly level recorded thus far. Consequently, full-year personal remittances from OFs reached US$28.5 billion, higher by 4.4 percent than the previous year’s level and exceeding the BSP’s projection of 4 percent for 2015”

That’s nice unless one sees how the supposed target had been met, and secondly, how the previous or original numbers had been glossed over by the current (December) report.
You see, the numbers for the November data in the December report had been different from the November report. Here’s the disclosure: “Personal remittances from overseas Filipinos (OFs) amounted to US$2.4 billion in November 2015, representing a year-on-year growth of 3 percent. On a cumulative basis, personal remittances in January-November 2015 rose by 3.4 percent to US$25.2 billion”2.
Let us take personal remittances for November 2015: in the November 2015 report, the numbers were US $2.416 billion for the month and $25.25 billion in cumulative. These compared to December 2015 report’s US $2.06 billion for the month, and $25.7 billion cumulative. The difference for the monthly data alone was a staggering $356 million!
Because the headline numbers were different, so should this be reflected on the growth rates: for the same period based on November report, 3% and 3.4% for monthly and cumulative, respectively. That’s against a NEGATIVE 6.2% for the month and 4.4% cumulative!

Gadzooks huge NEGATIVE numbers!
I had the initial impression that these were merely one month ‘revisions’. But the BSP hardly makes revisions for OFW remittances.

So upon further scrutiny, I realized that the entire data set for the year 2014 to 2015 had been overhauled! (November data released January 2015 and December data released last week February 2015)

To highlight the difference, let me use the personal and cash remittance data on a cumulative basis for December 2014 extracted from both reports.

In the November report, December 2014 personal and cash remittance were at $26.97 billion and $24.348 billion, respectively. In the December report, December 2014 personal and cash remittance were at $ 27.273 and $ 24.628 correspondingly (see blue rectangles above). The difference amounts to $303 million and $280 or 1.2% a piece.
Yet once the base or reference numbers changes, everything else changes.
The critical question is why the sudden overhaul of the entire 2014 and 2015 data set???!! (I haven’t seen any explanation from the BSP’s report)
The BSP cited that they reached the target. But they also didn’t mention of the BIG NEGATIVE numbers from the altered data.
It’s stunning to see that the modified numbers revealed of two consecutive months where OFW remittances growth rates actually crashed! Yes, read my lips, remittance output substantially SHRANK!!! (see red rectangles at the above BSP table)
For October and November, monthly growth rate for Personal remittances cratered -4.1% and -6.1% while Cash remittances plummeted by -4.2% and -6.2%, respectively!!!!
Moreover, stagnation in August and September numbers compounded on the crash. Monthly growth rates for Personal remittances were -.8% and +1.3% while Cash remittances -.6% and +1.3% correspondingly!
So in the last 3 out of the 5 months for 2015, OFW remittance monthly year on year changes for both personal and cash output exhibited CONTRACTION!!!!

The last time remittances showed of growth shrinkage was in November of 2014 were monthly personal and cash remittances posted deficits of 4.5% and 4.4%. Apparently, the November 2014 episode seems to have paved way for this year’s incredible downturn. I warned about the spillover risks from November 2014’s remittance decline here.
Yet to compare with the original data (see green rectangle in the table above), the only negative number that surfaced in the monthly change was in August, specifically -.8% for personal remittance and -.6% for cash remittance. Two other months, particularly July and October posted less than 1% growth, namely .5% for both personal and cash remittance in July and .2% for both categories in October.
This implies that if the December figures were the accurate measure, then what the BSP did was to camouflage the crashes of the October and November figures, in the hope that December data would provide the necessary enhancements for the yearend! Astounding!

Nonetheless, what made the BSP hit their annual target was the sudden remarkable increase in the growth rate of the personal and cash remittances cumulative at 4.9% each, last December! But this came about after only a major recalibration of the remittance numbers for 2014 and 2015!
[As a side note 5% used to be the low end, look at the charts, now it is the high end]
Question is: How much of the yearend increase had been a result of the juggling of remittance numbers? Could it be that the 2014 figures have been deliberately suppressed in order to inflate the 2015 counterparts?
Notice too the end of the year numbers were hoisted by the huge surge in the growth rates of March and June 2015. The gains from these months padded up on the remittance data that essentially cushioned the erosion during the last 5 of 6 months! (see horizontal orange ellipses in BSP table above)
Just to cite the numbers for personal remittances: in March, for the revised December data, growth rates were 15.5% monthly and 9.4% cumulative. The original data registered 11% and 5.1%. Original BSP disclosure here. In June, for the revised December data, growth rates were 10.5% monthly and 9.0% cumulative as against the original data 5.8% and 5.3%, original BSP disclosure here.
Again, did the BSP wait for the December data in the hope that the numbers would improve significantly to elevate the yearend tally? In the apparent failure to meet the BSP’s expectations, did the BSP panic, thus prompting them to facelift the entire data set for 2014 and 2015 so as to cosmetically embellish the yearend outcome?

Has the government’s recent floating of an “OFW crisis” been a trial balloon or a public conditioning for this?

Yet even from the cumulative perspective, remittance growth rates, for both personal and cash in the 2H (specifically from the collapse of the 4Q), dived to its lowest level since October 2009!
Additionally, those revised numbers have not erased the inflection point or the law of diminishing returns or diminishing growth rates for OFW remittances (see orange ellipses)

If OFW remittances stagnated in Q4, then just how did the government compute for Household Final Consumption Expenditure for Q4 2015? (The same question should apply to the Q3 2015)
HFCE constant 2000 and NGDP both rose during the said period (upper window) even when the average monthly growth rate (based on revised data) of OFW remittances for the quarter decreased.
Previously, remittance growth rates mirrored the undulations of the NGDP and RGDP (constant 2000) as shown in the lower window. But for Q4 things changed. Again, HFCE, which accounted for 72% of the 4Q RGDP grew by 6.9% NGDP and by 6.4% RGDP even as the average monthly (nominal|) remittance growth rates for the same period shriveled by 1.5%. Stunning deviations!
Once again, OFWs have been stripped by government statisticians as economic heroes!

Said differently, just where did 6.3% Q4 GDP (5.2% NGDP), as well as, 6.1% Q3 GDP (4.4% NGDP) emerged from? (see lower window)
Contrary to consensus thinking, I have been warning that OFW remittances have not been static or permanently embedded growth numbers and have been vulnerable to global economic as well as geopolitical developments.

Now my warnings appear to have arrived.
And again, it would appear that the BSP has employed statistical mirages in order to beef up the highly symbolic and economic sensitive OFW remittance numbers.

Unfortunately, in spite of the Potemkin numbers, a sustained slump in remittances will show up in the real economy.

So expect one of the next hot political issues to be the “OFW crisis”.

Of course, forget that the reason OFWs exist have been because of the legacy of consistent government failures, as demonstrated by the slomo boiling frog collapse of the peso. The current boom bust cycle will only exacerbate on this.
And given the considerable data revisions which exposed of the massive downturn in OFW remittance growth rates in 2H 2015, just what will happen to the mythical consumer economy?

The ballyhooed ‘consumer economy’ has in reality has been about the massive debt financed race to build the supply side predicated on catering to mainly OFW spending!
Yet in the face of falling exports, wilting manufacturing, stagnating agriculture and slumping remittances, just where will the incantation of “domestic demand” emanate from?

Most likely from statistical Sadako!
Negative Numbers Spur PSE to CENSOR 3Q 2015 Performance of Listed Firms as Philippine NGDP and PSE’s NGDP Goes on DIVERGENT Directions!
It appears that the establishment has been getting so desperate to keep up with façade of the phony boom.

So they increasingly resort to rampant financial market (stock market, bonds and currency) pumps, statistical chicanery, flagrant media spins and information censorship and manipulation
Well as expected, the Philippine Stock Exchange (PSE) did it again.

Like in the second quarter, the PSE has CENSORED or blacked out the aggregate performance of ALL listed companies during the third quarter from their press release. So in the absence of disclosure, the PSE’s dismal 3Q fundamentals translated to a virtual VACUUM in mainstream media.

So what the PSE did was to announce the NINE month performance of the PSE’s composite members in their monthly outlook (December issue) WITHOUT the 3Q numbers!

And to consider that the distribution of PSE monthly outlook have been restricted to only paid subscribers, and that the monthly report are technical, and more importantly, long winded, the likelihood has been that the reach of audience for the content of such reports have been very limited.
But why does the PSE want to bury such information? Below is the original format
The answers as provided by the PSE3 (bold mine)
-The total income of listed companies decreased by 1.8% year-on-year in the first nine months of 2015. Data from the latest financial statements submitted by 2481 out of 260 listed companies showed that their aggregate income totalled P441.40 billion, P8.17 billion lower than the P449.56 billion income recorded in the same period last year. Out of the 248 reporting listed companies, 179 posted net gains, 68 posted net losses, while one posted zero income. The decline in overall earnings performance of listed companies was primarily brought about by higher foreign exchange losses and significant decline in metal prices.

-Listed companies garnered a combined P4.90 trillion in revenues during the first nine months of 2015, lower by 0.6% from their total revenues of P4.93 trillion in the same period last year
-The combined net income of companies comprising the PSEi amounted to P317.61 billion during the first nine months of 2015, 0.7% higher than their aggregate net income of P315.51 billion in the same period last year.

-The combined net income of PSEi companies represented 72.0% of the total net income of the 248 reporting listed companies, slightly higher than its 70.2% share to total income in the same period last year.

-Twenty nine of the PSEi members registered net profits, with TEL posting the highest net income for the period at P25.34 billion. SMPH followed with net profits amounting to P22.87 billion, while SM came in third with earnings of P19.43 billion. SM posted a 7.0% increase in income during the first nine months mainly due to higher revenue contributions of its key business segments.

-Twenty one of the thirty PSEi companies posted improved net income performances during the period with LT Group, Inc. (LTG), SMPH, Semirara Mining and Power Corporation (SCC), GLO, and PCOR, posting remarkable increases of 88.7%, 69.9%, 58.8%, 34.4%, and 34.3%, respectively. LTG recorded an income of P4.71 billion driven by the improved bottomline of its core businesses.

-Meanwhile, the remaining nine companies recorded decreases in their net income in the first nine months of 2015 with Bloomberry Resorts Corporation (BLOOM), Megaworld Corporation (MEG), SMC, Energy Development Corporation (EDC), and First Gen Corporation (FGEN), posting contractions of 145.3%, 56.9%, 53.2%, 43.5%, and 25.0%, respectively. Higher operating costs and expenses associated with the operation of the Sky Tower and related amenities pulled down BLOOM’s bottomline.
-Two out of six sectors posted higher net incomes for the first nine months led by the Property sector, which registered the highest growth at 6.4% for the period. The Services sector followed, with its aggregate net income rising by 4.1%. Meanwhile, total profit of companies in the Financials, Holding Firms, Industrial, and Mining & Oil sectors declined by 0.5%, 0.5%, 2.9%, and 54.1%, respectively.

-The net income of companies in the Small, Medium & Emerging Board (SME) increased by 6.2% to P187.98 million during the first nine months of 2015 from P177.03 million in the same period last year. The growth in mobile consumer business pulled up Xurpas Inc.’s (X) net profit by 19.0%. On the other hand, the net profits of Makati Finance Corporation (MFIN) and Alterra Capital Partners, Inc. (ALT) fell by 12.5% and 163.2%, respectively
Only two sectors have now been lifting the profits of the PSE universe as the majority have begun to underperform. It’s the periphery to the core in motion. The backlash from inflationary boom has been gnawing at the core of the bubble industries.
The PSE notes that aside from metals or commodities, foreign exchange has signified a key factor in the nine month deterioration.
As previously admonished4: (bold original)
For domestic production, prices of imported production inputs will also increase. Rising input costs should put a squeeze on the profits of producers. And profit margin strains will mean lesser investments, which subsequently should extrapolate to lesser outputs and diminished jobs and wage improvements.

And lesser production output means HIGHER domestic prices. In short, again whatever gains from the lower peso on OFW, exports, BPOs and or tourism will be mostly neutralized by rising domestic prices overtime.

And again, the ascendant domestic prices have been the effects of higher import prices.

Moreover, in the financial dimension, any USD based liabilities will require MORE peso to service. Once again this adds to the cost side of firms exposed on USD borrowings that will amplify debt servicing onus that may reduce access to credit, thereby, put strains on profits and magnify credit risks.
The PSE forgets that the profit squeeze has not just been about cost side, but likewise on the top line. This means that aside from higher prices on imported consumer goods brought about by the falling peso, those 10 months of 30%+++ money supply growth (July 2013 to April 2014) that have led to a belated surge in consumer inflation (3%+ for 13 months or from November 2013 to November 2014) have buffeted on the PSE’s gross revenues or the NGDP.
Curiously just where has mainstream’s touted double digit earnings growth for the PSE in 2015 been???
Remember, the above represents the Nine Month report for 2015.

Again, missing in the above had been the third quarter performance.
Well, the likely reason they have been expunged the 3Q from the report can be seen above
You see, reporting of losses may have been disallowed most probably because they are construed as politically incorrect. Revenues and profits for the PSE can only go up! And everything else outside this premise represents an anomaly or deemed as unreal.
Income of both PSEi and PSE listed firms were down by a huge 10.66% and 1.68% in the 3Q. NGDP (Gross revenues) of listed firms was down by -.6% but was slightly up by .46% for PSEi firms. Though NGDP showed slight improvements for both, income remained significantly down.

So essentially, the big income gains of 1Q, which was a result from the outperformance of select issues, diminished the declines of the NINE month report.

What a way to spin the story!
But haven’t you noticed of the disparity between real and statistical numbers?
The Philippine government announced that 3Q GDP grew by 4.4% NGDP or 6.1% (2000) constant/headline GDP, but the PSE’s NGDP (gross revenues) of all listed firms shriveled by -.06%!!!
Realize that the PSE’s NGDP, which accounts for street level accounting based activities, constitute 51.6% of the survey based statistical (Nominal or current priced) GDP.
What this exhibits has been that the PSE’s (street level) numbers and the Government’s (survey based) numbers seem to be pointing at DIVERGENT directions! Government says G-R-O-W-T-H! On the other hand, PSE firms say S-T-A-G-N-A-T-I-O-N!
So what we have been witnessing has been a blatant departure from real developments relative to glorifying headline statistical numbers.
As I commented on the bowdlerization of the 2Q report5
And this also demonstrates why statistical GDP has basically little relevance with actual economic conditions!
Instead of Gross Domestic Products, GDP should be called Grossly Deceptive Politics
And yet those 2Q unpleasant numbers signify as the smoking gun revelation of the hissing bubble ‘smoke and mirrors’ economy. The 2Q data essentially DEFIES the politically constructed one way consensus expectations.
And this shocking reality may have incited the Philippine Stock Exchange to exorcise, purge, exclude or censor such figures out of existence! Such that when the PSE reported 1H 2015 performance, 2Q seemed to have almost existed in a black hole.
Add 3Q to the picture.

Philippine Bonds: The Fascist Crony Political Economy and The Escalation of the Yield Curve Inversions!
Given that the government raised Php 25 billion in fund raising via 5 year tender last week, which reportedly drew in “double” the government’s offer from mostly banks due to “strong demand”, I expected a significant rally on domestic treasuries this week.

Yet my expectation was not fulfilled. The rally on the 5 year bonds turned out to be short lived as 5 year bond yields increased by 37.5 bps to 4.313% at the close of the week from last week’s 3.938%.

So the alleged “strong demand” for government “tenders” turned out to be a dud, as the secondary market sold the same treasuries (perhaps) right after bidding them up.

More of the same publicity gimmicks or smokescreens?
Moreover, I expected the peso to rally hard given that the government announced that they will raise dollars through “planned sale of dollar-denominated bonds”. It didn’t. The USD peso rose by .32% to Php 47.665 this week from Php 47.51 the previous week. Perhaps, the peso rally may happen when the sale will be formalized or concluded. There has been no definite schedule announced. Though it was tipped to be “soon”.
Yet the government have “hired eight banks” as their book runners.

Let me interpose my terse political inquiry on these.
Think of the banks that have been commissioned to underwrite and sell bonds in behalf of the government. They are bound to make millions of dollars in fees and commissions as agents for the government. These institutions are essentially beholden to the government by virtue of the latter’s administrative and regulatory controls, the distribution of economic rent from government activities (such as book running or underwriting government securities), and most importantly, as conduits and beneficiaries of financial repression policies imposed by the government (e.g. tax agents, intermediaries for the government securities, credit agents and etc.).
So do you think that such entities will risk or sacrifice all the prospective emoluments or economic rent and other privileges by citing risks from the current activities or by making radical downside G-R-O-W-T-H projections against the government’s outlook, or more explicitly, by deviating from the interests of the government? Do you think that the same financial entities will put their depositors’ and fiduciary interests ahead of that of the government?

Do you think mainstream media, whom are paid for by advertising revenues from mostly firms owned or attached or affiliated to these institutions, would publish materials or opinions against them? Do you think that academic experts, whose schools have been bankrolled or owned by the same or related institutions, would rail against their benefactors?
Much of what one sees as “debates” or “criticism” among media’s talking heads center on the superficial rather than a thorough examination of the system. Most of them are fixated on personalities.
And the centralization, or the particularly, the politicization of system is what makes everything inherently fragile or vulnerable to a meltdown.

By virtue of social policies, resources have virtually been funneled into vested interest groups affiliated with the government, and to the government. Such translates to the amassment of systemic distortions or imbalances.

And with everyone being told by the government, cronies, and by media lapdogs, backed by their ‘experts’, that everything has been hunky dory, these simply extrapolates to the desired sustainment of the facilitation of such invisible transfers—where, again, such invisible redistribution or hidden taxation has been intermediated by these private sector appendages of political institutions.

And what has been presented in media as economic news has signified as nothing more than sales pitches ornamented with statistical numbers and emblazoned with economic variables to justify the status quo.
This by the way HARDLY represents free markets at all. Instead, such are fascist-corporatist/cronyism political economy guised under the simulacrum of a market economy.

One cannot operate a genuine market economy with half of every transaction being perverted in favor of political agents through unsound monetary policies. Add to this the mountains of regulatory, tax and welfare mandates.

The market economy has been setup as the fall guy once these maladjustments will unravel.
So risks or negative news or developments that will serve as obstacles to the free lunches for the establishment will forcibly be submerged into oblivion. Such has been the likely reasons behind the BSP’s December OFW report and to the PSE’s 2Q and 3Q report.

Unfortunately for establishment, there is such a thing called the law of scarcity. And the law of scarcity tells us that the vast misallocation of resources will have natural limits regardless of what the establishment yearns for.

The fundamental lesson: There is no such thing as a free lunch.

And NO free lunch is being expressed today on the Philippine bond markets
Despite the sustained interventions to facelift the Philippine treasury markets, yield spreads point to a forthcoming significant stress in the domestic financial system’s liquidity.

As of Friday, the yield differential between the 10 year bond and 6 month bill has flattened to near zero (4.2 bps). Stealth interventions pushed the 1 month spread off from a negative spread last week. But the variance still remains at near zero (47.4 bps)
Yet the negative yield curve phenomenon has been spreading.

ADB’s benchmark the 10 year 2 year yield spread remains flat with only 23.8 bps away from zero. The 10yr-3yr spread has been on a second week of inversion. The 10yr-4yr spread has also inverted! The negative spread of the curve’s belly, the 10yr-5yr, has only deepened to 49.7 bps!

So despite constant interventions, negative yield phenomenon prevails.
While narrowing interest margins may dissuade banks from expanding credit, this may not be enough. Desperate for profits, banks may seek to replace thinning margins with volume. But the substitution of volume with margin means assimilating on more credit risk than necessary. And this is where things will get aggressively dicey.

And financial institutions will likely run rings around the regulatory climate.
Nonetheless, if credit conditions will tighten as the yield curve continues to indicate, then economic weakness can only be expected to permeate into a larger segment of the economy.
Unlike the consensus experts who read the economy through painting by the numbers or by shouting statistics, remember the economy represents a complex network of interrelated and interdependent agents. Like the Butterfly effect of the chaos theory, where a flapping of the butterfly’s wings may ripple into a storm, one’s sector’s weakness may spread into the rest of the economy, even while the mainstream remains blind to these.

Yet such blindness has not been because they are unintelligent, most of them are incredibly smart, but rather incentives to protect the status quo and the principal agent problem represent as the primary causes of such myopia.
The fantastic spreading of the negative yield spreads will most likely serve the key transmission mechanism for the unwinding of the domestic bubble.

In 2009, the BSP declared the adaption of an accommodative monetary policy, or the reconfiguration of the economy, by tweaking the yield curve as a means to promote domestic demand. Now the basis for the soi-disant “domestic demand” is being reversed by the market place.
Since Philippine asset bubbles have emerged and has been nurtured and fostered on credit expansion from the BSP’s credit easing policies, then a reversal of monetary accommodation either through policies or from the marketplace would entail of the taking away or undermining of the credit pillar. And once such pillar has been disestablished, then these bubbles will fall like a house of cards.

Robinson’s Land Corp: Leveraging UP on a Vulnerable Topline
One of the companies to have reported earnings for December 2015 has been key property developer and shopping mall operator, Robinsons Land (RLC)

Curiously, while RLC reported gross revenues to have jumped 12.5% for its first 3 months (RLC’s fiscal year ends in September) what has been evident has been real estate sales have significantly underperformed having been up by a measly 3.99%! Has this signified possible signs of weakening property sector in the 4Q?

RLC’s real estate sales have lagged for two straight years (up .26% in 2014)! (top window)
Yet shopping mall revenues, which grew by 14.38%, and which was responsible for the gist of the topline for the period, had largely been driven by the “contribution of the new malls namely Robinsons Place Antipolo, Robinsons Place Las Pinas, Robinsons Place Antique and Galleria Cebu”6. The company reported that “same mall rental revenue growth of 7%” and stunningly, “system-wide occupancy rate was stable at 95% as of December 31, 2015”.
From the surface, about half of RLC’s mall revenues came from existing malls and the other half from new malls.

Yet what defines same mall rental revenue? Has it been increases in rental rates? Or has it been from the overrides/royalties on the lessee’s store sales? Or how has these been distributed?

It matters because even from the government’s GDP, growth of retail sales moderated in Q4 to 7% from 8.7% in Q3 (current) or 7% from 8.3% (constant 2000). So if retail sales have been slowing, then most of the top line growth from same mall rents must have come from rate increases. So if rental rate increases stall, then RLC’s top line will be in jeopardy or will substantially fall.
Yet the addition of 4 malls (11.7%) to its inventory, which now has reached 38 malls, suggest that the contribution from new malls have not been optimized (I am speaking here of only malls not actual retail spaces in sqm for rent). What will happen to its vacancy rates, which are now at 5%, if diminishing returns affect the new malls? How will RLC maintain its topline growth conditions and its profitability?
It’s the first time I have encountered RLC mention “occupancy rates” in their December reports since 2009. So I have no idea what their definition of “stable” means. What I ascribed to as “stunning” was because the firm’s occupancy rates seem to have now fallen to US levels.

In the US, dead malls or the extinguishment of excess capacity over the years along with improvements in retail sales had brought about occupancy rates to rise to 94.2% at the end of 2014. As explained last week, this could be much lower today.
Yet if RLC, a major developer and mall operator, has vacancy rates of 5%, how much more for the rest of the industry, especially for the lesser known or established contemporaries? (Yes in my recent mall sorties I can attest to this bulging turnovers and vacancies)

And what will happen to the industry vacancy rates, not only if topline declines, but if the supply side like RLC will continue to add inventories? RLC reported a capex of Php 16-17 billion for 2016 up 6.67% to 13% from 2015’s Php 15 billion.
Here’s more. What has been striking from the report has been the dearth of cash flows from populist headline G-R-O-W-T-H! RLC’s receivables have ballooned by 49% in 2014 and 29.26% in 2015 even as real estate sales have been dismal. (lower left window) Has this been about late payments?

And like her peers, RLC has huge uncollected accounting profits.
Also because RLC has engaged in massive inventory buildup in 2014 and investments in 2015, financing of such activities entailed that the firm’s total debt swelled by 40.36% in 2014 and 69.33% in 2015 (lower right window)!

While RLC’s topline has become increasingly vulnerable to an economic downturn, the company has rampantly been levering or gearing up on expectations that Filipino consumers have hit the national lottery with no end!
RLC seem to have been transformed from a conservative (little debt) to a high roller (heavy debt) firm…all predicated on hope.
When the impact from those yield curve inversions spread to a broader sector of the real economy, backed by the sustained fall in the peso, RLC’s derring-do gambit will put her balance sheet in a parlous position.

RLC officials better be right that too the Philippines will be “immune” to external developments and that strong/robust/resilient “domestic demand” represents a linear thing. Though they didn’t directly say these, their balance sheet expresses on such convictions (demonstrated preference).
Actions have consequences. Actions premised on wrong expectations can have nasty consequences.
Phisix 6,800: Global Central Banks Talk Up Risk Assets as Philippine Stocks Approaches Overbought Conditions
Last week I wrote7
This is not to say that actions of central banks will have no effects on the markets. Rather, present dynamics have shown diminishing returns in terms of boosting risk assets. Or said differently, central bank magic has been fading. But it won’t stop them from trying.
Central bankers ensured that they were on the spotlights last week. They were there to soothe on the scathed nerves of increasingly apprehensive casino gamblers.

The Chinese central bank, the People’s Bank of China (PBoC), opened the lunar New Year by firming the yuan’s fixing, which according to the Bloomberg, “was the most in three months”.

China’s PBOC Governor Zhou Xiaochuan broke his long silence to declare support on the yuan by saying “there’s no basis for continued yuan depreciation”. Chinese officials stepped on the stimulus rhetoric in stating that they would be “making more money available to local governments to fund new infrastructure projects”. Authorities also floated the plan to lower “the minimum ratio of provisions that banks must set aside for bad loans, a move that would free up additional cash for lending”.

In the meantime, China’s January’s lending skyrocketed to a new record, HALF a trillion USD (3.42 trillion yuan or $525 billion) in a month!!! (see chart here). This comes even as January’s external trade has collapsed while December NPLs soar to milestone highs!
Meanwhile, ECB’s Mario Draghi reasserted that the European Central Bank won't hesitate to boost its stimulus in March if it believes recent financial-market turmoil or lower oil prices could weigh further on stubbornly low inflation.

Meanwhile, Federal Reserve Bank of St. Louis President James Bullard called for a delay in interest rate hikes saying that “I regard it as unwise to continue a normalization strategy in an environment of declining market-based inflation expectations”. Mr Bullard added, “The recent sell-off in global equity markets, along with increases in risk spreads in corporate bond markets, may have made this risk less of a concern over the medium term…These data-dependent changes likely give the FOMC more leeway in its normalization program” 
In the meantime, at the G-20 meeting, Bank of Japan’s Haruhiko Kuroda appealed to other counterparts “to find ways to stabilize global financial markets”.

The OECD joined the calls for fresh stimulus mostly from government spending and not just credit easing by central banks. They said that “Governments in the U.S., Europe and elsewhere should take "urgent" and "collective" steps to raise their investment spending and deliver a fresh boost to flagging economic growth…In its most forceful call to action since the financial crisis, the OECD said the global economy is suffering from a weakness of demand that can't be remedied through stimulus from central banks alone.”

Governments have been panicking over the latest financial market turmoil. And central banking coordinated opiates haves served to fuel massive short covering or short squeezes that have led to broad based resurgence in risk assets.
Most of Asia’s equity markets went into overdrive with benchmarks posting gains by 1.5% and above. (see left window)

Japan’s Nikkei, for instance, soared 6.79% this week after collapsing 11.1% the other week.
The intense tug of war between the bears and the bulls has been a manifestation of developing instability. Sharp volatilities are hardly signs of bottom. Instead they are most like manifestations of a denial phase.
The question is how long before central bank assurances begin to fade?
On the other hand, those central bank jawboning appears to have worked less in the favor of Asian currencies. Despite the risk ON, the USD has risen against most Asian currencies this week.

This means that the USD has ignored central bank assurances.
Meanwhile, the Philippines joined the global stock market party.

With this week’s 2.07% advance, the Philippine Phisix racked up its third week of substantial gains in four.

This week’s gains had been broad based. All sectors rose led by the service (+3.08%) and the industrial sector (+3.06%).
Among the 30 issue composite index, 25 registered gains while 5 posted losses.
Market breadth was heavily tilted towards advancers. The spread in favor of advancers hit the second highest level for the year.
Peso volume increased modestly. This week’s average volume at Php 7.232 billion was the second highest for the year.

(Due to space constraints posting of charts have been limited)
However, given the degree of advances over the past four weeks, specifically 11.63% from the January 21 2016 lows (or in 21 days), peso volume should have been way much much much bigger.

For comparison, the average peso volume during minor bear rallies in 2013 were much larger than today.

In August 28 to October 23 2013, where the PSEi returned 15.63% the average peso trading volume during the period was at Php 10.483 billion. In June 25 to July 24 2013, where the PSEi rallied by 17.53%, the average volume was at Php 8.295 billion.

During the 2016 cycle, from January 21, the average daily volume had been a puny Php 6.673 billion! This means that current volume accounted for only 64% of the August-October rally and 80.44% of the June-July rebound.
As previously noted, bear markets are characterized by rallies that have been fast and furious. A volumeless rebound seems indicative of a lack of conviction.
Yet at .58%, the rate of the average daily gains seems as decelerating, perhaps indicating signs of emerging fatigue.

Helped by several sessions of last minute pumps by Team Viagra, the PSEi now approaches critical resistance levels and have emitted signs of overbought conditions.
Yet current gains of the PSEi seem as hardly being supported by the still weak peso, the incredible spreading of yield curve inversions on domestic sovereign bonds and little signs of meaningful improvements in earnings.

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3 Philippine Stock Exchange, December 2015 Monthly Report VOL. XXII NO. 12
6 ROBINSONS LAND CORPORATION AND SUBSIDIARIES SEC Form 17-Q Philippine Stock Exchange
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