PSEi 30 Q3 and 9M 2025 Performance: Late-Stage Fragility Beneath the Headline Growth

 

The ultimate cause, therefore, of the phenomenon of wave after wave of economic ups and downs is ideological in character. The cycles will not disappear so long as people believe that the rate of interest may be reduced, not through the accumulation of capital, but by banking policy—Ludwig von Mises 

In this issue: 

PSEi 30 Q3 and 9M 2025 Performance: Late-Stage Fragility Beneath the Headline Growth

Part I: Cycles, Business Cycles, and Market Cycles

I.A Why Business Cycles Are Not Natural Phenomena

I.B. Credit Expansion and the Origin of Boom–Bust Cycles

I.C. Late-Cycle Fragility: Headline Resilience, Underlying Stress

I.D. Financial Fragility, Opacity, and the Bezzle

Part II: The Late Cycle in the Philippine Context: Economic and Corporate Activities

II.A.  Macro and Policy Stimulus, An Environment Built to Support Growth

II.B. The GDP Surprise—and Why It Should Not Have Been One

II.C. The PSEi 30 Aggregate: A Disquieting Divergence From GDP, The Energy Trio Distortion

II.D. The 9-Month Scorecard: The Same Story, Amplified

II.E. Cash Drain, Debt Surge, and the Minsky Turn

II.F. Concentration, Money Illusion, and Elite Financialization

II.G. Sectoral Divergences: Real Estate, Retail, Food Services

II.H. Banking Fragility: Wile E. Coyote Finance

Part III: Conclusion: Late-Cycle Fragility Exposed 

PSEi 30 Q3 and 9M 2025 Performance: Late-Stage Fragility Beneath the Headline Growth 

PSEi 30 earnings, leverage, and liquidity strains reveal a late-stage business cycle

Part I: Cycles, Business Cycles, and Market Cycles 

Cycles refer to a series of events that recur in the same order. This concept is most evident in nature: the Earth’s orbit around the sun produces the day–night cycle, while diurnal and seasonal cycles define time itself—days, weeks, months, and years. These natural rhythms shape life cycles, ecological systems, and nearly all activity on the planet.

Figure 1 

Economic activity is no exception. Economies evolve through recurring phases collectively known as the business cycle—periods of expansion, peak, slowdown, and contraction over time. Financial markets or market cycles operate within a related rhythm: accumulation (bottom), mark-up (advance or bull market), distribution (peak), and markdown (decline or bear market). 

I.A Why Business Cycles Are Not Natural Phenomena 

Mainstream economics largely treats business cycles as natural oscillations of aggregate activity. Using leading, coincident, and lagging indicators, it describes how cycles unfold—unfortunately it fails to explain why they occur in the first place: the causality. 

Yet widespread, synchronized business errors do not arise spontaneously in a market economy. Such aggregate misallocation occurs only when firms are influenced by a common external force—namely, inflationary monetary and credit policies imposed from outside the market process. 

I.B. Credit Expansion and the Origin of Boom–Bust Cycles 

As the late great dean of the Austrian School of Economics, Murray N. Rothbard explained, the business cycle is not an inherent feature of a free and unhampered market. It is generated by government-driven bank credit expansion, which artificially suppresses interest rates and induces uneconomic overinvestment—particularly in long-duration capital goods such as machinery, construction, raw materials, and industrial plant. 

As long as monetary and credit expansion continues, these distortions remain masked by the euphoria of the boom. But once credit expansion slows or stops—as it must to avoid runaway inflation—the misallocations become visible. Recession is not the disease; it is the corrective process through which the market liquidates unsound investments, realigns prices, and restores coherence between production, demand, and savings. Recovery begins only once this adjustment is completed. (see reference) 

I.C. Late-Cycle Fragility: Headline Resilience, Underlying Stress 

We have consistently argued that both the Philippine economy and its equity market have been operating in late-cycle territory—or, in market terms already within a bear-phase dynamic. 

The late stage of the business cycle is a paradoxical moment. Expansion still dominates headlines, yet the underlying machinery of growth begins to grind. 

• Profits remain visible, but margins thin.
• Credit is still available, but increasingly costly.
• Policymakers, media and the mainstream speak of resilience, while households and firms quietly absorb tightening liquidity and rising cost pressures. 

This phase is defined less by collapse than by precarious equilibrium.

• Imbalances accumulate as buffers erode.
• Asset prices may remain elevated, but market breadth narrows.
• Large firms mask stress through consolidation, transfers, and concentration strategies, while smaller players begin to falter—the periphery to the core phenomenon.
• Inventories rise, debt-service burdens increase, and policy transmission weakens. 

In such an environment, shocks—whether natural disasters, geopolitical missteps, or financial accidents—carry outsized consequences. 

For listed corporates, late-cycle fragility manifests as earnings resilience built on substitution rather than productivity: one-off gains, margin and cash-flow deterioration, rising leverage, emerging liquidity stress, asset reshuffling, narrow sector leadership, and financial engineering—often accompanied by accounting prestidigitation that substitutes for genuine growth. 

The result is a corporate landscape that appears stable on the surface yet grows increasingly brittle underneath, mirroring the broader macro paradox of headline resilience alongside systemic vulnerability. 

I.D. Financial Fragility, Opacity, and the Bezzle 

Furthermore, this stage of the cycle is often accompanied by what Hyman Minsky described as Ponzi finance, where cash flows are insufficient to service obligations without continual refinancing or asset appreciation. 

This dynamic frequently intersects with Charles Kindleberger’s politics of swindle and fraud, and John Kenneth Galbraith’s concept of the “bezzle”—the accumulation of undiscovered financial misconduct that grows during booms and is revealed only when liquidity tightens. 

Historically, major frauds tend to surface not at the height of optimism, but during the transition from boom to bust. The Enron scandal emerged as the dot-com bubble unraveled; Bernie Madoff’s Ponzi scheme collapsed amid the 2008 Global Financial Crisis; and the COVID-19 downturn exposed widespread abuse of the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program. 

In late-cycle conditions, transparency deteriorates as economic stress rises. Firms, households, and institutions increasingly resort to opacity, accounting maneuvers, and even outright malfeasance—whether to survive, to exploit weakened oversight and abundant credit, or to preserve credit-fueled, status-driven lifestyles that become harder to maintain as conditions tighten. 

These behaviors do not cause the cycle, but they amplify fragility, accelerating the loss of confidence once the credit tide recedes. 

Part II: The Late Cycle in the Philippine Context: Economic and Corporate Activities 

II.A.  Macro and Policy Stimulus, An Environment Built to Support Growth 

Any serious economic analysis must begin with the operating environment that shaped outcomes. 

The Q3 and nine-month period coincided with what should have been the ‘sweet spot’ of monetary and fiscal support. The Bangko Sentral ng Pilipinas (BSP) had already delivered six of its seven policy rate cuts since August 2024, alongside two reserve requirement ratio (RRR) cuts—from 9% to 5% (a cumulative 400 basis points) in September 2024 and March 2025. Deposit insurance coverage was also doubled in March 2025. 

Fiscal deficit also swelled to pandemic levels through Q3 2025. 

II.B. The GDP Surprise—and Why It Should Not Have Been One 

Despite these extraordinary supports, Q3 GDP printed a 4.0% growth rate, shocking the mainstream consensus. The slowdown came as leveraged households retrenched, exacerbated by the contraction in government construction and infrastructure outlays following the ongoing flood-control corruption scandal. (as previously discussed, see reference) 

The result was a classic late-cycle outcome: stimulus saturation met weakening transmission—the law of diminishing returns. 

II.C. The PSEi 30 Aggregate: A Disquieting Divergence From GDP, The Energy Trio Distortion 

Against this backdrop, the PSEi 30’s operating performance exposed a sharp disconnect from headline GDP.

Figure 2

• Q3 nominal GDP growth slowed from 8.6% (2024) to 4.9% (2025)
• PSEi 30 Q3 revenues decelerated more sharply, from 6.8% to 1.9%
• Q3 Net income growth collapsed from 11.6% to just 0.9% (Figure 2, upper window) 

Inflation-adjusted, earnings growth was effectively negative—a stagnation masked only by nominal accounting. 

The most consequential distortion came from the SMC–Meralco–AEV energy triangle, discussed previously. In Q3 2025, this grouping accounted for: 

• 32.2% of total PSEi 30 revenues
• 15.1% of total net income 

Yet even with that concentration, the triangle weighed down aggregate performance. Excluding the trio, PSEi 30 revenues and net income would have grown by 2.4% and 4.7%, respectively. What had boosted results in Q2 became a drag by Q3. 

Notably, Q3 PSEi 30 revenues amounted to ~28% of nominal GDP and ~32% of real GDP—a sufficiently large share that these contrasting numbers should call the 4.0% GDP print into question. 

If the largest listed firms are stagnating, aggregate output growth should have been materially lower. 

II.D. The 9-Month Scorecard: The Same Story, Amplified 

The 9M data amplifies the fragility. 

• PSEi 30 revenue growth: 8.1% (2024) → 2.07% (2025)
• Nominal GDP: 9.3% → 6.55% (Figure 2, lower image)
• PSEi 30 share of NGDP: declined from 27.9% to 26.9% 

This narrowing occurred not as a result of robust GDP, but rather due to a deeper stagnation in corporate activity and a probable overstatement of the GDP estimate. 

The energy trio accounted for 31.2% of nine-month PSEi 30 revenues, yet their aggregate sales contracted by 3.75%, dragging the index’s growth rate down.

Figure 3

Meanwhile, residue effects from prior asset transfers kept nine-month net income growth elevated at 10%, driven by a 39% earnings surge from the trio. (Figure 3, upper chart) 

Ex-trio earnings growth was a far weaker 5.32%. 

This is earnings growth without economic growth—a hallmark of late-cycle accounting inflation that likely also bleeds into GDP measurement. 

II.E. Cash Drain, Debt Surge, and the Minsky Turn 

One of the most revealing features of the nine-month data is liquidity erosion. 

Aggregate PSEi 30 cash balances fell 1.72%, the third consecutive nine-month decline, reaching the lowest level since 2021. (Figure 3, lower diagram) 

In contrast, the energy trio’s cash rose 22.8%, accounting for 36.2% of total cash holdings.

Figure 4

Sixteen of thirty firms recorded cash contractions averaging 11.7%. (Figure 4, upper table) 

At the same time, non-bank PSEi 30 debt rose by Php 603.15 billion—the second-largest nine-month increase since 2020, lifting total debt to a record Php 5.98 trillion 

Even with caveats: (as previously discussed) 

• This debt equals 16.8% of total Philippine financial system assets.
• It represents ~29.7% of nine-month nominal GDP.
• The increase alone accounted for ~75% of nominal GDP growth over the same period. 

Furthermore, the PSEi 30’s cash-to-debt ratio declined to its lowest level since at least 2020, thereby diminishing firms’ financial buffers against potential shocks. (Figure 4, lower visual) 

Worse, not all cash is liquid, and certain firms increasingly reclassify debt into lease liabilities or off-balance-sheet obligations. 

This is textbook Minsky drift: speculative finance sliding into Ponzi structures, with firms plugging liquidity gaps through refinancing rather than genuine cash generation. 

II.F. Concentration, Money Illusion, and Elite Financialization 

Financial and economic concentration has accelerated sharply. 

Six issuers (SMC, AC, SM, LTG, SMPH, JGS) control 55% of non-bank net assets. 

Including the four major banks (BDO, BPI, MBT, CBC), concentration rises to ~75% of total PSEi 30 assets. 

This centralization mirrors the broader financial system, where banks now account for 83.2% of total financial resources, confirming deepening financialization. 

II.G. Sectoral Divergences: Real Estate, Retail, Food Services 

Real Estate: Top 4 developers posted only 1.2% revenue growth in Q3, vs. official GDP prints of +6.8% nominal and +4.7% real. Inflation-adjusted revenues imply contraction. (see previous discussion)

Figure 5

Retail: Top 6 non-construction chains slowed to 3.7% growth—the weakest since Q3 2021. SM Retail stagnated at +0.9% despite new malls. Official retail nGDP (+6.3%) diverged sharply from corporate reality. (Figure 5, topmost graph) 

Food Services: Jollibee, Shakey’s, and Max’s slowed from 9.7% to 3.6%. Jollibee’s domestic sales growth plunged from 10.1% to 4.3%. Official food services GDP barely eased (+8.95%), again overstating resilience. (Figure 5, middle image) 

All this occurred amid store expansion, record consumer credit, and near-full employment—a stark contradiction of the official GDP narrative. 

Yet, cases like Meralco illustrate the money illusion: rising revenues alongside shrinking physical volumes, translating to regulatory-driven profit inflation—a concealed stagflation dynamic rather than real demand growth. (see previous discussion in reference) 

The divergence between PSEi 30 performance and household-spending GDP highlights a growing gap between market realities and official statistics. 

Even within the GDP figures, slowing household-spending growth coincides with rising government expenditure—an indication/symptom of the crowding-out effect. (Figure 5, lowest chart) 

Taken together, these discrepancies suggest inflated official output measures and weakening household consumption despite ongoing stimulus. 

Needless to say, corporate stagnation alongside reported GDP resilience increasingly looks like statistical gaslighting. 

II.H. Banking Fragility: Wile E. Coyote Finance

Figure 6

Banks have become the lifeblood of the economy, taking up an ever-larger share of the national accounts since 2000—a trend that has accelerated even as GDP growth weakens. (Figure 6, upper image) 

The slowing economy is reflected in the PSEi 30’s four major banks: their combined bottom line fell from 5.7% in Q2 to 3.3% in Q3. 

Meanwhile, the banking system’s operating income slid from 12.2% to 7.1%, even as provisions surged 539%. 

The historically tight correlation between GDP and bank operating income (2015–2022) has broken down since the BSP’s unprecedented rescue of the industry. (Figure 6, lower diagram) 

Banks are now running what can only be described as Wile E. Coyote operations: rapidly issuing loans to mask rising delinquencies, while expanding speculative and politically exposed positions (AFS and HTM assets) even as liquidity drains. (see previous discussion, references) 

Once they pull back to preserve balance sheets—restricting credit, reducing speculation, or offloading government securities—the façade of financialization will collapse, bailout or no bailout from the BSP. 

Part III: Conclusion: Late-Cycle Fragility Exposed 

Slowing revenues, weakening consumers, deepening leverage, escalating profit pressures, intensifying liquidity strains, rising opacity, accounting-driven inflation, entrenching concentration, and eroding banking and easy money+ fiscal policy transmissions are not isolated developments. Together, they form a textbook late-cycle configuration. 

The Philippine economy and its corporates illustrate precarious equilibrium. GDP prints still narrate strength, but the PSEi 30 reveals deepening fragility: profits masking stress, cash drained, debt piled, and incentives for malfeasance rising. 

This is the anatomy of late-cycle fragility—headline resilience concealing systemic vulnerability. 

---

Murray N. Rothbard Economic Controversies p. 236-237 2011 Ludwig von Mises Institute, Mises.org 

Prudent Investor Newsletter, Inside the SMC–Meralco–AEV Energy Deal: Asset Transfers That Mask a Systemic Fragility Loop, Substack, November 23, 2025 

Prudent Investor Newsletter, The Philippine Q3 2025 “4.0% GDP Shock” That Wasn’t, Substack, November 16, 2025 

Prudent Investor Newsletter, When Free Lunch Politics Meets Fiscal Reality: Lessons from the DPWH Flood Control Scandal, Substack, September 07, 2025 

Prudent Investor Newsletter, Minsky's Fragility Cycle Meets Wile E. Coyote: The Philippine Banking System’s Velocity Trap, Substack, September 14, 2025

The BSP’s Seventh Rate Cut, the Goldilocks Delusion, and Technocracy in Crisis

 

Economic interventionism is a self-defeating policy. The individual measures that it applies do not achieve the results sought. They bring about a state of affairs, which—from the viewpoint of its advocates themselves—is much more undesirable than the previous state they intended to alter—Ludwig von Mises 

In this issue

The BSP’s Seventh Rate Cut, the Goldilocks Delusion, and Technocracy in Crisis

I. The Goldilocks Delusion: Rate Cuts as Ritual

II. Cui Bono: Government as the Primary Beneficiary

III. Wile E. Coyote Finance: The Race Between Bank Credit Expansion and the NPL Surge

IV. Minsky’s Warning: Fragility Beneath the Easing

V. Concentration and Contagion, The Exclusion of Inclusion: MSMEs and the Elite Credit Divide

VI. A Demand-Driven CPI? BSP’s Quiet Admission: Demand Weakness Behind Low Inflation

VII. Employment at the Edge of Fiction: Volatility, Illusion, and Structural Decay

VIII. The War on Cash and the Politics of Liquidity

IX. The War on Cash Disguised as Corruption Control

X. From Cash Limits to Systemic Liquidity Locks

XI. The Liquidity Containment Playbook and the Architecture of Control

XII. Curve-Shaping and Fiscal Extraction

XIII. When Discretion Becomes Doctrine: From Institutional Venality to Kindleberger’s Signpost

XIV. Conclusion: The Technocrat’s Mirage: Goldilocks Confronts the Knowledge Problem and Goodhart’s Law 

The BSP’s Seventh Rate Cut, the Goldilocks Delusion, and Technocracy in Crisis 

From rate cuts to cash caps: how the BSP’s containment playbook reshapes power and fragility in the Philippine economy

I. The Goldilocks Delusion: Rate Cuts as Ritual 

In delivering its “surprise” seventh rate cut for this August 2024 episode of its easing cycle, the BSP chief justified their decision on four grounds: 

• 1 Outlook for growth has softened in the near term
• 2 Growth was weaker because demand is weaker. This, in turn, is why inflation is low
• 3 Governance concerns on public infrastructure spending have weighed on business sentiment
• 4 “We’re still refining our estimates. We had thought that our Goldilocks policy rate was closer to 5 percent, now it’s closer to 4 percent. So we have to decide where we really are between 5 percent and 4 percent.” 

For a supposedly data-dependent political-monetary institution, the BSP never seems to ask whether rate cuts have delivered the intended results—or why they haven’t. The rate-cut logic rests on a single pillar: the belief that spending alone drives growth. 

In reality, the BSP’s spree of rate and reserve cuts, signaling channels, and relief measures has produced a weaker, more fragile economy.

Figure 1

GDP rates have been declining since at least 2012, alongside the BSP’s ON RRP rates. Yet none of this is explained by media or institutional experts. These ‘signal channeling’ tactics are designed for the public to unquestioningly accept official explanations. (Figure 1, upper chart) 

II. Cui Bono: Government as the Primary Beneficiary 

Second, cui bono—who benefits most from rate cuts? 

The biggest borrower is the government. Its historic deficit spending spree hit an all-time high in 1H 2025, reaching a direct 16.71% share of GDP. This is supported by the second-highest debt level in history—ballooning to Php 17.468 trillion in August 2025—and with it, surging debt servicing costs. (Figure 1, lower window) 

As explained in our early October post: 

• More debt → more servicing → less for everything else
• Crowding out hits both public and private spending
• Revenue gains won’t keep up with servicing
• Inflation and peso depreciation risks climb
• Higher taxes are on the horizon 

The likely effect of headline “governance concerns” and BSP’s liquidity containment measures—via capital and regulatory controls—is a material slowdown in government spending. In an economy increasingly dependent on deficit outlays, this amplifies what the BSP chief calls a “demand slowdown.” 

In truth, the causality runs backward: public spending crowding out and malinvestments cause weak demand. 

III. Wile E. Coyote Finance: The Race Between Bank Credit Expansion and the NPL Surge 

Banks are the second biggest beneficiaries. Yet paradoxically, despite the BSP’s easing cycle, the growth rate of bank lending appears to have hit a wall.

Figure 2

Gross Non-Performing Loans (NPL) surged to a record Php 550 billion up from 5.4% in July to 7.3% in August. (Figure 2, topmost image)

Because lending growth materially slowed from 11% to 9.9% over the same period, the gross NPL ratio rose from 3.4% to 3.5%—the highest since November 2024. This is the Wile E. Coyote moment: credit velocity stalls and NPL gravity takes hold. 

As we noted in September: 

“Needless to say, whether in response to BSP policy or escalating balance sheet stress, banks may begin pulling back on credit—unveiling the Wile E. Coyote moment, where velocity stalls and gravity takes hold.” 

Even BSP’s own data confirms that the past rate cuts have barely permeated average bank lending rates. As of July 2025, these stood at 8.17%—still comparable to levels when BSP rates were at their peak (8.23% in August 2024). The blunting of policy transmission reveals deep internal imbalances. (Figure 2, middle graph) 

Production loans (9.8%) signaled the slowdown in lending, while consumer loans (23.4%) continued to sizzle in August. The share of consumer loans reached a historic 15.5% (excluding real estate loans). (Figure 2, lowest visual) 

IV. Minsky’s Warning: Fragility Beneath the Easing 

The BSP’s admission that the economy has softened translates to likely more NPLs and an accelerating cycle of loan refinancing. Whether on the consumer or supply side, this incentivizes rate cuts to delay a reckoning 

From Hyman Minsky’s Financial Instability Hypothesis, this deepens the drift toward Ponzi finance: insufficient cash flows from operations prompt recycling of loans and asset sales to fund mounting liabilities. (see Reference)

Figure 3

As major borrowers, lower rates also benefit banks’ own borrowing sprees. While banks trimmed their August bond and bill issuances (-0.79% YoY, -3.7% MoM, share down from 6.52% to 6.3%), both growth rates and shares remain on an uptrend. (Figure 3, topmost graph) 

The slowdown in bank borrowing stems from drawdowns from BSP accounts—justified by recent reserve rate ratio (RRR) cuts. BSP’s MAS reported a Php 242 billion bounce in liabilities to Other Depository Corporations (ODC) in August, reaching Php 898.99 billion. (Figure 3, middle diagram) 

Ultimately, the seventh rate cut—deepening the easing cycle—is designed to keep credit velocity ahead of the NPL surge, hoping to stall the reckoning or spark productivity-led credit expansion. Growth theater masks the real dynamics. 

Rate cuts today are less about the economy and more about survival management within the financial system. 

V. Concentration and Contagion, The Exclusion of Inclusion: MSMEs and the Elite Credit Divide 

MSME lending—the most vital segment—continues to wane. Its share of total bank lending fell to a paltry 4.6% in Q2, the lowest since 2009. Ironically, MSME lending even requires a mandate. BSP easing has little impact here. (Figure 3, lowest visual) 

Some borrowers engage in wholesale lending or microfinancing—borrowing from banks to relend to SMEs. But if average bank lending rates haven’t come down, why would this segment benefit? 

Informal lenders, who fill the gap left by banks, absorb this risk—keeping rates sticky, as in the case of 5-6 lending. 

If lending to MSMEs remains negligible, who are the real beneficiaries of bank credit?

The answer: elite-owned, politically connected conglomerates.

Figure 4

In 1H 2025, borrowings of the 26 non-financial PSEi members reached a record Php 5.95 trillion—up Php 423.2 billion YoY, or 7.7%. That’s about 16.92% of total financial resources (TFR) as of June 2025. Bills Payable of the PSEi 30’s 4 banks jumped 64.55% YoY to P 859.7 billion. (Figure 4, topmost graph) 

This concentration is reflected in total financial resources/assets: Philippine banks, especially universal-commercial banks, hold 82.7% and 77.1% of total assets respectively as of July. 

Mounting systemic fragility is being masked by deepening concentration. A credit blowup in one major sector or ‘too big to fail’ player could ripple through the financial system, capital markets, interest rate channel, the USD–PHP exchange rate—and ultimately, GDP. 

The structure of privilege and fragility is now one and the same.

VI. A Demand-Driven CPI? BSP’s Quiet Admission: Demand Weakness Behind Low Inflation 

The BSP chief even admitted "demand is weaker. This, in turn, is why inflation is low."

Contrastingly, when authorities present their CPI data, the penchant is to frame inflation as a supply-side dynamic. Yet in our humble opinion, this marks the first time that the BSP confesses to a demand-driven CPI. 

September CPI rose for the second consecutive month—from 1.5% to 1.7%. If the ‘governance issues’ have exacerbated the demand slowdown, why has CPI risen? Authorities pointed to higher transport and vegetable prices as the culprit. 

Yet core CPI slowed from 2.7% in August to 2.6% in September, suggesting that the lagged effects of earlier easy money have translated to its recent rise. 

But that may be about to change. 

The drop in core CPI to 2.6% YoY was underscored by its month-on-month (MoM) movement, as well as the headline CPI’s MoM, both of which were flat in September. Historically, a plunge in MoM tends to signal interim peaks in CPI. (Figure 4, middle and lowest diagrams) 

So, while the unfolding data suggest that public spending may slow and bank lending continues to decelerate, “demand is weaker” would likely mean not only a softer GDP print but an interim “top” in CPI. 

If inflation reflects weak demand, labor data should show the same — yet the opposite is being claimed 

VII. Employment at the Edge of Fiction: Volatility, Illusion, and Structural Decay 

Authorities also produced another remarkable claim—on jobs.

Figure 5

They say employment rates significantly rebounded from 94.67% in July to 96.1% in August, even as the August–September CPI rebound supposedly showed that “demand is weaker.” This rebound was supported by a sudden surge in labor force participation—from 60.7% in July to 65.06% in August. (Figure 5, topmost and middle charts) 

The PSA’s employment data defies structural logic. Labor swings like stocks despite rigid labor laws and weak job mobility. The data also suggest that the wide vacillation in jobs indicates abrupt shifts between searching for work and refraining from doing so—as reflected in the steep changes in labor force participation. 

Furthermore, construction jobs flourished in August even amid flood-control probes, reflecting either delayed fiscal drag—or inflated data, to project immunity of labor markets from governance scandals. (Figure 5, lowest graph) 

Yet high employment masks poor-quality, low-literacy work—mostly in MSMEs—which explains elevated self-rated poverty and hunger rates. 

Additionally, both employment and labor force data have turned ominous: a rounding top in employment rates, while labor force participation also trends downward. 

Despite tariff woes, the slowdown in manufacturing jobs remains moderate. 

Nonetheless, beneath this façade, record consumer credit and stagnant wages reveal a highly leveraged, increasingly credit-dependent household sector. 

Labor narrative inflation—the embellishment of job metrics—would only exacerbate depressed conditions during the next downturn, leading to sharper unemployment. 

When investors interpret inaccurate data as fact, they allocate resources erroneously. The resulting imbalances won’t just show up in earnings losses—they’ll manifest as outright capital consumption. 

And while public spending may be disrupted, authorities can always divert “budget” caught in controversies to other areas. 

That said, jobs decay could rupture the banks propping up this high-employment illusion. 

VIII. The War on Cash and the Politics of Liquidity 

This week puts into the spotlight two developments which are likely inimical to the banking system, the economy and civil liberties. 

This Philstar article points to the banking system’s implementation of the BSP’s Php 500,000 withdrawal cap, which took effect in October. 

We earlier flagged seven potential risks from the BSP’s withdrawal limit: financial gridlock that inhibits the economy; capital controls that permeate into trade; indirect rescue of the banking system at the expense of the economy; possible confidence erosion in banks—alongside CMEPA; tighter credit conditions; rising risk premiums and capital flight; and, finally, the warning of historical precedent. (see reference) 

For instance, we wrote, "these sweeping limits target an errant minority while penalizing the wider economy. Payroll financing for firms with dozens of employees, capital expenditures, and cash-intensive investments and many more aspects of commerce all depend on such flows." 

The Philstar article noted, "Several social media users, particularly small business owners, expressed frustration over the stricter requirements and said that the P500,000 daily cash limit could disrupt operations and delay payments to suppliers."

Sentiment is yet to diffuse into economic numbers, but our underlying methodological individualist deductive reasoning is on the right track. 

IX. The War on Cash Disguised as Corruption Control

One of the critical elements in the BSP withdrawal cap is its requirement that the public use ‘traceable channels.’

The “traceable channels” clause reveals the BSP’s dual intent. 

On media, it’s about anti–money laundering and transaction transparency. In practice, it forces liquidity to remain inside the banking perimeter—deposits, e-wallets, and interbank transfers that cannot exit as cash. 

Cash, the last bastion of transactional privacy and immediacy, is being sidelined. This is not a war on crime; it’s a war on cash. 

The effect is to silo money within the formal system, preventing it from circulating freely across the real economy.

Figure 6

In August, cash-to-deposit at 9.84% remained adrift near all-time lows, while the liquid-asset-to-deposit ratio at 47.72% hit 2020 pandemic lows—both trending downward since 2013. (Figure 6, topmost pane) 

X. From Cash Limits to Systemic Liquidity Locks 

What looks like a compliance reform is, in truth, a liquidity containment measure. 

By capping withdrawals at Php 500,000, the BSP traps liquidity in banks already facing balance sheet strain. This buys temporary stability, allowing institutions to meet reserve ratios and avoid visible stress, but it starves the cash economy—especially small businesses dependent on operational liquidity. 

Economic losses eventually translate to non-performing loans, erasing whatever short-term relief liquidity traps provided. When firms struggle to repay, banks hoard liquidity to protect themselves—contracting credit and deepening the slowdown. The policy cure becomes the crisis catalyst. 

XI. The Liquidity Containment Playbook and the Architecture of Control 

This is not an isolated act; it fits a broader policy playbook: 

• Easy Money Policies: Reduce the cost of borrowing in favor of the largest borrowers, often at the expense of savers and small lenders. 
• CMEPA: The Capital Market Efficiency Promotion Act, which expands regulatory reach over capital flows and market behavior, while rechanneling private savings toward state and quasi-state instruments. 
• Soft FX Peg: The USDPHP peg, designed to constrain inflation, masks currency fragility and limits monetary flexibility. 
• Price Controls: MSRP ceilings distort price signals and suppress market clearing, especially in essential goods. 
• Administrative Friction: Regulatory hurdles replace fiscal support, extracting compliance and liquidity rather than injecting relief. 

Add to that the BSP’s ongoing yield curve-shaping—suppressing long-term yields to sustain public debt rollover—and what emerges is a clear strategy of financial containment: liquidity is captured, redirected, and immobilized to defend a strained financial order. 

XII. Curve-Shaping and Fiscal Extraction 

The post–rate cut yield curve behavior in the Philippines reveals a dual narrative that’s more tactical than organic. On one hand, the market is signaling unease about inflation—particularly in the medium term—yet it stops short of pricing in a runaway scenario. This ambivalence is reflected in the belly of the curve, where yields have dropped sharply despite flat month-on-month CPI and only modest year-on-year upticks. (Figure 6, middle and lowest graphs) 

On the other hand, the BSP appears to be engineering a ‘bearish steepening’ through tactical easing, likely aimed at supporting bank margins and stimulating credit amid a backdrop of rising NPLs, slowing loan growth, and liquidity hoarding. 

The rate cut, coming on the heels of July’s CMEPA and amid regulatory tightening, suggests a deliberate attempt to offset balance sheet stress without triggering overt inflation panic. 

Each of these measures—cash caps, regulatory absorption of savings, and engineered curve shifts—forms part of a single containment architecture. What looks like fragmented policy is, in reality, coordinated liquidity triage. 

In sum, fiscal extraction, liquidity controls, and curve manipulation are now moving in tandem. Each reinforces the other, ensuring that capital cannot easily escape the system even as trust erodes. 

The war on cash, then, is not about corruption or transparency—it’s about preserving liquidity in a system that has begun to run dry.

XIII. When Discretion Becomes Doctrine: From Institutional Venality to Kindleberger’s Signpost 

And then the BSP hopes to expand its extraction-based “reform.” This ABS-CBN article reports that the central bank plans to issue "a new policy on a possible threshold for money transfers which will cover even digital transactions." It would also empower banks to "refuse any transaction based on suspicion of corruption." 

Ironically, BSP Governor Eli Remolona cited as an example a contractor’s ‘huge’ withdrawal from the National Treasury—deposited into a private account—which he defended as "legitimate." 

The war on financials is evolving—from capital controls to behavioral nudging to arbitrary discretionary thresholds. BSP’s move to cap money transfers reframes liquidity as suspicion, and banks as moral adjudicators. 

Discretion to refuse transactions—even without proof—creates a regime where access to private property is conditional, not on law, but on institutional discomfort. 

Remolona’s defense of a bank that released a “huge amount” to a contractor despite unease confirms what we’ve recently argued: the scandal was never hidden—it was institutionally tolerated. 

Bullseye! 

Two revelations from this: 

First, it validates that this venal political-economic framework represents the tip of the iceberg—supported by deeply entrenched gaming of the system, extraction, and control born of top-heavy policies and politics. 

Two. It serves as a Kindleberger’s timeless signpost—that swindles, fraud, and defalcation are often signals of crashes and panic: 

"The propensities to swindle and be swindled run parallel to the propensity to speculate during a boom. Crash and panic, with their motto of sauve qui peut, induce still more to cheat in order to save themselves. And the signal for panic is often the revelation of some swindle, theft, embezzlement, or fraud." (Kindleberger, Bernstein)

In this sense, the BSP’s moralistic posture and arbitrary discretion may not be acts of reform, but symptoms of a system inching toward its own reckoning. The façade of prudence conceals a liquidity-starved order struggling to maintain legitimacy—where control replaces confidence, and “reform” becomes a euphemism for survival. 

All this suggests that, should implementation be rigorous, the recent earthquakes may not be confined geologically but could spill over into financial institutions and the broader economy. If these signify a “do something” parade of ningas cogon policies, then the moral decay born of the public spending spree will soon resurface. 

Either way, because of structural sunk costs, the effects of one intervention diffusing into the next guarantees the acceleration and eventual implosion of imbalances that—like a pressure valve—will find a way to ventilate. 

XIV. Conclusion: The Technocrat’s Mirage: Goldilocks Confronts the Knowledge Problem and Goodhart’s Law 

Finally, the BSP admits to either being afflicted by a knowledge problem or propagating a red herring: "We’re still refining our estimates. We had thought that our Goldilocks policy rate was closer to 5 percent, now it’s closer to 4 percent. So we have to decide where we really are between 5 percent and 4 percent." 

This confession exposes the technocratic folly of believing that economic equilibrium can be engineered by formula. It ignores the fundamental truth of human action—there are no constants—and the perennial lesson of Goodhart’s Law: when a measure becomes a target, it ceases to be a good measure. Protecting the status quo, therefore, translates to chasing short-term fixes while evading long-term consequences. 

What this reveals is not calibration but confusion—policy reduced to trial-and-error within a liquidity-starved system. The “Goldilocks” rhetoric masks a deeper instability: that each attempt to fine-tune the economy only amplifies the distortions born of past interventions. 

We close this article with a quote from our October issue: 

"The irony is stark. What can rate cuts achieve in “spurring demand” when the BSP is simultaneously probing banks and imposing withdrawal caps? 

And more: what can they do when authorities themselves admit that CMEPA triggered a “dramatic” 95-percent drop in long-term deposits, or when households are hoarding liquidity in response to new tax rules—feeding banks’ liquidity trap?" 

____

References 

Ludwig von Mises, Bureaucracy, p.119 NEW HAVEN YALE UNIVERSITY PRESS 1944, mises.org 

Hyman P. Minsky, The Financial Instability Hypothesis The Jerome Levy Economics Institute of Bard College, May 1992 

Charles P Kindleberger & Peter L. Bernstein, The Emergence of Swindles, Manias Panics and Crashes, Chapter 5, p.73 Springer Nature link, January 2015 

Prudent Investor Newsletter, The Philippine Flood Control Scandal: Systemic Failure and Central Bank Complicity, Substack, October 5, 2025 

Prudent Investor Newsletter, Q2–1H Debt-Fueled PSEi 30 Performance Disconnects from GDP—What Could Go Wrong, Substack, August 24, 2025 

Prudent Investor Newsletter, Minsky's Fragility Cycle Meets Wile E. Coyote: The Philippine Banking System’s Velocity Trap, Substack, September 14, 2025

 

The Ghost of BW Resources: The Bursting of the Philippine Gaming Stock Bubble

An inflation tends to demoralize those who gain by it as well as those who lose by it. They become used to “unearned increment.” They want to hold on to their rela­tive gains. Those who have made money from speculation prefer to continue this way of making money to the former method of working for it…The trend in an inflation is toward less work and produc­tion, more speculation and gam­bling—Henry Hazlitt

In this issue: 

The Ghost of BW Resources: The Bursting of the Philippine Gaming Stock Bubble

I. Why Our Prescient Warning? Seven Disturbing Parallels

II. One: Gaming at the Core

III. Two: Distortions: Market Dominance and Turnover

IV. Three: Post-Crisis Timing

V. Four: Inflation and the Illusion of Prosperity

VI. Five: Prohibition, the Satirical Theater of Morality and Potential Political Controversies

VII. Six: The South Sea Parallel

VIII. Seven: Bull Traps and Secular Cycles

IX. Conclusion: Bubble Cycles: The Rhyming of History 

The Ghost of BW Resources: The Bursting of the Philippine Gaming Stock Bubble 

From BW Resources to PLUS and BLOOM: The Anatomy of a Gaming Stock Market Bubble Reborn, 7 disturbing parallels

I. Why Our Prescient Warning? Seven Disturbing Parallels 

At the peak of the euphoria surrounding the Philippine gambling bubble, I issued a subtle warning via tweet (x.com post): (Figure 1)

Figure 1

"Strange fascination with gaming bubbles. Has the Philippine financial community forgotten the BW Resources bubble, w/c soared in a bear market's 'bull-trap' phase & crashed in 1999, exposing unsustainability & 'manipulation?' Learn from history—recurring bubbles in market cycles"

Certainly, 2025 is not 1999. The economy, financial architecture, and technological landscape have evolved. The composition of the Phisix—now the PSEi 30—has changed. The circumstances behind the BW scandal were unique. 

Despite the passage of time and evolution of market instruments, a troubling déjà vu grips the Philippine financial landscape. The current gaming bubble echoes the BW Resources scandal with unsettling fidelity—both in structure and in consequence. 

Below are seven disturbing parallels that merit scrutiny, not dismissal. 

II. One: Gaming at the Core 

BW Resources began as an online bingo firm with a nationwide franchise. It was, fundamentally, a gaming enterprise. 

Today’s speculative darlings—Digiplus Interactive Corporation [PSE: PLUS] and Bloomberry Resorts Corporation [PSE: BLOOM]—are likewise gaming firms, riding a digital demand boom.

Figure 2

PLUS has enjoyed a windfall: retail sales surged 181% (YOY) year-on-year in 2024, while net income growth vaulted 207%. In Q1 2025, net income soared 110% to Php 4.2 billion. (Figure 2, topmost window) 

Riding on the coattails of PLUS, BLOOM—a relative newcomer to online gaming—launched its digital platform in April, coinciding with a sharp rally in its share price. The timing fueled market excitement, further amplifying speculative fervor toward the sector. 

III. Two: Distortions: Market Dominance and Turnover 

BW Resources once commanded a disproportionate share of market turnover. (Figure 2, middle graph) 

At its peak, its market cap eclipsed stalwarts like San Miguel and Ayala Corporation (Hamlin, 2000). 

In mid-June 2025, PLUS and BLOOM’s combined turnover reached over 20% of the mainboard. (Figure 2, lowest image) 

As the bubble began to deflate, their aggregate volume still accounted for 16.9% of June’s total. 

The collapse saw a further explosion in turnover: in June, PLUS plunged 48.15%, BLOOM fell 17.2%, and their combined turnover share spiked to 22.2%. PLUS alone captured 17.8% of weekly volume—33.3% on Friday alone! Astounding. 

The stunning magnitude of PLUS's volume share—a firm which used to be on the sidelines—suggests that this represents a corporate-specific boom-bust episode driven not by savings but by leverage. 

Remember that the banking system's credit portfolio stands at an all-time high, mostly powered by consumer credit. 

The spike in volume as PLUS shares collapsed may indicate ‘margin calls’ or the selling of other PSE-listed shares to bolster collateral backing leveraged PLUS positions. This could explain the PSEi 30's 1.13% drop last Friday. 

IV. Three: Post-Crisis Timing

Figure 3

BW Resources peaked and imploded in 1999, two years after the Asian Financial Crisis (AFC), when GDP contracted by 0.51% in 1998. (Figure 3, upper chart) 

The current bubble climaxed four years after the pandemic-induced recession of 2020, when GDP shrank by 9.6%. 

V. Four: Inflation and the Illusion of Prosperity 

The BW Scandal was a product of easy money-fueled inflation. 

Since peaking at 12.5% in 1994, the CPI headed downhill until the 9.4% spike in 1998, belatedly brought about by the AFC. The CPI dropped significantly to 6.1% in 1999 as the BW scandal unfolded. 

Similarly, CPI rose from 3.9% in 2021 to 6% in 2023, then plummeted to 3.2% in 2024. 

As the great economist Henry Hazlitt noted, 

"A vital function of the free market is to penalize inefficiency and misjudgment and to reward efficiency and good judgment. By distorting economic calculations and creating illusory profits, inflation will destroy this function. Because nearly everybody will seem to prosper, there will be all sorts of maladjustments and investments in the wrong lines. Honest work and sound production will tend to give way to speculation and gambling. There will be a deterioration in the quality of goods and services and in the real standard of living" (Hazlitt, 1969). [bold added] 

As Hazlitt warned, inflation distorts economic calculation, rewards speculation over production, and erodes real living standards. Despite disinflation, the purchasing power of the common tao continues to decline. 

Elevated self-rated poverty and hunger suggest a deteriorating standard of living. (Figure 3, middle and lowest panes) 

As a side note—and quite ironically—despite the falling rate of CPI, sentiment metrics such as self-rated poverty and hunger continue to trend upward, even in the face of recent declines. Consider this: the current environment operates under an easy money regime that has buoyed all-time highs in fiscal stimulus, near-record employment, unprecedented public debt, expanding bank credit, and systemic leverage. But what happens if this constellation of highs begins to unravel? 

Many turn to gambling not for leisure, but as a desperate attempt to bridge income gaps, service debt, and or as a coping mechanism—a form of psychological escapism from personal financial straits. 

In this prism, rising gaming revenues hardly represent economic progress, but rather a transfer from the vulnerable public to the house casino. 

VI. Five: Prohibition, the Satirical Theater of Morality and Potential Political Controversies 

The implosion of the BW Resources stock market bubble effectively opened a Pandora’s Box of political ramifications. It exposed systemic corruption, egregious stock market manipulation, and other conflicts of interest with connections reaching the highest echelons of power (Pascual and Lim, 2022). 

Following the contemporary political assault on Philippine Offshore Gaming Operators (POGO), political evangelists have opportunistically piggybacked on this sentiment, advocating for increasingly vocal and deeper prohibitions anchored on the supposed social sanctity or righteousness of a total ban on digital gambling. 

Yet the crackdown on POGOs appears entangled in deeper geopolitical currents—linked to Chinese interests under the previous administration and potentially reflecting the broader US–China hegemonic rivalry, made manifest through diverging diplomatic relations between alternating political regimes in the Philippines. 

Crucially, in a populist climate framed by social-democratic ideals, the magnitude of state intervention often becomes a currency of political capital—the larger the crackdown, the louder its resonance among voters. 

History repeats: the public once clamored to ban jueteng, which helped trigger People Power II and the ouster of President Joseph E. Estrada. Eventually, the state legalized it through STL under PCSO. 

Wikipedia notes: "One of the suggested reasons for legalization was to eliminate repeated corruption scandals... It has been compared to the tribulations in the United States regarding their prohibition of alcohol." 

Or rather, legalization signified the ‘nationalization’ of what was once a fragmented, decentralized, and implicitly local government (LGU) controlled shadow economy—effectively converting informal vice into formal state enterprise. 

In the same vein, one might ask: what became of the Philippine drug war, "Operation Tokhang"? 

Aside from the escalating calls for prohibition, will other political controversies emerge from this bubble bust? 

If history is a reliable compass, financial distortions often leave behind trails of corruption, regulatory compromise, and partisan leverage. The unraveling may reveal ties between speculative fervor and institutional patronage—suggesting that what began as financial exuberance could metastasize into yet another political saga. When markets deflate, the silence seldom lasts. 

Echoing the BW scandal, will malfeasance reemerge? As economic historian Charles Kindleberger once warned: "The propensity to swindle grows parallel with the propensity to speculate during a boom; the implosion of an asset price bubble always leads to the discovery of frauds and swindles" (Kindleberger & Aliber 2005) 

VII. Six: The South Sea Parallel

Figure 4 

While intense volume spikes amid a share collapse are associated with 'capitulation' or a theoretical ‘bottom,’ we harbor doubt that this is the case. 

From our humble perspective, whether a bounce occurs or not, the Philippine gaming bubble may have likely been pricked. 

PLUS’ chart, born of BSP’s easing cycle, evokes the South Sea Bubble of 1720—a spectacle of leverage, speculation, and political complicity. (Figure 4, upper and lower graphs) 

The South Sea Bubble was a major financial crisis that shook Britain in 1720, driven by wild speculation in the South Sea Company. The company had been granted a monopoly on trade with Spanish South America and took on a central role in managing the national debt by converting the King’s personal debt into the nation’s debt. Investors were drawn in by promises of immense profits. The company fueled the frenzy by allowing shareholders to borrow against their own South Sea stock as collateral, encouraging dangerous levels of leverage. The bubble was also part of a broader shift toward modern finance, including the creation of paper money and the rise of institutions like the Bank of England, which was established in 1694 to help manage government borrowing and stabilize the financial system. When confidence collapsed, share prices crashed, collateral became worthless, and forced liquidations deepened the ruin. The episode exposed corruption at the highest levels of government and business, leading to political fallout and reforms in financial regulation.  (Cwik, 2012) 

Isaac Newton, emblematic of intellectual prowess, became entangled in the bubble. After initially profiting, he reinvested heavily—and ultimately went broke. It’s often said the experience prompted him to declare: "I can calculate the motions of the heavenly bodies, but not the madness of people." (chart from Dr. Marc Faber) 

Ironically, Newton’s third law of motion—"for every action, there is an equal and opposite reaction"—finds metaphorical resonance here: South Sea shares returned to their starting point, as did the illusions of prosperity they once inspired. 

VIII. Seven: Bull Traps and Secular Cycles

Figure 5 

The BW scandal unfolded and climaxed in 1999 during a "bull trap" in a secular bear market. Once exposed, the market plunged until its 2002 trough—where the next bull cycle began. (Figure 5, upper chart) 

Today, the bear market persists. A “bull trap” rally is being engineered through easy money, fiscal stimulus, market interventions, and statistical optics—all framed within a carefully curated Overton Window, reminiscent of the ‘easing cycle’ powered "bull trap" of Q3 2024, as exhibited by prevailing media headlines. (links here, here and here) (Figure 5, lower diagram, Figure 6, media images)

Figure 6

IX. Conclusion: Bubble Cycles: The Rhyming of History 

The bursting of the Philippine gaming bubble represents more than a mere market correction—it embodies the cyclical nature of speculative excess that has plagued financial markets throughout history. 

The parallels between today's gaming bubble and the BW Resources scandal of 1999 are symptomatic of deeper structural patterns in market psychology, monetary policy and political misdeeds and imbroglios. 

As Mark Twain allegedly observed, "History doesn't repeat itself, but it often rhymes." Beneath the veneer of technological advancement and regulatory sophistication, the fundamental drivers of speculation—easy money, leverage, political interventions and human greed—remain unchanged. 

For those who understand the pattern, the current gaming bubble's burst may indeed signal the end of the artificial "bull trap" and the resumption of the secular bear market that never truly ended. 

In the end, the house always wins—not just in gaming, but in the grander casino of speculative markets where bubbles, once formed, must eventually burst. 

Yet, the silence after bubbles burst is rarely permanent. It’s often the prelude to scapegoating, reform, or reinvention—sometimes all three.  

___

References 

Henry Hazlitt, Comments on Inflation, May 1960 Fee.org 

Kevin Hamlin, Confidence Game, Institutional Investor, August 1, 2000 

CLARENCE PASCUAL AND JOSEPH LIM Corruption and Weak Markets: The BW Resources Stock Market Scam, March 2022 UP Center for Integrative and Development Studies, cids.up.edu. ph 

Henry Hazlitt, Man vs. The Welfare State p. 133 Arlington House, 1969, Mises.org 

Wikipedia, Jueteng 

Kindleberger, Charles P., and Robert Z. Aliber. Manias, Panics, and Crashes: A History of Financial Crises. 5th ed., Palgrave Macmillan, 2005. Chapter 9. 

Paul F. Cwik, The South Sea Bubble, April 3, 2012, Mises.org