History continues to unfurl in EPIC proportions!
While the mainstream focuses on the headline index, whereby rapidly inflating stock prices has now been seen as an “entitlement” or “right” in favor of the establishment consensus, little attention has been directed at the intensifying corrosion of the pillars that has undergirded the present meltup.
Said differently, the PSEi has presently been experiencing a monumental or historic manic TERMINAL blowoff top!
Epic Climax: Vertical Price Escalations Widens Price Fundamental Imbalances
Again the present widening of price-fundamental imbalances has reached a scale last seen 1996-1997 or TWENTY years ago! Breathtaking indeed!
This is how the Phisix looked like in 1996-1997
And in the context of price actions, the climaxing of the colossal bubble has been backed by an epochal transitory violent price bidding phase that had previously been seen, paralleled or matched—neither in the path to May of 2013 nor in April of 2015—but in 2007 and in the 1997!
A breakdown of this week’s actions has only underscored on the striking culmination of the blow offprocess.
Because 20 of the PSEi 30 climbed this week, and because a stunning eight issues broke out to set fresh record highs, the benchmark’s PER has soared to 26.89 (average) and 27.55 (market cap weighted). Or in terms of weekly gains, the average PER spiked by 1.28% while the market cap PER increased by .55%!
To add, 3 issues closed at new records—SM, JFC, and RLC even when the PSEi was down by .95% last Friday!
Price earning ratios (PERs) could most likely be just one of the contemporary and popular indicators that have reached a critical level.
Given the ongoing deterioration in earnings, which has mostly emanated from the ongoing degeneration seen in topline revenues (NGDP), such has pointed to likely a surge in price to sales ratio! And reduced topline growth may have possibly translated to diminished cash flows, which means spike in price to cashflow ratio!
And because business operations and expansions require financing, in the face of diminishing cash flows from falling topline this should extrapolate to booming corporate debt levels! And expanded liabilities relative to assets would redound to crescendoing of the Price to Book ratio!
Even the Philippine government’s own survey based statistics has been reinforcing my suspicions of a massive buildup of imbalances.
According to the Philippine Statistics Authority, the measure of Gross Revenue Index (GRI) grew by 6.9% in 1Q 2016 DOWN from 7.4% over the same period last year.
Curiously, the cited figure has been opposite to ones indicated by NGDP 1Q 2016 at 7.6% relative to 5.2% 1Q 2015. So NGDP up but revenues down! Nice!
Yet here is the GRI breakdown: “Real Estate posted the fastest growth of 13.2 percent albeit slower than the 13.7 percent recorded last year followed by Transportation and Communication at 9.4 percent from 12.3 percent. All other industries also posted positive growth: Trade accelerated to 8.8 percent from 6.1 percent, Finance registered a growth of 6.1 percent from 3.9 percent, Manufacturing at 2.0 percent from 10.1 percent, and Private Services at 0.5 percent, from7.4 percent.”
Note here that in 1Q 2016 only trade and finance sector accelerated. Growth rates of real estate and transportation moderated. Meanwhile, manufacturing and private services were substantially down! Read the quote again: Manufacturing growth rate stumbled from 10% to 2% or an 80% crash! The largest contributor to the economy remains in stagnation. The Philippines has an export recession. Since 85-90% of exports have been from the manufacturing industry then this should be expected. Any outgrowth implies domestic demand, which curiously doesn’t seem to be supported by other demand factors.
And ironically while manufacturing revenues grew by 2% its NGDP counterpart shows of a 5.2% growth over the same period!
Worse, private services (education, health, hotel, business, recreation, personal and others) growth rates also crashed by 93.2% to .5% from 7.4%!
1Q 6.9% GDP duh!
Nonetheless the 64 trillion peso question is how has the acceleration in trade sector occurred? Have wages and jobs been supportive of an increase in consumer incomes to have spurred more spending?
The PSA provided a clue on employment growth(bold mine): “Total Employment Index slightly declined by 0.04 percent from last year’s 3.8 percent. Among the industries, Mining and Quarrying and Manufacturing both declined by 6.3 percent and 0.9 percent from a growth 3.3 percent and 3.7 percent, respectively. All other industries posted positive growth: Real Estate slowed down to 8.1 percent from 15.3 percent, Transportation and Communication turned around to a growth of 1.9 percent from a contraction of 0.4 percent, Finance decelerated by 1.8 percent from 7.9 percent, Electricity and Water turned around to 1.3 percent growth from a contraction of 0.3 percent, Trade accelerated by 1.1 percent from 0.1 percent, and Private Services slowed down to 1.1 percent from 8.0 percent of the same quarter last year.”
So in terms of employment, since the biggest sectors (manufacturing and real estate) of the GDP registered downside growth rates, thus the 1Q employment index was down! But the employment growth distribution by sector has also been mixed: on the downside, manufacturing, mining, real estate and private sector, and on the upside, transport, Electricity and Water and the trade sectors.
Employment growth, from the PSA data, shows of stagnation with a downside bias!
How about income growth? Again the PSA: Meanwhile, Total Compensation Index deceleratedwith 4.5 percent growth as compared to the 6.0 percent expansion in the previous year. Electricity and Water posted the fastest growth with 16.3 percent (from1.4 percent), followed by Real Estate which decelerated by 10.4 percent (from 20.1 percent). On the other hand, Mining and Quarrying dipped further by 15.4 percent from a 2.0 percent contraction and Manufacturing declined by 3.4 percent from an expansion of 11.2 percent.
Wow, compensation growth rates for the general economy crashed by 25% from 6% to 4.5%!
Worst compensation growth in the real estate which growth HALVED (!) while manufacturing shrank or contracted by 3.4%!
This Gross Revenue Index is part of the Quarterly Economic Indices constructed from government surveys.
Yet the above statistics has significant uncharitable revelations
-The manufacturing sector in terms of revenue, employment and compensation growth has been significantly down.
-While revenue growth in the real estate industry has moderated, employment and compensation growth rates virtually HALVED!
-The trade sector rebounded strongly on revenues. But ironically, the vibrant revenue growth has had tepid support in terms of employment growth. Perhaps growth may have emanated from the supply side or via new stores or store expansions which partly offset those closing retail outlets.
-General employment and compensation growth has likewise been in a decline in 1Q!
-By revenues, like a centripetal force, bubble industries have been absorbing the gist of economic activities as seen via the relative outperformance of growth rates (hence the corralling of resource allocations). Or, the 1Q 2016 Gross Revenue Index statistics has only accentuated on the Philippine economic paradigm of the race to build supply! Or that the outgrowth of the bubble sectors has translated to a magnified concentration of risks!
In short, if OFW remittances, job and income growth has been insufficient in the financing of demand then demand must have come from credit growth!
Moreover the present race to build supply model has been funded through the banking system via the BSP’s trickle down negative real rates policies. Apparently, the BSP’s silent stimulus in 4Q 2015 to 1Q 2016 has powered a big rally on the growth rates of the banking system’s loan portfolio to the bubble sectors.
Consumer loans continue to surge in the 2Q 2016.
Epic Climax: Record Greed in Market Internals
Again, violent price pumping in the face of a resurgent credit growth even as economic activities have been moderating has only been underscoring system’s deepening maladjustment process.
Another sign of the grand denouement of the terminal blowoff manic stage has been that of the dominance of GREED in the context market internals and sentiment
The current meltup conditions reveals of a shocking 6 month old reckless churning, or frantic yield scalping mode!
Even as the PSEi remains at a spitting distance, or still away by 1.25%, from April 2015 highs (as of Friday), the streak of vertical BW-SSO price pumps, as expressed through fresh record high charts of 10 PSEi issues, has likewise been supported by the record breaking market internal activities.
Greed has been ventilated via the sustained record breaking daily trades (average) and daily traded issues (average) which have now massively surpassed the April 2015 levels!
Such has also exhibited on the furious pumping activities that have spread into many non PSEi issues.
Also this demonstrates that what used to be illiquid issues have transformed into liquid stocks due to severe price inflation!
Interestingly, the thrust towards 8,100 has emerged with deceleration in peso volume. This week, peso volume declined by 8% to Php 9 billion from last week’s Php 9.786 billion.
Present levels of peso volume seem to be on a downdrift since the late May early June surge.
Curiously, this week’s peso volume seems to have matched the peso volume during week ending April 10 2015 or when the PSEi climaxed at 8,127.48. Volume then was at Php 9.04 billion.
Yet slowing volume translates to reduced firepower by the bulls.
Epic Climax: Technical Indicators Have Converged
Even the PSEi’s charts have been evincing of developing severe overbought or GREED conditions that heralds a climax.
Many indicators have now converged—the RSI (top), the MACD (bottom), the record gap between 50 and 200 day moving day averages (red up and down arrows) and the rising wedge formation—to reveal of a seeming synchronized astronomic manic-euphoric paroxysm.
And in the past, such overbought conditions led to a cyclical streak of profit taking sessions.
But of course, overbought can remain overbought for as long as the bid sentiment is sustained or supported.
Yet for now, charts are of little relevance to crowd psychology and to the purposive organized manipulative actions (marking the close and afternoon delight pumps) intended to get back the headline index to the 2015 highs.
The latter most especially applies to the establishment, whom have been plagued by PSTD (Post Stress Traumatic Disorder). Fearing the return of a crash (which occurred last year), each account of weakness has impelled such entities to frantically pump and manipulate prices as if to prevent bearish forces from gathering momentum. Hence, entwined with the entitlement outlook, the vertical BW-SSO price ramp!
However, eventually such entities will run out of resources, or sellers will eventually appear at certain price levels and or the collusion to manipulate prices will spur a breaking of ranks among the present accomplices.
Nonetheless, market internals and technical indicators have chimed to reinforce the milestone price-fundamental imbalances founded on BW-SSO vertical price pumping and from decaying fundamentals.
Again for now, markets, as an old saw goes, can remain irrational longer than one can remain solvent.
How much more in today’s global financial markets today marked by the $13 trillion of negative yielding bonds! But this does not mean that just because market turmoil has been elusive, or financial markets have remained placid, it will always stay this way. The absence of evidence is not the same as the evidence of absence. All actions have consequences. And the distribution of consequences will be intertemporal. Destroying people’s time preferences or turning upside down “time value of money” or pushing PERs or valuations to cosmic levels may have little side effects today, but certainly not in the future. Recency bias will NOT extinguish the basic function of economics and finances.
Epic Climax: PSE Jinx Redux
And as I have been pointing out, GREED can now be seen even in the PSE’s official announcements.
And it does seem ironic that for the first time ever, officials of the PSE have been celebrating thereturn to 8,000…instead of a new record!
This July alone, the PSE issued three “8,000 equals G-R-O-W-T-H” press release canards, see here,here and here.
This reveals how PSE officials have become increasingly so so so very much desperate to see a comeback of the Phisix to record highs.
Again remember that PSE officials used to revel only when the PSEi had been at RECORD levels. Such was the case in 2013 and 2015. Today, the PSE have been already partying even when the PSEi has yet to break the old April 2015 records!
For PSE officials, prices and fundamentals appear to have essentially little or no relevance to each other. They only make such superficial connection in the exclusive condition where prices of the PSEi are at a record or near record levels. Or, a paradoxical presumption of causal connection to fundamentals occurs only when PSEi prices are at record or near record prices!
Such bifurcation can be seen in their censorship of recent facts.
Despite the reiterative bromides about “record stocks equal G-R-O-W-T-H”, their press release section had been peculiarly reticent over the PSE’s performance in 2Q and 3Q of 2015.
Worst, it’s been three weeks since the PSE has adjusted for the annual 2015 earnings, yet the deafening silence over 2015’s G-R-O-W-T-H conditions at their press release section!
Talk about disinformation using select perception!
Yet every time PSE officials holler or bawl over at previously new records, interestingly a crash happens! (again 2013 and 2015 as examples)
And such sordid track record, when applied today simply means that the PSE’s reawakened worship of the bubbles, as articulated through the advertisements of “8,000 equals G-R-O-W-T-H” founded on delusion/fabrication/
I call this the PSE’s jinx.
Sadly, PSE officials never seem to learn.
Yet the PSE officials’ excitement over 8,000 virtually resonates on the mainstream’s sentiment. Most significantly, such sentiment has already been reflected on the vertiginous BW-SSO price escalation momentum seen in a third of issues comprising the PSEi 30.
And mainstream’s rationalization of the stock market bubble serves as another evidence of the convergence of forces depicting the epic terminal phase of the present mania.
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