What is never really asked is why are these particular people the “nation’s leading economists?” They are surely some of the brightest minds, possessing great intellectual capacity, displaying impressive educational attainments and industry-given awards, but by and large because of all that they are all the same. And none of it displays comprehension of economics, but instead Economics. They have all been required to say the same things, speak in a common language (statistics), and to not deviate too far lest it trigger implicit excommunication from among the wider group—Jeffrey P Snider
In this issue
Phisix 7,240: Vulnerabilities of the Recent MELTUP, Duterte’s Expands War on the Poor (Ban on 5-6 Credit and SSS Benefit Hike)
-Exposing the Vulnerabilities of the Recent MELTUP from a Technical and Sentiment Perspective
-More Signs of Politicization of the PSE: More Price Fixing Pumps, SMPH’s Deviant Record High
-The Indonesian Government Wages War on Stock Market Bears and Interest Rates!
-Jim Chanos On Geopolitical Trends: Time To Rethink Almost Everything In Your Life!
-The Economic Impact of the Hike in SSS Mandated Benefits
-Duterte’s War on the Poor: Squeezing Access to Credit by a Ban on 5-6 Credit!
-Statistics Is NOT Economics: Another Set of Contradictory Numbers
Phisix 7,240: Vulnerabilities of the Recent MELTUP, Duterte’s Expands War on the Poor (Ban on 5-6 Credit and SSS Benefit Hike)
Exposing the Vulnerabilities of the Recent MELTUP from a Technical and Sentiment Perspective
Ferocious momentum from the two week 10.18% vertical price spiral—which has signified a record of sorts as discussed last week—was apparently carried over in the first two trading sessions of the week.
The PSEi stormed by another 1.6% during the first two days, only to see these gains evaporate during the latter half of the week. At the week’s close, the headline index was marginally down by .13%.
The slight decline by the PSEi was reflected on market internals or sentiment which revealed somewhat a neutral stance.
Though three of the five sectors closed lower, the relative bigger gains—specifically, industrial sector (+1.43%) and the service sector (+.65%)—had been sufficient enough to offset losses—particularly property (-.85%), holding (-.37%) and financial (-.22%)—to have cushioned the weekly performance by the PSEi.
The advance decline spread moved slightly in favor of the bulls (15 to 14; one unchanged) in the context of the PSEi 30, while decliners eked out a modest 31 margin against advancers in the broader market.
Foreign money helped pumped up the PSE and the PSEi.
Interestingly, the % share of foreign money to total volume was pruned to a rare 44.31% when foreign money typically or usually dominated trading volume. Moreover, the scale of foreign buying has diminished along with overall trading volume.
Even more fascinating has been the reappearance of euphoric sentiments—or wild broad market bidding frenzies—in the account of the enormous spike, that resembled early 2016, in the average daily traded issues (upper left window)! That’s even when the average trading peso volume has hardly picked up (upper right window)!
Current peso volume has resonated with, again, the late 2015-2016 levels, which have been very much way below 2014. That’s even when we are looking at the same price levels!!!!
Yet low volume is a symptom of a paucity of support for a bull market.
This would hardly be about a dearth of C-O-N-F-I-D-E-N-C-E, as the entire buy and sell side industries PLUS media and the government, have been unilaterally and religiously chanting G-R-O-W-TH!
Declining volume has been apolitical too. The current downturn has spanned the previous and the presentpolitical regimes.
Instead, this could mainly be about a mishmash of factors: diminishing absorption of domestic savings by the mainstream buy and sell side sectors, perhaps people prefer or prioritize holding on to savings (which apparently has been skyrocketing to RECORD levels as shown in the lower right window), immensely reducedforeign participation as evidenced by the vastly emaciated BSP’s portfolio flows (lower left window), and importantly, failed or losing trades—many of those who bought into 2013-2014 have been locked into the market due to ‘floating’ losses (or inability to take losses)!
As an aside, with spiraling RECORD savings, just how can one save and spend at the same time???!!! Yet this represents the logic that parades as ECONOMICS in the mainstream.
Yet action speaks louder than words.
In short, the powerful push by unidentified forces over the past two weeks, to embellish the PSEi’s symbolical political status stands on strikingly FRAIL foundations!
What it has generated instead has been frenzied pumps on second-third tier issues which have reinforced the unfortunate and lamentable transmogrification of the PSE into a loaded gambling casino!
It’s why vertical price actions, at the PSE, have never prospered over the long term in 50 years. To be clear, this doesn’t say momentum would stop (now or today), instead this says that while momentum may proceed for some time (a short time), eventually, market forces reassert their dominion, ergo the Newton’s Law.
More Signs of Politicization of the PSE: More Price Fixing Pumps, SMPH’s Deviant Record High
And here’s more.
The current upside, like in 2015 and 2016, has been heavily dependent on the egregiousness of the price fixing pumps. Last week, a stunning 43.55 points or 38% of the two day 1.6% or 116.17 points runupemanated from “mark the close”.
In short, the present steepness of vertical price rallies would not have been attained had it not been through such intense manipulation of market prices.
As discussed last week, implicit price controls, through price fixing pumps, don’t just end up with severely mispriced securities or indices, deliberately engineered prices, which signify false signals, eventually diffuse into the economy to incentivize the ferocious race to build supply or the massive buildup of credit financed malinvestments in the real economy. [Vertical Upside Price Actions is Baccckkk! New Year Week and End 2016 Week’s Blitzkrieg!]
To add, Sy owned property-shopping mall SMPH curiously hit a record high last January 10! This was one of the peculiar developments for the week.
Peculiar because this emerged, even as property peers in PSEi composite basket has suffered from intense selling pressures. Based on January 13 or Friday’s prices compared to their respective recent price highs, ALI has tanked by 19.05%, MEG cratered 30.9% and RLC was down 21.57%. So while SMPH has been on a record binge, all three are near or at bear market levels—a blatant divergence!
Even more signs of contradiction can be seen in property prices, which astonishingly stumbled at a FASTER rate in 3Q 2016!
From the Global Property Guide (bold mine): “In The Philippines, the average price of 3-bedroom condominium units in Makati CBD fell by 5.14% during the year to Q3 2016, in sharp contrast with y-o-y increases of 5.41% during the same period last year. Housing prices dropped 1.15% q-o-q during Q3 2016.”
So if GPG is right, then even the high end market has now taken a steep fall!!!
Apparently, the BSP’s 1Q 2016’s bond buying and 2Q 2016’s interest rate easing (under the camouflage of interest rate corridor) magic wand has yet to find its way to resuscitate the real estate bubble.
And it’s really not just SMPH, but all three Sy owned companies have outperformed and have now captured 3 of the top 5 largest market cap firms as I noted last week.
The SMPH pump signify two possible scenarios: the propping up of the index largely concentrated on SMPH (along with other Sy firms) and or that the owners may be responsible for trying to elevate the firms share prices for whatever (undeclared) reasons: for stature, for currency and for collateral, for index props and for camouflaging whatever shortcomings they may or could have.
Nonetheless, this is not a good sign.
As I previously noted [See The Best Stock Market in Southeast Asia is a Brazen Systematic Price Destroyer!December 18, 2016]
What has been unseen is that the maneuvering of prices of stocks translates to a wasteful employment or unproductive use of resources (which could have been better used for value added activities, say business expansion, enhancing or improving operations or business process, innovation, and etc…)….It equally exhibits unhealthy actions, i.e. to prioritize the artificial propping up of stock prices may actually have been meant to shield or camouflage entropic or degenerative dynamics being nurtured within the company/ies—owned by the elite. Remember, the defunct and once Wall Street darling called Enron?
In short, stocks markets have become severely politicized—or seen as entitlement and privilege. And politicization translates to politicians or the industry or both to “do whatever it takes” to sustain the inflationary bonfire.
All these market distorting politics have emerged, thanks to central banks, in particular, the Ben Bernanke doctrine: “History proves, however, that a smart central bank can protect the economy and the financial sector from the nastier side effects of a stock market collapse”. (Ben Bernanke: A Crash Course for Central Banks, ForeignPolicy.com September/October 2000)
Of course, all actions have consequences.
The Indonesian Government Wages War on Stock Market Bears and Interest Rates!
Today, it’s not just the issue of collapse, but the issue equating high stock prices with statistical GDP, and consequently, political accomplishments. Of course, the underlying or implicit message has always been about liberal access to cheap credit!
Proof?
Such urgent and desperate desire to sustain or hold on into inflationary asset bubbles has not just been a Philippine dynamic.
Recent events in neighboring Indonesia have been emblematic of such politicization of the stock markets.
Because the US bank, JP Morgan downgraded Indonesian equities, the Indonesian government retaliated by terminating “all business partnerships with JPMorgan Chase & Co.” Part of the Indonesian government’s sanction on JP Morgan was that the latter has barred from sukuk issuance.
Moreover, following the footsteps of Argentina, Brazil Turkey and China, the Indonesian government has now floated to censor or put “curbs on negative research by banks”!! And the Indonesian government has threatened bond dealers to “safeguard its partnership” with the government or lose their business!
You see now why mainstream has to always sing hallelujahs to G-R-O-W-T-H???
At the same time, the Indonesian government has been pressuring banks to lower interest rates! FromReuters (January 4): “When Indonesian President Joko Widodo 11 months ago called for the interest rates that borrowers pay banks to "fall, fall, fall" and become single digit, businesses in Southeast Asia's largest economy cheered. But as 2017 begins, lending rates remain double-digit, well above his 9 percent target, even though the central bank cut its benchmark interest rate six times last year. The situation threatens to undermine Widodo's efforts to reinvigorate stalled economic growth. Getting more investment is critical to raising annual growth to 7 percent from 5 percent - another ambitious Widodo target - at a time revenue shortfalls mean the government can't jack up spending. The marginal decline in loan rates frustrates regulators.”
The Indonesian leadership essentially believes in free lunches. They show little or no idea of the fundamental function of interest rates. For them, “low rates” are seen as an elixir to the economy.
Additionally, the Indonesian government believes that they can dictate on where interest rates and stock market prices should be.
The great Ludwig von Mises wrote to warn of this political penchant for short fixes by abolishing interest rates*:
Therefore there cannot be any question of abolishing interest by any institutions, laws, or devices of bank manipulation. He who wants to "abolish" interest will have to induce people to value an apple available in a hundred years no less than a present apple. What can be abolished by laws and decrees is merely the right of the capitalists to receive interest. But such decrees would bring about capital consumption and would very soon throw mankind back into the original state of natural poverty.
*Ludwig von Mises 2. Originary Interest, Part Four: Catallactics or Economics of the... > Chapter XIX. The Rate of Interest, Human Action Mises Institute
Mr. Widodo’s war against interest rates has, in reality, been TIED to propping up of their domestic stock market.
A prospective bear market would raise the specter of balance sheet risks, and consequently, percolate into C-O-N-F-I-D-E-N-C-E and thus bring about a tightening of access to credit or liquidity risks. And liquidity risks can easily morph into solvency and credit risks.
So the war has been opened against prudence and the bears in the hope to secure easy access to credit.
Even the general manager of the central bank of central banks, the Bank for International Settlement, Mr. Jaime Caruana, warned deposit insurers, in a speech last December**, not to be complacent with the current scenario, part of which includes the linkages of low interest rate-high stock market values
I would emphasise that my concern is about the persistence of low rates, rather than just low rates per se.
Interest rate is the cost of leverage; long periods of low rates could incentivise increased borrowing. The resulting accumulation of debt would render the whole system more sensitive to the future interest rate scenario, which affects the ability to repay or refinance the stock of debt. The longer that interest rates have stayed unusually low, the greater the risk of a sharp snapback of interest rates.
Low rates for long could also incentivise additional risk-taking through the search for yield. Thevaluation of financial assets would be boosted, flattering the assessment of their riskiness. This is often referred to as the risk-taking channel of monetary policy.
Persistently low or even negative interest rates also make for a difficult environment for financial institutions, putting pressure on their earning capacity. Weaker profits would slow the build-up of equity over time, which would in turn affect banks' capacity to lend to the real economy. Indeed, pressure from the low rate environment is one of several challenges facing the banking sector in advanced economies. The relatively subdued performance of banks in capital markets reflects investor scepticism. For example, even with general stock market indices hitting all-time highs in recent years, the price-to-book ratios of European and Japanese banks are only at or below 0.5. This suggests that banks are still to varying extents burdened by unresolved issues in terms of asset quality, excess capacity, business model and profitability, making the return to normality more arduous than one would like.
**Jaime Caruana, Post-crisis financial safety net framework: lessons, responses and remaining challenges, December 6, 2016
In short, Mr. Widodo has been clueless to the undue risks he has brought about with his war on interest rates and war on stock market bears.
Yet, Indonesia’s dynamics reverberates with the Philippines! Except that the current Philippine leadership has yet to do the same as Mr. Widodo.
Of course, instead of preventing business with the Philippine government, given the leftist inclination of the leadership, critics risk being “purged” and their properties face risks of “confiscation” in favor of the government!
So whether by arms twisting (such as censorship and curtailment of free speech) or by price fixing, such politicization of the marketplace would only extrapolate to the accumulation of imbalances that would be subjected to a violent market clearing process.
History is indeed in the making!
Jim Chanos On Geopolitical Trends: Time To Rethink Almost Everything In Your Life!
Increasing politicization of the marketplace is becoming an embedded dynamic or trend.
Current geopolitical trends highlight the rise of protectionism, deglobalization and statism in its various related forms, viz. socialism, state capitalism and economic fascism or crony capitalism
In an interview with the Australian Financial Review***, the famous short seller Mr. Jim Chanos warned of a historic shift that the markets have been faced with.
As an aside, Mr. Chanos obtained the public’s acclaim when he profited immensely from short selling of Wall Street’s former darling Enron. Yes he defied populism.
Yet this is something that I’ve been saying here along. I know I am guilty of confirmation bias, but hear this guy out because his views not only dovetail with mine but are stated in mainstream vernacular or provides for a different angle [bold mine]
***Australian Financial Review, Short seller Jim Chanos warns markets could be on verge of historic shift,January 13, 2017
According to Chanos, the big question for investors is to decide whether Trump's victory represents a major once-in-fifty-year sea-change in thinking about capitalism. If it is, he said, "then you have to pay attention".
"In the 1930s, we rejected the individuality of the '20s and before. After the crash and the Depression, we finally put the corporate class and bankers to the sidelines.
"Whether it was Keynesianism or the New Deal in the West, or state fascism or the advent of Stalinism,you saw more government control over the economy."
Although this boosted nominal economic growth, "It was not good for the asset-holding classes – stocks and bonds did terribly over that period ...You wanted to be a worker – you wanted to be labour, not capital."
But all this changed in the late 1970s and 1980s, with the arrival of [former US president] Ronald Reagan and [former British prime minister] Margaret Thatcher, who advocated a more globalistic, free-market approach.
"Since then, capital has risen and assets have done better than labour. Taxes have been light on financial assets, and heavy on labour."
The question for investors, Chanos said, is "if we look at the events of 2016 – Brexit, the Italian referendum, Trump, and the rise of nationalist China – are these the harbingers of something bigger? Or are they just a coincidence?"
Although Chanos avoided giving a definitive answer to his question, he added that "the ground seems to be fertile for things to change globally".
If this is the case, he said, it would have huge implications for investors. "If we're in one of those periods now – if 2016 is like 1932 or 1979 – then you not only have to change your portfolio, you have to change your lifestyle ... If this is a major shift to populism, nationalism, greater state involvement, and less globalism, then you really have to rethink almost everything in your life."
Mr. Chanos’ sees current geopolitical trends as a possible shift in favor of labor at the risk and expense of capital. How? Through increased “government control over the economy”.
This entails of intensifying interventions, or government’s crowding out of the private sector. Such crowding out means “you wanted to be labour, not capital”.
Politically, the shift or subsidy to labor translates to more votes or vote generating (populist) activities.
Economically, it means “asset-holding classes – stocks and bonds did terribly over that period”. That’s largelybecause substitution of capital with labor implies a rise in interest rates as capital diminishes or shrinks.
Although such would boost “nominal economic growth”, the real economy would suffer.
Yet the most striking comment from the above has been that under such milieu “then you not only have to change your portfolio, you have to change your lifestyle… you really have to rethink almost everything in your life."
What resounding phrase!
Change your lifestyle. Rethink your life. Either one becomes a crony or part of the political redistributive machinery!
Well this insight aligns with my comment of last year on the political shift to the left, “aside from foreign currencies, perhaps an insurance against having one’s standard of living from being sustainably plundered is to become a tax consumer.” Pressure on the Philippine Markets: It’s Not Just the Economy, It’s the Politics Stupid! (October 9, 2016)
That’s labor at the expense of capital!
The Economic Impact of the Hike in SSS Mandated Benefits
Mr. Chanos’ perception of the coming political economic risks already applies here in the Philippines! Right here, right now!
Last week, the Philippine government announced two earthshaking economic actions that will have a huge effect on the economy: the SSS pension hike and a crackdown on informal sector’s 5-6 lending.
First, the SSS rate hike.
Exactly one year ago, or in 14 January 2016, the immediate past president vetoed a congressional bill to hike pension benefits.
Early this year, after being warned by economic managers, the incumbent president exuded some reluctance to transform a campaign promise into reality. The leadership attempted to defer on the decision. However,leftist groups pressured the government to implement such pension hike. Mr. Duterte decided to strike it half way, approve of pension hike but at half the rate demanded. And that the SSS benefit hike would be financed with an increase in both employer and employee contributions.
A lawmaker declared that the pension hike was “invalid and illegal”. Yet, leftist groups pushed for the full implementation of their demand.
In the past, I have noted that while media and government enthrall the public with congressional histrionics from extrajudicial killing and the war on drugs, the left’s influence on economic policymaking has gradually been expanding hardly noticed by the public. [While Brinkmanship Geopolitics Escalate, NDF-NPAs Flex Their Political Muscles October 9, 2017]
The SSS controversy appears to validate my position on the growing influence of the political left. Yet, the SSS pension hike comes with serious risks.
The SSS mandated pension hike is almost equivalent to a tax increase. On the surface, it raises the cost of labor for firms. It also reduces current take home pay of employees. On the other hand, it raises consumption for welfare beneficiaries. Because of the relatively young population (median age 23.4 as of 2010 PSA), there would be far more pension fund contributors than of beneficiaries.
Of course, economics goes beyond the surface. The rising cost of labor means higher operating costs for businesses. This entails lower profits for firms or higher prices of products offered for sale. The latter will hold true, if firms pass on this increase in contribution to consumers, and if the consumers have the capacity to absorb such price increases. (So this should piggyback on price increases due to BSP’s trickle down)
And because of higher operating cost, one invisible cost would be for existing businesses to shelve or limit expansion. Also, many prospective entrepreneurs with limited capital will forego with pursuing their plans to engage in commerce.
For the workforce, it won’t be just diminished take home pay, higher cost of labor may imply that employers will do less hiring, limit salary increases, diminish increase in other non-monetary labor benefits, increase labor hours and more. Companies may also look for other labor saving devices to limit use of labor.
The end result for such mandated benefit policy is to reduce investments, employment and consumption.
The other concern will be the health of the Pension Fund or the SSS itself. If SSS overpays on the benefits (aside from rising operating expenditures) relative to contributions generated PLUS investment returns (or the matching of liabilities with assets), then it would incur deficits. Yet the larger the deficits, the greater the risk of bigger contribution hikes, or an eventual reversal of benefits, or even a taxpayer bailout.
Yet the key direct beneficiaries from such hike would be the pension managers (bureaucrats), and most importantly, the government through debt financing. Also, asset managers who conduct transactions, for andin behalf of the SSS, profits from such political actions indirectly.
The Philippine government’s debt comprised 39% of the fund’s investment portfolio (Facts and FiguresSeptember 2016) that’s up from 37% at the end of 2015. (Equities at 24% Sept 2016 which dropped from 28% end 2015).
So pension contributions are channeled into financing mostly the government through debt.
In 2015, contributions reportedly grew by 9.9%, investment (ROI) 6.9% while operating expenditures expanded 9%. With operating expenditures growing as fast the top line, these numbers just revealed to us why such mandatory hikes would make the pension fund’s financial position increasingly fragile, especially to an economic downturn.
This strengthens my case why the BSP acted to save asset markets in 1Q 2016
Economics is multifaceted. Add the ENDO regulations to the mandated benefits one should expect to see lesser grass roots or mom and pop enterprises over time.
These regulations would denote that for firms with limited capital, they are condemned to become less competitive, and subsequently, will most likely shrink or die.
Yet the same regulations become protective moats for firms that have large capital, or have access to capital and or credit. These are firms that benefit from political policies because of their scale and networks. These firms are called political entrepreneurs or cronies.
Yet the smaller the economic pie, the greater the control by politicians on the direction of the use of resources or economic fascism.
You see, it’s more evidence that the Philippines has been veering to the left!
The other alternative is that corruption would surge, and or, that many firms would opt to operate underground.
Duterte’s War on the Poor: Squeezing Access to Credit by a Ban on 5-6 Credit!
The other crucial economic policy is the assault on the informal lending (5-6).
From the Manila Bulletin: The government is stepping up its crackdown on foreigners engaged in the notorious “5-6” money lending scheme to ease the suffering of poor Filipinos. During Monday’s Cabinet meeting, Agriculture Secretary Emmanuel Piñol said President Duterte ordered the arrest and deportation of foreigners involved in the dubious money-lending scheme.
Such is a clear obfuscation of reality. The poor doesn’t suffer from dubious money-lending scheme. Because this signifies a voluntary exchange, for the poor to have repeatedly engaged in such credit scheme, this shows that they benefit from it.
You see, the problem is ACCESS to credit. With lack of identity cards and or assets for collateral, the poor can hardly tap the banking system’s rigid regulatory enrolment requirements. Hence, since life doesn’t operate in a vacuum, some entities had to fill the credit gap by intermediating via extending non-secured loans to the underprivileged.
Yet according to the BSP chief, in a July 2015 speech on financial inclusion, “About 47 % of adults have outstanding loans. The main source of borrowing is informal – 62% borrow from family, relatives or friends while 10% borrow from informal lenders.”
While the BSP reads informal credit as a one size fits all, they aren’t. From my experience, 5-6 credit has been extended to mostly informal enterprises (hardly about personal loans).
As anecdotal example, even my favorite fishball vendor recently expressed anxiety over such clampdown, without me having to raise it. When unexpected expenses occur, or when business revenues have been insufficient, the vendor borrows from 5-6 creditor/s for bridge financing. I told the vendor not to worry because such prohibition is bound to fail.
Perhaps most of informal entrepreneurs, along the street where I live, have borrowed from 5-6 creditors as business credit in at least in one occasion. Some appear to be active borrowers.
Yet 5-6 credit certainly is NOT a windfall for the informal creditors. Such creditors are faced with not only with ENORMOUS CREDIT risks, but also with SECURITY risks.
To give examples, a former neighbor, a carinderia (eatery) operator, borrowed from a 5-6 creditor substantial amounts (relative to informal credit) a day before the vendor closed shop. The unsuspecting informal creditor took a hit.
Another 5-6 creditor, who was a neighbor of a relative of my wife, was murdered when in the process of doing routine collection.
5-6 informal lenders go around and collect almost EVERYDAY from their borrower-clients. So this involves a lot of effort and expenses. No wonder it’s job taken by localized “foreigners”
Besides, not all of the source of funding for 5-6 creditors are from savings. Some arbitrage by borrowing from banks or from private lending firms at lower rates then lend to the informal sector. So aside from the high operating cost of daily collections, some creditors actually pay for interest rates.
In short, where there is lack of access to credit, informal lenders provide the economy with funds necessary for the upkeep of the livelihood of the poor.
So how should this be seen as taking advantage of the suffering of the poor??? There would be NO informal lenders had there been alternative sources of funds which either government or the government private sector extensions (banks) have failed to provide.
Yet haven’t the BSP’s “trickle down” redistribution scheme and various assault on the poor via increasing mandates not been the ultimate cause of social hardships?
Moreover, people fail to realize that the informal sector is CONNECTED to the formal sector.
For instance, when my informal sector neighbor/s earn extra money from their entrepreneurial activities, they bring their family to Jollibee for a treat. That’s why I admire Jollibee’s domestic business model (and not the overpriced stock); they serve as a vital link between the informal and the formal sector. Informal sectors also buy their inventories from formal wholesalers.
So when the government imposes a ban on 5-6, that’s actually an indirect assault to the formal sector!
More than this, such crackdown serves as partial tightening of the financial system that would come with real economy repercussions.
This historic shift to the left seem to take anti-poverty at a literal sense. These seem like Mao’s Great Leap Forward and Cultural Revolution, where poverty was removed physically by extermination or by starvation.
And yet of course, these are factors that support my predictions of the HISTORIC shift to the left…that would come as a big surprise to the unsuspecting diehards of the asset bubbles.
Of course, the currency or the peso should be the first to feel such an impact.
Interestingly, despite this week’s .34% advance by the Chinese yuan, mostly from the China’s central bank’s drastic interventions, which lifted almost all of Asian currencies, the Philippine peso closed the week slightly lower and accounted for the region’s laggard. The only other loser was India’s rupee (+.28%)
The USD Php was last quoted at Php 49.62 up by .2% from last week’s Php 49.52
Statistics Is NOT Economics: Another Set of Contradictory Numbers
As a short note, the Philippine government through the Philippine Statistics Authority announced another booming set of numbers for imports (+19.7%) and for industrialproduction (+10.6%) in November. Curiously, exports plunged (-7.5%) over the same period. It was exports to China (+5.2%) that saved the November number from an even deeper slump!
I have written about this patent contradictory numbers [Statistics Is NOT Economics: The August Manufacturing “Wow” Story October 17, 2016]
Since exports mostly depend on manufacturing output (which accounted for 87% share of exports in November and in Jan-November), the sizzling manufacturing survey basedestimates means that most of the output has been absorbed by a very strong domestic demand, or that there has been an immense inventory buildup (unsupported by demand) or that the numbers have signified a puffery. Yet the booming manufacturing comes with deflationary PPI (-3.5%). This implies strong manufacturing output but has been accompanied weak manufacturing inputs (huh???).
Yet some imports are inputs to exports or are reexports, but I have no numbers for these.
So the above numbers tell of mainly a domestic demand story.
At the same time, bank credit to the manufacturing sector was only up +8.65% during the same month. This has been less than the estimated output (+10.6%). In today’s bank credit-GDP dimension, where every Php 2 of borrowing has typical produced Php 1 of output, the manufacturing sector’s credit standing shows that it has been flushed with cash as to require less than Php 1 for every output. They are operating with exceptional efficiency!
So the credit story doesn’t seem to fit the manufacturing story.
And yet given the tremendous output or the avalanche of supplies from both production and imports, this should have contained retail prices. Ops, but not so fast, CPI has been simmering with core inflation (excluding food and energy) up 2.5% in December and 2.4% in November. On the other hand, General Retail Price index has bristled even fasterat 3.6% in November (I provide no core GRPI).
So the +10.6% growth in manufacturing output PLUS +19.7% import growth had been inadequate to meet demand for consumer prices to keep spiraling higher?
The gist is: some of these ‘economic’ numbers are either extremely bloated or has been unconnected with reality.
But who cares? As the Indonesian experience shows, when the government yells G-R-O-W-T-H, everyone else is expected to comply!
