In this issue
SONA 2018 and the PSYEi 30: First Bear Market SONA Below The 10-Year Secular Trend Line! The Incredible Pre-SONA Price-Fixing Pumps!
-PhiSYx Returns During SONAs
-The Incredible Pre-SONA Price-Fixing Pumps!
-First Bear Market SONA Below The 10-Year Secular Trend Line!
-Despite The BSP’s Yield Control, Yields of 6-Month T-Bills and 1-Year Notes Rockets to Multi-Year Highs
-SONA 2018: Will Interest Rates Be Included? What Will Be the “Surprise” Announcement?
SONA 2018 and the PSYEi 30: First Bear Market SONA Below The 10-Year Secular Trend Line! The Incredible Pre-SONA Price-Fixing Pumps!
PhiSYx Returns During SONAs
Philippine President Rodrigo Roa Duterte will hold his third State of the Nation Address (SONA) tomorrow, Monday, July 23rd.
SONAs have typically produced positive returns for the headline index, a week before and in the week of the event.
Since 2009, only 3 SONA’s have produced negative returns a week before the event. Thus, the headline index had been up 70% a week before the SONA from 2009-2018. Including this week’s almost unchanged (+.01%), the average gain of the headline index totaled .95%
A better probability in favor of positive returns for the headline index has occurred during the week of the SONAs. Seventy-eight percent or 7 out of 9 years produced positive returns with an average gain of .72%.
Will history rhyme?
Yet, the omission of the nitty gritty represents the typical weakness of analytical investigation depending on aggregate numbers.
The Incredible Pre-SONA Price-Fixing Pumps!
Figure 1
For instance, the unchanged weekly return by the PhSYx was a result mainly from a massive marking the close pumps which produced a whopping 146.21 points or about 2%.
From this perspective, returns would have been substantially LOWER outside the concerted efforts to rescue the headline index.
In two sessions, marking the close pruned the substantial declines in the bellwether. In two other sessions, marking the close transformed magically modest declines into marginally positive returns. Only in one session has the PhiSYx climbed but this had to be punctuated by another brazen closing pump.
That the headline index had been in negative territory intraday in four of the five sessions tells us of the inherent tilt of the market. In the PSE universe, declining issues (466) led advancing issues (449) by a margin of 17
However, markets haven’t been allowed to function normally. To shore up the index for the mainstream’s convenience purposes requires the consistent and flagrant falsification of the pricing system.
Figure 2
Price fixers have taken advantage of the lack of volume and the recess from sellers. (upper window)
This week’s average peso volume of Php 3.85 billion has sunk to a January 2014 low. The average weekly peso volume has been in a structural decline since 2015, or perhaps even earlier. So while the PhSYx rampaged to 9,058.62 in late January 2018, the falling weekly peso volume validated the divergent, the market internal’s negative breadth.
Instead of responding to spontaneous market pricing system, such divergent actions served as concrete evidence of the ongoing manipulations in the PSE, through the PhiSYx.
The distribution of the PSYEi 30’s PER ratios, based on the eps of 2017, also reveals of the substantial price distortions. Because the engineered serial pumping has been concentrated primarily on the Sy Group of Companies and the secondarily, the Ayala Group, these issues have become the priciest. (middle window)
The mainstream mentions that because of the bear market, the PSYEi 30’s PER has dropped to 17-18. But that’s the aggregate. The Phisix is a market cap weighted index, therefore on a market cap basis, as of July 20, its PER ratio remains a staggering 22.44.
To recall, the aggregate net income growth of 2017 was a puny 4.21% which represents a speck above the CPI. To the contrary, it has been debt that has been growing fastest. And these should serve as a basis for bullishness?
Serial end session pumps have not been cost-free actions. As earlier mentioned, falling volume, negative breadth and vastly skewed distribution of PER have signified as symptoms of the domestic stock market’s progressing entropy. The swift expansion of concentration risks punctuated by the corralling of the share of market cap weightings by the Sy and Ayala groups have accounted for the other significant manifestation.
As of July 20, the combined market cap weight of SM, SMPH, and BDO has tallied 30.01%. On the other hand, the total market cap share of the core Ayala group: AC, ALI, and BPI have reached 21.23% (this excludes GLO). Hence, the aggregate share weight of the SY-Ayala Group or 6 companies controls a record 51.24%.
Hardly appreciated is the fact that attempts to artificially inflate expensive issues will deliver low if not negative future returns. Instead of money used to pursue productive investments, chasing momentum and manipulating prices will eventually end in tears.
Stocks, as a claim to titles to capital goods, have been thoroughly mispriced. And debt financing of such speculative and manipulative activities should aggravate such imbalances.
Not only has vice been converted into a virtue (Sodom and Gomorrah), the extent of the price distortions tells us of the gravity of malinvestments embedded in the ecosystem.
Will this week’s SONA be a continuation of the last week?
First Bear Market SONA Below The 10-Year Secular Trend Line!
Back to the 2018 SONA.
Figure 3
“This time is different”.
Two milestones of President Duterte’s 2018 SONA relative to actions in the PhiSYx as shown below.
One, 2018 will be the second SONA made off from a bear market. The first was in 2013.
Second, 2018 marks the first bear market SONA in the aftermath of a significant violation of a secular 10-year trend line.
The bear market of 2013 never breached the bull market trend line set in 2009. (green trend line)
The original trend line was pierced or broken in 2015-16 which became a noteworthy resistance to the rallies of 2016 and the January 2018 high.
That the 2018 episode marks the second crucial trend break could signify a decisive trend reversal or highlight a monumental inflection point
The difference between the bear markets (2013, 2015 and 2016) then and now: it is the end of the era of easy money!
Despite The BSP’s Yield Control, Yields of 6-Month T-Bills and 1-Year Notes Rockets to Multi-Year Highs
Figure 4
Like the stocks, yield spikes of 10-year Local Currency Unit Sovereign Bonds in the morning have been neutralized by an unknown bidder, most likely the BSP, in repeated attempts to cap benchmark rates. (see PDS quotes in red blocks)
Yield control has not been limited to 10-year securities but has applied to most segments of the domestic curve. The BSP’s net claims on National Government may have been used to finance such cap on yields.
Nevertheless, the yield control program has hardly contained the yields of 6-month T-Bills and 1-year notes from flying to multi-year highs. (The 1-year yield has reached 2010 or an 8-year level!)
So another feature of SONA 2018 would be skyrocketing yields or more signs of the end of easy money.
SONA 2018: Will Interest Rates Be Included? What Will Be the “Surprise” Announcement?
Last June, when Mr. Duterte said that the “economy was in the doldrums”, he mentioned the untoward effects of rising interest rates.
“Interest rates are picking up, are getting high so it destroys the existing [economic gains] … You raise your [interest rate], our [peso value] goes down, theoretically,” Duterte said in a speech at the National Information and Communications 2018 Summit at SMX Convention Center here.
Will domestic interest rates be a part of this year’s SONA?
Will President Duterte join the growing chorus of political leaders (e.g. US President Donald Trump and Turkey’s Tayyip Erdogan who recently called interest rates the “mother of all evil”) demanding low-interest rates from their respective central banks?
In this year’s SONA, the President will likely deal with a number of politically critical issues.
These should include a pitch for the ratification of his signature project of Federalism, which according to a survey, a vast majority of the population have expressed opposition to; the plebiscite on the proposed Bangsang Moro Organic Law (BOL),stubbornly high inflation rates, TRAIN 2.0, deterioration of peace and order through the killings of priests, local officials andmedia personalities, the continuing war on drugs, the anti-tambay drive, the West China Sea territorial dispute, as well as other issues.
Aside from concerns that the proposed Federalism could lead to an authoritarian rule, the US credit rating agency Moodys noted that such a transition could bring about downside risks on the economy
The Palace has already published President Duterte’s accomplishments for the year 2017.
The Presidential Communications Operations Office says that the public should expect a “surprise” from the SONA. However, the unexpected announcement won’t be about “No-El” or No Elections
What kind of “surprise” has been in store for us?
