"Never — and I mean never — blindly trust the statistics you read [or hear] about the economy." — Don Luskin, American Columnist
Plunge Protection Team Rescues Index with December 20’s HISTORIC Magical Pumping! BSP’s Consumer Survey versus the CPI
Conflicting Statistics: The BSP’s Consumer Survey versus the CPI and Others
How should statistics be construed?
According to the latest consumer survey by the BSP, “The country’s consumer outlook weakened but remained optimistic for Q4 2019 as the overall confidence index (CI)2 decreased to 1.3 percent from 4.6 percent in Q3 2019. The lower but still positive CI was reflective of the combined decline in the percentage of optimists and increase in the percentage of pessimists compared to the previous quarter's survey results. According to respondents, their less favorable outlook for the current quarter was due to the following concerns: (a) higher prices of commodities,3 (b) low or no increase in salary/income, (c) increase in household expenses,4 and (d) high unemployment rate.” (bold mine)
Haven’t we been told that the CPI of October hit a 42-month low of .8%, which bounced back to 1.3% in November? And in perspective, 4Q 2019’s CPI would likely be around 1% compared to the 3Q 2018’s 1.7% and 4Q of last year’s 5.9%?
Yet why the increased pessimism founded on “higher prices of commodities”? The BSP justified that “A possible reason for the increase in the price of meat is due to the presence of African Swine Fever in the country”. Really? From their data, meat has only 6.25% of the CPI basket weight, and meat CPI clocked in 2.7% in October and 3.2% in November. Why should the Filipino consumers become so sensitive to minor increases in prices of meat?
Haven’t we been preached at that like surging prices of galunggong, Filipinos should seek substitutes? And with deflation in the food CPI of -1.3% in October and -.2% in November, is the BSP suggesting that consumers have become so dense as not consider the option of substitution?
And if QUANTITY rather than prices had been the critical factor that led to the “increase in household expenses”, why should people become more pessimistic? Or have households borrowed more to fund increases?
In its footnote, the BSP alludes this to “the electricity rate in October will be higher by P0.0448 per kWh to P9.0862/kWh”. Really? How can this be when the BSP’s Electricity, Gas, and Other Fuels, with a 4.2% CPI weight, DEFLATED by 4.2% in October and 2.8% in November? The CPI data indicates that higher Meralco prices, covering only the Metropolis, had been offset clearly by DEFLATION in NATIONWIDE changes of energy prices, as well as, lower prices of OTHER utilities.
The BSP’s data stunningly contradicts their rationalizations!
And why should “low or no increase in salary/income” or “high unemployment” be a factor in changing the public’s outlook?
Haven’t we been told that the Philippines have been oozing with jobs, where higher wages and income should be a corollary to a booming economy’s greater demand and tighter competition for labor?
As a side note, the National Government declared that “Jobs hit a 14-month high!” reported the Inquirer, however a month ago, a private sector survey reported increasing joblessness in the 3Q!
Haven’t other surveys been saying that self-rated poverty has been falling, and that lives of Filipinos have supposedly been improving?
Since the CPI, labor, income, employment, the national accounts are statistics derived from surveys, which of these data are truly representative of actual conditions?
So which is which?
Has such statistics been about a forthright desire to present reality or about propaganda?
Eurodollar advocate Alhambra Partner’s Jeffrey Sniders says it best: “Statistics in all its forms has become “more real” because math is believed to be objective science free from the entanglements of biases and assumptions. It is a false assumption to begin with, revealed quite easily in just these kinds of circumstances.”
Index Rescue: Philippine Plunge Protection Team’s Record December 20 Pump!
If a tactical approach to enhance the political capital of the administration has been to massage economic statistics, why not reinforce this perception by manipulating the stock market index?
After hitting a session low, by lunch break on December 20th, Bloomberg suddenly tweeted an article highlighting the intraday plight of the domestic stocks.
The tweet seemingly pleaded for a rescue!
And the domestic Plunge Protection Team did arrive!
When trading recession resumed, operation “Afternoon Delight” came into motion with pumps initiated on and directed towards, you guessed it, SM Investments!
Later, the bidding binges spread through most of the top 10 issues. Nonetheless, the forceful and relentless pumping failed to eradicate the intraday losses. At the transition towards the intervention phase, the PSYEi was still down by .69%.
But the magical intercession came!
At the reopening of the runoff, the headline index rocketed and closed by an astounding 1.56%!!! The index had been inflated by a staggering 171.14 points or 2.25% in the intervention phase, reversing the .69% deficit to a 1.56% surge!
December 20’s stunning marking-the-close trumps the previous record of 1.4% on May 8th, and the 1.34% on August 13th, all occurring in 2019. The escalating scale and frequency of the facelifting of the index show of the mounting degree of desperation to kick the proverbial can down the road!
An additional volume of about Php 5 billion financed such massive coordinated and synchronized actions, which swelled overall board volume to Php 11.204 billion. To push the index higher requires a surge in volume, which came in full display last Friday.
In perspective, the 2.4% roundtrip—totaling 4.8%—plus the day’s 2.25% gains amounted to a whopping 7.05% in volatility! In spite of this surge, decliners led advancers 78 to 92, with 55 firms unchanged.
Foreigners were net sellers, offloading some Php 1.271 billion. The five largest free-float market cap issues, namely, SM, SMPH, ALI, BDO, and JGS, registered net selling.
If foreigners sold, then such syndicated marking the close actions have likely been conducted by a consortium of large institutions, perhaps, desperate to boost balance sheet gains for the year.
The most significant pumps with over 3% occurred in Metrobank (4.13%), Ayala Land (3.95%), SM Prime (3.63%), BPI (3.76%), and GTCAP (3.33%). But because of the free-float weight methodology, advances of the biggest market cap issues further widened its gap against the lesser issues.
Has it been known that SM’s market share of 15.88%, as of December 20th, the second-highest on record after December 5th, has a marginal deficit of only 66 bps relative to the cumulative market cap share of last 15 of 16.54%???? Or, SM’s market cap nearly equals the last 15 issues!
Has it been known that the returns of the top 5 largest market cap issues have contributed most to this year’s gains 4.11%? On average, total returns have been negative .53%.
Ergo, the inexorable pumps on the heaviest market cap issues continue to skew valuations of the index through the sustained increases in their price multiples!
Why employ such an aggressive and flagrant index rigging? Because of the recent technical breakdown of its price trend?
2019 produced three major trend lines, all of which have failed. And to seemingly resuscitate the October trend line, which also broke down last week, Friday’s unparalleled mark-the-close had, perhaps, been undertaken.
Importantly, we have been told that December has been a friendly month for the stocks.
As an aside, please don’t confuse the index, which exhibits the price actions of a few firms, with the general market.
While it may be true that December has favored positive returns, no December is the same.
For instance, the December of 2018 had higher CPI and policy rates, tightening yield curve, weak peso, and the headline index recovering from the mid-year selloff. Such conditions are almost the opposite of 2019, except for the shared brazen pumps, which in 2019 has only been intensifying. The PhiSYx was likewise forcibly pushed higher on the 19th of December in 2018. Coincidence or planned?
By the way, the trend of December’s average return has been falling. The return from 1985 to 2018 was 3.93%, it was 1.74% from 2000 to 2018, and has further shrunk to 1.36% from 2009 to 2018. Have we been told the reason behind this?
Moreover, there had been three accounts where December posted negative returns in the last 11-years.
The unique underlying circumstances would render any simplification of the probability analysis of the seasonal effects fallacious.
As the great Ludwig von Mises explained, “Case probability means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing. Case probability has nothing in common with class probability but the incompleteness of our knowledge. In every other regard the two are entirely different.”
So whether the escalating manipulation of the stock market index will continue to add to December’s returns or not, will be hardly known by anyone else, but by those employing such underhanded means.
So instead of profit and loss driving spontaneous market actions, the index stands on an artificial pedestal.
Aside from the likely boost to stock market holdings of financial institutions, the recent collapse of the share prices of water concessionaires and their owners have prompted political authorities to allay fears that threats of a takeover “would negatively impact on investor confidence.”
So could these magnificently engineered pumpings have been part of the campaign to buttress the popularity ratings, which reportedly soared in December?
Nevertheless, such index rigging would compound on the impairment of the market's pricing system through the exacerbation of mispricing, the dysfunctionality of price discovery, and the deformation of price signals of the titles of capital goods that lead to the escalation of malinvestments, and eventually, the rebalancing of the economy through a disorderly market clearing process.
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