Phisix: What The Third Visit To The Bear Market Territory Means

Bear Market Territory for the Third Time

The Philippine Phisix infringed on the bear market territory for the third time this year.

This week’s 4.12% meltdown, which adds to the other week’s 3.12% slump, has essentially expunged on the year’s earlier magnificent gains. The Phisix now stands at slightly off (-.78%) the same level it closed in 2012.

The recent selloffs has brought the local benchmark to close the week marginally below June lows and has been just slightly off the September lows based on the closing prices.

During the first bear market encroachment last June, the consensus alibied that market participants, particularly foreign investors, had “overreacted” and had been “irrational” in indiscriminately selling down emerging market equities. The Philippine Phisix according to some mainstream analysts suffered a case of mistaken identity via group classification.

Then I argued that due to such an outlook, we should expect violent denial rallies as most ‘bear market cycles’[1] have played out. (bold original)

“Denial” rallies are typical traits of bear market cycles. They have often been fierce but vary in degree. Eventually relief rallies succumb to bear market forces. The denial rally of 2007 virtually erased the August bear market assault but likewise faltered and got overwhelmed.

History gives us clues but not certainties. The reason for this is that people hardly ever learn from their mistakes.

From the above perspective, it would seem as perilous, dicey and mindless to disregard the potential adverse impact of the reappearance of the bear market that magnifies the risks of a transition towards a full bear market cycle.

Unlike populist notions that bear markets have been devoid of “fundamentals”, bear market signals are symptoms of underlying pressures from maladjusted markets and economies or even strains from politics.

The latest episode of denial or “relief” rallies—as one would observe from the chart above as the rallies from point 1 to point 2 and from point 2 to point 3—has been notably fizzling out. 

Based on chart patterns, the series of lower highs (dark and light blue trend lines) and a nearly horizontal base would seem like a continuing ‘bearish’ pattern called the descending triangle[2]. This means that even if we should see a rally from current levels, due to vastly oversold conditions, and if the bulls have indeed been losing ground, then the next rally will likely be even more limited in scale (and probably in duration too) than the previous 2 rallies before the next more intense downturn.

Should such scenario playout which implies of a building of downside momentum, then a breakdown of the support level at the 5,730s would seem imminent and decisive.

And such a breach would have the Phisix in tighter grip of the bears which likely means a transition into a full bear market cycle.

Of course the bulls can easily twist the interpretation of the above chart as a sign of a bullish “triple bottom”. Although this selective perception may be a possibility, the burden of proof lay on their shoulders. On the other hand, the path of least resistance has so far been tilted greatly in favor of the bears.

And I would like to also point out that there has been a stark difference between actions covering the June and September lows from today. In June and September, the Phisix experienced mini-crashes. Today, the decline in the Phisix has been gradual but has intensified over the last two weeks. In other words, the mini crashes in June and September has caught the bulls by surprise, thus the violent counterstrike via sharp relief rallies. The November-December decline seems to exhibit declining resistance in terms of vigor and stamina from the bulls.

I would add that I define a bear market strike as a dynamic where a security or a benchmark suffers a 20% decline over 2-3 months. 

Following a breathtaking run in the Phisix where in one year or in 1993 the local equity benchmark yielded 154% in nominal currency returns, through 1994 to 1995 the Phisix endured three bear market strikes as part of the correction process.

The bears of 1994-1995 temporarily capitulated to the bulls where the latter staged a one year rally which recovered the 1993 highs. However the rally turned out to be short lived, as the bear market came back with a vengeance on the back of the emergence of the Asian crisis of 1997.

I am comparing with 1994-1997 than with 2007-2008 because the latter’s topping out process took up only 3 months.

Yet each bear market is unique.

The current episode reveals of one bear market strike but had 2 accounts of “denial or relief” rallies spread over 6 months. We may or may not see a third account of a denial rally.

Dr Marc Faber describes the transition of the topping process that led to the Asian crisis[3]:

The Asian Crisis of 1997-98 is also interesting because it occurred long after Asian macroeconomic fundamentals had begun to deteriorate. Not surprisingly, the eternally optimistic Asian analysts, fund managers, and strategists remained positive about the Asian markets right up until disaster struck in 1997.

But even to the most casual observer it should have been obvious that something wasn't quite right. The Nikkei Index and the Taiwan stock market had peaked out in 1990 and thereafter trended down or sidewards, while most other stock markets in Asia topped out in 1994.

In fact, the Thailand SET Index was already down by 60% from its 1994 high when the Asian financial crisis sent the Thai Baht tumbling by 50% within a few months. That waked the perpetually over-confident bullish analyst and media crowd from their slumber of complacency.

But unlike 1994-1997 topping process, which emanated from a very strong upside move pre-Asian, today’s transition may be a lot shorter.

The Fallacy of Fed Taper Equals Lower Markets

We should be reminded of the precious council from the legendary trader Jesse Lauristone Livermore[4],

It takes a man a long time to learn all the lessons of all his mistakes. They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side. It took me longer to get that general principle fixed firmly in my mind than it did most of the more technical phases of the game of stock speculation.

But not every man learns from their mistakes.

Three transgressions into the bear market boundary over the past 6 months yet we see the same degree of denials.

Through the week, the befuddled mainstream[5] has fixated on a single explanation: the post hoc fallacy (tautology) of the “Fed’s tapering equals falling Philippine stocks”.

The mainstream’s simplistic logic flows in the following manner:

a. Strong economy equals rising stocks.

b. Fed tapering equals falling stocks.

But if the stock market supposedly ‘represents’ on the conditions of the economy, which allegedly remains ‘strong’, then why should the Fed’s tapering be an inhibiting factor at all?

A sound of deafening silence follows.

This barely accounts for as economic reasoning but rather a heuristic one; particularly self-attribution bias error[6]—where people internalize success and blame failures on exogenous factors.

Yet there has hardly been any effort by mainstream media and their quoted experts to explain the self-contradiction in logic.

The Fed’s ‘supposed’ “tapering” will extrapolate to “lesser” liquidity in the global financial system. This means that if stocks are ‘sensitive’ to the liquidity conditions or if stock prices are driven by the liquidity generated by the central banks, particularly the US Federal Reserve only then will such stocks respond accordingly to changes in Fed’s policies.

Said differently what the mainstream implies is that with lesser liquidity, liquidity dependent stocks, like the Phisix and other emerging markets, has faltered. Translation: since Philippine stocks are highly dependent on the FED, then it is a bubble. This essentially is the kernel of their first premise.

Thus, the presumption that “Fed tapering equals falling stocks” signifies an implicit admission that Philippine stocks have been a central bank fueled bubble.

But the mainstream seems caught in a cognitive dissonance[7] dilemma of holding two contradictory ideas, values or beliefs in their analysis.

Since they believe that “strong economy equals rising stocks” then they expect that “tapering” to be temporary. In one of the stock market articles, despite the meltdown, one quoted expert expects the Phisix to close the yearend at 6,500.

With only about 9 trading days to go, this means that the said expert expects an average of 1.4% gains a DAY until the yearend. Is this a manifestation of realistic expectations or signs of desperate hope from an entrenched but misbegotten belief?

But how can the Fed’s “tapering” have a temporary effect on local stocks if indeed the latter has been chronically dependent on the former? And where does the strong economy come in?

Could it not be that the same dependence on liquidity conditions in stocks has likewise been the same dynamic enveloping the statistical economy? Why has Philippine money aggregates been exploding?

Yet contra the mainstream, I have been pointing out that global interest rates, as measured by bond yields, have been climbing even prior to the Fed’s taper talk. This has been evident in US Treasuries (UST) which has begun to rise in July 2012. The Fed’s QE 3.0 in September of 2012 only worked to forestall rising yields for only 3 months.

Rising bond yields could have been influenced by many or a combination of complex factors as mentioned a few weeks back[8], this includes pressures from the ongoing inflationary boom in US, Europe, China and elsewhere or its attendant erosion of real savings, this could also be signs of diminishing returns on central bank policies, the implied growth in inflation premium, an increase in credit risks in debt securities of deeply indebted governments, the Triffin dilemma or from a domestic perspective even as symptoms of homegrown bubbles. Thus the Fed’s taper, which serves as a convenient bogeyman or scapegoat, has been more of an aggravating factor rather than the root cause.

One only needs to look at how divergent the region’s performance have been

Among ASEAN’s equity markets, while the region’s equity markets have generally become weaker, the Philippine Phisix has grabbed the spotlight this week as the worst performer even compared with other Asian peers.

Yet Malaysia’s financial markets, including the equity bellwether, continue to defy the Fed taper gravity. In terms of currencies, the Indonesia’s rupiah seems as the worst performing as the USD-rupiah significantly broke past 12,000 (12,106 Friday close). In terms of bonds, Indonesia and Malaysia has underperformed.

Does this mean that in terms of equities, Malaysia has been seen as immune by the foreign money to the Fed’s taper? Does this also mean that the Philippines have been the most sensitive to the Fed’s taper as measured by the Phisix?

Yet Thailand, Korea and Indonesia, having the largest share of foreign money as % of market cap as of 2009, seem most vulnerable. Why then the relative underperformance by the Phisix?

While the Phisix may not be the worst performer in year-to-date, the Phisix among her contemporaries seems as the first in the region to have reached the June lows.

In the past, the bullish consensus has cheered foreigners as ‘rational’ and as ‘geniuses’ when they were seen as buying into the domestic stock market. Taper after all, for them, has allegedly been about foreign reallocation of portfolio.

Yet recently the same consensus has lambasted foreigners as ‘irrational’ for supposedly selling out on local equities. Yet if the Philippines has a ‘strong’ economy as alleged, that should deliver outsized relative returns, then why should foreigners sell the Philippine Stock Exchange (PSE)? Have foreigners been too obtuse to recognize of the potential profits from value buys based on supposedly sound fundamentals?

Such claims seem to have little basis. In November when the Phisix fell by 5.7% foreign money flowed into the PSE. According to the BSP, inflows to the PSE jumped by 84% year on year[9].

This means that if the BSP data is correct then foreigners have hardly been responsible for selling out on the Phisix. The local investors have been the culprit. Have the local experts been misrepresenting the role of foreigners when they themselves could be exiting the markets? A case of unethical pump and dump[10]—spread rosy but misleading information in order to sell one’s position?

However based on my tabulation of net foreign activities from PSE’s daily quotes, in November foreigners in contrast to the BSP’s posted a net selling of Php 4.96 billion pesos. This has been significantly less than October 2013 where the Phisix registered a strong advance of 6.35%. Yet whether the positive inflow of BSP data or my tally of PSE which shows slight negative flows, both actions point to locals as part of the panic-stricken sellers.

Fed Taper? Hardly.

Why not the Stagflation Story?

Based on sectoral performance, the burden of last week’s selloff has been centered mostly in the property sector and in far second spot, the financial sectors which are the most interest rate sensitive industries. What could have prompted such actions?

The BSP governor declares that a weak Peso won’t incite inflation[11] so he expects that the current policy regime to remain in place in 2014.

The Peso fell by .41% to 44.15 against the US dollar this week from last week’s 43.97.

Yet news reports say that in the National Capital Region (NCR) electricity bills will surge the most over the coming months[12].

With the approval of the Energy Regulatory Commission (ERC), Meralco will implement its highest power rate increase in December, February and March.

The Philippine Chamber of Commerce warned that such sharp series of hikes in electricity bills will “derail the growth of many power-intensive industries, particularly small and medium sized enterprises, and may even result in massive lay-offs”, according to the Inquirer[13]. 

After seeing a TV report of the proposed hike in public rail transport, my daughter rushed to me kvetching of what would remain of her allowance. I found out that the government via the Department of Transportation and Communication (DoTC) proposes to increase train fare by more than 50%[14]! The result of which has been to exacerbate street protests[15].

In BSP’s statistics, price inflation remains muted and largely irrelevant. 

But in the real world we don’t ride, consume or eat statistics. Consumers and businesses appear to be reeling from the brunt of reckless central bank policies combined with political mandates which has been distorting the supply side, thus the increased incidences of unrest despite the BSP’s or the Philippine government’s denial.

As I wrote last week[16],

With soaring M3, which has been a symptom of excessive banking credit growth that has artificially been boosting demand for the first recipients of banking loans and for the initial beneficiaries of government spending in combination with mandates that induce supply imbalances, e.g. price controls, the Philippine government has put into place key ingredients for greater risks of stagflation regardless of what statistics say.

The risks of higher inflation which reallocates consumer’s pattern of spending will essentially reduce disposable income and consequently depress demand. On the supply side, rising input prices will compress on business and commercial profits in the face of declining demand thus adding to supply side constraints. This has prompted Philippine Chamber of Commerce to warn of electricity inflation as potentially derailing economic growth. 

Yet more expansion of credit in the banking system will amplify on such imbalances.

I also noted last week that should price inflation continue to climb, this will eventually lead to higher interest rates. Aside from the Peso this will be revealed in the bond yields, despite denials by the BSP or by the banking system.

Yields of Philippine Local Currency 10 year bonds appear to have reacted modestly to recent news of energy and transport inflation by inching higher.

As a side note: The Philippine bond markets are illiquid, have very small foreign exposure and have been in tight control by the government and the banking system[17]. Since both benefit from low interest rates, thus the seeming thrust to keep interest rates at bay. However once runaway price inflation becomes apparent, regardless of the tightness of their control, the domestic bond markets which has been grotesquely mispriced, will eventually reflect on such inflation dynamics with significantly higher rates. This will unravel the convergence trade[18].

Artificially suppressed in interest rates represents a form of financial repression which serves as an implicit subsidy (from the loss of purchasing of consumers) to government debt via low interest rates. The low interest rate regime thus allows the government to go on a spending binge. Such spending spree has boosted the statistical economy that has spruced up approval ratings of the incumbent President. High approval ratings give leeway for the administration to implement her arbitrary ‘pet’ projects.

In addition, low interest rates redistribute resources from the real economy to those favored by the government and to the limited politically connected few, particularly those with access to the banking system.

Recent disclosures of energy and transport inflation appear to be signs of deepening manifestations of the growing risks of stagflation where eyes have been widely shut for the authorities and for those worshippers of the bubble economy.

So when the trifecta impact from stagflation hits the real economy, the result will be a sharp economic slowdown and or a bust in the bubble sectors.

In my view, the consensus appears to be deeply confounded with the key factors driving the domestic financial markets. Their devotion to statistics has led them amiss.

Bear Markets and the Real Economy

Just a short note on the economic impact of bear markets. Not all bear markets have a meaningful impact on the real economy. This would depend on many idiosyncratic factors.

The Philippine Phisix suffered a bear market in 2007-2008 but this has largely been due to the global contagion from the US crisis. Then the Philippines statistical GDP narrowly escaped a recession. 

Reasons for this, one the Philippine central bank, the Bangko Sentral ng Pilipinas joined global central banks in adapting zero bound rates (left window).

Additionally the Philippine government along with many global and even regional governments implemented their domestic version of fiscal stimulus[19] (right window).

But I doubt that the 2007-8 conditions will replay today for one simple reason: An outgrowth of debt from the 2007-2008 policies.

The effect of the former has been to inflate credit bubbles that have juiced up the stock market and the property sector via bubbles in residential and commercial vertical condominium, the shopping mall and the casino (hotels). 

The effect of the latter has been to keep nominal peso based government deficits at levels above pre-2009 (left) and an acceleration of the government’s debt levels (right). This implies that the relative high level of government budget had been partly financed by substantial increases in government borrowing.

And the potential consequence of a stagflationary regime will be to expose on the illusions of ‘good governance’, which has been cosmetically embellished by low interest rates, with the rapid ballooning of budget deficits and the dramatic expansion of debt to finance such deficits from a combination of factors such as lower tax revenues, bailouts and other political measures supposedly to “save” the economy.

The collapse of China’s stock market bubble in 2008 shares the same fate with the Philippines. China’s government launched a gigantic $586 billion economic stimulus program in 2008[20] which shielded her statistical economy from a recession. But this has only shifted her stock market bubble to the real economy by virtue of the intensification of the property sector bubble backed by a huge shadow banking industry now estimated at US $4.7 trillion[21].

China’s massive credit bubble remains as one of the proverbial Damocles Sword over the global economy.

San Miguel’s Debt in-Debt out; the risks of Breaking the Buck

Since I see SMC as a source of systematic risk or a general risk in the financial system rather than merely a corporate or industry specific non-systematic risk, I have my eyes on her.

SMC’s sale of Meralco shares to JG Summit was executed at the Philippine stock exchange board last Wednesday December 11^th 2013[22]. The total amount of the special block sale was at Php 72.041 billion.

Let us first put aside SMC’s sale of MER.

As of the third quarter[23], SMC’s ‘debt in-debt out’ has accrued to a whopping Php 801 billion as I noted last week. This represents a 48% jump from the second quarter and about the same amount of debt turnover for the entire 2012.

Php 801 billion over 9 months represents Php 89 billion a month. Assuming that SMC won’t add more to the rate of her debt turnover growth and will apply the same rate until the yearend, SMC will close this year with a colossal Php 1.068 trillion!

SMC’s Php 1.068 trillion pesos of debt turnover accounts for a startling 11.68% of the Php 9.138 trillion worth of assets of the entire Philippine banking system as of September 2013[24]! Just one company playing with fire with about 10% of the Philippine banking system. Of course some of these indentures have been via the capital markets through bonds.

Yet if the amount of debt churning has been expanded, then this means SMC will easily surpass the Php 1.1 trillion mark at the close of 2013

To put into perspective, the Php 1.1 trillion threshold will represent almost SMC’s total declared asset Php 1.165 trillion as of the third quarter. SMC’s assets are based on “market observable prices”[25] according to SMC’s 3^rd quarter financial statement. In short, boom time prices tend to bloat SMC assets.

The same applies to equity. According to SMC, interest rate movements affect retained earnings via interest income and expenses, the fair value of reserves and hedging reserves[26].

Foreign exchange also affects equity in the context of retained earnings, comprehensive income and hedging reserves[27].

In short, changes in interest rates and forex rates will have material impact on SMC’s equity. Thus any dramatic change in both of these indicators may tend to prompt for a decline in the equity and in asset valuations relative to the massively burgeoning debt.

Let us incorporate the Php 72.041 billion MER sale.

Seen from ‘debt in-debt out’ perspective, Php 72 billion signifies a drop in the bucket or barely even enough to cover the monthly $89 billion amount debt turnover. I am not sure whether SMC will apply all the proceeds to reduce the equivalent amount in total debt or just part of it or will just be consumed by one month of debt turnover.

Whatever route SMC takes, it would seem that the MER sale will easily be eclipsed by soaring debt turnover.

Importantly, it has been a curiosity for me to establish how SMC’s finances her humongous short term liquidity requirements.

According to her 3^rd quarter financial statement SMC has “a committed stand-by credit facility from several local banks is also available to ensure availability of funds when necessary. The Group also uses derivative instruments such as forwards and swaps to manage liquidity”[28]

In other words, many banks may be unduly exposed to SMC’s massive pileup of short term debt.

In the culmination of the 2008 US mortgage crisis, when Lehman Bros filed for bankruptcy, the US money market seized up when a wave of redemptions prompted for the failure of Reserve Primary fund to maintain her net asset value (NAV) at par or above the US $1 per share[29]. This caused a liquidity crisis known as “breaking the buck” particularly for many non-US banks heavily reliant on US wholesale markets. Unlike typical retail depositor led bank runs, the 2008 “breaking the buck” was a bank run on the shadow banking industry[30] or essentially on wholesale deposits by institutional investors in the face of deteriorating conditions in the market particularly deleveraging and or de-risking[31]

The lesson from the Lehman episode is that if and when for any reason any of SMC’s short term liquidity provider/s stalls or even merely loses confidence, SMC’s debt churning risks morphing into a massive liquidity crunch that may provoke a system wide dislocation. I don’t know if the BSP even recognizes this.

In my view, the reason why SMC management continues to play the high roller’s game could be that they may be expecting a bailout in case things may go wrong. Yes political moral hazard. Unfortunately if events do go astray, there may be ripples of intractable credit dislocations which may surprise the government.

I hope I am wrong that this will not transform into a systemic risk. But the debt turnover numbers so far have been growing at an astounding rate.

For now, for as long as the low interest rate music keeps playing, to borrow from Citibank’s former chairman and chief executive Charles Prince, SMC’s creditors will keep dancing.

Holiday Greetings and Wishes

The bear market in the Phisix is a personal bad news for me for the simple reason that this paves way for prolonged income drought or famine for me and particularly for those who entirely rely on trading, stock market investment and commissions for livelihood. This will also be bad news for the industry.

Though the PSE has short facilities, such facility looks impotent and inaccessible as this has been mired with a horrible web of regulations as explained to me by my principals. This seeming one way route for investing is one of the main causes why the mainstream has been blind to risks which has incentivized industry players to see only one direction for the stock markets—it’s the only way to make money.

I have tried to hedge my significantly reduced equity exposure with foreign currency trade by shorting the Philippine Peso. Beginners luck granted me a 180% floating return due to high leverage, but when the Bernanke led FED declared an UN-taper last September, the whole gain vanished in just 2-3 days where I closed my position with an 8% realized loss as my baptism of fire in currency trading. My intention then was to take a long term position on a short Philippine Peso-long US dollar trade. Unfortunately adding to the cost of trade has been the significant swap rate fees for maintaining overnight positions.

Also the wildly volatile short term oriented currency trading has hardly any room for errors. If one happens to be in a wrong place in a wrong time, one would have to take unnecessary losses even if one’s long term perspective has been correct. Chart reading seems as hardly a big help in the face of the highly mercurial currency markets.

Nonetheless having learned of the agency problem from the economic and philosophic perspective, I did my best to deal with industry in what I see as a professional manner and will continue to do so.

My position to take on the objective and contrarian stance has been aimed at providing protection to the investment positions of my clients, my principal’s clients, my principals, my readers and for those whom has learned to put their trust on me—by informing them of tradeoffs between risks and rewards amidst the changes in the risk profile dynamic of the marketplace as time evolves.

Though my perspective has been unorthodox, occasionally this comes with the social costs of unpopularity. Yet in today’s environment the return OF capital will be more of importance than the return on investments (ROI), so it doesn’t matter if one’s position is popular or not what matters is to preserve capital

In heeding the wisdom of the former value investor Warren Buiffett who once said[32],

You can't do well in investments unless you think independently. And the truth is, you're neither right nor wrong because people agree with you. You're right because your facts and your reasoning are right. In the end that's all that counts. And there wasn't any question about the facts or reasoning being correct.

Yet my primary objective has been to think and reason 'out of the box' and 'ahead of the curve'.

I do hope that my writings have helped in anyway to preserve your capital.

As this is my final note for the year, I would like to wish you a Merry Xmas and a Healthy, Fruitful, Happy, Capital Preserving New Year.

In liberty,

Benson

---

[1] See Phisix: Don’t Ignore the Bear Market Warnings June 30, 2013

[2] Investopedia.com Descending Triangle

[3] Dr. Marc Faber, The Financial Crisis Was No Accident DailyReckoning.com December 4, 2013

[4] Jesse Livermore via Edwin Lefevre REMINISCENCES OF A STOCK OPERATOR, Chapter 3, Nowandfutures.com

[5] Inquirer.net Market enters bear territory December 10, 2013; Inquirer.net PH market stays in bear territory December 12, 2013; Inquirer.net Stocks rise slightly on bargain-hunting December 13, 2013

[6] Wikipedia.org Attribution bias

[7] Wikipedia.org Cognitive dissonance

[8] See Phisix: Are ASEAN Markets Signalling Trouble?; More on Typhoon Yolanda November 25, 2013

[9] Bangko Sentral ng Pilipinas Foreign Portfolio Investments Yield Net Inflows in November December 13, 2013

[10] Investopedia.com Pump And Dump

[11] Bloomberg.com Philippine Peso’s Weakness Won’t Spur Inflation, Tetangco Says December 13, 2013

[12] Inquirer.net Power hike shocks users December 10, 2013

[13] Inquirer.net Rate hike may stunt growth in Meralco areas December 13, 2013

[14] Inquirer.net DOTC seeks ‘P11 + 1’ fare hike scheme December 12, 2013

[15] Inquirer.net Protests greet LRT, MRT consultation on fare hikes December 12, 2013

[16] See Phisix: Escalating Risks from the Region and from Internal Bubbles December 9, 2013

[17] See Phisix: Has ASEAN Bear Markets Been Signaling a Crisis? September 2, 2013

[18] See Phisix: The Convergence Trade in the Eyes of a Prospective Foreign Investor November 11, 2013

[19] Agnes Isnawangsih, Vladimir Klyuev, Longmei Zhang The Big Split: Why Did Output Trajectories in the ASEAN-4 Diverge after the Global Financial Crisis? IMF Working paper October 2013

[20] Wikipedia.org Chinese economic stimulus program

[21] See Fitch Defies S&P on China’s Credit Bubble May 29 2013

[22] PSE.com.ph Sale of MER shares to JGS December 11, 2013

[23] PSE.com.ph SMC SEC form 17-Q as of September 30, 2013 November 14, 2013

[24] Bangko Sentral ng Pilipinas BALANCE SHEET AND KEY RATIOS

[25] PSE.com.ph SMC op.cit p.26

[26] PSE.com.ph SMC op.cit p.15

[27] PSE.com.ph SMC op.cit p.19

[28] PSE.com.ph SMC op.cit p.31

[29] Jeanne Gobat Breaking the Buck—Reducing Systemic Risks Posed by Money Market Mutual Funds IMF Blog direct November 10, 2010

[30] Wikipedia.org Analysis Breaking the buck

[31] Mark Hannam Money Market Funds, Bank Runs and the First-Mover Advantage p.15 Institutional Money Market Fund Association January 2013

[32] CNN Money.com The Oracle of Everything Warren Buffett has been right about the stock market, rotten accounting, CEO greed, and corporate governance.The rest of us are just catching on November 11, 2002

Bond Vigilantes: US Banks hoard Cash, shuns US Treasuries

Another very interesting development. US banks have reportedly shunned US Treasuries in favor of stashing cash.

From Bloomberg:

Never before have America’s banks been so wary of risking their cash deposits on U.S. government debt.

After holdings of U.S. debt surged to a record $1.89 trillion in 2012, lenders from Citigroup Inc. to Bank of America Corp. and Wells Fargo & Co. (WFC) are culling for the first time in six years and amassing dollars. Banks’ $1.8 trillion of the bonds now equal less than 70 percent of their cash, the least since the Federal Reserve began compiling the data in 1973.

With net interest margins falling to the lowest since 2006, banks are spurning Treasuries and hoarding unprecedented amounts of cash on prospects that loan demand will revive as a strengthening economy leads the Fed to reduce its own debt purchases. Five years of cheap-money policies also have depressed yields and made it less attractive for banks to buy Treasuries as a way to bolster income.

Lowest government bond holdings on record…

Banks’ stakes of Treasuries and federal agency bonds have declined more than $80 billion in 2013, data compiled by the Fed show. That would be the first annual decrease since 2007. At the same time, cash held by banks has surged by a record $882 billion this year to an all-time high of $2.59 trillion.

Government bonds now represent 69 percent of banks’ cash, which would be the lowest on record and the first time lenders ended a year with a smaller proportion of U.S. debt relative to cash since 1980, the data show. Banks’ holdings of assets consisting primarily of municipal bonds, asset-backed securities, company debt and equity investments have also risen.

Some observations

US Banks have now been lending to Wall Street at a record pace. 

Banks holdings have rotated from USTs into cash but also partly into equities.

Banks appear to be sensing trouble with the US treasury markets as indeed cash assets of all commercial banks have spiked to unprecedented levels.

US treasuries (USTs) have mainly been supported by foreigners (mostly by the Chinese and the Japanese) which has staved off a bond market rout. (Data from the US Treasury TIC)

I argue that the behind the controversial Senkaku island dispute has been the politics of US Treasury holdings by China and Japan or the financing of the US government spending.

You see Japanese and Chinese record holding of USTs comes amidst a partial recovery from a near term decline in the overall purchases of USTs by foreigners. This means that in terms of foreign holdings, USTs has been essentially a Chinese-Japanese affair. 

Yet if the Chinese government makes good on her threat to trim holdings of USTs, along with a continuing decline of UST holdings by most of foreigners (ex-Japan), and if US banks persist to reduce exposure then this leaves the US Federal Reserve as the buyer of last resort.

The Fed now owns a third or 32.47% of the 10 year UST equivalent according to the Zero Hedge

This tell us that there will hardly be any taper, because a taper means a dearth of buyer of USTs which also extrapolates to a bond market disaster.

Lastly the above report seems as partial vindication to what I wrote on USTs 2 weeks back

Mr. Bernanke’s tapering bluff was called last September.

Aside from tapering expectations, rising rates of US treasuries (USTs) have been partly reflecting on a combination of the following factors

-inflationary boom gaining traction which has spurred accelerating demand for credit thus pushing up interest rates.

-erosion of real savings or the diminishment of wealth generators or growing scarcity of real resources due to the massive misallocation of resources prompted by central bank inflationist policies.

-diminishing returns of central bank policies where continued monetary pumping has led to higher rates.

-inflation premium, despite relatively low statistical CPI. Perhaps markets have been pricing inflation of asset bubbles

-growing credit risks of the US government

-Triffin Dilemma or Triffin Paradox where improving US trade deficits have been reducing US dollar liquidity flows into the global economy.

Any astute observer will realize that a single policy mistake can bring--the entire house of cards standing on a credit bubble--crumbling down.

Phisix: Are ASEAN Markets Signalling Trouble?; More on Typhoon Yolanda

My concluding statement in the epilogue section of last week’s reports looks prophetic. I wrote[1],

If the Philippine market does experience a convulsion in response to a possible deterioration of regional conditions, expect Typhoon Yolanda to be a favorite scapegoat.

Equity benchmarks of the region had been mostly lower this week, with Thailand’s SET and the Philippine Phisix posting losses of over 4%.

The Typhoon Yolanda Bogeyman

Yet some examples[2] of Typhoon Yolanda as post hoc scapegoat “Investors were on profit-taking mode following the downgrade of the country's economic outlook because of the impact of Typhoon 'Yolanda'” ; “adding to those worries was the gradual stream of reports indicating the cost of damage due to Typhoon Yolanda” and “Typhoon has provided overseas investors a good excuse to continue taking profit.”

The other issue rationalized as contributing to the loss in the Phisix has supposedly been concerns over the Fed’s “tapering”.

As an update, estimated damages tallied by the National Disaster Risk Reduction and Management Council has now reached P22,659,851,383.76[3]. This would represent 53.7% of the Php 42.2 billion economic costs by the reigning “most destructive” storm to hit the Philippines, Typhoon Pablo. Typhoon Yolanda currently ranks third after Typhoon Pablo (December 2, 2012) and Typhoon Pepeng (October 2-10, 2009). My guess is that we will know whether Typhoon Yolanda will surpass the degree of devastation by Typhoon Pablo possibly by next week which I believe should spotlight the peak of the damage assessments.

Despite the “Typhoon equals lower stocks” meme, as I have pointed out last week and two weeks back, empirical evidences exhibits a smidgen or an iota of causal relationship between Typhoons and the stock market performance or even the economy[4].

But obviously, conducting meaningful investigations to establish realistic representations has hardly been a concern for “experts”, instead the same “experts” simply feed on the public’s desire for popular convenient excuses regardless if such relationship stands on tenuous grounds.

In the context of behavioral science, ‘experts’ employ availability bias[5]—ranking of importance of information based on easiest to be recalled—to satisfy the demand for confirmation bias of the gullible public.

Nevertheless Typhoon Yolanda has snared the lead from Typhoon Uring (November 4-7, 1991) as the “deadliest” of all Typhoons to have hit the Philippines. As of the latest count, Typhoon Yolanda has claimed 5,235 lives with 1,613 missing[6]. If we add missing to the death count this adds to 6,848.

As far as Typhoon classification goes, “deadliest” has not necessarily equated to “destructive”, so far only Typhoon Yolanda has been running consistent on both categories.

More Politicization of Typhoon Yolanda

Last week, I also pointed out how the popularity addicted Philippine President scoffed at projections of 10,000 casualties from the storm saying that such estimates have been ‘too much’. At an interview with a foreign media outfit, he publicly insisted on a range of 2,000-2,500 as maximum fatality count. He even sacked the Police officer who gave the initial estimates.

Within the week, the National Disaster Risk Reduction and Management Council (NDRRMC) reportedly stopped the death count due to changes in “the policy on accounting”[7] as the death estimates surpassed the 4,000 level, but immediately reversed this on public clamor. The NDRRMC chief denied “receiving orders to stop releasing the death toll” or the involvement of politics[8].

Has insisting on a statistical threshold and the sacking of the Police officer not been an act of politics?

With the death count careening farther away from the President’s estimates and fast approaching the 10,000 estimates, will the Philippine President reinstate the Police officer and or make a public apology? How about if the deaths reach 10,000, will the President resign?

By publicly announcing a threshold level, not only does this reveal of the administration’s PR Public Relations gaffe, this unfortunate and sordid event exposes on the administration’s obsession for approval ratings, where as noted above, reports showed of an attempt at the suppression of the official death count via censorship.

This essentially highlights the administrations use of Joseph Stalin’s “a single death is a tragedy a million death a statistic”. 

Where every death is a tragedy, even more tragic is the use of disasters to promote political self-interests.

And politicization hasn’t been exclusively the realm of the Presidency, this applies to other officials such as the Vice President as well as spouse of an incumbent official whom have reportedly used political “branding” in the distribution of relief goods[9].

ASEAN Currencies: Signs of Trouble Ahead?

Also in the closing segment of last week’s report I warned that instead of focusing Typhoon Yolanda we should rather be vigilant on the activities within the region

I would rather be watching two neighbors, Indonesia and China, who seem to be experiencing re-emergent signs of financial market ‘tremors’ which poses as potential risks for a shock…

The last time the rupiah hit a milestone this coincided with the turmoil in the ASEAN financial markets.

Figure 1: ASEAN-4 Currencies

ASEAN currencies have been enduring re-emergent signs financial pressures see figure 4.

Within the week, the USD-Indonesian rupiah (via one year chart, see Figure 1) breached the September highs to set fresh milestone. Last Friday, the USD rupiah closed at a 5-year high.

The Philippine peso has also manifested signs of renewed weakening against the US dollar. The Peso fell .4% this week and closed Friday at June highs. The peso has been in consolidation since the Fed’s UN-taper from September through the first week of November.

The Malaysian ringgit and the Thai baht has equally been losing ground against the US dollar.

Going back to the Peso, the Bangko Sentral ng Pilipinas reported net foreign portfolio inflows in October at US$969 million which has been “much higher than the US$683 million recorded in September and US$40 million a year ago.”[10] Foreign money flowed into PSE-listed securities (52.6 percent), Peso GS (44.0 percent) and Peso time deposits (3.4 percent).

Figure 2: Net Foreign Portfolio Flows (BSP)

The data I accumulate via daily PSE quotes reveals of net selling (Php 7.545 billion) which varies from the BSP October figures. Given the benefit of the doubt that my data may not be reliable, it’s seems unusual to see the Peso firming by a marginal .75% in October when in September a much smaller portfolio inflow resulted to a 2.4% gain in the Peso. The red circle shows of the net foreign portfolio flow last October (Figure 2) at US $969 million as against the $682.72 million last September.

Aside from statistical reporting difference or anomalies, could this underperformance by the peso have been due to the BSP’s selling of US dollar Gross International Reserves in October (which resulted to a lower US $.1 billion to $83.4 billion[11]) or could the private sector residents accumulated on US dollars to enough offset these alleged substantial foreign net inflows?

The recent bout of infirmities in the peso has already began to hamper “earnings growth” conditions of many publicly listed firms such as San Miguel Corporation[12], Aboitiz Power[13] and parent Aboitz Equity Ventures[14], PLDT[15], JG Summit[16], Philex Petroleum[17], Cebu Pacific[18], Energy Development Corp[19] and Atlas Corporation[20]

Though the extent of impact varies from company to company, earnings impairment from foreign currency losses—due to one quarter of currency volatility—exposes on the vulnerabilities of these companies to currency risks due to foreign currency debts. As I have been pointing out, zero bound rates have impelled many publicly listed companies to increase leverage exposure, many of them on foreign exchange debentures.

The 64 billion peso question is what if the peso continues to fall further? How will these impact the earnings of these companies? Will the recourse be more borrowing to offset the losses and hope for a peso recovery? What if foreign liabilities become substantial enough to put credit quality on the line?

The ASEAN 4’s currency frailties signify just one of the aspects.

Bond Vigilantes Harries ASEAN Bond Markets

Figure 3: ASEAN-4 10 Year Local Currency Bonds

The global bond vigilantes have been romping at the ASEAN 4 except the Philippines.

The 5 year high in the rupiah has been reflected on Indonesia’s sovereign 10 year bonds whose yield fast approaches (24 basis points away from) the September highs.

Malaysia’s 10 year bond yield has just been 5 basis points away from the July high at 4.14%.

Yields of Thailand’s 10 year bonds have likewise been soaring and now signify just 19 basis points away from the August highs.

Philippine 10 year bonds remain in a temporary tranquil state.

Figure 4: ASEAN Debt Outstanding

And with ASEAN debt inflation as the principal engine of economic growth, rising rates will increase the cost of servicing debt, prove to be an obstacle to present debt based growth dynamic (by slowing expansion and diminishing demand) while at the same time increasing credit risks.

Let me cite an example. The third quarter rampage by the bond vigilantes in Thailand has tellingly slowed the Thai statistical economy which grew 2.7% on an annualized basis.

From the Wall Street Journal Real Time Blog[21]

The NESDB — the government’s economic planning agency — blamed the weaker-than-expected results on falling household spending and consumption after the expiration of the government’s First Car tax rebate last December resulted in a significant drop in auto purchases. Declining farm income and weaker consumer confidence also hurt consumption.

Growth was also hurt by a slowdown in construction, a fall in machinery and equipment investment, a slow recovery in global demand for Thai goods and sluggish shrimp production owing to an unresolved spread of a disease among shrimp stocks.

Go look at the Thai bond yields during the 3^rd quarter on figure 3. Rising yields and the falling Thai baht or the volatility spike in Thai’s financial market has apparently crimped on the Thai economy. The article omits mentioning this.

And ASEAN’s debt profile as shown in Figure 4[22] reveals that the region’s debt distribution has been asymmetric. 

While Thailand and Malaysia have been both vulnerable to household debt, the risks to the Philippines have been in the financial sector which has been the primary source of funding for the government and non-financial institutions while household debt represents a speck of the overall. 

As a side commentary, this is what the mainstream fails to see: How the banking and financial system in the Philippines have been ‘concentrated’ to a few, given the still low penetration levels of banking access and credit access in the household level, despite the so-called boom.

So when the Philippine government issues statistical growth, they tend to exaggerate economic activities in the formal sector as representative of the whole. These numbers hardly account for the huge part of the Philippine economy which remains informal.

Based on the definition of the informal sector by Wikipedia, “not taxed, monitored by any form of government, or included in any gross national product (GNP), unlike the formal economy”[23], this means that many segments of the Philippine economic data are subject to substantial statistical errors.

Meanwhile, Indonesia which presently has been the focal point of ASEAN’s weakness, oxymoronically has generally, the smallest exposure on debt. 

Two insights we can see from the recent developments.

One the level of debt tolerance has not been relatively based, as fallaciously argued by some officials and mainstream experts defending the current credit boom, but on creditor—per country relationship basis.

Two, while Indonesia may function as catalyst for a potential crisis, Thailand and Malaysia appear to be even more vulnerable to a sudden shift in the confidence levels of creditors.

Figure 5 ASEAN LCY Bond Foreign Ownership

Figure 5 reveals how fragile or how ASEAN bonds are sensitive to foreign sentiment, given the substantial level of foreign ownership of local currency bonds. Foreign money accounts for nearly 30% of local currency bonds in Indonesia and Malaysia while Thailand has about 15%.

Given today’s global wild and rampant yield or momentum chasing activities, combined with massive cumulative build-up of economic distortions from central bank policies, sudden shifts in foreign sentiment may spur extensive dislocations in the marketplace again exposing all the amassed imbalances.

The Philippine contemporary, as previously discussed has been a relatively closed and illiquid market. As I wrote in September[24]

The investor profile of the domestic bond market reveals of a seeming proportional distribution of the outstanding bonds between the resident private sector institutions and various domestic government agencies. In other words, the Philippine government and their private sector allies have been able to ‘manage’ bond markets.

This doesn’t mean that closed and illiquid markets serve as free passes for bubbles. If ASEAN markets will undergo sustained turbulence, there will most likely be a spillover to Philippine bond and financial markets. Since the Philippine bond markets have been grotesquely mispriced, I expect the volatility in the bond markets to be magnified.

ASEAN’s financial turmoil will be evinced by extended episodes of liquidity shortages that will expose on accrued malinvestments concealed by the recent boom. Companies desperate for funding will frantically compete from the diminishing pool of supply amidst dramatically receding confidence and a shift to fear. Such dynamic will eventually force up domestic bond yields at a rate even faster than the more liquid counterparts.

Figure 6 Indonesia’s yield curve

Indonesia’s rapidly flattening yield curve seems like a good example see figure 6[25].

Above, I pointed on how Indonesia’s 10 year yield seems to be swiftly approaching September highs. But the flattening yield curve reveals that short term yields have been rising more hastily than the longer end. This is a sign of an advancing stage of a liquidity crunch. The liquidity crunch will be magnified when yield curve inverts. Inverted yield curves have usually been accurate indicators of recessions or crisis. 

Figure 7: ASEAN Default Probabilities

Indonesia’s rising bond yields and speedily falling rupiah have also been reflected on the default risks via 5 year Credit Default Swaps (CDS) Probability of Default (PD)[26].

While Indonesia’s annualized probability of default 3.3% (based on recovery rate of 40%) is far from Argentina (15.6%) or Venezuela (12.8%), we seem to be seeing a formative upside move. 

Meanwhile ASEAN’s bond vigilantes have yet to influence the CDS default probabilities of Thailand, Malaysia and the Philippines. Nonetheless ASEAN’s CDS probabilities remain elevated relative to the pre-Abenomics levels which demonstrate languishing concerns over financial stress.

ASEAN Stock Markets: Patterns and Pairs

This leads us to the stock markets.

Figure 8: Clustering Illusions? Phisix-SET and the Nikkei

I bring up again the peculiar similarities in figure 8 first between the Philippine Phisix (upper left window) and Thailand’s SETI (upper right window).  Since the start of the year the Phisix-SET has acted in an uncanny resemblance with each other. This can be identified through their recent inflection points (green arcs). Well this week’s near identical fall 4+% seems even creepier. 

A second bizarre pattern can be traced to the similitude of the Phisix-SET with Japan’s Nikkei 225 during the latter’s boom bust transition over a 10 year period (red rectangle). While the Nikkei’s pattern may not be as precise as the Phisix-SET, the Nikkei’s chart exudes of a full scale bear market that followed a manic boom.

The likeness of the Phisix-SET and the Nikkei can be seen via the major inflection points as highlighted by the green arcs.

While I hardly am a believer in chart patterns, my question is will a repetition of the Nikkei’s pattern be expressed via the Phisix-SET? Considering the similarities in the extensive build up of systemic debt (although distinctly distributed), I guess the answer will entirely depend on the bond vigilantes.

And compared to the earlier surges in ASEAN bond yields, where ASEAN stocks responded forcefully as seen via sharp volatilities, today’s stock market actions seem to be more subtle and partially different.

Figure 9 ASEAN stocks: Malaysia’s KLCI Indonesia’s JCI and Singapore STI

Aside from the seemingly steep deterioration in the nearly self-same Phisix-SETI, Indonesia’s JCI seems to be in a slow but steady decline see figure 9

ASEAN stocks go against Malaysia’s KLCI, ASEAN’s odd man out, which recently even etched record highs. Malaysia’s flagging bond markets and the falling ringgit have only dented the KLCE marginally.

Meanwhile the ASEAN developed economy equity market benchmark of Singapore, via the STI, uncharacteristically seems to approximate movements of Indonesia’s JCI. The inflection points of JCI-STI again reveals of the noteworthy similarities

So ASEAN equities appear to trade in pairs: Singapore’s STI-Indonesia’s JCI and Philippine Phisix-Thailand SETi

As a side note Singapore’s 10 year bond markets and currency, the Singapore Dollar, seem to also exhibit signs of relapse.

Will Malaysia’s KLCI lead the rest of ASEAN out of the woods? Or will the bond vigilantes spoil the KLCI’s party and bring her to tow the line along with the rest of her neighbors?

ASEAN’s Fed Taper Bugaboo

Aside from the Typhoon Yolanda bogeyman, I find comments by highly paid local “experts” attributing the relative underperformance of ASEAN equities on the Fed’s taper as signs of cluelessness.

When outgoing Fed chief Ben Bernanke surprised the markets heavily expecting a tapering with an UN-taper last mid-September[27], the rebound in ASEAN markets failed to keep pace with advances counterparts in the US, Europe and Japan and eventually faltered. Then tapering was off the table but ASEAN markets floundered and disappointed.

Figure 10: Yardeni.com Retail Investors Leads the Yield Chasing Momentum[28]

Recently incoming Fed Chairwoman Janet Yellen has signalled continuity of Bernanke’s dovish policies or the retention of easy money environment. This has been celebrated by stock market participants who pumped US stocks to a Wile E Coyote running off the cliff momentum[29]. Unfortunately ASEAN markets fumbled anew

Retail investors have been piling up on US stocks see figure 10

While there have recent been chatters over the Fed’s taper, “tapering” will hardly be a reality soon, particularly for a steroid asset bubble dependent economy. This also means the Fed’s taper has hardly been the current source of ASEAN’s sustained underperformance.

As far as June 2013[30], I have been saying that the Fed’s tapering signifies a “poker bluff”, as yields of US treasuries have been rising since July 2012. Even Mr. Bernanke’s QE 3.0 in September 2012 failed to stem the rising yields.

Here is what I wrote[31]

But treasury yields have been rising since July 2012. Treasury yields have been rising despite the monetary policies designed to suppress interest rates such as the US Federal Reserve’s unlimited QE in September 2012, Kuroda’s Abenomics in April 2013 and the ECB’s interest rate cut last May.

Rising treasury yields accelerated during the second quarter of this year, which has now been reflected on yields of major economies, not limited to G-4.

Mr. Bernanke’s tapering bluff was called last September.

Aside from tapering expectations, rising rates of US treasuries (USTs) have been partly reflecting on a combination of the following factors 

-inflationary boom gaining traction which has spurred accelerating demand for credit thus pushing up interest rates.

-erosion of real savings or the diminishment of wealth generators or growing scarcity of real resources due to the massive misallocation of resources prompted by central bank inflationist policies.

-diminishing returns of central bank policies where continued monetary pumping has led to higher rates.

-inflation premium, despite relatively low statistical CPI. Perhaps markets have been pricing inflation of asset bubbles

-growing credit risks of the US government

-Triffin Dilemma or Triffin Paradox[32] where improving US trade deficits have been reducing US dollar liquidity flows into the global economy.

As for the underperformance by ASEAN, such has been partly been in response to the above dynamics combined with the possible peaking of internally generated “homegrown” bubbles as manifested by the unsustainable convergence trade[33]

I even find signs of massive denials and intensifying desperation by experts to even seek a Manny Pacquiao victory in the hope that such would boost the domestic stock market[34].

Well the oversold markets will surely experience bounce. Mr Pacquiao’s victory or the coming announcement on Philippine GDP which I expect to be in line with the mainstream’s expectations given the late spurt of credit growth will have little do with it.

As shown above the actions of the Phisix appear to be anchored to the developments of her neighbors. This means that the region recovers and the Phisix will rise with the tide or a tsunami will sink all boats.

In my view risks seems very high and will continue to do so for sometime.

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[1] see Typhoon Yolanda: From Natural to Man-Made Calamity; Spontaneous Order Thrives! November 18, 2013

[2] Interakyson.com PH stock market slips below 6,100-mark as profit-taking continues November 22, 2013; Inquirer.net PH stocks continue to decline November 22, 2013; Bloomberg.com Philippine Stocks Drop Most in Seven Weeks as Megaworld Slumps November 20, 2013

[3] GMANetwork.com NDRRMC: Damage from Yolanda continues to mount, nears P23B November 24, 2013

[4] See Typhoon Yolanda and the Phisix November 11, 2013

[5] Wikipedia.org Availability heuristic

[6] CNN.com Typhoon Haiyan death toll jumps to 5,235 in Philippines November 23, 2013

[7] Inquirer.net Gov’t stops ‘Yolanda’ body count at 4,011 November 20, 2013

[8] Yahoo.com NDRRMC chief: No order to suppress Yolanda body count November 22, 2013

[9] International Business Times Haiyan (Yolanda) Update: Philippine VP Jejomar Binay Panned For Allegedly Branding Name On Relief Goods November 14, 2013;

International Business Times World Haiyan (Yolanda) Update: Filipina Newsreader Korina Sanchez Slammed For Printed Slippers Donation November 16, 2013

[10] Bangko Sentral ng Pilipinas Foreign Portfolio Investments Yield Net Inflows in October November 14, 2013

[11] Bangko sentral ng Pilipinas End-October 2013 GIR Stand at US$83.4 Billion November 7, 2013

[12] Businessworld Online Forex losses weigh on San Miguel November 11, 2013

[13] Interaksyon.com Lower generation business margins pull down Aboitiz Power's 3Q profit October 30, 2013

[14] Inquirer.net Aboitiz reports 8% decline in net income October 30, 2013

[15] Businessworld Online PLDT profit growth sustained as of Sept. November 5, 2013

[16] Manila Bulletin Forex losses trim JGS’ net income November 11, 2013

[17] Businessworld Online Forex loss, spending weigh on Philex Petroleum’s bottom line October 31, 2013

[18] GMANetwork.com Cebu Pacific operator says net income plunge 71% on forex losses in first nine mos. November 12, 2013

[19] GMANetwork.com EDC's nine-month income weighed down by forex losses and lower revenues November 7, 2013

[20] GMANetwork.com Atlas Consolidated says lower metals prices, forex losses depress 9-month net income November 14, 2013

[21] Wall Street Journal Real Times Economic Blog Thai Economy Disappoints and More Risk Ahead, November 19,2013

[22] World Bank Rebuilding Policy Buffers, Reinvigorating Growth October 2013

[23] Wikipedia.org Informal sector

[24] See Phisix: Has ASEAN Bear Markets Been Signaling a Crisis? September 2, 2013

[25] Asian Bonds Online Indonesia LCY GOVERNMENT BOND YIELD MOVEMENTS

[26] Deutsche Bank Sovereign default probabilities online

[27] See Asian Markets Jump on the FED’s 'Untapering' or QE extension September 19, 2013

[28] Yardeni.com US Flow of Funds: Equities November 22, 2013

[29] See US Stocks on a Record Melt Up on Yellenomics and ECB’s QE! November 14, 2013

[30] See Why Bernanke’s Taper Talk is another Poker Bluff June 22 2013

[31] See How Rising US Treasury Yields May Impact the Phisix July 8, 2013

[32] See Will the Triffin Dilemma Haunt the Global Financial Markets? August 12, 2013

[33] See Phisix: The Convergence Trade in the Eyes of a Prospective Foreign Investor November 11, 2013

[34] See Phisix and the Manny Pacquiao Post Hoc November 23, 2013