Philippine Elections: So Where Is The Election Failure?

Since the start of the year, we’ve been repeatedly told by mainstream media that that domestic markets had been affected by jitters arising out of a 'general election failure'.

Yet, over the months, the markets steadily climbed and signalled the opposite to what was being reported.

And we argued in Why The Presidential Elections Will Have Little Impact On Philippine Markets and Philippine Markets And Elections: What People Do Against What People Say, there is simply little incentives for the outgoing administration to destablize elections given the balance of risk-reward tradeoffs.

And any aspiring political groups are also unlikely to desire a tumultuous outcome, except probably for those who are on the extreme ends and are not in active in the present political process. But the latter would have a different version of troublemaking than the peddled automation based failure.

In short, media and the politically obsessed crowd had been forcing a causal relationship even when there was little evidence for it, a behavioural fallacy known as the available bias.

Last week, this so called election jitters had even been more pronounced [see Has Election Jitters "Caused" Falling Philippine Peso and Stocks?]. Yet media and 'experts' ignored or downplayed the role of external evidences, even if domestic markets were indeed tracking external developments more than domestic politics.

With over 50% of votes tallied, it safe to ask, where is all the brouhaha over election jitters? Apparently only in the imaginative minds of the politically frenzied crowd.

Today, we will see the same biased reporting.

Following a massive rally in the Phisix 3.85% which likely reflects on the rally in Wall Street (3%+) and in Europe (+5%) last night, aside from a rebounding Peso, in response to the monster bailout of the Euro currency, news reports will focus on associating the current gains with domestic politics-a vote for the new administration!

Of course local markets will likely have a "presidential honeymoon cycle" as with the previous, but this will be more of a rationalization fueled by a global zero bound interest rate regime and worldwide inflationism.

Bottom line: a culture obsessed with politics is likely to misread and gloss over the genuine factors driving the markets or the economy.

US-China Trade Imbalance? Where?

Mercantilists claim that the huge trade imbalance between China and the US serves as justification for enabling protectionist measures.

Well not so fast.

Even based on accounting, where financial securities are added to the equation, such claims are shown to be unfounded.

Professor Mark Perry elaborates,

``1. In 2009, the U.S. imported more from China ($354 billion) than it exported ($93 billion), resulting in a "trade deficit" of -$263 billion on our "current account" (data here).

``But that is only part of the international trade story, since there are also financial transactions that have to be accounted for, and that deficit on the current account has to be offset somehow, since all international trade has to balance (it's based on double-entry bookkeeping).

``2. The offsetting balance came from the $263 billion capital account surplus in 2009, as a result of $263 billion of net capital inflow to the U.S. from China to buy our Treasury bonds and other financial assets.

``3. The $263 billion capital account surplus exactly offsets the current account deficit.

Bottom line:

Professor Perry: ``There really is NO trade imbalance, when we account for: a) exports and imports of goods and services, AND b) capital inflows/outflows. Stated differently, the balance of payments is always ZERO. We buy more of China's goods than they buy of ours, but then China buys more of our financial assets (bonds and stocks) than we buy of theirs. So in the end, international trade with China, is balanced, not imbalanced." (emphasis original)

My comment: Experts twist facts to provide intellectual cover to populist politics. It's called political hysteria.