In
this issue
PSEi
8,050: Why Momentous History is in the Making, The Bernanke
Helicopter Money Factor
-Bernanke’s
Helicopter Money Drop Sends Global Stocks and the PSEi into a Meltup
Mode
-The
Unfolding Historic Moment: A Terminal Manic Phase: Price and
Distribution
-The
Unfolding Historic Moment: A Terminal Manic Phase: Price-Valuation
Imbalances
-The
Unfolding Historic Moment: A Terminal Manic Phase: Market Internals
Shows of Explosive Greed!
-The
Unfolding Historic Moment: A Terminal Manic Phase: Weak Peso
PSEi
8,050: Why Momentous History is in the Making, The Bernanke
Helicopter Money Factor
Bernanke’s
Helicopter Money Drop Sends Global Stocks and the PSEi into a Meltup
Mode
Former
Fed chair Ben Bernanke’s meeting with Japanese authorities early
last
week sparked fervid speculations that the fresh electoral victory
by PM Shinzo Abe would extrapolate to the administration’s
introduction of the “helicopter money”.
The
proposed adaption of Helicopter
money represents essentially a fiscal policy. However, the
difference with that of QE is that such increase government spending
will be financed directly by the central bank through the printing
press via debt purchasing. Or central banks will monetize government
spending via the printing press. Another difference, spending
targeted on the real economy rather than merely through financial
channels.
Thus
the prospects of helicopter money combusted global stock markets. And
Asia’s stock markets caught fire: Japan’s Nikkei +9.21%, Hong
Kong’s Hang Seng +5.38%, Taiwan’s TWII +3.58%, Australia’s
S&P/ASX +3.81%, China’s Shanghai +2.2%, Indonesia’s JKSE
+2.79%, Thailand’s SET +2.5%, South Korea’s KOSPI +2.76% and
Malaysia KLSE +1.45%.
Given
the tailwind of excessive bullishness, the global sentiment had been
rationalized or used to compound further on the frantic price pumping
at the Philippine Stock Exchange.
And
as I have been pointing out here, it is as if participants at the PSE
suffer deeply from the Post
Traumatic Stress Disorder (PTSD). Such PTSD had been brought
about by two crashes in the span of 7 months (from August 2015 to
January 2016). And the agonizing anxiety from the said episode has
only prompted for a series of violent price pumping in response to
each account of losses. Or, NEVER again shall the PSEi endure the
same fate! The Phisix shall only rise!
Hence
the .75% decline of the other week was countered by a brutal MELTUP:
3.3% gains which represented the third largest weekly winner for the
year!
The
other biggest gains were the week after the post January 21 low or
January 29’s 7.72% and at post-election week of May 13’s 6.36%.
Yet two crucial events highlighted such intense bounce, the first was
a cyclical trough (backed by the BSP’s backdoor or silent stimulus)
and the second was a political event.
This
week’s vicious 3.3% headline blitzkrieg pump would have been larger
if it had been supported by dramatic gains by most of the key PSEi
30. Apparently while most of the PSEi 30 had aggressively been bid,
the price gains had been concentrated in the property sector.
Spearheaded
by the majors ALI +6.54% and SMPH +9.09%, the property sector’s
stunning 6.95% weekly gains vastly eclipsed the gains of all other
sectors: Holding +3.14%, Financial +2.02%, Services +2.07% and
Industrial +1.75%.
A
common trait of bullmarkets is one of a rising tide lifts all
phenomenon.
So
seen from a standpoint compared to the week ending January 29 and May
13, the less than spectacular performance by the rest of the
mainstream sectors perhaps has been indicative of a narrowing dynamic
in the distribution of gains.
Said
differently, this could account for signs of exhaustion (or
distribution phase).
Nonetheless
what makes this week’s gains even more prodigious was that even at
8,030 or 1.2% off April 10, 2015 high at 8,127.48, SEVEN issues
closed SIMULTANEOUSLY on a RECORD HIGH last Friday! The MAGNIFICENT
SEVEN by pecking order based on market cap: SM, SMPH, AC, AEV, GTCAP,
JFC and MPI. And Friday’s close came with insanely vertical
finishes! Four of which can be seen in the lower chart above (MPI,
AEV, AC and SMPH).
And
there are 9 stocks that have carved a record in 2016 where the
magnificent seven has served as the core. With just a breath away,
Ayala Land and Robinsons Land seems poised to take on the 10th and
11th slots.
The
Unfolding Historic Moment: A Terminal Manic Phase: Price and
Distribution
As
I have been saying here we
are at the moment witnessing the unfolding of a historic event!
And
NO I am talking about headline numbers. Instead, current developments
represent a classic
episode of a climaxing mania.
Signs
have been all over.
First,
this can be seen via the vertical price actions and the distribution
of gains.
From
the January 21 trough, as of Friday, the PSEi has returned 32% in
5.75 months. The only nearest parabolic climb was in 2007 where the
PSEi returned a bigger 34.3% in August to October 2007. Yet such
magnitude of gains was accomplished in even shorter time frame of
1.75 months! Though 2007’s returns would be steeper in scale than
today, the distribution of gains has been different.
Today’s
run has been driven by ferocious price inflation on a limited number
of issues. While the present the bidding rampage have filtered
through a majority of the 30 issues, the
substantial asymmetry in the dispersion of gains has served as a
critical
obstacle as to why 2007 returns and April 10’s 8,127.48 has not
(yet) been attained.
The
paradox has been that both runs eventually ended with a collapse.
Yet
with a few issues essentially issues carrying the yoke of the
forcible ascension, anytime the same issues lose momentum they are
likely vulnerable to an equally sharp downside move!
And
historical evidence from the 1970s to date shows with a perfect
slate
that vertical ramps end up with at
least Newton’s
third law of motion—for every action there is an equal and opposite
reaction—as an outcome!
Will
this time be different?!
Second,
actions as measured by the PSEi’s price charts have only been
exhibiting a tremendously treacherous climb. The unfolding vertical
panic buying binges demonstrates of the psychological convergence or
of the crystallization of crowd psychology which has evolved to see
stocks as signifying an ENTITLEMENT!
Since
stocks can only RISE, it has become a mechanism for free lunches! And
because bubbles are essentially a belief in attaining SOMETHING OUT
OF NOTHING, then treating stocks as a “right” reinforces the
stock market’s bubble framework!
Understand
that price actions, overvaluations, leveraging and sentiments are
only symptoms of something out of nothing dynamic.
The
Unfolding Historic Moment: A Terminal Manic Phase: Price-Valuation
Imbalances
Third,
price actions feeds on valuation ratios. This means that current
activities depict more than just about price actions.
Prices
of securities are supposed to reflect on the embedded future stream
of discounted cash flows. While there had been larger accounts of
vertical moves, such as in March to July of 1987 at 197.37% in 24
days, in October 1993 to January 1994 at 73.71% in 59 days and in
January to March 1998 at 52.2% in 54 days, the backdrop that
undergirded moves of the specific eons served as important factors to
such events.
In
the said three events, the PSEi had mostly been undervalued
in response to prior crashes (1987 and 1998) or stagnation
(pre-1993). Ironically, despite the relative cheapness, all three
episodes saw such respective nosebleed gains from fabulous violent
pumping eventually negated! Newton’s law ruled! The obverse side of
every mania is a crash.
Unlike
the earlier variants, the present January to July meltup has been
pillared on ultra high valuations.
The BSP-PSE data reveal that at the close of January 2016 when the
PSEi fell to a low of 6,084, end month PER then remained at an
elevated 18.85!
So
this means that the current meltup has only widened
the divergence between prices and fundamentals through price multiple
expansions.
Worst,
even 1Q 2016 eps performance revealed of -2.25% contraction of eps
growth. This happened in spite of the BSP’s backdoor or silent
stimulus! So prices and fundamentals have only been going on an
opposite direction!
As
of Friday the average TTM PER of PSEi was at a staggering 26.55!
Whereas the market cap weighted PER has vaulted to 27.4! Present PERs
have reached levels of January to March 1997, specifically, 28.21,
27.35 and 27.57!
So
unless fundamentals will miraculously skyrocket to reflect on the 5+
month MELTUP, or unless risk has been entirely
abolished
or unless stock markets have totally been broken or have been
rendered permanently
dysfunctional—perhaps similar to the $13 trillion negative yielding
global bonds markets (though this should be ephemeral)—then current
levels of PER has been an indication of history in the making. By
history, I mean that they most
likely portentous of a major inflection point!
The
stock market’s price-fundamental ballooning mismatches alone has
been a manifestation of the worsening of embedded structural
financial and economic deficiencies that require markets to clear (by
weeding out the excesses) in order bring economic coordination back
to balance.
The
Unfolding Historic Moment: A Terminal Manic Phase: Market Internals
Shows of Explosive Greed!
Fourth
again stocks are more than just about price actions and valuations,
mass psychology are expressed in terms of sentiment indicators also
provides clues of imbalances.
Intensifying
extremes in sentiment has been indicative of a one way trade.
Warren
Buffett’s famous axiom “Be fearful when everybody is greedy and
greedy when is fearful” can clearly be seen in the demeanor of
present trading activities.
Remember
the PSEi has yet to reach 8,127.48 or remains 1.2% off the April 2015
watermark.
Nonetheless,
trade churning as indicated by the average daily traded issues (left)
and the average daily trades (right) have more than just been at
record highs, but importantly, the outstanding chasm between present
levels and that of the run to April 10 2015’s 8.127.48 reveal of
astonishing
symptoms of overconfidence, wanton recklessness and amplified sense
of derring-do.
Or
stock market participants have become extensively or outlandishly
aggressive in churning trading positions to cover a record number of
issues. In a word, GREED rules!
The
egregious deficiencies in peso traded volume of the present MELTUP
relative to the previous records have signified an even more
exceptional development!
Although
this week’s average daily volume at Php 9.8 billion represented a
37% increase from last week, such volume has been comparable only to
the run to April 2015’s record, and significantly BELOW May 2013
equivalent!
Understand
that the purchasing power of the peso has a significant function
relative to stocks in determining peso volume traded.
For
instance, the nominal purchasing power of a peso to a unit of PSEi in
2013 was substantially LESS in than in April 2015 at 8,127.48 and
also less than the present at 8,030. In particular, since the PSEi
today has been 8.5% higher than the acme of 2013, this means that to
trade a similar unit of volume today requires 8.5% MORE pesos! So
bigger volume should be expected given the elevated levels of prices!
This
should be most pronounced when applied to PSEi issues that hit new
records
Or
let me use a specific stock as example. SMPH’s record in May 2013
was at Php 21.25. As of Friday, it was at Php 30 or 40% higher
relative to 2013. So to trade SMPH at present levels would require
40% MORE pesos than in 2013! Or a Php 1,000 trade position in 2013
can buy 47 shares as against only 33 shares today!
Again
ceteris paribus, given the embedded price inflation in securities,
present levels of stocks should trade at HIGHER volumes than in 2013.
Apparently this has not been happening. Instead, at higher stock
market prices, peso volume has even shrunk!
And
seen in actual unit volumes, volume have shriveled even more!
In
short, as the price of a product increases, quantity demanded falls,
or the
law of demand at work!
Given
that a small number of the domestic population have direct or
indirect positions in the stock market, the higher
the prices of stocks, lesser the number of people who can
participate.
So
sustained price inflation alone will serve as a deterrent to
participation or will prove present elevated price levels as tenuous.
Oh
by the way this applies to other risk assets such as real estate too.
So
despite near record high, current weakness in peso volume only
depicts of aggressiveness by either a smaller
number of participants, as reflected by reduced volume, or an
increased number of participants but with reduced
buying capacity!
Yet
from an ethical perspective, this means that the beneficiaries of the
current price rip in stocks have been the owners of immensely
inflated securities and the buy and sell side industry. The gullible
investing public are presently being drawn to such vertical pumping
process has only been absorbing undue risks in order to transfer
wealth and income to these entities!
Proof?
JGS’ $250 million share sale purportedly for “estate purposes”.
Pump the stocks. Sell inventories to the public predicated on H-O-P-E
of an eternal credit fueled headline G-R-O-W-T-H!
And
when the bubble pops again, it is these vulnerable public who will
pay the price by holding the proverbial empty bag.
So
if there is any indication the low volume pump is by itself a cause
of concern.
That’s
unless these vested interest groups will be able to generate new
recruits with substantial deposits from the domestic investing
public, from yield hunting foreigners and or from a torrent of free
money from the BSP (as well as the FED, BOJ, ECB, BOE and others)
channeled through the banking system.
The
Unfolding Historic Moment: A Terminal Manic Phase: Weak Peso
Sixth,
security price inflation has essentially accounted for as
manifestations of government financial repression actions via central
bank’s easy money policies designed to transfer or shift growth to
the present which had been borrowed from the future.
In
academic lingo, de facto easy money policies are known or called as
the trickle down from the “wealth
effect”. Such dogma emanates from the perspective that borrowed
growth would entail of multiplier effects which should offset the
costs of borrowing from the future.
Yet
because such superficially premised top down doctrine ignores on the
distortions on the individual’s balance sheets, the price channel
and consequently, economic coordination through resource allocation,
such policies only creates a negative
feedback negative mechanism.
While
such policies initially ignites a temporary boom via economic wide
measures, profits, earnings, jobs, wages and fuels capital expansion,
they come at price. The longer term consequence of which has always
been to increase systemic leverage (thereby magnify financial
instability risks), heighten pressure on prices (which alternatively
means reduced purchasing power and an eventual squeeze on profits),
and careens economic order towards speculative capital intensive
based industries or projects (malinvestments). In other words, when
the party is over, hangover haunts the celebrants.
And
one of the offshoots of bubbles has the eventual weakening of a
currency (with the exception of the USD, due to its foreign reserve
status).
Exchange
rate ratios are principally dependent on the relationship between the
quantity of, and the demand for a currency.
So when the government uses credit expansion to augment present
growth levels, relatively
larger money supply from bank credit expansion will cause a currency
to eventually weaken.
Last
week I asked how internal contradictions between the peso and the
stocks would be resolved. The markets have given a temporary answer
in favor of the bulls. As domestic stocks experienced a meltup, the
peso rallied.
Nevertheless
the promise of “helicopter money” means that developed economy
governments will likely inundate global economies with liquidity.
With Japan as likely the first developed nation to experiment on
Bernanke’s “helicopter money”, the yen crashed by a shocking
4.32%! But such crash has implied of the triggering of the yen carry
or borrowing or shorting of the yen to finance arbitrages on assets
of other ex-USD currencies.
And
because of the revitalized global cross currency carry arbitrages,
Asian currencies rallied strongly, along with a meltup in stocks, for
the week. The Philippine peso surged .69%. The official USD php rate
was last quoted at 46.8 from the other week’s 47.125.
And
perhaps as further signs of the yen carry on the PSE, a material
surge in foreign inflows occurred last week. Foreign buying surged to
Php 7.42 billion, the largest since end of May. The level of foreign
trade surged to 49.6% of overall trade.
Remember
for Japan, after ZIRP, QE, NIRP and now comes helicopter money. Like
a late stage cancer patient, every new applied medication provides a
shot of adrenalin of hope. But eventually reality based on entropic
economic forces will dominate.
