Do Gold’s Historic Highs Predict a Coming Crisis?

Massive money printing and debt accumulation have gone on for something like 80 years, and the system has held together. Why should it end now? Maybe they can wring one more cycle out of the corrupt Keynesian system. That said, I think we have finally reached the actual crisis point. Although this certainly isn’t the first time the inevitable seemed imminent…—Doug Casey 

This three-part series sheds light on the multifaceted story of gold: 

Part one examines how gold price surges have predicted global crises, from the GFC to today. 

Part two analyzes the role of central banks in driving these record highs. 

Part three assesses how these highs could impact the shares of listed Philippine gold mining companies. 

In this issue

Do Gold’s Historic Highs Predict a Coming Crisis?

I. Gold at All-Time Highs: A Beacon of Crisis or Recession Ahead?

II. Gold, The Philippines and the Pandemic Recession:

III. The Bigger Picture: Gold as a Recession or Crisis Bellwether

IV. Gold Outshines the S&P 500: Gold’s Crisis Predictive Power in Focus

Do Gold’s Historic Highs Predict a Coming Crisis? 

First series on gold: Surging USD Gold Prices: A Predictor of Crises from GFC to Pandemic—What’s Next? 

I. Gold at All-Time Highs: A Beacon of Crisis or Recession Ahead?

Figure 1

Is the recent record-breaking streak of gold prices signaling an impending global recession or crisis? 

The relationship between gold and the US GDP has undergone a profound transformation. 

Ironically, gold’s multi-year climb began during the dotcom recession. It surged ahead of the Great Recession of 2007-2009—or 2008 Financial Crisis—and, while falling during its culmination, gained momentum once again before the climax of the Euro crisis. (Figure 1, upper and lower charts) 

Between May 2001 and September 2011, gold prices soared approximately 6.9 times, from $270 to $1,873. 

Thanks to interventions from central banks like the Federal Reserve (FED) and the European Central Bank (ECB), as well as their global counterparts, volatility subsided, and risk perception diminished, ushering in a “goldilocks” period. During this time, gold prices retraced roughly 43%, falling to $1,060 by December 2015. 

However, China’s unexpected currency devaluation in August 2015 triggered a stock market crash lasting until February 2016, further compounded by Donald Trump’s election, ignited the next leg of gold’s bull market, as investors once again sought refuge in the precious metal. 

Gold reached new heights during the US repo crisis of 2019, continuing its ascent prior to the onset of the global pandemic recession. 

It achieved an interim peak of $2,049 in August 2020, representing a remarkable 93.33% increase from its low in 2015. 

Despite the outbreak of the Russia-Ukraine war in February 2022 and peak inflation in mid-2022, gold prices slid by 20%, hitting a low of $1,628 in September 2022. 

The Bank of England’s bailout of UK pension funds during the Truss budget crisis in October 2022 provided support or put a floor under gold prices, stabilizing the market. 

More recently, geopolitical conflicts—including the Israel-Palestine war and its extension to the Israel-Hezbollah conflict—along with rising tensions in hotspots like the South China Sea, escalating global protectionism, and the increased weaponization of finance, have fueled uncertainty. 

Additionally, the re-election of Donald Trump in 2024 and his administration’s policies, including trade wars, demands for the annexation/acquisition of Greenland, and control over the Panama Canal, have added to global economic and geopolitical instability. 

The resumption of hostilities in the Middle East, particularly Israeli attacks in Gaza and Beirut following a broken ceasefire, has further destabilized the region. 

In the Russia-Ukraine conflict, the UK and France have threatened to send troops to support Kyiv, risking escalation as Trump pushes for a quick resolution with concessions to Russia.

On April 2, 2025, Trump’s administration imposed 25% tariffs on all imported cars and light trucks, effective April 3, with plans for broader “reciprocal tariffs” targeting countries like Canada, Mexico, and the EU, prompting threats of retaliation and fears of a global trade war.

Figure 2

The ongoing trade war, did not emerge in a vacuum; rather, it reflects a broader, underlying trend of deglobalization. The rising number of import curbs—spanning tariffs, antidumping duties, import quotas, and other restrictions—represents the cumulative anti-trade measures undertaken by global authorities. 

According to Global Trade Alert, the number of import curbs in force among major economies, including the U.S., EU, China, Canada, Mexico, and the rest of the G20, has surged from under 1,000 in 2008 to over 4,000 by 2024 (Biden era), with the U.S. and EU leading the increase. (Figure 2) 

This proliferation of trade barriers has not only strained economic ties but also influenced foreign relations, contributing to a slippery slope of deglobalization that has materially heightened geopolitical stress. 

For instance, the U.S.’s aggressive tariff policies have prompted retaliatory measures from trading partners, fracturing alliances and fostering and deepening a climate of mistrust, which in turn exacerbates conflicts in regions like the South China Sea and Ukraine. 

This deglobalization trend, coupled with geopolitical flashpoints, has driven investors to seek safe-haven assets like gold, pushing prices to new all-time highs, as shown in the earlier chart, where NYMEX gold futures prices have spiked since 2023 even as the U.S. nominal GDP share of global GDP remains flat. 

II. Gold, The Philippines and the Pandemic Recession

Back in February 2020, I warned: 

In an interview with Ms. Gillian Tett at Council of Foreign Relations (CFR) on October 2014, former Fed chief Alan Greenspan aptly remarked: 

Remember what we're looking at. Gold is a currency. It is still, by all evidence, a premier currency, where no fiat currency, including the dollar, can match it. And so that the issue is if you are looking at the question of turmoil, you’ll find as we always find in the past, it moves into the gold price. 

The bottom line: Gold's uprising against central banking fiat currencies warn that the world is in the transition of entering the eye of the financial-economic hurricane! (Prudent Investor Newsletter)

It turned out that a global recession had already begun. 

In the Philippines, the first local COVID-19 case was reported in early March 2020, prompting the Duterte administration to impose a Luzon-wide lockdown, officially termed "Enhanced Community Quarantine." 

The Philippine economy subsequently plunged into a recession, with GDP contracting from Q1 2020 to Q1 2021.

Figure 3

Gold in the priced in the Philippine peso also soared ahead of the pandemic crisis. (Figure 3) 

III. The Bigger Picture: Gold as a Recession or Crisis Bellwether 

The charts illustrate a clear pattern: since the "Fed Put" during the dotcom bubble, gold’s record-breaking runs have consistently foreshadowed major recessions, economic crises, and geopolitical upheavals. 

These include the GFC, the Eurozone debt crisis, the U.S. repo crisis, the global pandemic recession, and the recent wave of conflicts and protectionist policies. Gold has also proven responsive to the serial interventions of central banks and governments, which have deployed easy money regimes and fiscal stimulus to mitigate these crises. 

For instance, the chart highlights how gold prices dipped during periods of perceived stability (e.g., post-2011 Euro crisis) but surged ahead of crises, reflecting its role as a leading indicator of economic distress. 

Is gold’s series of epic all-time highs yet another chapter in this unfolding saga of economic and geopolitical turmoil? The historical correlation between gold price surges and impending crises suggests that investors should remain vigilant 

IV. Gold Outshines the S&P 500: Gold’s Crisis Predictive Power in Focus

Figure 4

Finally, the mainstream financial narrative often compares gold’s performance to that of the stock market, framing gold as a speculative asset. In this context, gold has significantly outperformed the U.S. S&P 500 by a substantial margin over the past century, particularly since 2000.

However, this comparison is somewhat of an apples-to-oranges exercise. Gold, as a safe-haven asset, serves a fundamentally different role than equities, which are driven by corporate earnings, economic growth, and investor sentiment.

Gold’s value is tied to its scarcity, historical role as money, and its appeal during times of uncertainty, whereas the S&P 500 reflects the performance of the U.S. economy’s largest companies.

Despite this distinction, the comparison underscores gold’s resilience and appeal in an era marked by economic and geopolitical turbulence.

For a more nuanced perspective, the chart’s lower section presents the S&P 500-to-gold ratio, which measures how many ounces of gold are needed to buy the S&P 500 index. This ratio reveals a striking technical pattern: a massive head-and-shoulders formation, a bearish indicator in technical analysis that often signals a potential reversal. 

If this pattern completes, it could indicate a significant outperformance of gold over the S&P 500 in the coming years, potentially driven by a crisis that erodes confidence in equities while boosting demand for gold. 

Given gold’s historical predictive prowess for crises, as evidenced by its price surges before major economic and geopolitical upheavals, this head-and-shoulders pattern may well be fulfilled. 

____

References 

Prudent Investor Newsletter Oh, Gold!!!! February 23, 2020

Maharlika's NGCP Investment: Economic Nationalism or a Bailout?

 

Don’t you need some ‘wealth’ to create a ‘wealth fund?’ Norway did it with the money it got from North Sea oil. China’s trillion-dollar wealth fund comes from its trade surpluses. Where will the US wealth come from? The government runs deficits—Bill Bonner 

In this issue 

Maharlika's NGCP Investment: Economic Nationalism or a Bailout?

I. Introduction: Maharlika's First Test: Can Conflicting Objectives Deliver Optimal Returns?

II. The Legacy of NAPOCOR: A Historical Overview and its Cautionary Lessons

III. Geopolitical Tensions Permeate the Power Sector

IV. MIC’s Investment in NGCP: A Revival of Economic Nationalism? Shades of Napocor?

A. Advance National Security by Strengthening Oversight of NGCP Management?

B. Economic Benefits: Lowering Electricity Costs by Enhancing Grid Efficiency?

V. Maharlika's NGCP Investment: A Bailout in Disguise? Potentially Inflating an SGP Stock Bubble?"

VI. Maharlika’s Risks and Potential Consequences

VII. Conclusion 

Maharlika's NGCP Investment: Economic Nationalism or a Bailout? 

Is Maharlika’s exposure to the National Grid Corp. about investments, economic nationalism, or a bailout of SGP? Or could hitting all three birds with one stone be feasible? 

__

Nota Bene: This post does not constitute investment advice; rather, it explores the potential risks associated with the recent acquisition of the National Grid Corp. (NGCP) of the Philippines by the Maharlika Investment Corporation, through its controlling shareholder, Synergy Grid and Development Philippines Inc. (SGP).

I. Introduction: Maharlika's First Test: Can Conflicting Objectives Deliver Optimal Returns?

First some news quotes. (all bold mine)

Philippine News Agency, January 27, 2025: Under the deal, MIC will purchase preferred shares in SGP, granting the government a 20 percent stake in the company, which holds a significant 40.2 percent effective ownership in NGCP, the operator of the country’s power grid. Consing noted that the deal will also provide the government with board seats in both SGP and NGCP. “Once the acquisition is completed, we shall be entitled to two out of nine seats in the SGP board, after the total seats are increased from seven to nine. At NGCP, the government gains representation through two out of 15 board seats, following an increase in the total seats from 10 to 15,” he explained. The investment is seen as a crucial step for the government to regain control over the nation’s vital power infrastructure.

Inquirer.net, January 29, 2025: The country’s sovereign wealth fund is investing in the National Grid Corp. of the Philippines (NGCP) to allow the government to monitor the possible emergence of external threats, the head of Maharlika Investment Corp. (MIC) said on Tuesday. MIC president and chief executive officer Rafael Consing Jr. said they would also be interested in buying the 40-percent NGCP stake owned by a Chinese state-owned company once the opportunity arises. 

Inquirer.net, January 28, 2025: The way NGCP can contribute to lower electricity is by ensuring that that rollout indeed happens. Because once you have that transmission grid infrastructure being rolled out successfully, then you would have more power players that can in fact get onto the grid and provide supply to the grid. And, obviously, just like any commodity, as you’ve got more supply coming in, the present power will, at some point in time, come down

The Philippines' sovereign wealth fund (SWF), the Maharlika Investment Corporation (MIC), has made its first investment by acquiring a 20% stake in Synergy Grid and Development Philippines Inc. (SGP), the majority holder of the National Grid Corporation of the Philippines (NGCP), a firm listed on the Philippine Stock Exchange (PSE) 

Is this move primarily about economic interests, or does it also serve geopolitical objectives? 

Is the MIC being used to facilitate the re-nationalization of NGCP by phasing out or displacing China’s state-owned State Grid Corporation of China (SGCC), which holds a 40% stake? 

Or has this, in effect, been an implicit bailout of SGP? 

If so, how can achieving domestic and geopolitical objectives align with the goal of attaining desired financial returns?  

Or how could competing objectives be reconciled to achieve optimal returns? 

II. The Legacy of NAPOCOR: A Historical Overview and its Cautionary Lessons

To better understand the current situation, let's first examine the origins of NGCP, tracing its roots back to its predecessor, the National Power Corporation (NPC). 

The NAPOCOR (NPC), was once the behemoth of the Philippine power industry, centralizing control over both the generation and transmission of electricity. 

Established in 1936 as a non-stock, public corporation under Commonwealth Act No. 120, nationalizing the hydroelectric industry. It was later converted into a government-owned stock corporation by Republic Act 2641 in 1960. Its charter was revised under Republic Act 6395 in 1971. 

While consolidating significant influence over the Philippine electricity market, this monolithic structure came with its pitfalls. 

NAPOCOR accumulated substantial debt due to a combination of over-expansion, mismanagement, political interference, and corruption. 

The corporation's financial stability was further undermined by subsidies, price controls—both contributing to market imbalances—and costly contracts with Independent Power Producers (IPPs), which led to a cycle of financial losses. 

In response, the Electric Power Industry Reform Act (EPIRA) of 2001 was enacted, marking the beginning of the sector's restructuring through privatization. 

The Power Sector Assets and Liabilities Management Corporation (PSALM) was created to manage the sale and privatization of NPC's assets, also assuming NPC's liabilities and obligations.

Figure 1

At its peak, NAPOCOR’s debt, as reported by PSALM, had reached 1.24 trillion pesos by 2003. (Figure 1) 

The National Transmission Corporation (TRANSCO) was established to manage the transmission facilities and assets previously under NAPOCOR.

This restructuring ultimately led to the formation of the National Grid Corporation of the Philippines (NGCP) in 2009, a consortium that included local business tycoons Henry Sy Jr. and Robert Coyiuto Jr., along with China’s state-owned enterprise, the State Grid Corporation of China (SGCC). NGCP assumed operational control of the country’s power grid. 

The key takeaway from NAPOCOR’s experience is that its monopolistic structure created and fostered inefficiencies, corruption, and imbalances, which culminated in massive debt. 

Despite the privatization, NGCP remains a legal monopoly. 

Once again, NGCP operates and maintains the transmission infrastructure, such as power lines and substations, that connects power generation plants—including those owned by NAPOCOR and private generators—to distribution utilities. 

III. Geopolitical Tensions Permeate the Power Sector 

The current Philippine administration's foreign policy can be viewed through the lens of U.S. influence. 

Evidenced by hosting four additional bases for access to the U.S. military in 2023 amidst ongoing maritime disputes in the South China Sea, this stance marks a contrast with the previous Duterte administration's more China-friendly policies. 

This foreign policy shift has also been manifested in actions such as the banning of Philippine Offshore Gaming Operators (POGOs) and the legal actions against Ms. Alice Guo, a former provincial (Tarlac) mayor accused of espionage and involvement in illegal gambling. 

These tensions extend to the NGCP, where the Chinese stake has been cited by media and officials as a national security risk.  

According to a US politically influential think tank, "Fears in both Manila and Washington that Beijing could disable the grid in a time of crisis have lent urgency to efforts to reform its ownership and operational structure". (CSIS, 2024) 

Therefore, heightened scrutiny of China’ government involvement in sectors like NGCP, justified on the ‘kill switch’ or national security risk, combined with increasing military cooperation with the U.S., suggests a Philippine foreign policy trajectory heavily influenced by Washington's strategic objectives. 

IV. MIC’s Investment in NGCP: A Revival of Economic Nationalism? Shades of Napocor?

The stated objectives of MIC’s entry into NGCP through a 20% stake in SGP are twofold: 

A. Advance National Security by Strengthening Oversight of NGCP Management? 

MIC contends that this investment allows for governmental oversight of NGCP management, potentially counterbalancing foreign influence, particularly from China. They have also expressed interest in acquiring the entire SGCC’s stake. 

However, this approach risks "political interference," one of the critical factors that historically plagued the National Power Corporation's (NPC) financial stability. 

Furthermore, a move towards re-nationalization could represent a regressive step, potentially leading to deep financial losses reminiscent of NPC’s past.

B. Economic Benefits: Lowering Electricity Costs by Enhancing Grid Efficiency?

MIC has promoted the investment as a means to improve grid infrastructure, with the expectation that efficiency gains would eventually translate into lower electricity rates for consumers.

First, the latter objective appears secondary to the former. Since all government actions must be publicly justified, MIC’s interventions are presented as beneficial to the consumer.

Figure 2

The Philippines is often cited as having one of the highest electricity rates in Asia. (Figure 2, upper chart) 

However, subsidies on power firms have distorted this metric. The NPC’s subsidy program significantly contributed to its debt accumulation.

Similarly, the government’s attempt to regulate fuel prices via the Oil Price Stabilization Fund (OPSF) ended up as a net subsidy, requiring large bailouts, as noted by the International Institute for Sustainable Development (IISD, 2014). 

In short, Philippine experiences with subsidies have historically been unsuccessful. 

It is also questionable whether dependency on energy imports directly equates to high electricity prices. (Figure 2, lower image)

This simplistic logic would lead to the conclusion that nations that are most dependent on oil and energy imports would have the highest electricity rates, which is not necessarily true—because of many other factors. 

Second, MIC argues that "investing in NGCP could improve the rollout of transmission grid infrastructure, allowing more power players to supply energy to the grid."  

While this proposal is ideal in theory, its practical implementation faces significant challenges. 

One of the primary drivers behind high energy costs is the oligopolistic market structure, characterized by a concentration of power among a few large conglomerates.

Figure 3 

The most prominent players include San Miguel Corporation (PSE: SMC), Aboitiz Power Corporation (PSE: AP), First Gen Corporation (PSE: FGEN), and Manila Electric Company (PSE: MER). In Luzon, for example, seven generation companies hold an estimated 50% of the total installed capacity. (ADMU, 2022) (Figure 3) 

Despite partial deregulation, the concentration of market power among these firms potentially reduces competitive pressures and limits market alternatives, leading to price-setting behaviors that do not reflect true supply and demand dynamics. 

The Wholesale Electricity Spot Market (WESM) was introduced in 2006 to foster competition, yet allegations of anti-competitive behavior emerged soon after its inception. 

Moreover, while EPIRA led to privatization in segments of the industry, the slow pace of implementing reforms, such as open access provisions and retail competition, has maintained high electricity prices, as highlighted in a World Bank study. 

Furthermore, the incumbent regulatory framework, despite its intent to limit market power, has not fully mitigated oligopolistic tendencies, resulting in persistently high prices for consumers. Examples: Bureaucracy and red tape, cross ownership, system losses, conflicting laws, over-taxation and more. 

As a result, the oligopolistic market structure and high energy costs deter foreign direct investment (FDI), as investors seek markets with lower operational costs. 

The likely substantial influence of these oligopolists on the political sphere, which protects their interests through legal frameworks, raises the risks of collusion, cartel-like behavior, and barriers to entry, thereby constraining competition.

Therefore, while MIC’s argument for infrastructure rollout benefiting consumers through competition is necessary, it is crucially insufficient. 

Market concentration among large firms may have significant influence on regulations and their implementation, particularly in the upstream and midstream segments (generation, transmission, and distribution). 

The slow pace of reforms aimed at fostering a competitive environment has severely limited efficiency gains, and consequently, the reduction of electricity rates. 

Third, the Bangko Sentral ng Pilipinas’ (BSP) low interest rates regime has enabled these firms to accumulate substantial or large amounts of debt to finance their commercial operations, which implicitly creates obstacles for competitors unable to access cheap credit. 

Alternatively, this debt accumulation poses systemic financial and economic risks. 

In essence, despite EPIRA and its privatization efforts, monopolistic inefficiencies coupled with readily available cheap credit have effectively transferred NPC’s debt dilemma to the oligopoly. 

Lastly, decades of easy money policies from the BSP have driven a demand boom, resulting in a significant mismatch in the sector’s economic balance. This is evident in overinvestment in areas like real estate, construction, and retail, potentially diverting resources from necessary energy infrastructure and even potentially leading to overinvestment in renewable energy sources at the expense of reliable baseload power from coal, oil, natural gas, and nuclear energy. 

In sum, prioritizing the expansion of a competitive environment where the sector’s pricing reflects actual demand and supply dynamics is essential. 

Liberalization, which should lower the hurdle rate, would intrinsically encourage infrastructure investment without the need for political interventions. 

MIC’s promotion of economic gains from its interventions appears more as a "smoke and mirror" justification for politically colored actions. 

V. Maharlika's NGCP Investment: A Bailout in Disguise? Potentially Inflating an SGP Stock Bubble?" 

An even more fascinating perspective is SGP's financial health. 

Certainly, as a legal monopoly, the National Grid Corporation of the Philippines (NGCP) holds a significant economic advantage—an economic moat. 

Grosso modo, SGP, as the majority shareholder of NGCP, seemingly operates within a rent-seeking paradigm, where wealth is accumulated not through value creation but through leveraging of economic or political environments to secure favorable positions. 

OR, for monopolists, the focus shifts from open market competition, innovation, or improvement, to maintaining their monopoly status by currying favor with political stewards. Subsequently, they leverage this privilege to extract economic rents, often at the expense of consumers or other market participants. 

SGP’s financials and recent developments appear to support this narrative.

Figure 4

Revenue Stagnation: Since Q3 2022, SGP's quarterly revenue has grown by an average of 5.9% over 13 quarters through Q3 2024, with a Compound Annual Growth Rate (CAGR) of only 0.52% since Q3 2020. 

Slowing Profit Trends: During the same periods, quarterly profits expanded by 2.67%, but shrank by 2.25% based on CAGR. 

Notably, a spike in net income in Q2 2022 was attributed to "higher iMAR as approved by ERC effective January 1, 2020 and the recording of Accrued revenue for incremental iMAR 2020 for CY 2020 and 2021." 

iMAR Explanation: As per Businessworld, "iMAR stands for "Interim Maximum Annual Revenue," which refers to the maximum amount of money a power transmission company like the National Grid Corporation of the Philippines (NGCP) is allowed to earn annually from its operations, as approved by the Energy Regulatory Commission (ERC) during a specific regulatory period; essentially setting a cap on how much revenue they can collect from electricity transmission services"

Figure 5

Mounting Liquidity Issues: SGP's cash reserves have been contracting, with an average decrease of 3.9% over 13 quarters through Q3 2024 and a -6.7% CAGR since Q3 2020. 

Surging Debt Accumulation: Conversely, debt and financing charges have escalated. Debt has grown by an average of 12.1% over 13 quarters, with a 2.1% CAGR, while financing charges increased by an average of 5.7% with a 1.9% CAGR. 

SGP’s finances are not exactly healthy. 

Yet NGCP’s recent activities gives further clues. (bold mine) 

ABS-CBN, May 23, 2023: "The National Grid Corporation of the Philippines on Thursday said it was not to blame for delayed projects, and fended off criticism that it was making consumers pay even for delayed projects. The country’s power grid operator also insisted that power transmission improved since it took over operations from the government. A recent Senate hearing found that 66 projects, of which 33 were in Luzon, 19 in the Visayas, and 14 in Mindanao, remained unfinished. " 

ABS-CBN, December 23, 2024: "The Energy Regulatory Commission (ERC) has imposed a total of P15.8 million worth of fines on the National Grid Corporation of the Philippines (NGCP) over "unjustified delays" in 34 out of 37 projects. "

SGP’s tight finances, mainly evidenced by stagnant revenues, declining profits, and deteriorating liquidity, could reflect the challenges faced by NGCP. 

Further, despite the complex political nature of the operations of the grid monopoly, the ERC caps the revenue that NGCP is allowed to generate (Php 36.7 billion annually). 

This limits NGCP’s financial health, potentially leading to liquidity strains and increased borrowings by SGP to finance their projects. 

Fundamentally, his dynamic might resemble a high-stakes path towards Napocor 2.0. 

Besides, the Department of Energy (DoE) sets the plans and policies, while NGCP, as the exclusive franchise holder, is in charge of the operation, maintenance, development, and implementation of projects for the country's power transmission system. 

The ERC regulates and approves rates, monitors performance, and can impose penalties for delays or inefficiencies. 

In short, since NGCP prioritizes fulfilling the administration's political agenda, it seemingly does so with little concern for consumers—does this reflect the rent-seeking paradigm? 

This raises two crucial questions: aside from economic nationalism, could MIC’s entry into NGCP amount to an implicit BAILOUT of SGP? 

And could this package include a deal for China’s SGCC to exit? 

While we are not privy to the legal technicalities leading to MIC’s initial investment in NGCP via a 20% stake in SGP, SGP’s share prices have experienced a resurgence, or spike, since hints of MIC’s entry began to emerge late last year. 

Year-to-date (YTD) returns of SGP shares totaled 17.6% as of February 7th. 

Once again, this raises additional questions:

Figure 6

-Is a stock market bubble being inflated for SGP shares, benefiting not only corporate insiders and their networks, but also political figures and their allies behind the scenes? 

-Considering the price plunge of SGP shares from over 700 in 2017 to the present, resulting in substantial losses for its shareholders, could this potential bailout include efforts to pump up SGP shares to recoup at least a significant portion of these deficits? 

VI. Maharlika’s Risks and Potential Consequences 

The paramount concern revolves around what might happen if MIC's investment, re-nationalization, or its policy of economic nationalism regarding NGCP goes awry. 

What if NGCP replicates the pitfalls of its predecessor, the National Power Corporation (NPC)? How would the resulting losses or deficits be managed? 

Maharlika's investment capital is derived from public funds. If MIC incurs losses, would additional taxpayer money be on the line? Would there be a necessity for a bailout of MIC itself? 

How would potential deficits from MIC affect the country's fiscal health? Could this lead to higher interest rates and a weaker peso, exacerbating economic pressures? 

VII. Conclusion 

Ultimately, Maharlika's NGCP investment, executed through SGP, reflects a tension between seemingly conflicting objectives: securing national security interests and generating optimal returns. 

While proponents tout the deal as a means to lower electricity costs and improve grid efficiency, our concern—given SGP's financial weaknesses—is that MIC’s infusion could, in effect, function as a bailout. 

That is to say, the potential exposure of public funds through the SWF for political goals may conflict with, or potentially override, the Maharlika Investment Corporation’s stated goals: "to ensure economic growth by generating consistent and stable investment returns with appropriate risk limits to preserve and enhance long-term value of the fund; obtaining the best absolute return and achievable financial gains on its investments; and satisfying the requirements of liquidity, safety/security, and yield in order to ensure profitability of the GFIs’ respective funds." 

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references 

Harrison Prétat, Yasir Atalan, Gregory B. Poling, and Benjamin Jensen, Energy Security and the U.S.-Philippine Alliance, Center for Strategic and International Studies, October 21, 2024 

Maria Nimfa Mendoza Lessons Learned: Fossil Fuel Subsidies and Energy Sector Reform in the Philippines, March 2014, IISD.org p. iv 

Majah-Leah V. Ravago, The Nature and Causes of High Philippine Electricity Price and Potential Remedies, January 19, 2022 Ateneo de Manila University

What Surprise is in Store for the 2025 Year of the Wooden Snake?

 

Mundus vult decipi, ergo decipiatur (The world wants to be deceived, so let it be deceived) —Sebastian Brant (also Brandt) 

In this issue

What Surprise is in Store for the 2025 Year of the Wooden Snake?

I. 2025: The Year of the Wooden Snake, Zodiac Cycles and Sociology

II. Trump 2.0 and Current Geopolitical Developments

III. Geopolitical Milestones in the Year of the Snake

IV. The Influence of the Year of the Snake on the Global Economy and Financial Markets

V. The Impact of the Year of the Snake on Philippine Politics and Economy

VI. A Comparative Analysis of the Year of the Snake's Impact on the Philippines

VII. Conclusion

What Surprise is in Store for the 2025 Year of the Wooden Snake?

How will the 2025 Year of the Snake impact geopolitics, the global economy, and financial markets? Will it be a year of upheaval or opportunity for the Philippines?

I. 2025: The Year of the Wooden Snake, Zodiac Cycles and Sociology

2025 is the Year of the Wooden Snake. To gain insight into what this might signify, a quote from the article offers a succinct summary. 

Chinese new year 2025 is an especially fortuitous one as it is ruled over by the wood snake, a sign associated with wisdom, intuition, and renewal. It’s a combination of an animal (the snake) and an element (wood) that occurs once every 60 years. It promises to be a period full of unique energy with some distinct characteristics…The combination of snake and wood creates a special synergy in which the introspective and transformative energy of the snake is paired with wood’s expansive and balanced nature. (Mendoza, 2025)

Optimism consistently pervades the annual forecasts for the Chinese zodiac calendar. The zodiac embodies a 12-year cycle, each year symbolized by an animal and its associated attributes.

While we remain agnostic about this tradition (and its geomantic counterpart, feng shui), significant events occurring within the year might appear as circumstantial coincidences or could indeed signal potential cyclical patterns within the political economy. 

In other words, certain aspects of astrology might intersect with sociological phenomena. 

For instance, our analysis of geopolitical developments through the lens of the Chinese zodiac cycles fortuitously resulted in our accurate prediction of the outbreak of the Russia-Ukraine War in February 2022. 

Aside from the eroding concerns over the pandemic, potential geopolitical flashpoints for a hot war may occur.  

For instance, the US-Russian impasse over Ukraine (Russia’s vehement objection over the slippery slope of NATO’s expansion into her borders) (Prudent Investor, January 2022) 

Thus, an examination of global and local developments over 12-year cycles may provide valuable clues for 2025. 

II. Trump 2.0 and Current Geopolitical Developments

Donald Trump’s inauguration as the 47th President of the United States will be held on January 20th, just 9 days ahead of the Chinese New Year on January 29th. This timing suggests that at the start of his term, he will busily sign numerous Executive Orders (EOs) that could significantly influence the geopolitical landscape this year. 

Even before taking office, geopolitical developments have already moved in anticipation of his potential actions.

Israel and Hamas have agreed to a ceasefire, which takes effect on Sunday, January 19th—469 days after the conflict began on October 7, 2023. President-elect Trump reportedly had significant influence over this deal. 

Still, Israeli Prime Minister Netanyahu has publicly stated that the ceasefire with Hamas, as discussed with Trump, is intended to be "temporary." 

The incoming president is also reportedly considering easing sanctions on Russian oil exports in exchange for a peace deal with Ukraine, while simultaneously exerting pressure on Iran and Venezuela. 

While the incoming cabinet has reportedly been filled with pro-Israel lackeys and are hostile towards relations with China and Russia, Trump recently posted a video on his X account suggesting that the Syria and Iraq wars were orchestrated by Israel’s Netanyahu. 

Trump also had a phone call with China’s President Xi on January 17th, where both leaders declared on X.com they would “do everything possible to make the world more peaceful and safe.”

Following the sudden collapse of Assad-led Syria, Russian President Putin and Iranian President Raisi signed a “comprehensive partnership agreement” on January 17th, likely aimed at deterring any potential aggression from the U.S.-Israel alliance

Donald Trump has added complexity to geopolitics by exerting pressure on his allies. 

1. He has cited the need to pursue the acquisition of the Panama Canal.

2. Beyond securing access to critical mineral resources, Trump has proposed the acquisition of Greenland and the annexation of Canada, potentially to extend the U.S. sphere of influence in the Arctic Circle, competing with Russia. This strategy might also serve to divert attention from escalating war tensions with Russia and China.

As historian Eric Margolis suggested, "Trump has started a scramble of imperial rebranding"

3. Additionally, Trump has urged NATO members to increase their defense spending to 5% of GDP.

4. Could the alleged snubbing of the Philippine leadership at Trump’s inauguration signal a potential shift in US-Philippines foreign relations?

Trump's presidency promises to be a period of intense geopolitical activities, where traditional alliances might be tested, and new power dynamics could emerge, all under the ambitious and often unpredictable deal-making leadership of the 47th President of the United States.

III. Geopolitical Milestones in the Year of the Snake

Based on historical analysis and considering the cyclical nature of the Chinese zodiac, here are significant geopolitical milestones that occurred in various Years of the Snake: 

1917: The United States joined the Allies and entered World War I in April 1917. This was a pivotal moment that contributed to the eventual end of the war.

1941: The Bombing of Pearl Harbor on December 7, 1941, prompted the U.S. entry into World War II, significantly altering the course of the conflict.

Operation Barbarossa: Launched on June 22, 1941, this was Nazi Germany's invasion of the Soviet Union, marking the beginning of a massive Eastern Front campaign in World War II. This operation was one of the largest military operations in history and had profound effects on the war's outcome.

The Battle of Moscow, marking a turning point on the Eastern Front for the Russians against the invading Germans in World War II, also took place in (October 2) 1941-42. This battle was crucial for halting the German advance into the Soviet Union.

1953: The Korean War concluded with an armistice agreement on July 27, 1953, ending three years of conflict and setting the stage for the division of Korea that persists today.

1965: The U.S. significantly escalated its involvement in the Vietnam War in 1965, marking a major expansion of American military presence in Southeast Asia.

1989: The Tiananmen Square Massacre in China, from April 15 to June 4, 1989, involved the violent suppression of pro-democracy protests, impacting China's international image and domestic politics.

The Fall of the Berlin Wall on November 9, 1989, marked the end of the Cold War and was a precursor to the reunification of Germany, signaling the decline of the Soviet sphere of influence in Eastern Europe. 

2001: The 9/11 Terrorist Attacks on September 11, 2001, devastated the U.S., leading to the initiation of the War on Terror. This event reshaped global security dynamics.

The War in Afghanistan began 1-month later that year as the U.S. response to the 9/11 attacks, marking the start of a long-term military engagement in the region.

2013: The Syrian Civil War saw increased international involvement in 2013, with discussions around chemical weapon use and subsequent military actions, further complicating the conflict.

The Snake is often linked with transformation, introspection, and unpredictability, suggesting that geopolitical tensions might rise or escalate. The Wood element, associated with growth and expansion, could also signify potential for new power struggles. On the other hand, the introspective nature of the Snake might promote diplomatic efforts and peace negotiations, leading to the conclusion of ongoing conflicts.

In sum, the impact of the Year of the Wood Snake will depend on a complex array of interdependent factors, including global political dynamics, the influence of vested interest groups such as the military-industrial complex, hegemonists, and political elites, as well as leadership decisions and international diplomacy. This year tends to bring significant changes, with the potential for new conflicts to emerge, existing wars to escalate, and the possibility of resolving ongoing disputes, reflecting the intricate interplay of forces during this zodiac cycle.

IV. The Influence of the Year of the Snake on the Global Economy and Financial Markets

The influence of the Year of the Snake on the global economy and financial markets have been significant

1929: The U.S. stock market crash of 1929 precipitated the Great Depression, causing global economic devastation, massive unemployment, and profound financial instability. 

1941: U.S. economic mobilization for World War II marked a shift toward a war economy. This also resulted in increased U.S. wartime financing through the issuance of war bonds, a growing national debt and the Fed’s financial repression policies.

World War II also led to the U.S. Lend-Lease Act, which strengthened economic ties between the U.S. and Allied nations. 

1965: Often cited as part of the Golden Age of capitalism, 1965 marked a peak in the post-WWII economic boom in Western nations, particularly the U.S. and Europe.

Figure 1

The Bretton Woods System started showing signs of strain mounting due to inflationary pressures and vastly increased spending related to the Vietnam War. (Figure 1, upper graph)

1977: Following the Nixon Shock in 1971, the post-Bretton Woods era led to U.S. dollar weakness and inflationary pressures.

1989: The fall of the Berlin Wall paved the way for Germany's economic reunification. 

Global market liberalization advanced, emphasizing free trade and deregulation.

Despite the Bank of Japan's monetary tightening, the Nikkei 225 reached an all-time high of 38,957.44 on December 29, 1989, amidst a Tokyo land price crash. 

2001: The bursting of the Dot-Com Bubble led to a recession, with considerable stock market losses, particularly in tech stocks, and an eight-month U.S. economic contraction.

The 9/11 attacks further destabilized global markets.

China's accession to the WTO significantly expanded its global trade presence.

2013: The "Taper Tantrum" occurred when Federal Reserve Chairman Bernanke announced a potential reduction in bond purchases, causing U.S. bond yields to rise and leading to instability in emerging markets.

The U.S. Dollar Index (DXY), which tracks the value of the U.S. dollar against a basket of six major trading partners' currencies, began its nearly 12-year uptrend in 2013. (Figure 1, lower image) 

Meanwhile, the Eurozone crisis persisted, with Greece and other nations continuing to face financial instability.

The Year of the Snake has historically been associated with heightened volatility in both geopolitics and domestic politics, and its interconnectedness with economics reveals similar underlying dynamics.

Historically, periods marked by surging asset bubbles, financial system pressures, recessions, and rapid economic expansion have all been part of this recurring cycle.

Looking ahead to 2025, uncertainties abound. However, the growing deep-seated economic imbalances—characterized by unprecedented debt levels, record deficits, and central bank policies favoring easy money—along with rising protectionism, the weaponization of finance, and speculative asset bubbles, all point to an increased risk of significant downside volatility.

V. The Impact of the Year of the Snake on Philippine Politics and Economy

How has the year of the Snake affected the Philippines.

1929: The Great Depression severely impacted the Philippine economy, which was still a U.S. colony, due to its dependence on U.S. markets.

1941: Imperial Japan launched a surprise attack on Clark Field and Iba Field on the opening day of hostilities in the Philippines, a day after the attack on Pearl Harbor. This paved the way for the Japanese occupation, causing massive socio-economic devastation.

1953: Former Defense Secretary Ramon Magsaysay was elected as the seventh President of the Philippines. The post-World War II economic recovery was still underway, with the country grappling with the repercussions of the war, including ongoing rebuilding efforts.

1965: Ferdinand Marcos Sr. was elected the tenth President of the Philippines. His victory marked the beginning of a long tenure in power, eventually leading to the declaration of martial law in 1972.

1977: Since the establishment of Martial Law in 1972, the administration of Ferdinand Marcos Sr. had suppressed political dissent and controlled growing unrest, which resulted in widespread human rights violations.

During this period, the Philippine economy was characterized by massive government spending on infrastructure projects, largely funded through loans. This led to rising external debt, which became a significant issue in the later years of Marcos' rule. In 1977, Marcos issued Presidential Decree 1177, which mandated automatic appropriations for debt servicing. 

The imposition of Martial Law coincided with economic instability, partly exacerbated by the global oil crisis, high inflation, and escalating debt levels.

1989: The late 1980s were marked by political turmoil and growing opposition to the regime of Corazon Aquino, who had assumed power after the 1986 People Power Revolution (People Power I).

In 1989, the Reform Armed Forces of the Philippines (RAFP) launched the most serious coup attempt against the Aquino government, among many previous attempts, highlighting dissatisfaction with her leadership and resistance to her reforms.

Despite Aquino's efforts to stabilize the economy, the country continued to face persistent challenges, including high levels of foreign debt and inflation. However, Aquino’s administration made significant strides in implementing market-oriented reforms and privatizing state-run enterprises, though the country still struggled due to global economic conditions and internal political instability.

2001: In January 2001, President Joseph Estrada was ousted in a second People Power Revolution, also known as People Power II, after being accused of corruption. Estrada’s impeachment and subsequent removal from office, amid widespread public protests, marked a significant political transition. Vice President Gloria Macapagal Arroyo was sworn in as the new president, though the transition was accompanied by significant political unrest and instability.

At the time, the Philippines was grappling with substantial economic challenges, including the aftermath of the 1997 Asian Financial Crisis and declining investor confidence during Estrada's administration.

Figure 2

2013: The Philippine economy showed robust growth, reaching a significant milestone with an upgrade to an investment-grade credit rating by major rating agencies.  (Figure 2, topmost chart)

The economy grew at an impressive rate of 6.8% for the year.

Simultaneously, Philippine assets reached key milestones, reflecting strong investor confidence in the market during this period.

The Philippine Stock Exchange’s PSEi 30 had a record-breaking year, hitting new highs in May 2013. (Figure 2, middle diagram)

The Philippine peso rallied to a five-year high, or the US dollar-to-Philippine peso exchange rate fell to a five-year low. (Figure 2, middle chart)

In April 2013, Philippine 10-year bond yields hit all-time lows or Philippine bonds rallied to historic highs. (Figure 2, lowest graph)

In my humble opinion, 2013 signified the genuine bull market peak of the PSEi 30, which has been affirmed by both the USD-PHP exchange rate and the bond markets.

Once again, like its global counterparts, the Year of the Snake in the Philippines has historically coincided with moments of political upheaval, such as the rise and fall of leaders, coup attempts, and the People Power Revolution, as well as economic challenges and heightened volatility like inflation, debt, instability, and periods of market euphoria.

VI. A Comparative Analysis of the Year of the Snake's Impact on the Philippines

Finally, let us provide a concise analysis of the comparative performances during the Year of the Snake.

Nota Bene: The underlying dynamics behind each economic statistic differ from period to period.

Figure 3

The headline GDP experienced its best performance post-independence from the U.S. and post-bellum or post-war recovery in the Water Snake year of 1953, which saw an 8.9% GDP growth. (Figure 3, upper window)

With the exception of 2001, the headline GDP has been rising since then, with 2013 representing its highest level.

However, the Water Snake year of 1953 was followed by a sharp decline in the Wooden Snake year of 1965. If history follows its pattern, could we witness a sharp drop in GDP? Or will the uptrend since 1965 continue?

The average headline GDP during the Year of the Snake since 1953 stands at 5.4%.

Could the Year of the Snake also reflect trends in the Consumer Price Index (CPI) cycle?

The CPI surged from its trough in the Wooden Snake year of 1965 to its peak of 10.7% in 1989, before descending to 2.6% in the Water Snake year of 2013.

Does this suggest a cyclical pattern of three Snake years (or every 24 years)? Or could the CPI rise sharply in the upcoming Wooden Snake year? (Figure 3, lower chart)

The average CPI during the Year of the Snake since 1965 is 6%.

Figure 4

The USD-PHP exchange rate seems inclined to appreciate during the Year of the Snake. It gained in three of the last four Snake years, averaging 4.6%, particularly due to the 2001 return, which coincided with the weakest GDP performance among Snake years. (Figure 4, upper pane)

Moving to the PSE. Since its largest return of 31.24% in 1989, the Philippine’s major equity benchmark, the PSEi 30 has struggled. However, despite its mixed performance, the five Year of the Snake episodes since 1965 have yielded an average return of 4.1%, thanks in large part to the notable gains in 1989. (Figure 4, lower graph)

The Snake years reveal that the USD-PHP's largest returns, the weakest GDP, and the most significant decline in the PSEi 30 share a common denominator: the Metal Snake year of 2001.

Key global events—such as the bursting of the dot-com bubble, the dot-com recession in the U.S., the 9/11 attacks, and local political upheaval in the Philippines marked by People Power 2, alongside the country's post-Asian Crisis economic challenges in 2001—contributed to this outcome. 

VII. Conclusion

In examining the economic patterns associated with the Year of the Snake in the Philippines, we observe a tapestry of significant historical events and economic indicators. From the peak GDP growth in 1953 to the financial turbulence of 2001 and to the financial euphoria of 2013, these years have often been marked by notable shifts in political power, economic policy, market cycles and external shocks with each year adding a unique chapter to the country's economic and political story.

As we look towards 2025, while historical trends provide valuable insights, the future remains uncertain. Given the current global and domestic economic imbalances, the Year of the Snake may again usher in another period of heightened risk and potential volatility. As always, the interplay of external events, governmental actions, and market responses will determine whether the Snake’s legacy of upheaval or opportunity will prevail. 

____

References

Corina Mendoza Architectural Chinese new year 2025: Here's what to expect in the year of the Wood Snake January 1 2025 

Prudent Investor, What Surprise is in Store for the 2022 Year of the Water Tiger? January 23, 2022 

Other Zodiac series

What Surprise is in Store for the 2023 Year of the Water Rabbit? January 22, 2023

What Surprise is in Store for the 2024 Year of the Wooden Dragon? February 11, 2024