…the
fact that economists, respected or not, are not anything like economic experts.
They are, almost in total now, simple mathematicians and statisticians. Their
world consists not of flesh and humanity, but of overly simplified, though elegant, regressions and equations
that are supposed to represent the impulses of shorn human behavior. Thus,
their correlations especially of the past few decades have forced an attentive
drift away from the direct focus upon wages and productive investment and into
asset prices and financials because that is what their numbers tell them has
been driving wages and productive investment. From that point, there has been
no evaluation about whether such correlations are at all appropriate and
consistent with a truly healthy and advancing economy; the math banishes all
such judgment—Jeffrey P. Snider
In this issue:
Phisix 6,900: APEC’s Cost: Php 20 Billion, ALI's
Cash Flow Strains Explains Capex Cuts!
-APEC Will Cost Php 20 Billion Just To
Rehash 1996 Statements!
-APEC’s Illusions of Free Trade
- ‘Free Trade’ Versus Inflationism
-China’s Free Trade Automotive Bubble
-Paris Attacks: Blowback from ECB
Financed French Government’s Geopolitical Interventionism
-The UNSEEN Legacies
from APEC PLUS Central Banks’ Policies
-Despite
Magnificent Profits, ALI’s Cash Flow Strains Explains Capex Cuts!
-MEG, FLI and CPG:
More Evidences of Growing Strains at the Real Estate Sector!
-Snips: OECD Frets Over Global Recession, September
Philippine Exports Tailspins, November 9 PSE Volume Falls to January 2014 Lows!
Phisix 6,900: APEC’s Cost: Php 20 Billion, ALI Cash Flow Strains Explains Capex Cuts!
APEC Will Cost Php 20 Billion Just To
Rehash 1996 Statements!
The Philippine
government will be hosting the Asia Pacific Summit next week.
The Asia-Pacific
Economic forum represents a forum for 21 Pacific
Rim members intended to “support sustainable economic growth and prosperity
in the Asia-Pacific region” by “championing free and open trade and investment,
promoting and accelerating regional economic integration, encouraging economic
and technical cooperation, enhancing human security, and facilitating a
favorable and sustainable business environment”
While I am all in
all for free trade and economic freedom (as well as for civil liberties), I
believe that such events really showcases the aggrandizement of the egos of
domestic and international political leaders rather than what they have declared to
accomplish.
The Philippine
quack boom has also been sold as part of this ego boosting campaign.
Another, the
summit represents a wholesale junket for political leaders along with their bureaucratic
entourage, as well as cronies. This will all come at the expense of taxpayers
and currency holders.
To be fair, the
locations of the APEC annual meetings are rotated among members. So apparently, 2015
marks the turn of the Philippines.
Curiously, the
last time the Philippines played host to the APEC
at Subic was in 1996. Guess what happened a year later or in 1997?
Of course, it
would be a post hoc fallacy to say APEC caused the Asian financial
crisis. Nonetheless, the sequence of these events could have signified
untimely coincidence, a jinx, or a symptom of wanton overconfidence or all of
the above packaged into one.
Playing host to
the APEC summit entails massive real and opportunity (aside from social) costs:
the
suspension of (most of) government offices from November 17-20, a declared
non-working public holiday on November 18-19, the cancellation
of over 1,100 flights to give way to the delegates, more
checkpoints and tighter security measures and even Manila Bay declared as a
no sail zone! Remarkable.
The Philippine
Stock Exchange will
be closed during the designated holidays, but remain open on November 17 and 20
because the BSP, despite being a government office, will keep Philippine Payments and Settlements System (PhilPaSS)
operational
during these stated dates.
Yet all these
privileges coming at the expense (and even convenience) of the public!
Most of these
officials have been elected to supposedly serve the voters. But in high profile
events as these, real priorities are demonstrated. Voters and the other
non-voting constituents have been waylaid to accommodate for the convenience of
political authorities.
At the rudiment,
free trade represents decentralized social activities. But modern day politics
are centrally structured. In essence, forces of decentralization and
centralization collide or are diametrically opposed. So this has NOT been and
will NOT be about free trade.
As Alisa
Zinov'yevna Rosenbaum popularly known as free market champion Ayn Rand wrote[1]:
Wealth,
in a free market, is achieved by a free, general, “democratic” vote—by the
sales and the purchases of every individual who takes part in the economic life
of the country. Whenever you buy one product rather than another, you are
voting for the success of some manufacturer. And, in this type of voting, every man votes only on those matters
which he is qualified to judge: on his own preferences, interests, and needs.
No one has the power to decide for
others or to substitute his judgment for theirs; no one has the
power to appoint himself “the voice of the public” and to leave the public
voiceless and disfranchised.
Let us go back to
the costs.
This data from
the government’s Philippine
Statistics Authority exhibits that in 2014, the average daily GDP for the
National Capital Region was at Php 12.82 billion a day (current prices)
So if the APEC
holiday would reduce output by conservatively
50%, then this means Php12.8 billion lost! That would represent only nominal
losses. How about the other costs, higher wage burdens from holiday payments,
lesser profits, lost investment opportunities, lesser trading fees, among many
other economic factors?
And how about the
dislocation on commercial activities that depend on government offices which
will be closed in four days?
The mainstream
will say but this will mean ‘holiday economics’! Yet as I have explained before,
aside from the mistaken focus on the (SEEN) gains/benefits which on the other
hand, disregards on the (UNSEEN) costs, real economic growth comes from growth
in productivity, income and capital accumulation and not from spurious spending
from the impression that these are funded by ‘manna from heaven’.
Not only that,
the government has reportedly allocated Php 10 billion for this event which
politicians hail
will benefit the economy over the long term. Really?
Yet who pays for
the Php 10 billion junket of domestic and international leaders? Yes it is us,
the taxpayers and the peso holders. And for what type of benefits should
society reap? Abstract benefits?
Interestingly,
what economic benefits did the 1996 APEC summit deliver to the Philippines? An
economic crash which lasted several years for bubble excesses to clear?
Even if I reckon that the crash was
coincidental with the APEC summit, measured in terms of external trade,
Philippine exports
and imports
hardly improved in the aftermath of the 1996 summit from a ten year
perspective.
Moreover, it was even worse in terms of merchandise
trade as % of gdp, the Philippines became less about external trade but more
about OFW diaspora ‘exports’! This should even be magnified today where the BSP,
in response to the great recession, acted to pivot monetary policies with
the objective to “end its dependence on exports,” and to “boost
domestic consumption”
And so whatever happened to
ex-President FVR’s “Manila
Action Plan for APEC 1996 (MAPA ?96), strengthening economic and technical
cooperation and engaging the private sector in the APEC process”…and to…”recommendations
of the various APEC fora as measures of APEC's progress toward free and open
trade”?
Hasn’t such 19
year old rhetoric sound eerily familiar today?
And for APEC 2015,
media and politicians should specify on the details of benefits rather than
just to make general statements?
Or will benefits
accrue and be disbursed to just a few?
Examples. To the
hotels where the political guests will be billeted? To politically connected travel firms who will
facilitate part of these trips? To the private security and security related
firms whom will be hired to complement the government’s security measures? To politically
connected elites on cross border deals?
The Philippines
will incur more than Php 20 billion of costs for what? To rehash statements
made in 1996 premised on abstract benefits and from promises made to be broken?
APEC’s Illusions of Free Trade
APEC
2015’s theme is “Building
Inclusive Economies, Building a Better World” through four priorities: -Enhancing the Regional Economic Integration Agenda, - Fostering Small
and Medium Enterprises’ Participation in Regional and Global Markets,-Investing
in Human Capital Development and Building Sustainable and Resilient Communities
Let us see how
in essence free trade/markets apply to them.
I quote the four
priorities along with some of their explanations:
On Regional
Integration
APEC initiatives will focus on connectivity and trade
facilitation, particularly in areas that will promote trade in services and the
ease of doing business.
Ease of doing business? What’s the
cause of the unease or difficulties of doing business? Haven’t these been mostly
about politics: regulations, mandates, welfarism and taxes? And haven’t the
solution to the easing of doing business been plain and simple deregulation?
Does the Philippine government need the APEC for this?
On regional SMEs’ Participation: APEC
will continue to support SMEs through trade facilitation measures to link SMEs
to global value chains and promote their full participation in markets by
removing barriers to entry and promoting greater access to finance, technology,
training programs and tools.
Barriers to entry? Again, have these not been mostly about domestic
politics and its natural consequences? Aside from dirigisme, have institutional
deficiencies, infrastructure barriers, underdeveloped capital markets among
many others not signified as an offshoot to these?
The Philippine informal sector is a
testament to SME’s free market dynamics operating under economic repression. Simply
stated, the main cause of the informal economy is economic repression. Yet they
have proven to be resilient even without political support. The informal sector
has even mitigated the effects of the bursting bubble and buoyed the Philippines during
the Asian crisis.
For the SME’s to flourish, the government should
just get out of their way or to stop harassing them. If they grow enough, they
will join the mainstream.
More importantly, by scraping those trade
barriers, the informal sector migration to the formal economy should hasten.
Just liberalize.
Furthermore, domestic SMEs will find ways
to connect with her external trade partners if these trade barriers are junked.
We don’t need free trade agreements for these. People from Zamboanga and
Mandaluyong don’t need free trade agreements to conduct exchanges. In the same
way, the Philippine government can UNILATERALLY liberalize. Political borders
should not be an obstacle for voluntary exchanges. It’s an obstacle created by
politics.
Access to finance. Aside from possible
cultural quirks, haven’t this been about suffocating capital controls?
On Human Capital Development: APEC’s
human capital development initiatives will be designed to foster economic
competitiveness coupled with equal opportunity. APEC looks to enhanced
cooperation between education providers and businesses as employers—to help
realize human resource development goals.
Why the lack of
economic competitiveness and equal opportunity? Have these not been due to
protectionist laws embedded in the system? Do the Philippines need a behest
from Obama–Xi-Putin-Abe to emancipate the economy from these domestic barriers?
Why are OFWs
still streaming out of the Philippines in spite of the supposed boom? Have
these dynamic not been due to the lack of economic competitiveness and deficient
economic opportunities that subsequently, has led to deficient job and income
growth due to political interference and barriers?
The peso’s slomo
crash from 1960 should serve as primary
evidence for such policy interventionist failures.
Yet even without
the government’s prodding, OFWs act and take risks to seek better future in the
wake of such handicaps. OFWs are merely responding to an economy shackled by
protectionism and state-crony capitalism.
On Sustainable
and Resilient Communities: Preparedness such as investing in resilient infrastructure,
rather than just relief and recovery, are coming to the fore of APEC’s agenda.
APEC looks to create and promote risk reduction and management, build SMEs’
resilience to disaster, and ensure business continuity.
What’s
the cause of the lack of infrastructure? Yet is the government only the sole
provider of infrastructure?
Well
let me say that the major causes of the lack of infrastructure have again been
political: regulatory, legal, institutional and funding barriers among many
others. Had government liberalized infrastructure, infrastructure investments would
have surged. But the government wants to control everything. And so they prefer
the Public Private Partnership route. A route which essentially politicizes the
infrastructure
resource deployment that leads to cronyism.
The political mission by the APEC hardly
has been about the “championing free and open trade and investment, promoting
and accelerating regional economic integration, encouraging economic and
technical cooperation, enhancing human security, and facilitating a favorable
and sustainable business environment”, but rather represents political control
of trade in the guise of free markets.
To add, the Trans
Pacific Partnership (TPP) reportedly will be a side event at the APEC sans the
Philippines.
Yet rules and regulations covering the TPP,
according to the Breitbart,
accrue to a shocking 5,544 pages long! The bundle of TPP documents weigh more
than 100 lbs! It is also represents 3,500 pages more than Obamacare!
With all the stunning byzantine of rules
and regulations, incentives of people engaged in voluntary exchange will shift!
Instead of focusing on satisfying consumers, producers or service providers
will be more concerned on lobbying for favors from unelected bureaucrats who
essentially will play gods (choose winners and losers). The horrifying maze of
rules and regulations will only whittle away competition, solidify the interests
of politically connected entities and or invite a boatload of lawsuits! All
these will extrapolate to less and NOT more trade.
This is government’s version or definition of
free trade. War is
peace. Freedom is slavery. Ignorance is strength.
Government dictated trade is free trade.
As the great Austrian economist Ludwig von
Mises wrote[2]
(bold mine)
It is vain to expect anything from purely technical
changes in the methods applied in international negotiations concerning
foreign-trade matters. If Atlantis is resolved to bar access to cloth
manufactured abroad, it is of no importance whether its delegates must
negotiate directly with the delegates of Thule, or whether the subject can be
dealt with by an international board in which other nations are represented. If
Atlantis is prepared to admit a limited amount—a quota—of cloth from Thule only
because it wants to sell a corresponding quota of wheat to Thule, it is not likely
to yield to a suggestion that it allot a part of this quota to other nations.
If pressure or violence is applied in order to force Atlantis to change its
import regulations so that greater quantities of cloth can be imported, it will
take recourse to other methods of interventionism. Under a regime of government
interference with business a government
has innumerable means at hand to penalize imports. They may be less easy to
handle but they can be made no less efficacious than tariffs, quotas, or the total
prohibition of imports.
Under present conditions an international body for
foreign-trade planning would be an assembly of the delegates of governments
attached to the ideas of hyper-protectionism. It is an illusion to assume that such an authority would be in a position
to contribute anything genuine or lasting to the promotion of foreign trade.
It is in the same context for so-called
competition enhancing laws like the Philippine
competitive act. Instead of promoting economic activities, it bogs down
parties with bureaucratic red tape and therefore reduces economic activities
which defeat the very goal that it purports to achieve. For instance, the PSE’s
proposed takeover of the operator of
the fixed-income exchange, the PDS Holdings,
Inc has been hobbled by the said anti-monopoly law.
Some game
changer.
‘Free Trade’ Versus Inflationism
Unless one is engaged in barter, most trade
whether free (voluntary) or forced (e.g. political services such as taxes,
fines and etc) are coursed through a medium of exchange or a currency.
Said differently, HALF of every trade being
conducted is made through a medium of exchange.
And because
medium of exchanges, such as the peso, has a price (exchange ratio between
currency unit and specific goods and services), changes in the pricing of the
medium of exchange would also alter the incentive for trade.
In short, the pricing mechanism expressed
through currency units coordinates the ever dynamic balance between demand and
supply of goods and services.
So
when government, through their respective central banks, meddle with the price
of the currency, they effectively influence a change in the incentives to
trade.
And since
tinkering with the price of a currency is a result of policy (backed by an
underlying political and economic motive/s), this means that certain groups are
being accorded privileges through invisible redistribution at the expense of
other groups.
Financial repression through the
suppression of interest rates is an example of intervention in money prices.
Suppression of interest rates rewards
borrowers and speculators that come at the expense of savers and pension
holders.
Furthermore, suppression of interest rates
serves as subsidies to the government and to the big borrowers in the banking
system and in the capital markets.
And because suppression of interest rates
translates to an expansion of money supply brought about by the credit
expansion, which lowers the value of a domestic medium of exchange relative to
foreign currencies, this effectively represents subsidies to foreign currency
revenue earners (exports, tourism, for the Philippines BPOs and OFWs) which
comes at the expense of domestic purchasing power.
And because suppression of interest rates
translates to an expansion of money supply brought about by the credit
expansion rewards speculative activities, it fosters malinvestments or economic
disequilibrium.
And since suppression of interest rates
represents a political redistribution scheme, which again protects (through
subsidies) certain segments of society and which is paid for or taxed or
transferred from the rest, such political redistribution scheme channeled
through the monetary channel represents implied protectionism.
And so when governments engage in suppression
of interest rates (zero bound, negative bound or QE) they are engaged in subtle
protectionism.
And when the assault on interest rates
becomes a de facto standard for
global central banks, where they have been labeled as ‘currency
manipulation’ or ‘currency
wars’ or ‘beggar thy
neighbor’ policies this again implies protectionism.
So trade activities will correspond to the
consequential changes in money prices from monetary inflationist
‘protectionist’ policies that would have offsetting functions to the ‘trade
agreements’ based on conventional tariffs and non-tariff
barriers. This won’t be visible on the surface.
In short, protectionism in government’s
rhetoric is Free Trade.
But a wolf in a sheep’s clothing remains a
wolf.
China’s Free Trade Automotive Bubble
China’s massive automotive malinvestments
should be a worthy example of monetary distortions from political interventions
on money prices that has masqueraded as free trade.
I have pointed out here how China’s stimulus
and credit easing policies have
ballooned capacity of the automotive industry by an incredible 17 million units
since 2009 even when demand has only expanded by 10.6 million units over
the same period.
China has been the
largest car producing country as of 2013.
China’s vehicle
output, which includes foreign producers, exceeds the overall share of European
Union and accounts for one fifth of the global passenger car production,
according to Statista.com.
Yet only about 3% of domestic production
has been destined for exports (see left). Additionally, China’s major car
exports have been to developing or emerging markets.
Car exports
accounted for a third largest traded goods in the world as of 2013 based on a
report from UNCTAD
(United Nations Conference on Trade and Development). So this highlights of the
importance of the industry to global trade.
In other words, credit easing policies around the world
artificially expanded demand for motor vehicles that prompted for a colossal
expansion in China’s domestic capacity, as well as, cross border trade for
motor vehicles.
I might add that
other parts of the world could have added to the industry’s capacity.
Now that domestic demand for cars has been
slowing, Chinese producers have been undercutting prices through “margin-destroying discounts” and are considering to “tapping the brakes”
on expansion.
Yet with such amazing
degree of overcapacity, selling through “margin-destroying discounts” will not only be limited to
domestic markets but will likely be exported abroad. But that’s if there will
be demand for Chinese cars. As of September, year on year change in China’s car
exports have plunged: passenger vehicles -24.7% and commercial vehicles -35.7%
according to China
Association of Automobile Manufacturers
Like steel,
China will likely be exporting abroad price deflation from the industry’s excess
capacity. And like Chinese steel, which now is subject to US protectionism that
has reportedly contributed to slowing global trade, Chinese cars may vulnerable
to conventional protectionist policies imposed on her by her trading partners.
Accounts of rising protectionism, according
to analysts quoted by the Wall
Street Journal Real Time Economics Blog, have mainly been from the
following nations: India, Russia and the U.S. have
imposed the most “trade-distorting” measures since 2008.
Ironically, haven’t
the two of them, namely US and Russia been part of the APEC summit? Two supposed
champions of free trade as the top protectionists? War is peace? Freedom is
slavery? Down is UP?
As a side note: Two
presidents of APEC member states, Russia’s
Putin and Indonesia’s Widodo, have reportedly begged off the summit.
The exporting of
deflation will also apply when Chinese vehicle producers cut capacity, as this
will ripple across the supply chains and credit networks directly and
indirectly attached to the industry.
So ‘globalization’ has not only transmitted bubbles
from one nation to another, but more importantly abetted in the inflation of
bubbles across the globe.
These are NOT products of laissez faire capitalism (free
markets) but one of STATE capitalism.
Again a wolf in a sheep’s clothing remains
a wolf.
Paris Attacks: Blowback from ECB Financed
French Government’s Geopolitical Interventionism
It saddens me to
see civilians needlessly slaughtered due to wars.
Yes media calls
the concerted
bombings that claimed 129 lives in Paris acts of terrorism. Yet terrorism
is a form of warfare. Like guerilla warfare,
since terrorists are inferior in organization and equipment, they confront
their adversaries through unconventional or irregular means. But unlike
guerilla warfare, their targets have been civilians. Such has been intended to
sow fear, which according to a Rand Corporation paper,
are carried out by an organization, and devoted to political ends—which could
be about “narrow goals of payment of ransom or release of prisoners to the
broad goals of worldwide publicity for a cause”
Yet wars have to
be funded. They are either funded by plunder, taxation or inflation.
Since 2008, the
ECB has engaged in various stimulus measures. For instance, the
ECB has deposit facility rates (overnight deposit) from a high of 3.25% in
October 2008 to -.2 in September 2015. Marginal lending facility (overnight
lending) was likewise cut from a high of 4.25% to just .3% over the same span
of time.
The ECB’s serial
interest rates cuts plus other easing
measures have provided significant subsidies for the French government to fund her
ladder like increases in spending activities through debt. (Austerity,
really? Where?). These included military spending which steadily accounted for
2.2-2.3% of GDP from 2006-2014 based on World
Bank data. And even prior to the Paris attacks, the
French government announced a hike in defense spending for 2016. Hence, French public debt to
GDP has risen from 68.2% in 2008 to 95% in 2014 and will continue to rise.
And because the
French has been active in geopolitics, historian Eric Margolis recently noted
that[3]: To put things in context, France has emerged as one
of the most active interveners in the Muslim world, conducting military
operations in Libya, Mali, Chad, Ivory Coast, Central African Republic,
Djibouti, Abu Dhabi, Afghanistan, Iraq and Syria. Critics accused
France of a new era of Mideast and African colonialism.
Naturally with about
5-6 million of Muslims residing in France most of them North African and Black African in origin,
these Muslims are “third
class citizens marginalized by French society and discriminated against, living
in poverty with no prospects for their futures. They have become an
angry, dangerous, alienated sub-class seething with resentment and prone to
criminality.”
Thus the unfortunate January 7, 2015 shooting Charlie Hebdo
incident which claimed 12 lives could have been a precedent or was a prologue to yesterday’s
attacks but at a larger scale.
Aggravating the French political drama has been the
refugee crisis as an offshoot to the Syrian civil war. The French government actively
supported rebels that fought to topple the Syria’s Assad regime. On the
same plane, the French
government joined the US on airstrikes against the Islamic State last
September. Paradoxically, the ISIS has been also at war with the Syrian
government.
The French government’s response to the Paris
attack has been to declare a state
of emergency which included the closing of her borders. Such action
essentially violates the Schengen Agreement
which calls for free movement of people within EU member nations. The Schengen
Agreement is a core part of EU law wherein
all EU member states are without an opt-out option.
Even prior to the Paris attacks, in response to the
brewing refugee crisis, the EU
gave a go signal to the governments of Germany and Sweden for them to institute
temporary border controls. Meanwhile Austria
announced that it would build a fence across its borders with Slovenia. So
one of the core creeds or pillars of the EU’s integration have been dissipating.
In other words, the
blowback from ECB’s funding of political will not just be about refugee crisis
and terrorist attacks but likewise the increased risks of social instability,
protectionism and more importantly the dismantling of the EU!
Thanks to the unelected bureaucrats at the ECB,
what was sold as free markets, free people movements and a currency union will
now be in jeopardy due to free lunch financing of pet projects of power hungry
politicians.
A final note on geopolitics. While it is terrifying
to see the carnage from the Paris attacks, what media has not shown have been
the bloodshed of innocent victims from Western interventions in the Middle
East, Africa or elsewhere. This is with the exception of the US government’s deliberate
bombing of a hospital
run by the volunteers from Doctors Without Borders at the Afghan City of Kunduz
that claimed 22 lives.
Where’s the outrage?
The UNSEEN Legacies
from APEC PLUS Central Banks’ Policies
This brings me back to the free trade rhetoric versus
inflationism
Do you know what has been the legacy from APEC in
combination with current central banks inflationism?
This Bloomberg report has the answer[4]:
(bold mine)
Debt
in developing markets is estimated to
have reached $58.6 trillion at the start of 2015, with credit in China, Hong Kong, India, Indonesia, Malaysia, Singapore,
South Korea and Thailand exceeding that of Latin America, emerging Europe
and the Middle East, according to the Institute of International Finance.
Emerging-market debt has grown $28
trillion since 2009, according to the IIF, which on
Monday introduced a database tracking 18 developing markets. Global debt has
soared $50 trillion during the period to
surpass a total of $240 trillion, or 320 percent of gross domestic product, in
early 2015.
While
credit has increased for almost all countries included in the new monitor over
the past decade, debt-to-GDP ratios
in developing Asia for non-financial corporate, household and financial
corporate sectors have risen the most. Debt in Asia topped all categories
except in the public sector, which has “limited” exposure across emerging
nations compared with developed markets, the report said.
Non-financial corporate sector
debt in emerging markets has risen $13 trillion since 2009, increasing more
than five-fold over the past decade to surpass $23.7 trillion in the first
quarter of 2015. The advance has been most concentrated in emerging Asia, where
it rose to 125 percent of GDP.
The above have accounted
for the ramifications of the collective actions of global central banks. Global
central banks have cut interest rates 697 times and have bought $15 trillion of
financial assets in 110 months, according to the Bank of America as quoted by Zero
Hedge. And such easing policies have partly led to the amassment of the
gargantuan debt stocks based on the financing of carry trades, cross border
investments and cross border trades.
I am tempted to
ask: 1997 déjà vu?
Oh when this whole
thing blows up (on the process now), pls don’t blame free markets for this.
There have NO been free markets in today’s politicized money.
Despite Magnificent
Profits, ALI’s Cash Flow Strains Explains Capex Cuts!
Curiously, last September, they slashed
their capex by 20% in 2015 or this year!
ALI officials already knew much of the sales
performance for the Quarter. So why the capex cut given the huge profit gains?
Their publicized reason for the capex cut: tighter
cash management.
Why the need for “tighter cash management” in the
face of magnificent profit growth?
The same question I asked on SM’s playing with fire
last week[5]
applies to ALI.
Just what happened to all those supposed
“strong earnings”? Just
where exactly are those earnings to be found? Why haven’t the firm been
generating enough cash flows enough to cover internal debt refinancing to
prompt them to borrow externally?
Apparently Ayala
Land shares much of SMPH’s conditions.
Such marvelous
profits are really just accounting profits that have been brought about by
money illusions.
First and
foremost, despite the rip roaring headlines, topline real estate sales have
been slowing significantly. 9 month growth for 2015 has fallen to just 10.02%
from 2014’s 16.42% (left). 10% is still a big number though.
Second, trade receivables
now account for an astounding 40.43% of current assets (right)
ALI has declared in
her aging of receivables as Php 50.1 billion will be due in 6 months, Php 8.1
billion will be due on 6 months to 1 year and Php 24.98 billion over one year.
According to ALI’s
2014 annual report (p 39), “Titles to real estate properties are
transferred to the buyers only once full payment has been made”. My impression
is that the installment payments for the units that have been technically sold may
have still been accounted for as part of their inventory. If my reading is
right then this would entail a double counting in their current assets.
Nonetheless, even
if this hasn’t been so, ALI’s inventory shows of a massive inventory buildup
indicative of oversupply. Receivables PLUS inventory now accounts for 73% share
of current assets.
Third and most
important. Based on her 3Q
17Q, ALI has apparently insufficient cash flows from their operations, so
they have to rely heavily on short-long term loans to bridge finance her
operations, as well as to pay outstanding due debt.
In the 3Q, ALI
raised Php 15 billion which padded her debt proceeds from Php10.5 billion (2Q)
to Php 25.991 billion
Add to this ALI
raised Php 16 billion in January
2015 from top-up private equity placement at Php 33/share.
As a side note: Now
if ALI’s share falls below 33 then sorry to these investors who provided the
company with Php 16 billion. This would be an example of how ALI transferred
market risks to the subscribers of this year’s equity top placement offering.
The Php 16 billion raised
from their January offering now serves as cash reserves.
From the above,
we see why the need to
implement “tighter cash management”.
Aside from the risks of a slowdown in real estate,
ALI appears to prioritize COLLECTION more than sales.
ALI’s parsimony can be seen as a shift to a
defensive conservation mode.
MEG, FLI and CPG:
More Evidences of Growing Strains at the Real Estate Sector!
Now let me just demonstrate more incidences of the
money illusion profits based on the balance sheet of the other real estate
companies.
Megaworld’s 3Q17Q.
Quick numbers. 3Q sales grew by
10.9%. 9 months sales grew by 11.4%. 9 month DEBT surged by an incredible 50%!
Trade receivables soared by 23% in 9 months.
Awesome leveraging!
Filinvest 3Q17Q
Quick numbers. Real estate sales grew by just 2.75%
in 3Q! In 9 months topline sales added 6.5%. Interestingly, rental revenues
DROPPED -1.9% in 3Q but expanded 8.4% in 9 months.
Meanwhile 9 month debt swelled by 21.8%!
Century
Properties 3Q17Q
This looks as the
most interesting of all. 3Q real estate sales PLUMMETED by a fantastic 33%! 9
month sale was down by 8.38%.
In the meantime,
debt expanded 5.6% in 9 months.
Now my suspicions
on the latest
media concerted barrage to promote the real estate industry have partially
been proven.
The real estate sector
appears to showing increasing signs of strains!
Snips: OECD Frets Over Global Recession, September
Philippine Exports Tailspins, November 9 PSE Volume Falls to January 2014 Lows!
ICT magnate Mr. Enrique
Razon’s call "another crisis is coming" has company. The OECD worries that
global trade has fallen to recessionary levels
The Quartz on
OECD[6]
Secretary-general
Angel Gurria elaborated in a speech summarizing the group’s forecasts: “Global
trade, which was already growing slowly over the past few years, appears to
have stagnated and even declined since late 2014, with the weakness centering
increasingly on emerging markets, particularly China. This is deeply concerning
as robust trade and global growth go hand in hand. In 2015 global trade growth
is expected to grow by a disappointing 2%. Over the past five decades there
have been only five other years in which trade growth has been 2% or less, all
of which coincided with a marked downturn of global growth.
A presentation accompanying the forecast (pdf) was
more pointed, saying that such depressed trade levels are usually associated
with global recessions:
Add to this dour
global trade sentiment, the 24.7% collapse in Philippine
September exports.
Except for Hong
Kong which posted a 13.4% gain, Philippine exports to the top four trading
partners have all crashed: Japan 47.7%, USA 19.4%, China 28.9% and Singapore
38.4%
At the Philippine
Stock Exchange, the Phisix fell by 3.1% this week. If momentum holds then we
should see a test at 6,800 and 6,700.
But here is what
captured this week’s trade activities. Monday November 9 volume shriveled to
just Php 3.73 billion! This level was last seen in January 2014.
It appears that
the bid, in support of these extremely overvalued securities, has been fast
losing ground.
[1]
Ayn
Rand “America’s Persecuted Minority: Big Business,” Capitalism:
The Unknown Ideal, 47 Aynrandlexicon.com
[2]
Ludwig von Mises, Omnipotent
Government: The Rise of the Total State and Total War [1944]
oil.libertyfund.org
[3]
Eric
Margolis Attacks
of the Lone Wolves January 10, 2015 Lew Rockwell.com
[4]
Bloomberg.com
Asia's
Rapid Debt Buildup Tops Developing Markets, IIF Says November 10, 2015
[5]
See
Phisix
7,100: Surprise! ICTSI Chief Enrique Razon Warns: Another Financial Crisis is
COMING!!!! SM Plays with Fire! November 9, 2015
