Yes, but this is actually a good thing. It has been raining money on fools for too long. Some bankruptcies need to happen. Also, all the Covid stay-at-home stuff has tricked people into thinking that you don’t actually need to work hard. Rude awakening inbound!—Elon Musk on the rising risk of a Recession
In this issue
Q1 2022 Consumer Spending Boom? Revenue Performances of PSE Listed Food and Retail Diverges from GDP!
I. Last Week’s Missing Banking Charts
II. Economic Dissonance: With Q1 2022 GDP at a Torrid 8.3%, Why the Sustained Increase in Self-Rated Poverty???
III. Q1 GDP versus Q1 Revenues of PSE Firms
IV. Record Food and Beverage Q1 GDP? Struggling Revenue Growth of JFC, McDonald’s, Pizza, Maxs and Fruit!
V. Q1 2022 Retail GDP Boom? Except Wilcon, Divergent Revenues of the Top Seven Retail Outlets (SM, PGOLD, RRHI and more)
VI. Increasing Share of Top 8 Revenues to Retail GDP Means Mounting Concentration Risks
Q1 2022 Consumer Spending Boom? Revenue Performances of PSE Listed Food and Retail Diverges from GDP!
I. Last Week’s Missing Banking Charts
Missing Chart of Last week/Figure 1
My Bad. This set of charts was supposed to represent chart #3 in last week’s discourse on the Bond Vigilantes. In my rush, in its stead is the duplication of chart #2. My apologies.
Treasury or Bond Vigilantes Return with a Vengeance, Compels the BSP to Implement its First Rate Hike! May 22, 2022
Once again, here is the BSP on HTMs:"From a market valuation standpoint, the higher yields also mean that holders of tradable securities face mark-to-market losses. Shifting tradeable assets into held-to-maturity may address valuation risks but it does come at the price of locking-in liquidity."
BSP, Statement on the State of Financial Stability, June 04, 2021
Nonetheless, here is a short recap of the charts.
The record-high HTMs exhibit the likely extent of investment losses concealed by the bank system through the accounting charade.
Yet, risks can only be transferred, not diminished.
Because of the substantial shift of operations towards investments, surging rates have cost banks enormous deficits, which in March signified the largest since at least 2008! (based on BSP data)
The key takeaways: Liquidity drain from critical factors such as the published and unpublished bad loans (NPLs), record HTMs and other investment losses continue to plague the banking system, despite the historic bailout measures implemented by the BSP.
To move on.
II. Economic Dissonance: With Q1 2022 GDP at a Torrid 8.3%, Why the Sustained Increase in Self-Rated Poverty???
CNN, May 18: A national survey on self-rated poverty showed that 43%, or around 10.9 million Filipino families, considered themselves "poor." The number of self-rated poor families rose in April from 10.7 million in December 2021, according to the Social Weather Stations (SWS) survey released Wednesday. Of the estimated 10.9 million self-rated poor families in April, 1.5 million were "newly poor," 1.1 million were "usually poor," and 8.2 million were "always poor."
Authorities reported that the statistical economy has been on fire, soaring by 8.3% in Q1 2022.
Do you not see the inconsistencies here?
At this growth rate, why should a significant number of people, at least two-fifths of the aggregate households, think that they are in a state of "poverty"?
Instead of decreasing, why have the incidences of self-rated poverty increased?
Consumer spending supposedly boomed, most probably helped by the massive surge in election spending, yet, why has such paradoxically downgraded the perception of the quality of life than improved it?
Was the GDP a product of redistribution that came at the expense of the general public?
Who benefited from the GDP, the political institutions, and firms owned by the elite?
To what scale have the price pressures or street inflation contributed to this outlook? How about employment issues?
The SWS survey does not quantify them because it only measures sentiment.
The more important question could be: which of the two survey-based statistics represents a more defined viewpoint of reality?
III. Q1 GDP versus Q1 Revenues of PSE Firms
The publications of the quarterly reports of listed firms at the PSE provide an actual benchmark to compare with the GDP.
The establishment forecasts a return of the GDP to pre-pandemic levels in 2022.
Before that happens, let us see if the topline dynamics of listed firms support this idea or validate the Q1 GDP.
Put differently, is the GDP consistent with financial performance, particularly the revenues of the firms of the elites?
Some notes.
First, the implicit price index or the deflator differentiates the shape and the path of the real and nominal GDP (priced in millions)
Second, while the nominal GDP in Q4 2021 surged to a record eclipsing the previous high in Q4 2019, the headline GDP was unable to attain the same feat. Both pulled back to Q4 2019 levels in Q1 2022.
Third, in Q1 2022, nominal Household GDP also reached a milepost but retreated to the record highs of Q4 2019. Meanwhile, real household GDP exhibits a double top as momentum faded in Q1 2022.
The GDP was structured to provide the impression that the households were the supposed principal drivers of the economy.
To corroborate the alleged strength of household spending, the next deck of charts puts into the perspective the relative performance of the food and retail GDP, again with revenues of listed PSE firms accordingly.
Figure 2
IV. Record Food and Beverage Q1 GDP? Struggling Revenue Growth of JFC, McDonald’s, Pizza, Maxs and Fruit!
Nominal Food and Beverage GDP grew 24% and 21% in Q1 2022. However, Food NGDP blew past the Q4 2019 level to set a new record in 2022. It was 4.6% higher than the previous high. In the meantime, real Food GDP was still 11.71% short of the Q4 2019 record.
Did the food titans party as well in Q1 2022?
Figure 3
The short answer is NO!
So, how valid is the perspective that food NGDP reached a record high in Q1 2022 when revenues of listed firms continue to struggle to regain lost footing from 2019 and have only exhibited growth because of the change in quarantine status?
Well, t
The other way to look at this is that political reasons dictate the sprucing up of GDP.
V. Q1 2022 Retail GDP Boom? Except Wilcon, Divergent Revenues of the Top Seven Retail Outlets (SM, PGOLD, RRHI and more)
Let us now move to the retail GDP and retail sector.
Since the designated drivers of the expenditure side of the Q1 2022 GDP were the households, they had to buy it from someone. And so part of the obverse side of household spending was in the retail sector (excludes wholesale and sales/repair of motorcycles), which comprises part of the industry side of the GDP.
Figure 4
The retail nominal and real GDP blasted higher by 11.9% and 8.2% in Q1 2022.
Like Food, both nominal and real GDP etched new records in 2H 2021 before backing slightly off in Q1 2022.
Sales growth of SM merchandise expanded 11.94% YoY in Q1 2022. But after a sharp bounce in Q4, sales levels retreated to Q1 2019 levels. It was down by 30% from the record Q4 2019. However, the spike in Q4 2021 was not enough to power up their sales level to even beat Q4 2018!
Sales growth of supermarket giant Puregold increased by only 2.06% YoY in Q1 2022. Nevertheless, the level of sales etched a new high in Q4 2021. But it backpedaled in Q1 2022 to almost the same degree a year ago.
While sales growth of multi-format Robinsons Retail jumped 10.7% YoY in Q1 2022, the level of sales dropped back to 2019-2020. And there was no record high in their sales level in 2021.
Figure 5
High-end retail the SSI Group posted a sales deficit of 9.4% YoY in Q1 2021! While sales level in Q4 pivoted higher, it remained 18% below the record two years ago. In the meantime, Q1 2022 regressed to below 2017 levels!
Sales growth of the biggest convenience store chain, Philippine Seven Corp, soared 21.6% YoY in Q1 2022. But even with little difference with Q4 performance, the sales level remains off by 18% from the record highs in Q4 2019.
Sales growth of supermarket and department store chain Metro Retail expanded by 23.08% YoY. However, after a spike in Q4 2021, its sales retraced to 2020 levels and remain 26% away from the record Q4 2019 highs.
Housing and construction retail chain, ALLHome, was another firm that posted a 9.83% deficit in sales YoY. Though sales hit a new high in Q4 2021, it was slightly higher than the Q4 2020 level. Q1 2022 level of sales was partially above Q2 2021.
The only retail firm that seems to fit the PSA’s retail GDP is Wilcon Depot. Aside from the 14.62% YoY sales growth, its sales level has carved a record high in both Q4 2021 and Q1 2022.
So in Q1 2022, two of the eight listed retail firms posted contractions in revenues!
VI. Increasing Share of Top 8 Revenues to Retail GDP Means Mounting Concentration Risks
Figure 6
In aggregate, the eight listed retail experienced a spike in Q4 2021, but unlike the GDP, there was neither a record high attained in Q4 2021 nor in Q1 2022.
The same eight retail firms registered a 10.5% increase YoY.
Meanwhile, revenues as a share of the retail GDP increased to 30.7% in Q1 2022. Such levels have almost been the same as a year ago.
Assuming that the retail GDP is accurate, then the PSA appears to be saying that the non-listed firms delivered the gist of the boom.
But the rebounding share of the top 8 from the nadir of Q3 2021 and its downtrend break seems to suggest otherwise.
Or, the rising share of firms owned and controlled by elites translates to increased market share at the expense of the non-listed retail, composed primarily of SMEs.
In any event, the topline financial performance of the listed PSE firms seems distant from the 8.3% GDP presented by authorities.
Who to believe?
Yet, the more economic exposure by the firms of the elites, the greater the concentration risk.
Finally, unless one believes in economic unicorns, why should we expect a consumer boom when the authorities have and will continue to impose a regime of negative "real" rates or financial repression, redistributing private sector resources and finances to the public sector and the banking system?
And has the rising CPI not been a symptom of such economic misallocation?
Yours in liberty,
The Prudent Investor Newsletters
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