The
element of rule begins—and with it exploitation—when someone, or
a group, gets hold of the state and starts to operate it. It could be
a big businessman—often it is—or some groups of big businessmen.
And it also could be members of the Communist party or whatever. In
other words, any group—whether businessmen, labor union, or a king
and his retinue—any group that manages to get control of the state
naturally becomes a ruling class because of that overall
control.—Murray N. Rothbard
In
this issue
Phisix
7,450: The Duterte Regime in the Shadow of Team PNOY; The Coming
Failure of Prohibitionist Statutes
-Protest
Vote? Why the Duterte Regime Will Likely Work Under the Shadow of
Team PNOY
-The
Coming Failure of Prohibition Statutes; Why Populist Politics
Underwrites Its Own Demise
-Watch
the Cabinet Appointments: The Plus Ça Change, Plus C'est La Même
Chose
-Duterte’s
Regime Major Challenge: How to Deal with Bursting Bubbles
-Phisix
7,450: Will the New Administration Justify the Escalation of the
Mispricing of Philippine Risk Assets?
Phisix
7,450: The Duterte Regime in the Shadow of Team PNOY; The Coming
Failure of Prohibitionist Statutes
Protest
Vote? Why the Duterte Regime Will Likely Work Under the Shadow of
Team PNOY
The
political environment plays a very significant role in shaping
economic, financial and social outcomes. For instance, if the thrust
of a political regime is to abolish property rights to pave way for a
collectivist society, then markets, including stock markets, would
cease to exist. So it would be of primary importance to understand
the political process that would underpin the direction of
governance.
The
Philippine political season is over. The voting public has decided on
a new set of leaders at the national level; namely the president, the
vice president and 12 senators, and at the local levels.
Nonetheless,
how the process took place would provide likely clues to the
direction of the governance by the incoming political regime.
Media
backed by the many political experts claim that the incoming populist
president, former Davao Mayor Rodrigo Duterte, who won via a
landslide*, was a product of an ‘angry’ or ‘protest’ vote.
The angry or protest vote supposedly had been in response to the
myriad expectations failures in governance by the administration,
e.g. inequality, criminality, high taxes and etc…
*Based
on GMA
network’s unofficial numbers, Mr. Duterte beat the nearest
rival, administration candidate, Mar Roxas by 36.5% to 22.1% based on
96.06% election returns processed. The PPCRV
has Duterte up at 38.59% against Roxas at 23.45%. As for % of votes
cast relative to registered voters, GMA showed 81.62% while PPCRV
estimated at 81.92%.
Curiously,
the angry or protest vote would appear as glaringly
inconsistent
when seen from the overall election results.
Apparently,
voters forgot
their ‘anger’ and ‘protest’ on the administration’s vice
president candidate Leni Robredo. Ms Robredo leads the independent
bet, son of the former president Ferdinand Marcos, Bong Bong
Marcos—by only a neck. GMA numbers show that Robredo has 32.07% of
votes as against Marcos at 31.6%.
Even
if Ms Robredo should lose the elections, the very close margin only
translates to the cognitive dissonance of the voting public.
Actually
history seems to rhyme.
Rewind
to 1998.
Former San Juan City major and Senator Joseph Estrada (39.86%)
trounced the administration bet Jose de Venecia (15.87%) to claim
presidency by the largest margin at 23.92% in the presidential
elections based on the 1987 constitution.
Then
Mr Estrada rose to the occasion carrying the banner Erap para sa Masa
(Erap for the masses) under his party Pwersa
ng Masang Pilipino or PMP (Forces of the Filipino Masses). Like
Duterte, Erap spoke in colloquial and street language to connect with
voting populace.
And
again like Duterte, given the size of the margin, the Erap victory
revealed how his votes cut across the different income class.
Meanwhile,
the vice presidential slot was won by a female administration
candidate, Gloria Macapagal Arroyo. The difference was that Ms Arroyo
won by a landslide with 49.56% as against nearest rival senator Ed
Angara 22.11% or a margin of 27.45% (which was larger than the votes
for Mr Angara).
There
have only been two female vice
presidents, that’s if Ms. Robredo’s victory will be included.
Interestingly,
vp GM Arroyo took over the presidency when Mr. Estrada was ousted
during the Second
People Power Revolution in 2001.
So
if Mr Duterte ceases to function as president anytime during his term
for any reason, and if Ms. Robredo will win and assume the vice
presidency then the PNoy administration will have extended or
retained its hold on power via Ms Robredo. The protest vote would
lose its very essence!
See
the contradiction?
And
here is more.
In
the latest elections, 5 of the 12 or (42%) of the contested
senatorial positions had been won by administration candidates. The
independents took three seats (25%) while scattered opposition
parties took the rest (33%).
So
the administration senators remain as the plurality under the
2016-2022 batch. This means that the administration’s influence on
the Senate will remain significant.
So
once again, voters
have been oblivious of the protest or angry votes when it comes to
senators.
It’s
no
different in 1998 where the same 5 of 12 (42%) seats had been won
by the Lakas administration party. The opposition seats was split
with LDP 4 seats (33%), NPC, PDP Laban and PMP had one each (8.33%).
Professor
and author Bryan Caplan rightly sees through the voter’s
irrationality1
Voters
typically favor the policies they perceive to be in the general
interest of their nation. This is, however, no cause for democratic
optimism. The key word is perceive.
Voters almost never take the next step by critically asking
themselves: “Are my favorite policies effective means to promote
the general interest?” In politics as in religion, faith is a
shortcut to belief.
Well,
elections have always primarily been about emotions.
And
there was a genuine protest vote in the past something which media
talking heads has largely failed to address.
Flashback
to the 2004
presidential elections. President GMA won an extended term and
was eventually accused of electoral fraud through the Hello
Garci Scandal in 2005.
In
the 2007
senatorial elections, the administration team was humiliated with
crushing defeat. The administration ticket under ‘Team Unity’ won
only 2 out of 12 seats (17%). The Unified Opposition team running
under ‘Genuine Opposition’ snared 8 seats or 67% while the
independents took 2 spots or (17%). That was clearly a protest vote.
The
reason why I had to emphasize on the grave populist misperception is
that under a protest vote there is a predilection for the victors to
isolate or to keep their distance with the losing political agents.
For
instance, ex president GMA never recovered from the 2007 senatorial
debacle.
Based
on polls prior to the 2010 presidential elections, 4 out of 5
surveyed people in December of 2009 said that they would not support
any candidate endorsed by outgoing GMA. So GMA’s
endorsement then was likened to a “kiss of death”. Then
administration candidate, Gilberto Teodoro was a virtual no contest
because he was walloped in the 2010
elections where he garnered only 11.33% of votes compared to
PNoy’s 42.08%
Whereas
an electoral victory with little antagonism among contenders would
allow past and present or winning and losing powers to most possibly
forge an implicit coalition.
This
will be particularly important considering the distribution of
political power between Mr. Duterte and Team PNoy.
Team
PNoy will remain a mighty
force
to reckon with especially if Ms Robredo wins the vice president slot.
Ms Robredo will reinforce the 9
of the 12 incumbent senators whom will be bolstered by the
inclusion of 5 of the newly elected administration senators for a
total of 14 of 24 or 58% of senate seats under Team PNoy.
All
things being equal, should there be a serious rift between Team PNoy
and president Duterte, under the right circumstances, Team PNoy would
need
only 2 more senators
to generate the
two thirds of the votes required to impeach the president and
install Ms. Robredo!
Yes
Mr Duterte may have won by a landslide alright. But
the cognitive dissonance by the voting public effectively placed a
kibosh on Mr Duterte. Mr Duterte can hardly freely work to promote
his political agenda. But
as I have noted here, ALL candidates are from the ESTABLISHMENT. So
wheeling and dealing will not be a surprise to Mr. Duterte. Contra
mainstream analogies; Mr. Duterte is NO Donald Trump.
This
means that the Duterte regime will have to, or be compelled to work
WITH, or work UNDER the shadows of the well-entrenched Team PNoy.
Expect
that there will be lots of horse trading, log rolling, and comprises
between the two.
So
Duterte regime will essentially be counterbalanced by Team PNoy. Or
Mr Duterte will have to work along with the interests of Team PNoy!
Again
Mr Caplan on voter’s ignorance2
of how political system works.
The
flip side of public ignorance is insider expertise. While the voters
sleep, special interests fine-tune their lobbying strategy. Just as
voters know little because it doesn’t pay, interest groups know a
lot because—for them—it does; hence the mantra of “concentrated
benefits, dispersed costs.” As Mancur Olson proclaims, “There is
a systematic tendency for exploitation of the great by the small!”
As
I noted above history may rhyme.
And
could this be the reason for the sudden change in the stance by Mr
Duterte from a self-proclaimed socialist to supposedly a business
friendly leader????
Or
could it have been that Mr Duterte was after all, the double entry
bet by the outgoing administration???
All
the administration needed was the marketing humdrum called ‘protest
votes’ which the 16.5+ million people easily took the bait.
Funny,
but whatever happened to the protest votes? Most importantly, what
happened to C-H-A-N-G-E???
The
good news is that the current arrangement will mean the likely
dilution of Mr Duterte’s leftist agenda. The bad news is that
oligarch crony capitalism will be retained. While I disdain oligarch
crony capitalism, I DREAD a socialist society.
People
have vastly underestimated the risk of ruthlessness from socialist
governments (particularly the hardcore ones). Just observe what’s
going on in socialist Venezuela where economic collapse has led to
starvation,
looting and violence. Maduro’s government just declared
a state of emergency.
The
Coming Failure of Prohibition Statutes; Why Populist Politics
Underwrites Its Own Demise
Contradictory
to the public’s simplistic impressions, politics tend to be much
more complicated. And such complications will lead to expectations
failure and the eventual loss of political capital through the
decline in popularity for the incoming president.
History
provides us hints or indications.
Once
again the biggest voting margins on presidential elections under the
1987 constitution were from the double digit lead in the electoral
victories of Joseph Estrada, and the outgoing Benigno Aquino.
As
a side note, the most lopsided victory in presidential elections was
during the Batasang Pambansa elections in
1981, where President Ferdinand Marcos was reelected with a
stunning 79.77% lead (mainly due to electoral fraud). Recall too that
the Philippines
had a balance of payment crisis in 1984.
In
1998 Joseph Estrada won by landslide from the backdrop of the Asian
crisis. Unfortunately he was ousted three years later.
Benigno
Aquino benefited from a protest vote against GMA which at the same
time was buttressed by a sympathy vote coming from the unfortunate
death of his mother ex president Cory Aquino a
few months before the elections or in August 2009.
President
Aquino’s exit and replacement by incoming president Rodrigo Duterte
was sold to the public as an ‘angry vote’.
In
short, popular votes moored on large margins have failed to please
voter’s expectations. Even more, popular votes can lead to worse
outcomes such as in the case of Mr Estrada/ Mr Marcos.
There
are reasons for these.
One,
large margin votes can be a manifestation of TOO
HIGH or EXTREME (mainly chimerical) expectations by the public on the
elected politicians to deliver political goodies
even if these electoral promises are politically and economically
unfeasible.
Two,
popular votes may provide the carte
blanche
rationalization for
the winning candidate to abuse the system.
Three,
crowd psychology matters. The current popular sentiment which seems
to favor the sidelining of the rule of law and due process in
exchange for judge-jury-executioner political management with
increased use of arbitrary violence may in fact lead to violence in
both directions.
And
once real blood spills over on the front pages or in TV screens or in
youtube, such may alter the populist outlook.
And
just consider this thought: given that the military has fought NPA
through the decades (where thousands
have been killed on both sides), how will the military
institution, which sports a right wing ideology, react to a leftist
president who might impose a rigid leftist ideology based regime?
Will the military be pliable? Or will there be a black swan event?
As
said above, I am pleased that Mr. Duterte has shown less inclination
to his leftist values. But the risk remains.
Let
me provide more examples.
The
incoming president is a self-professed prohibitionist. So he desires
to implement a selective
ban on liquor as one of his first populist acts to feed on the
strong man rule bubble. That’s aside from the tightening of the
noose on the war on drugs. Based on his campaign rhetoric, Mr Duterte
will not hesitate to use of extrajudicial violence to implement the
latter.
Mr
Duterte’s problem is that the chart above ensures that his program
will fail even before it starts.
Prohibitionists
think that populism will be enough to subvert the law of economics
through good intentions backed by strong arm tactics.
Prohibitionist
policies are applied not only to drugs or alcohol but also on other
social vices as prostitution, smoking, gambling and etc…
Prohibitionists
think in terms of what is seen. They ignore the rest. This means
that they have always attacked the supply side WITHOUT considering
the DEMAND side factors and the pricing system which coordinates the
balance between demand and supply.
Yet
for as long as there will be demand, there will be supply.
Where
everything is supposedly collectively owned, not even the North
Korean cold blooded communist dictatorship has stopped
the proliferation of trade in what constitutes as the underground
economy. Where there is demand, there is supply.
And
the restriction of supply only increases the price and profits which
allows suppliers to buy protection from within the system.
Additionally,
black markets for these products will swell. Moreover, innovative
bootleg products will emerge. Yet the more the restrictions, the
deadlier the products offered. That’s because quality will be
substituted for quick illicit transactions.
Yet
the imbalance brought by supply side repression will only translate
to the perversion of the political system through the erosion of the
rule of law which leads to social instability.
As
economist Mark Thornton pointed out3
Prohibition
is the major cause of crime. There
are the crimes associated with buying and selling prohibited products
like heroin and services like prostitution. Then there are crimes and
violence associated with prohibition like those related to
street gangs and organized crime, such as drive-by shootings, mafia
“hits,” racketeering, etc. Violence
basically replaces the rule of law when markets are prohibited.
That’s
aside from the effects of prohibition on the balance sheets of the
government. Effecting larger scale of prohibition enforcement will
require more resources, people and logistics (armaments, uniforms,
radios, vehicles, office spaces and etc..). Such
policies are not for free.
For
instance, in the US, over 50% of inmates are from drug
offenses. Since there is no free lunch, taxpayers will have to
pay the burden of sustaining the welfare of incarcerated drug
offenders through debt, taxes and inflation.
Furthermore,
prioritizing enforcement of prohibition means lesser
attention to other socio-political-economic goals. So while the
Duterte government tries to curb alcohol/drug usage, other segments
of the political economic system will likely be deprived of the
attention, efforts and resources. So this will translate to
dissatisfaction from many other interest groups. As a reminder, this
is called opportunity costs.
Additionally,
the war on alcohol would affect the economy and government financing.
Mainstream industries attached to the production, sale, distribution
and consumption of alcohol will suffer (think convenient stores,
restaurants and bars) as economic activities will move to the
informal or the underground economy.
And
slower economy means lesser taxes for the spending
hungry Duterte regime as noted from his 8 point agenda, e.g.
accelerate infrastructure spending, provision of support services for
farmers, provide more tertiary scholarships and increased conditional
cash transfer program. There is a lot to discuss here but this is for
another issue.
Yet
there is no greater example or demonstration of the failure
of prohibition policies than the 13 years botched experiment by the
US government to BAN Liquor sales via the Volstead
Act or the National Prohibition Act of 1919.
Then
29th US president Warren Harding (1921-23), who was an alcohol
aficionado, openly flouted the Prohibition.
From
1920-30.com4
(bold added)
Even
prominent citizens and politicians later admitted to having used
alcohol during Prohibition. President Harding kept
the White House well stocked with bootleg liquor,
though, as a Senator, he had voted for Prohibition. This discrepancy
between legality and actual practice led to widespread comtempt for
authority. Over
time, more people drank illegally and so money ended up in gangsters'
pockets. Arguments raged over the effectiveness
of prohibition. It appears to have been successful in some parts of
the country but overall led to an increase in lawlessness.
The
US government even resorted to the deliberately poisoning raw
materials or the alcohol used for bootleg liquor which eventually
backfired. Not only alcohol users were harmed but caused a public
outrage against the government as the main victims of alcohol
poisoning were the poor.
From
Slate.com5
Norris
also condemned the federal program for its disproportionate effect on
the country's poorest residents. Wealthy people, he pointed out,
could afford the best whiskey available. Most of those sickened and
dying were those "who cannot afford expensive protection and
deal in low grade stuff.
And
the numbers were not trivial. In 1926, in New York City, 1,200 were
sickened by poisonous alcohol; 400 died. The following year, deaths
climbed to 700. These numbers were repeated in cities around the
country as public-health officials nationwide joined in the angry
clamor. Furious anti-Prohibition legislators pushed for a halt in the
use of lethal chemistry. "Only one possessing the instincts of a
wild beast would desire to kill or make blind the man who takes a
drink of liquor, even if he purchased it from one violating the
Prohibition statutes," proclaimed Sen. James Reed of Missouri.
Such
reveals how prohibition is really a war against the poor!
Thirty
second US president Franklin Delano Roosevelt, who was also an
alcohol consumer, eventually worked
for its revocation. The repeal of the Volstead Act became
instrumental to his winning presidential bid in 1932.
The
Volstead Act was annulled
in March 22, 1933.
Here
is the Wikipedia narrative of abrogation of the Volstead Act6
(bold mine)
Prohibition
lost advocates as
ignoring the law gained increasing social acceptance
and as organized
crime violence
increased.
By 1933, public opposition to prohibition
had become overwhelming.
In March of that year, Congress passed the Cullen–Harrison
Act, which legalized "3.2 beer" (i.e., beer
containing 3.2% alcohol by weight or 4% by volume) and wines of
similarly low alcohol content, rather than the 0.5% limit defined by
the original Volstead Act.
Congress
passed the Blaine
Act, a proposed constitutional amendment to repeal the Eighteenth
Amendment to
end Prohibition,
in February.
Was
the Volstead Act a problem of enforcement? The answer is clearly NO.
Because
the Volstead Act defied the essence of the law of economics, it
spawned unintended consequences,
in particular, social monsters through major gangsters as Al Capone
and Tom Dennison which contributed to the escalation of societal
violence.
The
US government belatedly awakened to this reality only after suffering
a huge cost. So they repealed the uneconomic and immoral statute. And
alcohol liberalization paved way for FDR’s presidency.
So
whatever peace and security through reduction of criminality intended
from the rigid imposition of Prohibition statutes by the Duterte
regime has already been fated for doom even before it begins.
And
this just shows how voters really do not realize what they are asking
for, so they vote for social signaling, bandwagon influenced
preferences and “feel good” personalities and policies.
Again
Mr Caplan7
Brennan
and Lomasky point to the expressive function of voting. Fans at a
football game cheer not to help the home team win, but to express
their loyalty. Similarly, citizens might vote not to help policies
win, but to express their patriotism, their compassion, or their
devotion to the environment. This is not hair-splitting. One
implication is that inefficient policies like tariffs or the minimum
wage might win because expressing support for them makes people feel
good about themselves. The same holds to some degree for consumer
products. Even if generic perfume smelled as good as Calvin Klein,
some shoppers would pay extra for the glamorous image of the name
brand. In politics, though, Brennan and Lomasky point out that
voters’ low probability of decisiveness drastically distorts the
trade-off. If your vote does not change the outcome, you
can safely vote for “feel good” policies even if you know they
will be disastrous in practice
The
chart above I have posted when I predicted that President
Aquino’s jueteng prohibition would fail. So what happened to
jueteng? Has it been stopped? I went to a rural area for a week long
vacation during the election week and learned that jueteng operated
rampantly not only in the particular municipality, but has been
widespread in the region.
The
legendary Danish King Cnut or popularly known as King
Canute once ordered the sea “to stop the tide”. He did this
in order to show his courtiers the limits of his power. Mr. Duterte
must learn of the limits to his power.
Apparently,
populist
politics, which is blind to both history and economics, has
underwritten its own demise. Or populism will likely see the
unintended effects from their preferred ‘feel good’ policies
which eventually will prompt them to reverse their opinions.
Sad
to say, they never learn.
Nevertheless,
given that Team PNoy will hold a significant segment in the political
balance of power, Duterte’s prohibition policies will probably be
for exhibition purposes designed to please his voters rather than for
serious implementation.
Cabinet
appointments should give us a clue to how serious he will be.
Watch
the Cabinet Appointments: The Plus Ça Change, Plus C'est La Même
Chose
To
reiterate, in order to get a hint on the direction of the governance
by the incoming regime, all one needs to look at is the composition
of the cabinet members
Understand
that the character of the governance by the Duterte regime will be
reflected by his cabinet. A socialist regime will see a bevy of left
leaning people on various if not a majority of key bureaucratic
positions.
And
the most important appointments will be the military (Defense
secretary, Chief of Staff), police (Chief) and local government
(DILG). That's because national policies will have to be implemented
by police and military power at the grassroots level.
Besides,
Philippine politics have long been about patronage-client
or clientism. The layman lingo for such symptom: it
is not what you know, but who you know.
In
the present political system, the patronage-client
relationship means that choices for political appointments are
fundamentally the winning administration’s payment or reward or
compensation for allegiance.
Or cabinet appointments will likely reflect on rewards for ushering
Mr Duterte to power and for keeping
him in power. It’s why “ex-classmate” or “from Davao” has
reportedly been the floated qualities for some of his new recruits.
It’s
the public
choice theory in action.
Thus,
the personalities behind the Mr. Duterte’s appointments will likely
manifest on the who’s who or those shadowy support groups
instrumental or pivotal to his assumption as president.
At
the end of the day, those
who purport to change the system will eventually get consumed by the
system.
Or
change may have never been the desire at all, but a catchphrase used
in the goal to acquire political power at the expense of the people.
I
just love this French quote which vibrantly resounds under the
present political environment:
Plus
Ça Change, Plus C'est La Même Chose (the more things change, the
more they remain the same.)
Duterte’s
Regime Major Challenge: How to Deal with Bursting Bubbles
Besides,
I doubt that the Duterte regime will have much time to impose his
fancied policies.
Why?
Because
problems in the real economy have been surfacing.
The
agriculture industry suffered a near collapse down by a staggering
4.53% in the 1Q, according to the Philippine
Statistics Authority PSA.
4.5% Wow!
Considering
that the agriculture industry accounts for about a third of the
Philippine labor force, the industry’s sharp downturn would imply
that it won’t take long for farmers, fishermen, livestock and
poultry operators to go seek a bailout from the incoming president.
Mr
Duterte will have his hands full. And this would signify only the tip
of the iceberg.
Additionally,
Philippine exports crashed by a huge 15.1% last March according to
the PSA.
The export industry has been contracting for 12 straight months or in
four quarters. This means an extended recession in the export
industry.
Seven
of the 10 subsectors reported declines.
Exports
to the top trading partners were sharply down, namely Japan (-13.6%),
US (-23.6%) China (-23.4%) and Singapore (-4.8%). Only exports to
Hong Kong registered a sharp increase of +11.6%.
The
slump in exports may have likely weighed on industrial
production which growth has slowed to 1.9% in March.
The
downturn in agriculture and exports and stagnating industrial
production will eventually have spillover effects or will be transmitted to
the rest of the economy.
So
more problems for the incoming Duterte regime.
So
far what has been keeping the statistical GDP afloat has been the
government’s statistical stratagem of applying the GDP deflator,
and of activities in the bubble industries which continually have
been funded by bank credit expansion.
Yet
bubble activities have been emitting signals of considerable
slowdown.
Proof
from PSE listed companies.
1Q
2016 real estate sales by Shang Properties collapsed by 22.6%!
The company attributes this on lower inventory “mainly due to fewer
available units for sale of One Shangri-La Place” because “most
units already sold in 2015” although they appear to contradict
themselves with “other condominium projects are still ongoing”.
(p.1)
What’s
even more striking has been the near stagnant growth in rental income
which only went up by Php 6.6 million. This was reportedly due to
“rental escalation and higher rental yields of The Enterprise
Center this year”. It’s a curiosity because SHNG has been silent
on its malls. Besides, because “Shangri-La at the Fort commenced
its hotel operations” which contributed to the hotel income, those
new stores at the lobby of the hotel should have contributed to the
gains in rental income growth. But it seems that these stores existed
in a vacuum.
Or
could it be that rental gains from the Enterprise center and
Shangri-La at the Fort only offset losses from Shangri-la
Plaza to post such a meager growth?
And
it’s not just SHNG.
Empire
East reported their 1Q
FS and they show that real estate sales slumped by 9.6% over the
said period.
Interestingly,
sales of vertical projects soared by 1,822% but this wasn’t able to
fill the gap from the 79.3% collapse in the sales of horizontal
projects. The company barely explained the changes in sales
performance except to enumerate where they came from “The
sales generated were derived from various projects including, The
Cambridge Village, The Sonoma, San Lorenzo Place, Pioneer Woodlands,
Kasara Urban Resort Residences, The Rochester Gardens, Little Baguio
Terraces, California Gardens Square, Greenhills Garden Square and San
Francisco Gardens.” (p 21)
While
I’d give the benefit of doubt there might have been a shift in
focus in the marketing, I suspect that this may be more about the
industry conditions than just a shuffle in the mix of sales.
Empire
East must have weighed down on the real estate sales of parent
Megaworld.
MEG’s sales growth dropped to 9.91% in the 1Q 2016 compared to the
same period at 14.4% in 2015 and 13.83% in 2014.
Meanwhile,
real estate sales growth rate by Ayala
Land tanked to just a single digit or 8% in the 1Q of the year
from 12.89% and 17.07% over the same period in 2015 and 2014
respectively.
Meanwhile,
real estate sales growth by SM
Prime Holdings inched up by 3.58% in 1Q 2016 but that’s down
compared to 6.75% in 2015 although higher compare to -16.58% in 2014.
Recall that SMPH ended 2015 with flat sales (due to negative 4Q)
Mind
you, the aforementioned companies continue engage in massive supply
side expansions. This
means that the slowing growth rates actually mask the actual rate of
decline. And those supply additions only postulates to the
inefficient use resources because they have hardly been contributing
to top line growth.
Add
to the massive supply side expansion-slowing top line has been SMPH
parent SMIC whose growth rate appears to have plateaued.
All
the major business segments of SMIC have demonstrated considerable
slowing or stagnant growth rates even as they keep adding stores and
malls nationwide financed by credit.
Curiously,
regardless of evidence of decay, panic buying continues to be seen in
the above stocks. The more the evidence of deterioration, the more
ferocious the panic buying!
Phisix
7,450: Will the New Administration Justify the Escalation of the
Mispricing of Philippine Risk Assets?
It’s
really amazing how media gushes over the elections as if the
Philippines have hit a jackpot that will translate to an eternal
paradise.
But
it’s really been the same in 2010 except that the victor in 2010
supposedly is the loser today. That’s what’s been portrayed.
Media’s
talking heads continue to rave by saying ‘historic’ here and
‘historic’ there. Of course, while it would be natural for people
to be elated over something new, distortion of truth will be do no
help to the public.
For
instance, 2016’s voter turnover will be historic if compared to
2010 and 2013 as this media
report says. But based on all nations elections from the 1987
constitution, today’s turnover ranks third only compared to 86.5%
in 1998 and 86.39% in 2001. So historic was a matter of cherry
picking of the baseline. In behavioral finance this called the
perceptual
contrast effect.
In
fact, to stretch way back when the elections began based on the 1935
constitution, the biggest turnover would be in the 1946 where
President Manuel Roxas won the presidency on a voter turnout
of 89.6%!
This
is evidence of how media’s disinformation abets on the shortening
of the memory of a big segment of the population. Such mind tricks
has programmed the public to vote back to the political arena
personalities whom they have previously ousted.
And
it would seem that corruption and dictatorship (corruption, electoral
fraud and repression) can easily be forgiven. This is based on how people
voted during the past three elections. Whereas electoral fraud seems
as less tolerable (see genuine protest vote above).
The
same mind tricks apply to the media’s report on the recent runup in
the Philippine stock market. International media raved over the
metamorphosis
or transformation of Mr. Duterte to a business friendly leader to
have investors “spellbound” as to frantically bid up stocks and
the peso. They never seem to ask why the transformation?
Philippine
stocks have rallied furiously since the end of January.
Prior
to the disclosure of incoming president Duterte’s surprise business
friendly economic program last Friday, the PSEi soared by 2.62% a
day after the elections, was further pumped higher by 3.08% in
May
11 and had a muted -.96% profit taking session on May
12. So even prior to the business friendly disclosure, the PSEi
was up by 4.74%. In short, gamblers were spellbound from the end of
January and saw the landslide elections as justification to advance
their gambling sessions.
This
week’s election inspired stock market ramp has resonated with the
post 2010 election where Benigno Aquino won by a landslide. The post
2010 election week saw the Phisix surge by 6% compared to this week’s
6.36%.
However
in the 2010 version, the PSEi gave back 75% of its gains through a
4.54% decline in the following week.
Elections
equal higher markets have not always been true. Returns during the
election week of 2004 posted a NEGATIVE 2.1%. The election week where
Erap had a HUGE landslide victory in 1998 recorded a NEGATIVE 3.7%.
This is understandable because the Erap triumph came at the heels of
the collapse of the Phisix due to the Asian crisis. So elections had
little influence on the market.
And
the Phisix nursed a post stress trauma disorder syndrome (pstd),
following the torturous 7 years of bear market (1997-2003), hence the
likely risk aversion in 2004.
On
the other hand the Phisix had a huge 63% rally in 2009. Hence the
anchoring from such huge rally helped buoy the risk appetite for the
Phisix to generate 6% during the election week in 2010.
It’s
no different today when the Phisix registered a near vertical climb
over the past 3 months and saw the elections as further
justifications for more destabilizing speculations.
Yet
the 3 month rally has prompted the mainstream to call for a bullish
outlook on the PSEi based on cyclical statistical comparison using
post presidential elections.
The
simple message: new leader equals stock market honeymoon.
Easier
said than done.
Their
studies focused ONLY on prices.
What
such analysis has patently ignored has been that stocks markets are
hardly just about % returns from prices but also about price levels
(purchasing power of the peso relative to the stock market) and
valuations.
Price
levels.
During
the week where the 2010 election was completed, the Phisix stood at
3,330.42 in May 14, 2010. At Friday’s 7,436.79, this means that a
peso in May 14 2010 would require Php 2.23 to buy the current Phisix
or Friday’s price level.
In
short, the peso has depreciated against the Phisix by 55% from the
said base periods. This means that it would take more pesos to buy
the Phisix at current price levels than in 2010. How much if we
compare to earlier periods say May 14, 2004 when the Phisix traded at
1,521.16?
So
it would be apples and oranges to make comparisons of post election
returns without considering the purchasing power of the peso.
It
would be naïve to think that stocks have been programmed to go up
forever and have no connection with fundamentals.
Here
are the PERs of the years prior to the presidential elections (based
on BSP data): In 1997 the PER was at 9.45, in 2003 PER was at 19.22
and in 2009 PER was at 12.59.
In
2015 PER was at 19.55 which makes today’s stocks the most expensive
since 1996.
The
week prior to the May 9 election the average PER was at 17.67 while
index weighted average PER was at 23.04! This week’s euphoria has
ballooned the average PER to 18.46 while the index weighted average
PER jumped to 24.45!
So
thinking stocks will go up just because of a new administration
represents a hallucination.
In
a not so distant future, reality will prevail again.
Asset
bubbles will implode. And so with political bubbles.
_______
1
Bryan
Caplan Myth
of the Rational Voter p 19 Libertarinismo.org
2
Caplan
op
cit
p .97
3
Mark
Thornton Mark
Thornton on Prohibition, Marijuana and the Loss of Elite Control
March 3, 2014 Mises.org
4
1920-30.com
1920s Prohibition
Enforcing
the 18th Amendment
5
Deborah
Blum The
Chemist's War February 19, 2010 Slate.com
7
Caplan op
cit p . 137-8
