July 29 Philippine Stock Market Review

July 29 Philippine Stock Market Review

It’s kindda funny on how things are turning out, obviously events based on market internals and macro economic fundamentals has conflated to pave way for what we have detailed in numerous occasions here and in my newsletters with bizarre precision. 

The softer dollar, though on a lagged effect, has engendered for renewed interest in emerging market assets by foreign capital coupled with the anticipated orderly pace of monetary policy adjustments by the US FOMC plus the sturdy psychological optimism manifestly ingrained with local investors has jumpstarted the market to test its psychological resistance at the 1,600-level. 

Yesterday, we noted that the bellwether index is faced with three resistance levels and evidently, today, the Phisix has hurdled its first barrier and stopped right at the portals of the second frontier.

With foreign money goosing the index and taking the centerfield of the action while the locals bulls flanking the bears on the broader market, these circumstances are exactly the prescription we envisaged as a requirement for a successful campaign for the market to scale new heights, and heretofore are materializing right before our very eyes!

SEVEN of the EIGHT major index heavyweights accounted for Foreign Buying except for Metrobank (+1.92%) that resulted to a cumulative net acquisition of P 136.602 million the second consecutive session of more than P 100 million worth of foreign buying.  Foreign money has upped its share of participation to 63.7% of the total trades as today’s volume registered a hefty improvement on the surface with P 955.013 million or US$17.06 million, although cross trades and special block sales took up 39.4% of the trades. 

Again of the 9 issues that make up more than 75% of the market capitalization of the Phisix only TWO were unchanged, SM Primeholdings and San Miguel A shares, while the rest, PLDT (+.39), GLOBE (+.59%), Ayala Corp (+1.85%), Bank of the Philippine Islands (+2.4%), Ayala Land (+1.81%) and San Miguel B (+2.17%), posted gains for the day that buoyed the index.

SENTIMENT was OVERWHELMING bullish; Advancers drubbed Decliners 58 to 20 or almost 3 to 1 ratio, ALL major subindices were in the Green, and the infusion of foreign capital was broad based, this aside from cumulative net inflows for the day.  Moreover, total issues traded jumped to 122 even as average Peso volume per trade surged by about 63%, meaning that locals continue to expand trading, particularly buying activities on the broader market, while the increased volume per trade connotes participation of more institutional trades compared to retail based activities.

The PHISIX, so far, as of this writing, outperforms the region’s bourses whom are mostly, 10 out of the 15, in the red. Aside from the Philippines, India, China, Australia and New Zealand are slightly on the upside and could swing either way at the end of the trading session.

Since domestic investors are wont to the speculative side of the trade, the best performers today are the third tier issues, namely Lucio Tan’s Baguio Gold (+49.25%), Jardine Davies (+48.83%), A. Brown Company (+25%), ex-BW Fairmont Holdings (+19.35%), Balabac Resources, (+19.04%), Manila Mining A (+15.38%) and B (+14.28%), iVantage Corp (+13.63%), another Lucio Tan company, Tanduay Holdings (+11.53%) and Gotesco Land B (+10%).  Again the fantastic moves of these companies are based on stories fact or fiction depends on how you want to view it.  These times are the best for the 'children' and NOT for the professional investors.

The floundering Asian bourses today despite Wall Street’s upbeat performance could reflect on the coming infirmities with the US market tonight.  With CRUDE OIL on a record-breaking run, the recent rally in the US equity markets seems vulnerable to further slips sans a major shock that could embroil ALL global bourses.  So far the Philippine market has shown limited correlation or has moved divergently from that of the US markets, as an example the Philippine market is approaching its major resistance a 3 year high while the US benchmarks are treading on either new lows (NASDAQ) or testing its major support levels (S&P 500, Dow Jones). Although the recent animated moves by the Philippine market could induce some profit taking in the interim.

As the Prudent Investor has mentioned before, barring any seismic temblors that would likely affect world bourses, the underlying confidence in the local market as seen with the improving market internals are indications that the markets are headed higher over the short to medium term consideration.   

 

July 28 Philippine Stock Market Review

July 28 Philippine Stock Market Review

Voila! As precisely diagnosed, Wall Street’s vigorous bounce provided the springboard for the domestic market’s sizzling jump of 22.51 points or 1.44%.  Ingredients were as accurately prescribed, foreign buying to bolster the index and sanguine local investors to provide the icing on the cake. 

The rebound in New York certainly did shore up the Asian bourses with Japan’s Nikkei 225 leading the region with advances of about 1.74% as of this writing.  11 out of 15 or more than 70% of the region’s index are currently manifesting gains with the Philippine benchmark index being the second to Japan. Only China has sustained moderate losses while the declines in India, Indonesia and Taiwan are marginal and could swing to the upside at the end of the trading day.

Pent up foreign infusion of capital to select index heavyweights indeed propelled today’s major index to an astonishing climb on moderate volume of P 505.650 million or US $ 9.03 million.  Even as domestic investors dominated the market with 60% share of the total turnover, foreign investors injected P 158.005 million or an equivalent equity accumulation of 31.25% to the traded volume, which simply means that locals sold out heavyweight issues to perky foreign investors to speculate on third tier issues.

Of course sentiment was primordially bullish; advancing issues bludgeoned declining issues 49 to 25 or almost 2 to 1, industry sub-indices were all green except for the ALL index on lower Manulife and Sunlife prices and foreigners bought twice more issues than it sold, aside from the recorded NET INFLOWs from overseas money.

PLDT (+3.65%), SM Primeholdings (+1.69%), First Philippine Holdings (+1.81%) and Jollibee Food Corporation (unchanged) were the major beneficiaries of foreign capital.  Among the index heavyweights 5 of the 8 scored major to moderate inflows while two, Ayala Corp (unchanged) and San Miguel B (unchanged) had negligible capital flows and only Metrobank (unchanged) figured a modest outflow. 

Among the industry sub-indices the OIL index spearheaded the domestic investors appetite for speculative activities and surged 9.6% while the other extractive industry, the MINING index reached its highest level since February or during the past five months on a noteworthy 3.46%, even as global prices of metals were flailing during the recent sessions on a ‘Greenspan engineered’ resurgent US Dollar.

Local investors whose underlying outlook remains optimistic prefers to treat the stockmarket as an alternative to PAGCOR or the government mandated gambling outfit or Casino.  And the flavor of the week remains to be that of the LUCIO TAN owned companies on, once again stories dramatizing revival and recoveries.  Tanduay Holdings closely hit the PSE-imposed ceiling up a startling 49.42% followed by Baguio Holdings with another fabulous 48.88% gain for the second straight day, Macroasia Corporation was seventh among the top winners of the Tan Group of companies higher by 13.51% for the EIGHT session for an accrued 171.43% gain, WOW! 

The other NON-Tan Group but on the top ten list of winners are Centro Azucar de Tarlac (+44%) on third spot, Boulevard Holdings (+26.66%) fourth, BALABAC Resource Holdings (+20%), Oriental Petroleum (+18.75%) sixth, Swift Foods Inc (+12.9%) eighth, Kuok Philippine Properties (+12.12%) ninth and Oriental Petroleum B or foreign shares ‘B’ (+11.76%) tenth.

Yesterday’s outside day reversal DID validate its usual immediate term move and is likely to LEAD the index higher to test the resistance levels at 1,594 (triangular), 1,600 (psychological) and 1,620 (major-three year).  Given that the outlook by the locals are manifestly bullish but hampered by the lack of volume, the market’s tendency is to either move higher or move sideways largely dependent on the scale and intensity of foreign instituted buying. 

On the risk side, the major drawback IS the ‘stalling’ or the loss of momentum seen with the US equity markets, which has thus far served as the PARADIGM for most of the Global bourses.  Any major ‘shocks’ on the downside COULD be expected to SPILLOVER to Global bourses including ours.  The Philippines’ major risk would come from torrential selloffs by foreign investors, who had, in 2003, goosed the domestic market to its current levels, but so far US FED Chair Greenspan’s telegraphed or ‘measured’ pace of rate increases reveals renewed appetite for emerging market assets.

July 27 Philippine Stock Market Commentary

July 27 Philippine Stock Market Commentary

The contained damage in the US markets gave an opening for the Bulls to seize the initiative and boost the main Philippine composite index by 17.64 points or 1.14%.  Today’s move practically recouped or zeroed out the losses incurred from yesterday with a small change left for gains.  In chart lingo, today’s candlestick shows a semblance of an ‘outside day’ reversal formation which suggests of a potential reversal from the current weaknesses or denotes of a bullish undertone for the coming sessions, although the rather lean volume indicates that the chirpy outlook would probably be less pronounced.

Despite the vibrant gains of the benchmark index, volume turnover in local currency was relatively benign at P 362.599 million.  Sentiment indicators were mostly positive, namely, advancers outpaced decliners 39 to 28, foreign capital recorded a net inflow of P 41.388 million mostly directed at PLDT, foreign investors bought one company more than it sold, while industry indices were mixed with the ALL index down, due to the Sunlife’s decline, and the extractives sectors were sold out by the local investors.

SIX of the 9 heavy cap issues posted gains against 3 unchanged.  Bank of the Philippine Islands reversed yesterday’s anomalous steep decline with a considerable 2.5% gain, meanwhile, PROPERTY heavyweights Ayala LAND and SM Primeholdings were today’s top-heavy cap advancers which added 3.77% and 3.5% respectively.  Major Telcos equally buoyed the index PLDT up by 1.65% and Globe higher by .6%.  Lastly Ayala Corp nudged higher by 1.89% on a MEASLY P 80,700 worth of trades.

Well, the PHISIX surfed the wave of optimism among Asian bourses with about 10 of the 15 bourses trading on the upside, as of this writing.  It seems that the Philippines will be today’s second top gainer following the Taiwan’s Taiwan Weighted which is up 1.25%.  The rest of the region are trading on thin margins and could be swayed to either side except for Japan whose Nikkei 225 is likely to close lower as it is down by 1.05%.

DOMESTIC investors have again ramped up their speculative activities with Taipan Lucio Tan’s companies being the top winners for the day; Baguio Gold hit the PSE-imposed price ceiling after surging by 50% followed by Macroasia Corporation which jumped 37.03% on a follow through from last week’s remarkable 64.5% advance most PROBABLY due to its recent disclosure that the company intends to revive its nickel mines in Palawan.  Other the other winners for today were Centro Escolar University (+27.27%), Fairmont holdings formerly the controversial BW (+12.9%), Araneta Properties (+12.5%), Vantage Holdings (+12.5%), Yuchengco construction Engineering Equipment Inc. (+10%), Uniwide Holdings (+9.37%), Prime Orion (+6.45%) and Philodrill B (+5.0%).

The number of traded issues equaled the highest level touched last July 21st at 124, demonstrative of the continuing optimistic outlook by the local investors. As we have noted previously, only FOREIGN INITIATED accumulations could conspicuously ratchet up the major benchmark index considering the volume slack by the local investors, who prefer to fiddle with third tier or issues. As in today’s case, foreign take up to total volume was at 44.53%, hence the slim volume despite the sizable uptick.  In spite of these, the MASSIVE INFLOWS to the PRIVILEGED FEW like PLDT, Globe Telecoms and Ayala Land sparked a wave of bargain hunting that spilled over to the rest of the blue chips and to the broader market.

Lastly as noted in the past,  it pays to keep a close watch on the US markets for any major tremors that could unsettle the global bourses, including ours.

 

Bloomberg's William Pesek: Should Jay Leno Laugh at Philippines

Should Jay Leno Laugh at Philippines?
By William Pesek Jr.

July 26 (Bloomberg) -- Gloria Arroyo is taking considerable flack for withdrawing Philippine troops from Iraq. Even Jay Leno is taking shots at the leader of Asia's No. 12 economy.

``A new world record has been set for the 100-meter dash -- it was set by the Philippines fleeing Iraq,'' the Tonight Show host joked recently.

It's hard to decide whether to applaud Arroyo's move or loathe the Philippine president for it. Either way, she may have shot her fragile economy in the foot.

The common complaint about Arroyo recalling troops to save a Filipino hostage is that she encouraged more terrorism in Iraq. U.S. Secretary of State Colin Powell said Arroyo ensured that ``the kidnappers were rewarded for kidnapping.'' Clearly, Arroyo's pullout was a huge blow to the White House.

Yet the real fallout may be felt not in Iraq but Arroyo's shaky, debt-laden economy.

A key pillar of the economy is the 8 million Filipinos working overseas. Filipinos are expected to send $8.2 billion home this year -- that's 10 percent of gross domestic product. The 46-year-old truck driver Arroyo saved from being beheaded was one such worker. He was in Iraq to support his wife, eight children and extended family back in the Philippines.

It's hard to exaggerate the extent to which the economy relies on this source of hard currency. It's needed to pay off $61 billion of debt, half of which is owed overseas. At the moment, a third of the national budget goes to servicing debt.

Sending Money Home

Annual remittances are three times larger than all the foreign direct investment the nation receives, estimates Alex Pomento, head of research at CLSA Philippines Inc. And when you meet with officials in Manila they invariably mention remittances as a key strength of their economy.

It's really the opposite. The Philippines isn't creating enough jobs for its swelling population, driving one in 10 people to seek employment in Frankfurt, Hong Kong, Kuwait, Riyadh, Singapore, Tokyo or elsewhere. Some surveys show that one in five Filipinos still at home would work overseas if immigration laws allowed.

For better or worse, that's the situation in which the Philippines finds itself. Trouble is, by giving in to kidnappers in Iraq, Arroyo may have declared open season on snatching Filipino workers around the world.

What's to keep an individual or organized crime unit with no terrorist ties in any city around the world from snatching a Filipino and demanding cash from Manila? What's to keep Islamic separatists in the Southern Philippines from kidnapping Filipinos and demanding their comrades be released from prison or policy concessions from the government?

Arroyo's Risk

It really is true that the Philippines' most lucrative export is its people. The risk is that the precedent Arroyo set in Iraq will imperil the millions of Philippines working overseas and, by extension, an economy that relies on their income.

Even before the Iraq hostage ordeal, the work Filipinos did overseas was often risky, the compensation poor and treatment by employers shabby. Fewer Filipinos heading abroad and sending money home could have severe fiscal implications, increasing bond yields. The nation already carries a junk debt rating.

It's not hard to understand why Arroyo withdrew the Philippines' 51 soldiers and police officers from the U.S.-led force in Iraq. For one thing, overwhelming public support informed her decision. She knew that if hostage Angelo de la Cruz lost his head, her presidency would lose its head, too.

Maintaining Support

For another, Arroyo just survived a messy presidential election in a nation often beset with rumors of military coups. To shore up the economy she'll need to take unpopular steps like hiking taxes and raising power prices. She'll need the support of the nation's poor to do it. Besides, it's not as if the justifications for the Iraq invasion served up by the U.S. have proven true.

It was a courageous thing to risk the ire of the U.S. and invite international criticism for bowing to terrorists. Just as Spain took flack for pulling its troops out of Iraq, the Philippines can expect some barbs -- even from comedians like Leno.

Arroyo's move also was a sign of insecurity. A third of the country's 85 million people live on less than 60 U.S. cents a day. Unemployment, the highest of 14 Asia Pacific countries tracked by Bloomberg, rose to 13.7 percent in April. She also faces Islamic extremists, domestic terrorism and kidnap-for- ransom groups that sometimes operate in downtown Manila.

If there's a silver lining in all this, it may be Arroyo's improved standing with voters. De la Cruz returned to Manila to a hero's welcome last week. The public euphoria cloaked Arroyo in a softer light than voters were used to; many there see her as an aristocrat with little feel for the average Filipino.

Improved support ratings could make it easier for her to attack the corruption gnawing away at the economy and boosting bond yields. It means that little of the nation's 5 percent trickles down to those to most need it. Filipinos and investors alike would be well served if Arroyo felt empowered to address impediments to higher living standards.

For the sake of one of Asia's most vulnerable and geo- Politically important economies and investors in it, let's hope Arroyo's call in Iraq was the right one.

July 26 Philippine Stock Market Commentary

July 26 Philippine Stock Market Commentary

As admonished in our commentary last Friday, any earthshaking move in the US markets could fray sentiments of global bourses including ours.  As of this writing, only THREE bourses are in the green and stands defiant to the bloodstained region and these are the indices of Singapore, Malaysia and India, whom are all incrementally higher.

In the domestic front, the foreign induced selling particularly on the Bank of the Philippine Islands (-3.61%) weighed on the benchmark index to close 15.96 points or 1.02% lower for the day, almost expunging the gains attained during the last two trading days of the previous week.  Except for the lonesome winner among index heavyweights San Miguel ‘B’ (+.72%), 6 others including BPI posted declines while PLDT and San Miguel ‘A’ closed neutral.  Metrobank suffered a similar outcome to that of BPI and was off a considerable 3.7%, followed by Ayala Corp and subsidiary Ayala Land down 1.85% respectively, SM Primeholdings lower by 1.72%, and Globe Telecoms lost .6%.

Local investors governed today’s activities as the share of its foreign counterparts to total turnover was only 45.67%.  Telco issues as PLDT, Globe and PILTEL (-3.5%) were supported by foreign capital, as well as Ayala Corp, ABS-CBN Preferred (unchanged) and First Philippine Holdings (unchanged). Foreign money outflow from BPI accounted for 94.38% of its volume, and was evidently dragged down by the accelerated exodus by offshore portfolios.  Moderate liquidations were seen in Meralco B (-1.75%), Philippine Stock Exchange (-15.12%), Petron (-5.08%), Metrobank, Filinvest land (unchanged) and SM Primeholdings.

Sentiment weighted towards the bears, as declining issues led advancing issues 39 to 22 and industry sub-indices save for the extractives were all in the red while foreign money acquired one company more than it sold.  Issues traded remained above the 100 level at 101 but significantly lower than the past 7 sessions which traded above the 110 level.  As the Prudent Investor pointed out earlier, investors are likely to hold on to declining issues than to sell them hence, in a declining market, the issues traded tends to ebb.  Today’s action points towards these biases, although the prevailing optimistic outlook by local investors, based on the previous movements or ‘established trend’, still underpins the market sentiment.  One day does not make a trend, but a collective series of daily moves.

Again all eyes should now center on the pivotal US markets as its recent downward moves have been conveying mixed messages about the sustainability of the US economy’s resilience, the market’s ambiguous reaction to the forthcoming monetary policy adjustments, the impacts of continuing higher oil prices on inflation, the unwinding of carry trades in anticipation of the ‘measured rate’ increases, the high volatility of the US dollar and the deceleration of China’s breakneck pace of growth.  Stay tuned...

Sunday Herald on controversial movie Fahrenheit 9/11 director Michael Moore: Pirate my film, no problem

Moore: pirate my film, no problem

Fury as Fahrenheit 9/11 director backs illegal not-for-profit downloadsBy Iain S Bruce, Online Editor

Controversial film-maker Michael Moore has welcomed the appearance on the internet of pirated copies of his anti-Bush documentary Fahrenheit 9/11 and claimed he is happy for anybody to download it free of charge.

The activist, author and director told the Sunday Herald that, as long as pirated copies of his film were not being sold, he had no problem with it being downloaded.

“I don’t agree with the copyright laws and I don’t have a problem with people downloading the movie and sharing it with people as long as they’re not trying to make a profit off my labour. I would oppose that,” he said.

“I do well enough already and I made this film because I want the world, to change. The more people who see it the better, so I’m happy this is happening.”

Moore’s views have not been well received by Hollywood’s establishment, which is fighting a war against the online pirates it claims cost the industry £1.6 billion a year in lost sales.

Jack Valenti, the outgoing president of the Motion Picture Association of America (MPAA), said: “We are proud that American films continue to enjoy immense popularity around the world but the need for copyright protection in the digital age is crucial to the preservation of our most prized trade asset.

“Piracy is having a dramatic impact on the creators and copyright owners of this nation, and its defeat depends largely on the commit ment and resolve of the entire industry.

“File sharing causes tremendous financial loss to the movie business, untold hardship to support workers, and costs thousands of jobs.”

Distributed via websites such as suprnova.org, which lays claim to having served more than 17 million downloads, Moore’s documentary critique of the Bush administration’s red, white and blue rush into war with Iraq is among the web’s hottest properties.

Thousands of copies of Fahrenheit 9/11 have already been downloaded, each taking about 3.5 hours over a broadband connection.

Ironically, the burgeoning underground market for Moore’s much-debated documentary has been championed by both sides of the political divide. While left-wing sites promote the film’s message, opponents of the high-profile polemicist are urging people to “steal” their copy, thus denying its director his cut of the profits.

Last month the website of producers Lions Gate Films was subjected to a barrage of attacks by hackers, with one creating a link to a download destination on the site’s front page.

Despite up to 150 people simultaneously bagging free copies of its most valuable property at any given time 24 hours a day, Lions Gate says it has no plans to oppose the practice. While unwilling to make any official statement likely to further provoke Hollywood’s heavy hitters, the film company appears to have fallen into line with its director’s laissez-faire approach.

Moore said: “Is it wrong for someone who’s bought a film on DVD to let a friend watch it for free? Of course it’s not. It never has been and never will be. I think information, art and ideas should be shared.”

Defenders of Moore’s position include Pulp Fiction director Quentin Tarantino, who earlier this year encouraged audiences in countries where his films are not legally available to obtain counterfeit copies.

The furore engulfing Moore is just the latest in a series of controversies surrounding the film. Almost smothered by original production company Miramax’s refusal to distribute the final cut, he also this year launched an unsuccessful legal attempt to overturn the MPAA’s decision to give the documentary an “R” rating, which barred under-16s from seeing the movie without an adult.
Opposed by Move America Forward, a conservative group set up to dissuade cinemas from showing the film, Fahrenheit 9/11 has become one of the most controversial productions in Hollywood history. Last month Australian distributors Hopscotch Films claimed to have received e-mails warning that if the company went ahead with its planned release of the movie, it would do so “at our own peril”.

The hubbub is unlikely to subside any time soon. With Lions Gate reporting that DVD rights are likely to be won by Disney-owned Buena Vista Home Entertainment, many commentators believe the digital distribution network may yet face serious opposition.

Valenti said: “Nobody can allow their rights to be stolen because, if you can’t retrieve your investment, you’re out of the movie business,

“I don’t think there’s really a single actor or director in the world who does not believe that if you don’t combat piracy, it will devour you in the future.” 


Copyright © 2004 smg sunday newspapers ltd. no.176088

Japan Times: Record 34,427 took own lives last year

Record 34,427 took own lives last year
Japan Times

July 23, 2004

A record 34,427 people committed suicide in Japan last year.

The figure, up 7.1 percent from the previous year, remained above 30,000 for the sixth consecutive year, the National Police Agency said in a report released Thursday.

The report says 8,897 people killed themselves over financial difficulties, up 12.1 percent from a year earlier and topping 8,000 for the first time since the NPA began keeping statistics on suicides in 1978.

Suicides motivated by financial difficulties accounted for a quarter of all suicides in the year, comprising the second-largest group, compared with 11.2 percent in 1994.

Almost 60 percent of the suicides in 2003 were by people in their 50s and older, it said.

Health reasons were the motivation for the largest number of suicides in 2003, prompting 15,416, or 44.8 percent of the total, to take their lives. Some 8.5 percent committed suicide due to family problems.

Men accounted for a record 72.5 percent of all suicides in 2003, contributing to the wider gap -- 6.97 years -- between the average life expectancies of men and women, as released earlier this month by the Health, Labor and Welfare Ministry.

The largest increase in suicides by age group was seen among those aged 19 and younger.

2003 saw 613 people aged 19 or younger kill themselves, up 22.1 percent from a year earlier and the largest increase in suicides by age group.

Eighty-three junior high school students and 10 elementary school students committed suicide in 2003.

The NPA said the annual number of suicides had hovered between 20,000 and 24,000 between 1978 and 1997. It topped the 30,000 mark in 1998. The previous record was 33,048 suicides, set in 1999.

The Japan Times: July 23, 2004
(C) All rights reserved

Japan Times Editorial: The Philippines' choice

The Philippines' choice

Editorial

Japan Times

July 23, 2004

The government of Philippine President Gloria Magapagal-Arroyo has withdrawn its forces from Iraq to save the life of a kidnapped Filipino. The gamble worked. The hostage, Mr. Angelo de la Cruz, was released unharmed this week and the nation -- like much of the world -- has rejoiced in his freedom. Unfortunately, however, it is feared that Manila's decision may prove shortsighted. Manila's readiness to protect one life may endanger many more, at home and abroad.

Mr. de la Cruz, a father of eight who comes from desperately poor circumstances, had gone to work as a truck driver for a Saudi firm working in Iraq. He is one of the more than 8 million Filipinos working overseas; about 1.4 million of them are in the Middle East. Those overseas workers are a vital part of the Philippine economy, sending home more than $7 billion annually.

Mr. de la Cruz was taken hostage July 7 by Islamic radicals who demanded that Manila withdraw its forces -- 51 soldiers and police officers that had been dispatched to help rebuild Iraq -- or they would kill him. Tapes of him being threatened by his kidnappers were broadcast on al-Jazeera television. After some conflicting reports, Manila announced it would withdraw its forces; a day after the last troops went home, Mr. de la Cruz was released, unharmed.

The Philippines celebrated. President Magapagal-Arroyo defended the move, saying she was motivated to protect the lives of the many Filipinos working overseas: "I made a decision to bring our troops home a few days early in order to spare the life of Angelo. I do not regret that decision."

Mrs. Magapagal-Arroyo has reasons to act as she did. Mr. de la Cruz had become the symbol of the ordinary Filipino. The president, narrowly re-elected (after taking office when her predecessor was forced by mass protests to step down), needs to court public opinion to boost her popularity and her legitimacy; she is thought to be aloof and distant from the concerns of millions of average Filipinos. In fact, the troops were scheduled to be brought home in August, so the withdrawal is, as the president's statement notes, only an acceleration of the timetable.

Were it so simple. While no one wants to see an innocent civilian harmed, Manila's decision is going to encourage terrorism. Immediately after the Philippines announced the withdrawal, another group released a statement demanding that Japan pull its Self-Defense Forces from Iraq or face attacks. A later statement disavowed that threat, but more are sure to follow. Japanese have already been taken hostage, as have dozens of others.

Thus far, at least three civilian hostages -- an American, a Bulgarian and a South Korean -- have been killed in Iraq, and hopes for a second Bulgarian hostage are quickly dwindling. Previous acts of terrorism have not forced governments to change policies and withdraw troops, but that does not mean that the terrorists will not keep trying. Kidnappings sew fear and confusion; sometimes they win ransoms. All are terrorist objectives.

Defenders of Manila's decision point out that there is usually a gap between official government policy and its behavior. Rarely, if ever, do governments stick to the "no negotiations, no concessions" line. Several governments have already reportedly paid ransoms to win the release of hostages seized in Iraq; there are questions whether this list includes Japan.

The U.S. is alleged to have ransomed some of its citizens kidnapped in the Philippines. Suicide bombings in Lebanon led to the withdrawal of U.S. Marines from Lebanon two decades ago. Japan paid for the release of hostages taken five years ago by Islamic militants in Tajikistan and, in 1977, when the Japanese Red Army seized innocents in Bangladesh.

Yet all of that ignores the larger context. Manila, like the governments in Tokyo, Washington, London, Canberra and elsewhere, sent troops to Iraq to help rebuild a country that had been destroyed by war. Giving in to terrorists imperils that mission, putting at risk the other forces that have been sent to help and the Iraqis themselves. Filipinos are right to say that they do not have to put themselves in harm's way, but this threat was entirely foreseeable.

If Manila does not wish to see its citizens hurt, then it is only right to ask why its troops were sent in the first place. There is no good answer to that question: Either the government did not contemplate all the consequences of its action, or it is susceptible to blackmail. Either way, it looks like a weak and unreliable ally, its credibility is damaged, and those governments who remain in Iraq must now cope with the fallout from Manila's change of heart. By all accounts, that looks like a victory for the terrorists.

The Japan Times: July 23, 2004
(C) All rights reserved

Indians Go Home, but Don't Leave U.S. Behind

Indians Go Home, but Don't Leave U.S. Behind
By AMY WALDMAN
NEW YORK TIMES

BANGALORE, India - Snigdha Dhar sat in the echoing emptiness of her new home, her husband off at work, her 7-year-old son prattling on about Pizza Hut. The weather outside was California balmy. Children rode bicycles on wide smooth streets. Construction workers toiled on more villas like hers - white paint, red roofs, green lawns - and the community center's three pools.

Six years ago, Mrs. Dhar and her husband, Subhash, a vice president at Infosys Technologies, the Indian software giant, migrated like thousands of Indians before them, to America's Silicon Valley and its suburban good life.

But Silicon Valley is not where their gated housing colony, Palm Meadows, sits. Like growing numbers of professional Indians who once saw their only hope for good jobs and good lives in the West, the Dhars have returned home to India.

Drawn by a booming economy, in which outsourcing is playing a crucial role, and the money to buy the lifestyle they had in America, Indians are returning in large numbers, many to this high-technology hub.

What began as a trickle in the late 1990's is now substantial enough to be talked about as a "reverse brain drain.'' By one estimate, there are 35,000 "returned nonresident Indians'' in Bangalore, with many more scattered across India.

For this still developing country, the implications of the reverse migration are potentially vast.

For decades, it has watched many of its best-educated move abroad, never to come back. Now a small portion of that talent is returning, their influence amplified beyond their numbers by their high-level skills and education, new cultural perspective and, in many cases, ample wealth. They are both staffing and starting companies, 110 of which set up shop in Bangalore in just the year that ended in March.

In some cases, they are seeking to refashion India implicitly in America's image. It takes leaving and returning, said Arjun Kalyanpur, a radiologist who returned in 1999, to ask, "Why should my country be any less than the country I was in?''

This impulse is not universally welcomed by some Indians who never left and who see a globalized elite - many of whom now carry American passports, not Indian - importing a Western culture as distorting in its way as British colonialism.

Still, returned reformers are already sparking change. Srikanth Nadhamuni, who helped design the Intel Pentium chip, is now applying his formidable skills to designing a software platform that could revolutionize the administration of India's local governments.

Lathika Pai, one of the few women in India's high-technology sector, is trying to bring America's best practices for working mothers to the B2K Corporation, her business-process outsourcing company. Others are trying to encourage schools to teach critical thinking, or force government to be more responsive to citizens.

S. Nagarajan, an entrepreneur, calls it "brain gain." "They have not come back just as they went there," he said.

He came back because he saw in India the business opportunity he once saw in America, where he struck it rich in the 1990's. The call center he and his partners started in Bangalore in 2000 with 20 employees now has 3,600, and $30 million in annual revenues.

Others have been drawn back by the tug of family and the almost atavistic pull of roots, or pushed by diminishing job opportunities in Silicon Valley and tightening Americans visa regulations.

Many of them are returning to communities like Palm Meadows, whose developer, the Adarsh Group, advertises "beautiful homes for beautiful people.'' The liberalization of India's state-run economy over the last 13 years has spawned a suburban culture of luxury housing developments, malls and sport utility vehicles that is also enabling India to compete for its Americanized best and brightest.

"It is amazing what you can get in terms of quality of life,'' Subhash Dhar said of the India to which he and his family returned about two months ago.

Trying to Reconnect

The little girls wore dresses of rich blues and hot pinks and deep reds. Their ankle bells tinkled as their feet smacked the floor. They cocked their heads and bent their hands up, trying to perfect the poses of a 1,600-year-old Indian dance form, Bharathanatyam, in the community center of a housing complex that bore almost no trace of India.

All the girls were daughters of returnees, like Prasad Kamisetty, an Intel employee back after 15 years, whose sonorous singing accompanied the dancers, and Sunita Maheshwari, a pediatric cardiologist, who kept one eye on the dance lessons and one on her 4-year-old son in the pool outside. They live in a pastel, pastoral gated compound, Regent Place, where two-story houses with barbecues in the backyard line a tree-shaded main lane.

Where Indian parents have long worried about how to give their children sufficient exposure to the English language and Western culture, many returnees say they worry more about how to connect their children to India.

The returnees describe identities in flux, riddled with continuing questions about what to cook, what holidays to celebrate, what languages to speak, and how to interact with a country that sometimes seems as foreign as the United States once did.

Many spent formative years abroad. On their return, they rejoin an upper middle-class tributary of Indian life that represents a mere sliver of this nation's more than a billion people, 300 million of whom remain abjectly poor.

Their communities are secure and closed off, immune from the water shortages and power cuts that plague this city of 6.5 million people. Their children attend private schools, often Western-flavored "international" ones. For lunch, their children want what they ate in America: peanut butter and jelly and potato chips - all now available here.

Dr. Maheshwari and her husband, Arjun Kalyanpur, see the dance class as a way to graft Indian culture onto their daughter Alisha. The private school they have selected is another, where the children squat, Indian-style, at desks on the floor and learn yoga and Hindu traditional hymns.

"We're sort of crosscultural byproducts who are straddling both worlds without necessarily being firmly entrenched in the Indian culture,'' said Dr. Maheshwari, 38, who is half-American but was raised in India.

The couple came back after eight years away to be closer to their parents, and because she felt she could contribute more in India. She is one of only about 14 pediatric cardiologists in the entire country. In one outpatient clinic, she sees more untreated medical problems than she ever saw at Yale-New Haven Hospital, where she and her husband trained and worked.

Her husband has found himself on the cutting edge of medical outsourcing. A radiologist, Dr. Kalyanpur had resigned himself to a significant pay drop upon his return. Then he proved to Yale that he could accurately read CT scans and other images transmitted via broadband to India. He began working for them from afar before starting his own business, Teleradiology Solutions Inc., in 2002.

He spends his days reading images for the emergency room nightshifts of about 40 American hospitals, compensating for the shortfall of nighttime radiologists in the United States, and being compensated at near-American salary levels. His partner, like him, is American-trained; at least two more Indian-born radiologists are moving back from the United States to work with them.

"India always suffered from the cream of its medical community migrating overseas," he said. "Now there is the possibility to go back."

India changed in the time Dr. Kalyanpur, 39, was away. Where it once took a year to get a phone connection, it may now take a day.

But he changed as well. He and his wife gravitated to Bangalore, where neither of them had ever lived, in part for the cosmopolitanism in its pubs and cultural life. Regent Place drew them because many European expatriates also live there.

"It makes the transition easier," he said.

On his return, India's poverty loomed up at him, and he and his wife grapple with how to deal with it. They raised money to put a playground in the government school in the village across from their housing complex, and are doing the same for another school nearby.

It is a small attempt to bridge India's great and growing gulf. On a Saturday, children with want visible in thin faces, in bare feet and tattered uniforms, scaled the swing set bought by the returnees, whose own children played across the street inside Regent Place.

New Outlets for New Talents

On a Sunday morning, Ramesh Ramanathan stood before some 40 middle-class Indians in a garden green with banana, coconut, and hibiscus trees.

"How many of us think India is a great country?" he asked the group, all residents of the Pillana Gardens neighborhood.

All hands rose.

"How many of us think India has a great government?"

All hands fell.

"Give a few hours each week to making governance better," he implored the skeptics before him.

Mr. Ramanathan, 40, was at ease, yet somehow stood apart. Was it the jeans and rolled-up shirt sleeves? The hip, slightly floppy haircut? Or his insistence that change was possible in India, when many of those present confessed they had given up?

"We will try our best," one man said in answer to his exhortation.

" 'Try' is not good enough," Mr. Ramanathan said.

By the traditional career arcs of the West, or India for that matter, Mr. Ramanathan and his wife, Swathi, did not seem destined for proselytizing for civic activism.

Like many young, ambitious, middle-class Indian couples, they moved to the United States in the 1980's. He earned an M.B.A. from Yale and rose to become a senior executive at Citibank. She earned a master's degree in design from Pratt and became a successful designer. They moved to London, where he ran a $100 million business in corporate derivatives for Citibank.

Among their pastimes, usually with fellow expatriates, was bemoaning their homeland with sentences that began: "The problem with India is " They would ponder why they so easily went forth and succeeded, while back home, India and so many of its people could not.

At the end of 1998, they came back, wanting their children to get to know their grandparents. They have since put their skills and their experience in the West toward improving public governance and working with the urban poor. Mr. Ramanathan made himself an expert in public finance, and spent two years reforming Bangalore's chaotic financial management system, now ranked among the world's best.

In December 2001, they started Janaagraha, a civic movement intended to make citizens demand greater accountability and effectiveness from their government. The monthly review meetings in municipal wards also help bind the middle class and poor - to build a community, in short, strong enough to challenge a government imbued with both colonial and socialist assumptions that it knows better than the people.

"In America, citizens have reluctantly let government into their lives," he said. "Here government is reluctantly letting citizens in." As part of what he calls the "lucky generation" that has been able to succeed abroad, he said, "If we don't come back and say there is an alternative, who is going to do it?"

He and other returnees believe that India remains too reliant on personal relationships, decisions and whims, and they have resolved to build American-style systems.

That is the focus of Srikanth Nadhamuni, who returned two years ago after 16 years in America, most of it spent in Silicon Valley, where he helped to develop the Sun Microsystems Ultrasparc and Intel Pentium chips.

When he returned, he was appalled by Bangalore's pollution, traffic and poor roads. Tax revenues were not growing commensurate with cities, and therefore neither were basic services. Wealthy individuals and companies had swanky homes and offices, but they were islands.

In response, he began developing an "e-government" software platform that uses digital mapping to permit far more accurate property tax assessments and collection. It will allow for electronic tax payment, birth and death registrations, the filing of citizen grievances, the public tracking of small infrastructure projects, and more.

In Bangalore, the system has already brought in hundreds of thousands of dollars in additional property tax revenue and has reduced corruption. The Delhi Municipal Corporation - the world's second-largest municipality after Tokyo - will test it soon.

Mr. Nadhamuni wants others, especially in information technology, to offer their talents to India. "We are making a couple of billion dollars of software exports, but we are not solving India's problems,'' he said. "We are solving the world's problems. He says his mission is "even better than being on the Pentium project."

His work abroad, like Mr. Ramanathan's, has made it possible to be a full-time volunteer, living off savings potentially for life by taking advantage of the much lower cost of living. In Bangalore, Mr. Nadhamuni said, he can live well on $1,500 a month.

"This is not to prove a point that we're back here," he said. "We've gotten used to the U.S. If I have a huge drop in my standard of living, I'm not going to be effective."

On a Saturday morning, his 4-year-old daughter played on the computer in their airy apartment at a gated apartment complex, the Golden Enclave.

"Build a fortress like Tipu Sultan's fortress," Mr. Nadhamuni said, trying to entice her to the wooden blocks on the floor with a reference to the 18th-century warrior who challenged the British colonial rulers. "Sim City," she clamored, her preference clearly for the American-designed computer game in which you alone shape the virtual urban landscape on the screen.

July 23 Philippine Stock Market Commentary

July 23 Philippine Stock Market Commentary

The foreign driven major telecom issues PLDT (+1.61%) and Globe Telecoms (+1.85%) shoved the Philippine composite benchmark into positive territory in generally mixed trading activities on the last day of the week.  The Phisix advanced .41% or 6.43 points on a light volume turnover of P 332.894 million as the rest of the major cap index issues closed unchanged.  

Reflecting yesterday’s trend, the Phisix defied the generally glum outlook in the Asian region despite Wall Street’s slight uptick with ONLY three of the 15-benchmark indices trading higher as of this writing.

Select buying from overseas investors accounted for P 22.733 million of net capital flows into the market with foreign activities share to total output increasing to 53.1%, the FIRST in 8 sessions where foreign money accounted for the MAJORITY of the trades. 

On the broader market, decliners walloped advancers 33 to 23 with 61 issues unchanged, major sub-indices were mostly higher except for the MINING and ALL index and foreigners sold more issues than bought them despite the recorded POSITIVE capital flows, hence the MIXED sentiment.

Once again these activities reflects tempered and selective acquisitions by foreigners as the locals were mostly on a profit-taking mood after bouts of speculative rotations within the market.

Overall, yesterday’s bounce off the 50-day moving averages coupled with today’s gains should provide a sufficient traction for the market to move higher in the following sessions.  The incremental growth of foreign activities relative to total output seems to be gaining traction and is a SINE QUA NON stimulus for the advances among the heavyweights, ergo the composite index, and of course, finally, this comes in the backdrop of a bullish local sentiment underscored by traded issues still exceeding the 100-level benchmark.  Again these observations and prognosis are BASED PURELY on market internals and sentiment indicators. 

On the risk side, with the US markets on the brink of testing its MAJOR support levels after ploughing below their 200-day moving averages, any declines of SHEER amplitude enough to jolt global bourses would definitely leak over the local bourse and preclude any rebound.  

 

 
 

Bacevich:A Time for Reckoning-Ten lessons to take away from Iraq

A Time for Reckoning
Ten lessons to take away from Iraq
By Andrew J. Bacevich

Reality has not dealt kindly with the hopes and expectations conjured up to justify Operation Iraqi Freedom. Although the war may not be lost, it cannot be won, at least not as the Bush administration once defined winning. What then are we to make of this experience?

The question may strike some as premature. Whether President Bush (or President Kerry) “stays the course” or cuts American losses, difficult days lie ahead. The bill yet to be levied for this misadventure promises to be steep. More Americans and even larger numbers of Iraqis will lose their lives. Combat operations and the black hole of “nation-building” will consume additional billions of dollars, adding to the ocean of red ink that is the federal budget. Yet even as events wind their way toward what promises to be a deeply unsatisfactory denouement, the argument over what it all means must necessarily be joined. Common sense dictates that we apply to future U.S. policy what we have learned in Iraq, and the future will not wait.

With an eye toward that future—and with no claim that any of what follows qualifies as definitive—herewith a first cut at identifying the war’s operative lessons.

First, ideology makes a poor substitute for strategy. With the invasion of Iraq, it became impossible to deny that in the heady aftermath of the Cold War American grand strategy became uncoupled from reality. Certain that history had spoken and that Americans were uniquely able to interpret its meaning, policymakers both Democratic and Republican uncorked old vials of Wilsonian illusion and breathed deeply. As a consequence, zealotry supplanted calculations of power and interest as a determinant of U.S. policy.

Bill Clinton entertained visions of globalization, creating a world without borders in which all nations would be sure to enjoy the blessings of peace, prosperity, and democracy. George W. Bush topped Clinton, vowing after 9/11 not only to eliminate terror (an impossibility) but also to put an end to evil. But mixing utopianism and politics is a recipe for miscalculation and an invitation to strategic bankruptcy—as the Iraq War has painfully reminded us.

It is the tradition of George Washington rather than the tradition of Woodrow Wilson that best serves American interests. The nation’s first president—and successors like Lincoln, both Roosevelts, Truman, and Eisenhower—understood not only the uses but also the limits of power. That balanced sensibility, anchored to considerations of prudence, has vanished from the current foreign-policy elite. There is an urgent need to restore it.

Second, wars leave loose ends. In a political sense, decisive victory—meaning military success that makes a clean sweep of the complaints giving rise to war in the first place—is a pipe dream.

Operation Iraqi Freedom was supposed to finish the job that Bush’s father had left undone in 1991. Oust Saddam Hussein, the war’s supporters promised, and all sorts of good things were sure to follow. War would transform Iraq into the first Arab democracy, usher the Middle East into an era of lasting peace, and nudge Islam toward moderation and modernity. Today, the Ba’athist regime is gone, but none of the predicted benefits seems likely to materialize. Instead the United States has exchanged the limited burdens of containment for the far more onerous burdens of occupation. We have overthrown a tin-pot dictator posing no immediate threat to the United States and thereby energized and encouraged far more dangerous enemies. Rather than persuading Muslims to see America as liberator and friend, we have cemented our image as Great Satan.

War is like a highly toxic drug: with the cure come side effects. And Iraq reminds us that the side effects can prove worse than the disease.

Third, allies have choices—and will exercise them. Across a decade of hyping the United States as “sole superpower” and “indispensable nation,” too many policymakers persuaded themselves that America’s traditional allies had no alternative but to accede to U.S. “global leadership.” Both the Persian Gulf War of 1990-1991 and the Kosovo conflict of 1999 seemed to show that when Washington called, others clamored to board the bandwagon. To opt out was to be left out and left behind: from Washington’s perspective, this was a risk that few “friends” were likely to take.

Iraq demolished such fantasies. Allies are not vassals. When interests diverge sufficiently, “friendship” counts for little. The Iraq experience has, time and again, affirmed this fundamental principle: when “old Europe” chose to sit out the war altogether; when Turkey rejected Washington’s request to allow U.S. troops to cross its territory; when Spanish voters concluded that occupying Iraq was exacerbating rather than reducing the threat of terror. At every step of the way, as key allies stiffed us, the costs borne by the United States have necessarily risen.

Even before Iraq, the bonds that once joined what was called “the West” had already (and perhaps inevitably) begun to fray. Thanks to its insistence on preventive war, the Bush administration has hastened the West along the path toward oblivion. Nations whose support we once assumed to be a given now question the acceptability of the Pax Americana and may yet muster the collective will to proffer an alternative. Before launching on more crusades, we have diplomatic fences to mend.

Fourth, Israel’s war is not our war. President Bush’s undifferentiated “global war on terror” has encouraged the government of Ariel Sharon to assert that Israel’s enemies and America’s enemies are one and the same. But they are not. Indeed, Sharon’s misguided effort to crush resistance to Israel’s occupation of the West Bank and Gaza through brute force serves only to complicate and exacerbate our own problems. Sharon’s policy will not work, and as Israel’s chief supporter we get tagged with much of the blame.

Resolving the Israeli-Palestinian dispute will not itself alleviate Muslim antagonism toward the United States. But absent such a resolution, that antagonism will fester, thereby providing fertile ground for Osama bin Laden and other Islamic radicals to enlist new recruits.

We should not deceive ourselves about the prospects of bringing real peace to the Holy Land. Something like partition is probably the best outcome one can hope for. But brokering and if necessary enforcing such a partition rather than vainly attempting to democratize the Arab world at the point of a sword ought to form the centerpiece of U.S. policy in the Middle East. Further deference to Israeli hardliners like Sharon, who know nothing but force, is contrary to American interests. True friends of the Jewish state will see it as contrary to Israel’s interests as well.

Fifth, “shock and awe” gets you only so far. More than a decade ago, the previous U.S. war against Iraq brought to full flower the American romance with high-tech warfare. Operation Iraqi Freedom has offered the fullest illustration to date of what this new American way of war can and cannot do. On the one hand, it affirmed what we already learned in Desert Storm: U.S. forces will make short work of any conventionally organized and equipped adversary foolish enough to put up a fight.

On the other hand, developments since the fall of Baghdad have also affirmed what we learned in Mogadishu: against a determined insurgent armed with even primitive weapons, air power, stealth, and precision weapons—all the signature capabilities that distinguish the preferred American style of warfare —won’t do the trick. Defeating guerrillas requires something more and something different. The United States military is no closer today to devising a technological solution to the riddle of unconventional war than it was when Vietnam ended in defeat.

Sixth, the margin of U.S. military supremacy is thinner than advertised. Ours is undoubtedly the mightiest military the world has ever seen, with a more than ample inventory of high-performance fighter jets, aircraft carriers, and top-of-the-line nuclear submarines. But our inventory of soldiers and Marines is grossly inadequate—inadequate at least to implement President Bush’s grandiose plans for sprinkling the blessings of liberty throughout the Greater Middle East. Despite the administration’s obdurate insistence to the contrary, the fact is that the United States today has too few soldiers doing too many things.

In just one year, the Iraq morass has brought U.S. ground forces within a hair’s breadth of overstretch. Expedients such as relying on reserves and hiring thousands of mercenaries have not fixed the problem; they embody it. Announced plans to divert troops from Korea to Iraq and to deploy stateside training cadres show just how bare the cupboard has become.

If the United States is intent on playing the role of global hegemon, we need to put more young Americans in uniform—lots more. If as citizens we’re not willing to pay that price, then the Iraq experience should oblige policymakers to scale back their ambitions.

Seventh, the myth of American casualty aversion is just that. The conventional wisdom of the 1990s was that a risk-averse military and a casualty-phobic public constituted major obstacles impeding the effective use of force. For the Clinton administration and its defenders, this became a convenient device for offloading onto others responsibility for American military fecklessness. The onus for the pseudo-campaigns of the decade leading up to 9/11—the zenith coming in 1998 when U.S. Navy cruise missiles demolished an empty pharmaceutical factory in Khartoum—lay not with the commander-in-chief but with foot-dragging generals and fainthearted citizens who lacked the stomach for serious military action.

Historians can debate whether or not the sensitivity to casualties was ever as great as it once appeared. But there is little room for debate that the events of Sept. 11, 2001 swept aside any such constraints. Traditional American ferocity and bloody-mindedness reasserted themselves with a vengeance. All that was needed was competence at the top to harness and direct it. But as the Iraq debacle has made plain, competence remains, as it was in the 1990s, in precariously short supply.

Eighth, so too with the myth of an American genius for spreading democracy. From the very day that U.S. forces entered Baghdad, the officials charged with raising a new Iraq out of the ashes of the old have displayed remarkable ineptitude. However admirable the hard work of those who have risked life and limb to give the Iraqi people a fresh start, the overall effort has misfired.

Far from replicating the success achieved in postwar Germany and Japan after 1945, L. Paul Bremer has managed to reprise the sorry record achieved in places like South Vietnam. If the United States insists that it needs to be in the nation-building business, then it’s time to go back to square one, drawing on the disappointments of Iraq to devise the techniques, create the institutions, and develop the leaders to do better next time out. Or, perhaps more wisely, we might conclude that bringing democracy to the Arab world is akin to making bricks without straw—a trick best left to others.

Ninth, it’s hard to win when you don’t know whom you’re fighting. Much has been made about the blunders in strategic intelligence such as the failure to anticipate 9/11 and the bogus assertions regarding Saddam’s weapons of massive destruction. But the inadequacies of tactical intelligence have been at least as great, if not greater.

In a situation truly without precedent in all of American military history, American forces in Iraq have for more than a year been engaged in a full-fledged shooting war and still do not know whom they are fighting. The reliance on generic terms to describe the “terrorists,” “insurgents,” or “foreign fighters” tells the story. Exactly who is the enemy? How is he organized? Who gives the orders? What are his aims? We don’t know. And as long as we don’t, the enemy will retain the initiative.

In short, the Iraq War shows that the imperative of intelligence reform goes far beyond any problems attributed to the CIA.

Tenth, civil-military relations at the top are broken. The Iraq War has confirmed what had already become evident during the 1990s: the relationship between senior military leaders and the top echelon of civilian officials is dysfunctional. That dysfunction contributes to flawed decisions on crucial issues related to peace and war.

During the Clinton era, the problem was one of a weak commander-in-chief unable or unwilling to assert effective control over the generals. Donald Rumsfeld came into office intent on clearing up any confusion about who is in charge. But the Rumsfeld approach is to treat his principal military advisers with McNamara-like disdain. Those who speak up—like the Army chief of staff who had the temerity to suggest that occupying Iraq might require a considerable number of troops—are rebuked and marginalized.

The point is not to suggest turning war over to the soldiers. Unambiguous civilian control is essential. But effective civil-military interaction demands something more than simply throttling generals. It means incorporating professional military expertise into the debate over basic national security policy. That in turn requires a combination of trust, honesty, mutual respect, and mutual self-restraint that has been absent for many years. This is an intolerable situation that in all likelihood the Department of Defense itself cannot fix. It cries out for serious and sustained congressional attention.

As was the case with Vietnam, the debate over the lessons of Iraq promises to be a protracted one. Again as was the case with Vietnam, the temptation to exploit that debate for partisan purposes will be great. But the issue is too important to use as an excuse for bashing neoconservatives, scoring points against President Bush, or luxuriating in the peculiar satisfactions of Schadenfreude. To avoid repeating the errors that got us into this mess, we need to get those lessons right.

___________________________________________________

Andrew J. Bacevich is professor of international relations at Boston University.

His latest book is American Empire: The Realities and Consequences of U.S. Diplomacy.
July 19, 2004 issue
Copyright © 2004 The American Conservative

The Economist on Greenspan's Testimony: Your flexible friend

Your flexible friend
Jul 21st 2004

From The Economist Global Agenda

The hard times are behind us, says Alan Greenspan. And the American economy is flexible enough to withstand any troubles on the horizon
 
WHEN Alan Greenspan, the long-serving chairman of the Federal Reserve, needs help nodding off at night, he sometimes reads his own speeches. This confession, made on Tuesday July 20th during his twice-yearly Humphrey-Hawkins testimony to the Senate, brought a ripple of laughter from the assembled lawmakers, and a murmur of recognition from Fed-watchers everywhere. In the past few months, Mr Greenspan has succeeded in making monetary policy soporific. He has said nothing that he hasn’t been keen to repeat several times. He has done nothing that he hasn’t been careful to talk about well in advance.
 
This week’s testimony, delivered first to a Senate committee and the next day to a committee from the House of Representatives, will make for prime bedside reading. With the recovery proceeding apace, a tighter monetary policy was both safe and necessary, he said. Rates will most likely rise at a “measured” pace, but if he has to raise them faster to contain inflation, he will.
 
Inflation had picked up, he conceded, partly due to a “transitory” surge in energy prices, partly due to sustained strength in the economy. Mr Greenspan’s favourite measure of inflation (the price index for core personal consumption expenditures) stood at 1.6% in May, compared with just 0.8% in December. He does not think these rises will continue, but neither does he discount the possibility that more “deep-seated” inflationary pressures are building, as yet unseen in the data.
 
So far, Mr Greenspan noted, inflation could not be blamed on higher labour costs. Rather, price rises were passing straight into the corporate bottom line. In the year to the first quarter, prices had risen by 1.1%, all of which can be attributed to a rise in profit margins. Fully 12% of the value of corporate output is now being taken as profit, up from just 7% in the autumn of 2001.
 
Buoyed by such strong flows of cash, corporate America is once again prepared to hire and invest. One or two companies with more money than they can easily spend, such as Microsoft (see article), are even handing some back to shareholders. But though companies are happy to invest again, they are still reluctant to borrow to do so. They remain careful to live within their means, their outlays on new equipment and replenished inventories never exceeding their cash flow. Mr Greenspan is surprised by the durability of this diffidence. “The protracted nature of this shortfall is unprecedented over the past three decades,” he pointed out. We are still, he thinks, living with the legacy of past corporate excesses and the fear of present terrorist dangers.
 
Mr Greenspan wants to return monetary policy to a more neutral stance. But no one knows quite where neutrality lies. The idea owes something to Knut Wicksell, a 19th century Swedish economist, who posited a “natural” rate of interest that would balance the supply and demand for capital. One senator, perhaps not au fait with his dead Swedish economists, asked for a number. But Mr Greenspan remained coy. We know when we are above the neutral rate, he observed, and we know that now we are below it. But we won’t know we have arrived at the neutral rate until we get there.
 
What is beyond doubt is that interest rates have been unnaturally low for an unusual length of time. Some fear that Mr Greenspan’s “accommodative” monetary policy has given households too much room to acquire debt. Now that rates are rising, households that have overstretched themselves may begin to feel the strain. Mr Greenspan disagrees. Far from tempting Americans to spend recklessly, low interest rates have helped them improve their balance sheets, he says. Even as they acquire new debt, they have shifted old debt to longer, cheaper rates. In the space of a year, between mid-2002 and mid-2003, homeowners refinanced almost half of their outstanding mortgage debt at more favourable rates, he points out.
 
If monetary tightening proceeds at the “measured pace” Mr Greenspan deems likely, he expects businesses and households to cope admirably. Financial strain will be confined to “individual instances”. Capital losses, particularly on bonds, will fall primarily on financial institutions that are well capitalised and well prepared.
 
Mr Greenspan’s speeches may be soporific, but the dreams they induce are cosy and sweet. His testimony revealed once again his confidence in the famed “flexibility” of America’s economy. Mr Greenspan’s is a world of smooth adjustments: households will make just such an adjustment to higher interest rates, he says; the dollar will adjust gradually to the slowing or withdrawal of foreign capital flows. As China slows, America will—you guessed it—adjust smoothly. America the Flexible bends before the prevailing winds, it does not break.

July 22 Philippine Stock Market Commentary

July 22 Philippine Stock Market Commentary
 
Our forecast that the US markets would rally due to the optimistic assessment by the US FED Chair Alan Greenspan boomeranged due to the weaker-than-expected corporate earnings specially affecting the TECHNOLOGY sector.  Nonetheless, the underpinning sanguine outlook of the local investors in the Philippine market once again boosted the key index benchmark to defy the regional sentiments weighed upon by the last night’s flogging of the US equity markets.  As of this writing 10 of the 15 indices of the Asian region are in the red.
 
The Philippine composite index, the Phisix rose a modest 13.47 points or .88% on lean volume, as local investors shored up the broader market while foreign buying remerged on select index heavyweights. 
 
Foreign capital inflows reappeared as today’s activities recorded a moderate P 57.813 million worth of equity asset acquisitions, while foreign trading activities accounted for 31.31% of accrued output.  Once again overseas investors directed the bulk of these inflows to PLDT (+1.7%) where 66% of today’s the company’s turnover were credited to foreign money.  The other major recipients of foreign capital were Jollibee (unchanged), Ginebra San Miguel (+1.72%) and First Philippine Holdings (unchanged). 
 
Aside from PLDT, two other major index components helped buoyed the Phisix, these are local-driven technically-oversold Globe Telecoms (+2.53%) and Ayala Land (+1.88%).  The rest of the heavyweights were neutral at best.
 
Once again market sentiment was largely in favor of the bulls as advancing issues whipped declining issues 39 to 28 while industry sub-indices were all higher except for the OIL index which closed unchanged. 
 
The market has shown a MINOR shift in gears, as foreign capital, despite the diminishing presence marked by the lower percentage share to total output (6th successive trading day below the 50% mark), has seemingly RENEWED its gradual and selective accumulation phase, REVERSING the outflows during the recent sessions or particularly the past week.  On the other hand the local punters have continued with its reshuffling ‘speculative’ activities reactivating moribund second and third tier issues on ‘tall tales’ or ‘insider triggered’ speculations with today’s 122 issues traded the 24th in 25 sessions.  A look at the top gainers list we have Gotesco Land ‘A’ (+50%), Gotesco Land ‘B’ (+46.66%), Alson Consolidated (+44.44%), ersatz bubble ‘BW’ now Fairmont holdings (+18.51%), Liberty Telecoms (+14.28%), call center Fil-Hispano (+14.28%), MRC Allied (+14.28%), AJO.net (+13.04%), PICOP Resources (+13.04%) and First Metro Investment Corp (11.76%). 
 
Well of course, trading based on ‘insider tips’ or ‘blah blah’ tales is a hazardous proposition considering that you might be at the tail end of the ‘word of mouth/tale’ cycle where insiders/insider associates, who spawned these nefarious activities, would be selling for profits while the ‘greater fool’ would be buying and left holding an empty bag.
 
Today’s trading environment is definitely distinct in contrast to the recent years where foreign money was the main catalyst to the directional flows of the market.  In other words, your portfolio could be adjusted to focus on ‘plays’ that have shown consistency in its price movement trends and supported by contingent measures to reduce losses.

July 21 Philippine Stock Market Commentary

July 21 Philippine Stock Market Commentary
 
Inspired by the yesterday’s gains in Wall Street, Global bourses picked up the buoyant sentiment to likewise register advances.   As of this writing, European bourses, which just opened, are trading mostly positive while closing Asian bourses are ALL in the green.  Leading the region’s top winner are South Korea, Hong Kong, Taiwan, and Thailand with more than 1% gains.
 
The Philippines similarly was on the optimistic side of the trade up .41% or 6.32 points as chirpy local investors bought into the broader market.  Except for BPI, which grew by a hefty 2.46%, most of the blue chip issues reported scant gains led by PLDT up .42%, Globe Telecoms higher .63% and San Miguel ‘B’ added .73% while the rest of the heavyweights were unchanged. 
 
On the surface, volume turnover improved moderately to P 579.251 million but excluding cross transactions net turnover amounted to a niggardly growth of only P 312.798 million.  Cross transactions accounted for 56.64% of the aggregate output with ISM Communications and Salcon Power taking up the bulk.
 
While market breadth was palpably bullish, advancing issues trounced declining issues 46 to 19 or more than 2 to 1 and major subindices were mostly positive except for the OIL and PROPERTY index, foreign investors unassumingly disposed of the major index issues, as 6 of 8 heavyweights posted minor to moderate outflows. 
 
Foreign participation in the local trading continued to manifest declines as foreign share to total output contracted to only 39.94%.  Yes, net foreign money flows reported a positive P 13.091 million although this largely comes from the cross trades of ISM Communications shares which reportedly sold 7.6% of the its outstanding shares owned by Philweb to a Hong Kong publicly listed wholly owned subsidiary.  
 
Again the thrusts of the local investors have been on SPECULATIVE ISSUES which can be viewed from the list of top gainers.  Gotesco B and Premier Entertainment were up 50% a piece followed by Gotesco local (+45.83%), Crown Equities Inc (+26.66%), EIB Realty (+25%), Uniwide Holdings (+ 21.42%), APC Group (+20%), Global Equities Inc (+20%) Vitarich Corp (+18.51%) and Macroasia Corp (+18.29%). 
 
Today’s number of traded issues hit more than the 2 1/2 year record high of 124 issues.  Once again this manifest underlying bullishness by the locals, however due to the dearth of volume the advances have not been translated into substantial growth in the major composite index but were distributed among the third tier issues represented by the enormous broad market gap between advancing and declining issues.
 
US FED chair Greenspan’s recent optimistic assessments of the US economy gave reprieve to the oversold US markets that spilled over to the world.  Actually Greenspan’s appearances have sparked rallies in almost countless occasions since.  Today, Greenspan is scheduled to appear at the Congress after yesterday’s Senate Banking Committee appearance and should provide some impetus to sustain yesterday’s gains.  However, over the longer period the economic health of the largest economy of the world, the sustainability of corporate earnings growth and the ramifications of the Fed’s actions to restore normalcy to its short end interbank rates and the residual effects of the reduced fiscal stimulus are just some of the most important variables in play that would shape the US and affect the sentiments of the global financial markets.  Stay tuned. 
  

Hong Kong Remains World's Freest Economy, Says Cato Institute

Hong Kong Remains World's Freest Economy, Says Cato Institute,
by Mary Swire, for LawAndTax-News.com,

Hong Kong 19 July 2004

 
Hong Kong has retained the highest rating for economic freedom (8.7 out of 10), followed closely by Singapore (8.6 out of 10) in the latest Economic Freedom of the World survey conducted by free-market think-tank, The Cato Institute.

The United States tied for third place (8.2 out of 10) with New Zealand, whilst Switzerland, the United Kingdom, Australia, Canada, Ireland, and Luxembourg rounded out the top 10. The bottom five nations of the 123 studied by the Institute were Venezuela, the Central African Republic, the Democratic Republic of Congo, Zimbabwe, and Myanmar.

 

Botswana's ranking of 18th was by far the best among continental sub-Saharan African nations, the survey revealed, whilst Chile, with the best record in Latin America, was tied with four other nations, including Germany, at 22nd.

 

Other large economies achieved the following scores: Japan and Italy, 36th; France, 44th; Mexico, 58th; India, 68th; Brazil, 74th; China, 90th; and Russia, 114th.

 

The 2004 annual report measured a number of factors including taxes, business regulation, and hiring and firing flexibility in order to decide the economic freedom rating of each country. The figures were based on information collected in 2001, which is the most recent data available.

The survey found that nations in the top fifth of the economic freedom ranking have an average per capita income of $26,100, compared to $2,800 for countries in the bottom fifth. It also revealed that nations with greater economic freedom attract almost $11,000 of investment per worker, compared to $845 per worker in the most restricted economies. 

July 20 Philippine Stock Market Commentary

July 20 Philippine Stock Market Commentary
 
The SOFTENING US equity markets have clearly permeated into Global Bourses, which as of this writing resembles a flickering Rose garden with both the closing Asian bourses and the opening European markets mired in lackluster trading.
 
TEN of the fifteen bourses in Asia are in the red including that of the Phisix which fell for the second day of the week.  The major composite benchmark slipped .73% or 11.26 points as 6 of the 9 index heavyweight issues recorded declines for the day.  Bank of the Philippine Islands (-2.4%), Ayala Land (-1.85%), PLDT (-1.27%), Globe Telecoms (-1.25%), San Miguel local or ‘A’ shares (-.87%) and San Miguel foreign shares (-.87%).  Ayala Corp, Metrobank and Ayala Land were unchanged for the day.
 
Capital flows from foreign investors accounted for only 37.94% of today’s activities and is ostensibly on a DECLINING TREND.  In addition, net money flows from overseas investors posted a negative P 14.069 million.  Trading turnover continues to emaciate as local investors were left to support the market from exiting foreign money; 5 of the 8 index heavyweights manifested net foreign outflows. 
 
Market sentiment was preponderantly bearish, net foreign outflow, decliners beat advancers 40 to 31, and all major sub-indices were in the red except for the Phi-all index which was buoyed by the slight increase of Sunlife and Manulife shares.
 
Trading activities during the past quarter has shown dwindling interest of foreign money on local equity assets, this the Prudent Investor believes as empirical evidence suggests is largely due to evolving global financial and monetary conditions and NOT by domestic political related activities.  Besides the third quarter is usually the leanest season of the stock market, even in the Philippines.
 
The Phisix has broken its 50-day moving averages and points towards possibilities of more renewed weakness than strength, although a technical bounce could not be discounted anytime.  Again it would take local investors to inject more moolah into the market to boost the index than simply fiddle with third liners which have been the case of late.
 
In absence of the propulsion from the market leaders, the Phisix is expected to meander in the immediate term. 
  
  
 

A Libertarian's Critique of Spiderman 2, by Jeffrey Tucker: A Class Act

A Class Act
by Jeffrey A. Tucker
lewrockwell.com
 
The skinny on Spiderman 2 is that this is a movie that even movie snobs can love, and there's certain truth in this view. Its characters are more introspective and thoughtful than other superhero fare, and its social-critical undercurrent isn't overtly political enough to become annoying. In fact, its leftist core is barely discernable to most viewers; indeed, the over-arching critique of socialized crime control makes this a movie libertarians can love.
 
Leftist core? Let me explain. Spiderman has long been the approved superhero of the left, and the movie shows why. Peter Parker (Spiderman as civilian) is brilliant and gifted, but he is of working class origins, lives in a dumpy old apartment, and barely makes ends meet. His intelligence can only be employed to his advantage so long as he is in costume, at which point his gifted powers can be used to maximum effect (so long as he believes in them).
 
Otherwise his intelligence and powers have a limit in this bourgeois world: they cannot help him avoid his grasping landlord or bail out his aunt whose house is being taken by the bank. Parker's employers are cruel to him, a fact that seems to be necessitated by the cash nexus. Parker's only real source of income is to sell photographs of Spiderman to the newspaper. Hence is he forced to commodify himself into visual imagery just to survive.
 
This has all the makings of a dialectic that calls down the need for revolutionary change. The dialectic encompasses not only Parker but everyone around him. The class origins of others in his circle are barely disguised. His girlfriend Mary Ann is from the same background, though she has landed a part in a theater production of "The Importance of Being Earnest," Oscar Wilde's hilarious send up of the London upper class and an exposé of its essential phoniness and artificiality. This is a wonderful play but "no accident" (as the Marxists say) that it was chosen as the fiction-within-the-fiction.
 
Mary Ann's face appears on thousands of advertisements all over the city – she is beautiful after all – but even her act of image commodification doesn't somehow pay the bills. Her face is merely exploited in the service of consumer vanity and corporate greed. As a way out, she considers marrying "up" by attaching herself to some handsome young society man, but we discover later that he is the son of a newspaper editor who himself is probably one generation away from proletarian roots, and she doesn't love him anyway. Her true love is Peter, who embraces his class identity.
 
The villains in Spiderman emerged, predictably, from the milieu of the techno-corporate world where the pressure is always toward making gizmos of ever more power and might that will supposedly supply the world with energy, light, food, or whatever it may be. But the attempt to feed the voracious appetites of the mass consumer end up creating hubristic monsters bent on world hegemony. In this film, the corporate-villain is Ozcorp – no need to comment on the message behind that name.
 
As for Spiderman's choice – he can give up his superhero status and marry the love of his life, or he can dedicate himself to his calling above all else – is merely the re-rendering of the mythical professional revolutionary of socialist lore. In the stories told on the left, history is filled with great heroes who gave up private pleasure to dedicate themselves to the cause of bending history toward its rightful path: Marx, Lenin, Che, et al.
 
Thus can we see why Political Affairs, the Marxist journal, praised Spiderman as allegory of "populist identification with an ordinary character’s day-to-day frailties in corporate America, but also the desire to escape them and flee from the mundane cruelties of life. There is a hope here for something better, a higher striving, another freer existence." (For the same reason, the left has always hated Batman, the aristocrat of inherited wealth whose powers are not granted but built by private innovation.)
 
But you know what? All this talk about this class and that class means nothing at all to the American middle class, which imagines the category as so fluid in reality as to be meaningless in any structural way. Perhaps an ideological theory of class really stung in London in the 1890s and perhaps it still does overseas, where the institutional structure limits class mobility. But the idea of fixed stations in life stemming from class origins has never had any serious resonance in the United States, where all classes are commercial classes to some extent and there remains an essential truth in the observation that one can buy oneself social position.
 
The old planters of the original American "aristocracy" were self-made. The same was true of the industrialists. Even the upper class in the Gilded Age was unashamedly self-made. To be one generation away from the gutter has always been a badge of honor in the United States, while membership in the rolls of "heritage organizations" that classify people by birth origin are restricted to aficionados.
 
When Americans are shown an image of a working class kid with superior intelligence who is behind on the rent, they don't think: "overthrow the capitalist system!"; they say: "get that kid a scholarship!" When we hear of an old lady being evicted from her home, we don't think: "Expropriate the expropriators!"; we say, "she should contact her pastor right away and get her local church involved." We can't imagine that there is any contradiction between being pro-market and being working class.
 
As for the bad-guy corporate big wigs inventing gizmos to run the world, we enjoy the fantasy but in the end, we know that the only way a business ever really gets "out of control" is when it is linked with the state. Otherwise, they are wholly dependent on the consumer to grant and take away "power," such as it is.
 
Thus are the class-based socialist themes in Spiderman completely lost on American audiences. What is not lost on us is the fabulous portrayal about crimes and government in American cities. The cops seem to do nothing but buzz around and get in wrecks. The government is simply invisible as a service-providing agency. After Spiderman gives up crime fighting, crime soars to 75% and no one seems to have any idea what to do about it, certainly not the police.
 
Fighting crime is a purely private activity, and Spiderman himself functions as a kind of private vigilante, making up for the failures of the supposed "public good" provisions that the state never gets around to providing. It is these themes – the chaos of the city, the inability of government to stop crime, our dependence out private solutions – that connect with us. The equivalent of Spiderman in the real world is the not the mayor, police chief, or cop on the beat, but the private security agency, the entrepreneur who started the gated community, the manufacturer of the stun gun.
 
As for Spiderman's choice of private life over public service, this is not a choice that confronts only the Marxist revolutionary, but also the intellectual or activist dedicated to liberty. Mises might have landed a position at Harvard after his immigration to the US had he been willing to go along with socialism or Keynesianism. There can be no question that Rothbard would have been in the Ivy League had he been willing to forego his political attachment to anarcho-capitalism. The history of liberty is strewn with great men and woman who paid a heavily professional price for their dedication.
 
To be dedicated to the defense of liberty, property, and commercial freedom is to stand up against the state at home and abroad and to be wedded to the wonderful ideal of freedom itself. And yes, there is always price to be paid. Like Spiderman, many freedom-minded intellectuals have had to look out over the horizon and imagine how much simpler and easier life would be if they would just be willing to give and inch here and there. They are usually right. The libertarians are the real idealists, giving up pecuniary reward for the sake of a larger goal!
 
Spiderman fits not the leftist model of sacrifice for the revolution but the Misesian genius, who is far from being rich for it:
 
It may well be that he who gives new values to mankind, or who is capable of so giving, suffers want and poverty. But there is no way to prevent this effectively. The creative spirit innovates necessarily. It must press forward. It must destroy the old and set the new in its place. It could not conceivably be relieved of this burden. If it were it would cease to be a pioneer. Progress cannot be organized. It is not difficult to ensure that the genius who has completed his work shall be crowned with laurel; that his mortal remains shall be laid in a grave of honor and monuments erected to his memory. But it is impossible to smooth the way that he must tread if he is to fulfill his destiny. Society can do nothing to aid progress. If it does not load the individual with quite unbreakable chains, if it does not surround the prison in which it encloses him with quite unsurmountable walls, it has done all that can be expected of it. Genius will soon find a way to win its own freedom. Socialism, p. 167
 
But just as Spiderman saw his calling more clearly as the crime became rampant, so too do libertarians see their calling more clearly when they imagine a world where the state faces no opposition at all. Also making that choice are people who donate money to the cause of liberty, knowing that governments and large corporations are the last to support principled scholarship. In order to do what is right, we must all make a sacrifice of ourselves. This was the lesson Spiderman learned, and this is one we can learn from him. 
 

July 19 Philippine Stock Market Commentary

July 19 Philippine Stock Market Commentary
 
A MIXED Picture marks today’s trading activities as foreign investors sold BLUE CHIPS down while local investors bolstered the BROADER market.
 
THE Phisix fell 6.97 points or .45% as index heavyweights led by the telecom issues weighed on the benchmark index on light volume of P 352.046 million (US$6.29 million).  FOUR index heavyweights declined namely, PLDT down .84%, Globe Telecoms lower 1.24%, SM Primeholdings slipped 1.69% and BPI dropped 1.19% against the only heavyweight gainer Ayala Land up 1.88%.  San Miguel Local and Foreign shares and Metrobank were unchanged for the day.
 
Of the 9 issues that comprises more than 75% of the Phisix, San Miguel foreign or B shares, Bank of the Philippine Islands and Metrobank failed to make the top 20 most traded issues, while 5 out of the 8 heavyweights reported net foreign outflows against Ayala Land, BPI and Ayala Corp that posted foreign buying.
 
Net foreign activity accounted for 49.63% of today’s output while foreign money flows recorded a net outflow which totaled P 10.844 million.  Foreign money sold more issues than they acquired.
 
On the other hand, market breadth was mixed as advancers pounced on decliners 46 to 24 while the sub-indices manifested mostly declines as only the OIL and PROPERTY index defied the bearish bias.
 
For the SIXTH consecutive session foreign capital flows have been on the NEGATIVE side of the trade which means that foreigners have been SELLING local equities in TEPID volume and has substantially been REDUCING their participation as evidenced by the FOURTH straight session where foreign money’s share of trade accounted for LESS than FIFTY percent.
 
AVERAGE Trade per share has fallen below the P 160,000 for the THIRD session, the last of which occurred during mid MAY of 2003 when the Market was at the root of last year’s BOOM.  This reflects that RETAIL INVESTORS NOW DOMINATE the market, hence the LOW Volume of KEY heavyweights and the NEGATIVE showing of the sub-indices.  The 112 issues traded today represents the FIFTH straight session and the 21st in 22 sessions since June 18th ABOVE 100-benchmark which shows that local investors have been pushing up THIRD TIER issues.
 
Take a look at today’s major winners, the top ten according to the citiseconline.com, are Jardine Davies** (+49.3%), Fil Hispano** (+46.18%), MRC Allied** (+40%), Macroasia Corp (+25.28%), Philippine Telephone and Telegraph (+21.73%), House of Investments** (+21.62%), Alcorn Petroleum (+20%), Southeast Asian Cement (+15%), Ever-Gotesco Resources (+14.81%) and DM Consunji (+13.69%), all of the above can be classified as third liners.
 
** volume below P 200,000.
 
Looking at the region, as of this writing only the South Korean Bourse has made a major upside move while the rest of ASIA are likewise trading MIXED. SEVEN of the 15 bourses are lower and except for the KOSPI, the rest of the region does not have more than a 1% move in either direction.  In other words the REGIONAL BOURSES like the Philippines are undergoing CONSOLIDATION. 
 

Dueling Analysts on PLTL: Bullish Mr. BearBull, Bearish Random Walker

Here are two articles by high profile analysts engaging in a Piltel 'Bull-Bear' debate...
 
******
A stock with certain growth potential
Posted: 0:43 AM 
Jul. 13, 2004
Ron Nathan
Inquirer News Service

NOTHING of importance has happened in the stock market this week, here or abroad, so I will write about a company instead.
 
My last recommendation was Petron Corp. at P1.80 and allowing for the 20-centavo dividend, anyone who bought it almost doubled his money.
 
Before that was Philippine Long Distance Telephone Co. (PLDT), which has risen to more than 5.5 times my original price of P226.
 
The first was on the basis of a guaranteed 11-percent return; the second, purely on the chart.
 
There were no fundamentals, but the technical indicators suggested minimal downside risk and large potential recovery.
 
Now I have a similar pattern, connected to the last stock, only this time with compelling fundamentals as well.
 
The stock is PLDT affiliate Pilipino Telephone Co. (Piltel), which was issued originally at P20 and went subsequently to a high of P44 before biting the dust.
 
After rising from a low of 28 centavos very rapidly, the shares have moved within a narrow range of P1.60 to P1.88 for the past four months.
 
Suddenly, just over a week ago, the price surged to P2 on unusually high volume of 43 million shares.
 
This constitutes a breakout and bearing in mind the length and narrow width of the base, a short-term target price of P2.55 looks likely. There should be good support at P1.88 so the current buying price of P1.94 has little downside risk.
 
In March, the PLDT group set in motion a series of events that will eventually make Piltel a very profitable and valuable company.
 
At the end of the day, PLDT's wholly owned Smart Communications will be both the majority owner (with a 92-percent stake) and biggest creditor (69 percent of debts).

Smart decided to acquire its equity and debt holdings in Piltel (stock symbol: PLTL) in order to access the latter's huge base of deferred tax assets, thereby reducing its own tax burden.
 
Management said that the only way to accomplish this is by revising the revenue-sharing agreement between Smart and PLTL.
 
The new split has not yet been disclosed, but from the current 50:50, I believe that it will be changed to 85:15 in favor of PLTL.
 
By shifting more revenue into PLTL, Smart will substantially reduce the tax it has to pay for its own account. At the same time, the profits of PLTL will surge.
 
For example, if we assume P15 billion in net cellular revenues for next year, the 35 percent difference between the old and new sharing schemes will result in P5.25 billion worth of additional revenue for PLTL. Because it has huge deferred tax assets, nearly all of the P5.25 billion will flow into the company's bottom line.
 
Thus, even with an expanded capital base of 11.77 billion shares, the 2005 earnings per share should be at least 50 centavos. Minority shareholders should therefore take the impending dilution in its stride because the company's recovery will accelerate rapidly in the coming months and the stock should follow suit.
 
Meanwhile, how high PLTL can go is anybody's guess. Assuming, an undemanding price-earnings multiple of 6, the shares should be worth at least P3.
 
Given its negative equity of over P22 billion, the company is unlikely to declare cash dividends before 2011.
 
On the other hand, the negative equity can easily be wiped out in four or five years, by which time, earnings per share should comfortably exceed P1.
 
Management has admitted that a 50:50 sharing is not fair to PLTL because it does not affect the true profitability of the company.
 
On the other hand, an 85:15 split would be unfair to Smart in the long run because it is the one that is making all the investments for the cellular infrastructure upon which PLTL is dependent.
 
After the deferred tax assets are eventually depleted, I expect that the revenue sharing will be shifted again and that a compromise would be reached at around 60:40.
 
This will allow substantial profits to remain with PLTL and at the same time allow Smart to earn a good return on its investments.
 
Smart will always have the best interests of PLTL in mind. As mobile penetration reaches the lower income groups, Piltel's Talk 'N Text will be the brand of choice.
 
Already, Piltel's subscriber base is foreseeable future, and so the firm will remain profitable in the long term.
 
PLTL, therefore, represents a near-term recovery story as well as a play on the industry's substantial future growth.
 
It was noticeable that this week most of the advertising was on Talk 'N Text instead of Smart.
 
What will happen to the eight percent still in the hands of the public? It is quite possible that Smart will let it be, although it slightly reduces the maximum advantage it can get from Piltel's tax losses of P50 billion.
 
It might decide to bid when PLTL has paid off all its debt to Smart and redeemed its outstanding preferred shares.
 
The only problem is that by then the shares will be worth much more, and eventually large dividends could be paid out.
 
This is an ideal stock for pension funds, insurance companies, bank trustee departments and anyone who does not need income but would rather hold a stock whose inherent value is steadily accumulating.
 
I do not expect the original buyers to see their money back (anyway they probably committed suicide years ago,) but I can envisage a price of P6, five years from now.
 
My 85:15 split is admittedly a guess, but Smart will announce the actual figure within the next month. If I am anywhere close, analysts will be doing their calculation and extrapolations, and foreign brokers might then get interested as the telecom sector is their favorite.

If this should happen, my short-term target could be comfortably exceeded.

****
 
A Smart exit strategy from Piltel
Noel G. Reyes
Random Walker
Businessworld, July 14, 2004
 
An astute reader made some keen observations about last week's column, "Why Smart and Piltel cannot wed," and I must admit, he pointed out a number of flaws in the 1,000-word column that I had to rush off in less an hour last week.
 
At any rate, the reader (name withheld on request) added in his e-mail: "I hope I've made sense. Obviously, I'm bullish on the stock [of Piltel]. And I have to admit that I do own a small number of Piltel shares. But I believe my objectivity is intact and that my optimism is well-placed. Of course, I may be wrong so please comment on any error made."
 
So now I am taking him up on that last request for a comment on his comments.
 
He makes three major points:
 
first, on the planned change in revenue sharing between Smart Communications, Inc. and Pilipino Telephone Co. (Piltel);
 
second, on any potential leakage of these revenues to the minority shareholders of Piltel; and
 
third, on whether or not Piltel can be a viable stand-alone business even after its tax assets will have been depleted in two years.
 
On the first point, he wrote:
 
"As you mentioned, the revenue-sharing agreement between Smart and Piltel will need to be revised in order to take advantage of the latter's deferred tax assets. Assuming PhP17 billion in cellular revenues for 2005 and a shift in the revenue split from 50:50 to 80:20, Piltel stands to earn PhP5.1 billion more next year under the new sharing scheme as compared to the old one. Practically all of this will flow into the company's bottom line and is equivalent to 43 centavos per share based on the enlarged number of shares outstanding (PhP5.1 billion/11.77 billion shares). Thus, even with the huge dilution minority shareholders will experience, they will still come out far ahead vis-a-vis their position if the debt swap/Smart buy-in had not occurred."
 
A possible weakness in his reasoning here is that the assumed PhP17 billion in revenues for 2005 takes for granted that Piltel's revenues would continue to grow at a 30% to 35% clip this year and next year, the same as the past two year's average growth. On the other hand, a mere 30% growth in revenues this year would not be enough for Piltel to take advantage of the PhP10.2 billion in deferred tax assets, otherwise known as net operating loss carryover (NOLCO), that would be expiring this year. Another PhP3.3 billion worth of NOLCO would be expiring next year.
 
The tax benefits of both, at the statutory 32% corporate tax rate, are equivalent to PhP4.32 billion -- this represents the amount of tax savings available to Piltel if it had enough taxable income to cover it.
 
In other words, if Piltel and Smart were to rely solely on the existing Facilities Service Agreement signed in April 2000 (amended in December 2003), then part of the rationale for Smart's purchase of a major portion of Piltel's debt and 85% of its equity would collapse like a house of cards.
 
The agreement covers Piltel's use of Smart's GSM service network and facilities, which service it markets under the Talk 'N Text brand. For such usage, Piltel pays Smart a combination of fixed and variable fees. These fees last year amounted to PhP1.4 billion for interconnection and PhP4.25 billion as Smart's direct share in Piltel's GSM revenues; altogether, both fees came to almost 55% of Piltel's subscriber revenues of PhP9.77 billion.
 
Even if the terms of these fees were dropped to zero percent, meaning all PhP5.3 billion of last year's fees would immediately drop to Piltel's bottom line, this won't be enough to take advantage of this year's expiring NOLCO of PhP10.2 billion.
 
Since it would be a total waste of available resources not to take advantage of that huge NOLCO, Smart obviously needs to channel some of its own revenues into Piltel this year. This is where a new marketing agreement could come into play.
 
On this account, Napoleon Nazareno, president of Smart and its parent, Philippine Long Distance Telephone Co. (PLDT), has some interesting words. "We haven't really done the level by which we would allocate the value to Piltel to take advantage of the NOLCO," he was quoted as saying. "So I am not sure if (Piltel's share price of) PhP1.90 correctly factored in the potential of Piltel."
 
Meanwhile, the reader made a second point:
 
"As for the 8% leakage, it won't necessarily materialize or, if ever, it will happen more than a few years from now. Dividends on the common shares can be delayed for a number of reasons. The most basic hurdle is that Piltel does not have retained earnings out of which to declare dividends. Since it has an accumulated deficit of over PhP50 billion, it will take six or seven years (even with the revised revenue sharing deal) before it turns positive again. Secondly, to avoid the leakage, management will pay off its debts first. Since Smart is now Piltel's biggest creditor, most of the cash used to pay down debt will accrue to the mother company. Third, Piltel still has 4.9 million Series J preferred shares outstanding all held by PLDT (not sold to Smart) which has a dividend of PhP90 each per annum and a redemption (due starting 2015) price of PhP1,000 per. Thus, on the Series J alone, Piltel can plow back nearly PhP12 billion back to PLDT."
 
This was an error on my part. It is true that Piltel, or any company for that matter, cannot distribute profits to its shareholders while it maintains a capital deficit in its books. In Piltel's case, it has a deficit of PhP59 billion as of last year in its capital account.
 
On the other point, that Smart could get out its cash flow out of Piltel through loan repayments, that is so brilliant -- the kind of thinking that I have come to expect of the people in Smart and PLDT.
 
Another outlet for the channeled cash flow from Piltel into the books of Smart and PLDT would be the Series J preferred shares issued by Piltel to PLDT. These shares have an annual cumulative divided of PhP90 per share.
 
Furthermore, Piltel may start redeeming these shares at issue value plus any unpaid dividends on the fifteenth year after issue (2015) or even earlier, upon "full repayment of the restructured indebtedness of Piltel "
 
Still, no matter how ingeniously these cash flow outlets and conduits tie in together, they all hinge on whether Piltel can generate enough revenues and cash flows.
 
"Finally, on whether or not Piltel can stand on its own two feet after the deferred tax assets are all used up, we believe that it can. Even without the change in the revenue-sharing pact, Piltel already posted a profit in Q1. Admittedly it was small at PhP8 million, but the new revenue split will accelerate the company's recovery and allow it to pay off its debts. Furthermore, the firm's subscriber base is rising faster than the industry average. This may be due to the fact that mobile penetration is reaching the lower income groups more and more. Since Piltel is focused on the low end of the market, it will most likely reap a big portion of the industry's future growth. Thus, once its debts have come down to a reasonable level, Piltel can remain profitable even without the benefit of its deferred tax assets. Some people, meanwhile, fear that the revenue-sharing scheme will revert to 50:50 once the deferred tax assets are used up. Management, however, has indicated that it will not flip-flop on this issue."
 
Piltel does not have much time before the prince possibly turns back into a frog. Its deferred tax assets would run out in 2006. After that, it would have to be valued on its own, mainly on the merits of its single brand, Talk 'N Text.
 
With this brand's focus on the low-income segment of the subscriber spectrum, Piltel needs to be, and remain, a low-cost producer.
 
With only one employee, the company obviously doesn't have much elbow room to cut costs further.
 
Its biggest costs, on the other hand, are the interconnection and revenue-sharing fees it pays to its major shareholder, Smart.
 
Piltel, thus, has no choice, but to live and die on the direct benevolence of Smart when it comes to these fees.
 
And that, to me, represents a considerable risk.