The PhiSYx registered its largest-ever mark-the-close ‘rescue’ pump today, September 27, 2018
But first this.
On August 13, 2014, in a speech before the Bloomberg Foreign Exchange Forum, the erstwhile BSP Governor Amando Tetangco Jr. warned against chasing the market: (bold added)
It is a fundamental truth - in everything we face, there are two circles of concern that confront us: 1) those concerns that are within your control, and 2) those outside of your control. Quite often, the latter circle is larger than the former. As market practitioners, you need to be mindful of these two circles. What can you control? Certainly your risk appetite. Controlling this when greed gets the better of you is very difficult. So in a period of low volatility such as what we have been experiencing, practice the discipline of setting limits.
This discipline will not only help you to avoid the pitfalls of "chasing the market". More importantly, this discipline will help you take advantage of the obvious opportunities, as well as unearth those that are hidden. Discipline set during the sober low volatility period will guide you when you are confronted with factors that are not within your control, especially during a frenzied high volatility period.
The headline index closed at 6,986.24
A month later or on September 23, 2014, in a speech before the ACI Phils-FMAP-IHAP-MART-TOAP Joint General Assembly, Mr. Tetangco repeated his warning:
To help manage the financial stability risks of the over-all low interest rate environment. While we have not seen broad-based asset mis-valuations, the BSP remains cognizant that keeping rates low for too long could result in mis-appreciation of risks in certain segments of the market, including the real estate sector and the stock market as markets search for yield. So far, coupled with changes in reportorial requirements and macroprudential measures, the monetary policy actions appear to have achieved some success in moderating the buildup of "irrational exuberance" in certain market segments.;
The PhiSYx was traded last at 7,271.64.
The BSP chief admonished the public when the national benchmark was testing the May 2013 high of 7,392.2.
It was also during the late 3Q of 2014 were the massive mark-the-close pumping began.
Special interest groups ignored the cautionary guidance from the BSP chief.
Helped by the frequent use of such intensified pumps, the benchmark was “forced” to hit a milestone of 9,058.62 on January 29, 2018
Echoing Mr. Tetangco on the stock market in 2014 was the recent Financial Stability Report published by Financial Stability Coordinating Council (FSCC)
Stock market price-to-earnings ratios, on the other hand, have been persistently well past their textbook warning thresholds but there seems no evidence that investors believe the stock market to be overvalued. Whether this is a Minsky moment waiting to happen is certainly an important thought but the absence of clear-cut valuation measures for the market as a whole leaves the issue without an empirical resolution. (P.46)
The FSCC is chaired by the incumbent BSP Nestor Espenilla Jr.
The PhiSYx is presently at the level where Mr. Tetangco began his irrational exuberance spiel.
And by attributing the Minsky cycle, the FSR implies that the PhiSYx is an accident waiting to happen, once sentiment changes.
Why shouldn’t it be?
Today’s 1.16% mark-the-close should hold the crown as the largest since such operations began in the 3Q of 2014! And the two-day rescue pumps (totaling 1.96%) would also account for a record!
As noted before, six issues have skewed the distribution of the market cap weights of the headline index. Today’s actions only reinforced this. The biggest beneficiaries have once again been the SY group of companies. Also favored were two of the Ayala firms
73.94% of SM’s gains today were from mark-the-close! SMPH which was in the red suddenly ended up 1.09% from an end session 1.78% pump!
For issues that closed in the red, 95.03% of MBT's loss was erased suddenly at day's end. Meralco’s deficit was mitigated by a 78% pump.
End session trades of many of these issues showed the same brokers. Even the sequence of trades had uncannily been similar. Such exude clues to the likely collusion of parties in the rigging of closing prices.
And since there is no free lunch, engineered pumps have brought about in a significant part “Stock market price-to-earnings ratios, on the other hand, have been persistently well past their textbook warning thresholds”, “mis-appreciation of risks” and the pitfalls of "chasing the market".
That’s because prices aren’t being allowed to clear or to reflect on the balance of demand and supply of capital.
Of course, this is interesting because the BSP has just raised interest rates by 50 points today. Policy rates have been raised by 150 bps in four meetings in the past 5 months.
However, the 150 bps hike has reached 2012 levels and still is a low historically
Policy rates remain significantly below the average. Interest Rate, notes the tradingeconomics.com, averaged 7.92 percent from 1985 until 2018, reaching an all time high of 31 percent in January of 1985 and a record low of 3 percent in June of 2016.
So if there should be a mean reversion, interest rates will likely zoom past the average of 7.92%.
And as rates continue to rise, the FSCC’s 3Rs or repricing, refinancing and repayment risks should only escalate:
What is not debatable is that repricing, refinancing and repayment risks (3Rs) are escalated versus last year and this could result in systemic risk if not properly addressed in a timely manner (p.22)
Policy rates were raised by the BSP not just to appease the market, but because it uses the nuclear option to provide liquidity to the system
Besides, from the perspective of the consensus, with policy rates still below the GDP, the easy money environs remain.
However, in witnessing the fall in bank assets and money supply, money must be getting tighter. And this seems to have begun affecting some of the government’s reports on prices and even BIR’s revenues
Later today, the BSP will publish August’s banking loans and domestic liquidity.
The rigged market is about to meet Minsky.
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