Quote of the Day: Whose Conspiracy?

From former economist, blogger and Assistant Secretary of the Treasury for Economic Policy Paul Craig Roberts at this website

What disturbs me is that no one in authority or in the mainstream media has any interest in checking the facts. Instead, those who raise awkward matters are dismissed as conspiracy theorists.

Why this is damning is puzzling. The government’s story of 9/11 is a story of a conspiracy as is the government’s story of the Boston Marathon Bombing. These things happen because of conspiracies. What is at issue is: whose conspiracy? We know from Operation Gladio and Operation Northwoods that governments do engage in murderous conspiracies against their own citizens. Therefore, it is a mistake to conclude that governments do not engage in conspiracies.

One often hears the objection that if 9/11 was a false flag attack, someone would have talked.

Why would they have talked? Only those who organized the conspiracy would know. Why would they undermine their own conspiracy?

Recall William Binney. He developed the surveillance system used by NSA. When he saw that it was being used against the American people, he talked. But he had taken no documents with which to prove his claims, which saved him from successful prosecution but gave him no evidence for his claims. This is why Edward Snowden took the documents and released them. Nevertheless, many see Snowden as a spy who stole national security secrets, not as a whistleblower warning us that the Constitution that protects us is being overthrown.

High level government officials have contradicted parts of the 9/11 official story and the official story that links the invasion of Iraq to 9/11 and to weapons of mass destruction. Transportation Secretary Norman Mineta contradicted Vice President Cheney and the official 9/11 story timeline. Treasury Secretary Paul O’Neill has said that overthrowing Saddam Hussein was the subject of the first cabinet meeting in the George W. Bush administration long before 9/11. He wrote it in a book and told it on CBS News’ 60 Minutes. CNN and other news stations reported it. But it had no effect.

Whistleblowers pay a high price. Many of them are in prison. Obama has prosecuted and imprisoned a record number. Once they are thrown in prison, the question becomes: “Who would believe a criminal?”

As for 9/11 all sorts of people have talked. Over 100 police, firemen and first responders have reported hearing and experiencing a large number of explosions in the Twin Towers. Maintanence personnel report experiencing massive explosions in the sub-basements prior to the building being hit by an airplane. None of this testimony has had any effect on the authorities behind the official story or on the presstitutes.

There are 2,300 architects and engineers who have written to Congress requesting a real investigation. Instead of the request being treated with the respect that 2,300 professionals deserve, the professionals are dismissed as “conspiracy theorists.”

An international panel of scientists have reported the presence of reacted and unreacted nanothermite in the dust of the World Trade Centers. They have offered their samples to government agencies and to scientists for confirmation. No one will touch it. The reason is clear. Today science funding is heavily dependent on the federal government and on private companies that have federal contracts. Scientists understand that speaking out about 9/11 means the termination of their career.

The government has us where it wants us—powerless and disinformed. Most Americans are too uneducated to be able to tell the difference between a building falling down from asymetrical damage and one blowing up. Mainstream journalists cannot question and investigate and keep their jobs. Scientists cannot speak out and continue to be funded. 

Truth telling has been shoved off into the alternative Internet media where I would wager the government runs sites that proclaim wild conspiracies, the purpose of which is to discredit all skeptics.

Bank of Japan's War on Cash: Demand for Safes and Big Denomination Yen Notes Soar! Gold Priced in Yen Surges!

At the outset of the imposition of NIRP,  the average Japanese seem to be vehemently pushing back on the Bank of Japan’s (BoJ) attempts to shanghai their resources.

First, the imposition of NIRP has only caused fissures in the establishment. This can be seen in mainstream media, as well as in the reactions of several politicians to the BoJ

According to Fidelity/DJ Business News (February 18)

A clash Thursday between Japan's central-bank chief and lawmakers highlighted the downside of negative interest rates: They are making the Japanese public feel negative.

Bank of Japan Gov. Haruhiko Kuroda, who announced the nation's first move into minus rates three weeks ago, found himself dodging a concerted attack in Parliament from lawmakers who charged the policy was victimizing consumers and sending a message of despair.

Next, in anticipation of non bank savings, sales of safes (and safety boxes) have suddenly boomed!

From Fortune.com (February 23, 2016)

Negative interest rates mean customers effectively pay a fee for parking cash in banks, so Japanese citizens are beginning to hoard yen, according to the Wall Street Journal, and they need somewhere to put it.

Sales of safes have doubled from the same period a year earlier at chain hardware store, Shimachu, according to theJournal. The chain has already sold out of one model worth $700. Others savers are considering more unconventional storage spaces.

“In response to negative interest rates, there are elderly people who’re thinking of keeping their money under a mattress,” Mariko Shimokawa, a Shimachu saleswoman told the Journal.

Third, real cash demand has spiked as exhibited by zooming demand for the yen's big notes!

From Bloomberg (February 24, 2016)

Demand for 10,000-yen bills is steadily rising in Japan, even as the nation’s population falls and the use of credit cards and other forms of electronic payment increases.

While more cash might sound like a good thing, some economists are concerned that it shows Japanese households are squirreling away money at home instead of investing it or putting it into bank accounts -- where it can make its way back into the financial system and be put to productive use.

That’s a big problem for Prime Minister Shinzo Abe and his central bank chief, Haruhiko Kuroda, as they try to spur consumption and reflate the stuttering economy.

The mountain of cash in Japan amounts to almost 100 trillion yen ($890 billion), equivalent to about a fifth of the size of the economy. And last year the number of 10,000-yen notes, the biggest bill, increased by 6.2 percent, the largest jump since 2002.

Increased demand for big note cash has likewise surfaced in Europe.

Lastly, gold prices in yen has likewise surged.

Despite the recent correction in the prices of gold based on USD, the yen price of gold continues upward as shown in the chart from the World Gold Council.

Perhaps my observation is being incrementally affirmed

Coupled with growing ban on cash by governments mostly under NIRP, the likelihood of imposition of myriad capital controls, prospective bail-ins or deposit haircuts on troubled banks, and or even perhaps outright protectionism, probably gold senses a massive disruption in the banking system, and the large scale drying up of global liquidity as the public gravitate towards cash with gold functioning as an alternative medium of exchange.

Confiscations of private sector resources to finance desperate bankrupt governments will likely deepen. From zero bound, to zero to negative and to the war on cash, as well as, to various capital, transactional and people controls, these shows of the slippery slope of the government's thrust.  So it won't take long, when governments will likely expand their prohibitions or increased regulations to include safes and safety boxes and gold ownership. Add guns to it. Yes people will need guns to protect their home based savings.

So What Else is New (February Edition)? Shanghai Index Crashed 6.41% Today!

In the case of China’s stock market crashes history seem, not just rhyme but repeat. Last January 26th, the Shanghai index plummeted 6.42%. 

The same index crashed 6.41% today or about a month from January’s crash.

Today’s crash was another broad based event.

The Bloomberg on today’s crash:

China’s stocks tumbled the most in a month as surging money-market rates signaled tighter liquidity and the offshore yuan declined for a fifth day.

The Shanghai Composite Index sank 6.4 percent at the 3 p.m. close, extending its declines this year to 23 percent. About 400 stocks on the gauge fell by the 10 percent daily limit. The overnight money rate, a gauge of liquidity in the financial system, climbed the most since Feb. 6. The Hang Seng China Enterprises Index retreated for a third day.

The return of volatility in mainland equities will raise the stakes for the nation’s policy makers as Shanghai prepares to host finance chiefs and central bankers from the Group of 20 meetings tomorrow. Today’s declines have almost wiped out a 10 percent rebound from a January low...

China’s overnight repurchase rate increased 16 basis points to 2.12 percent. Some banks were obliged to set aside more funds as reserves at a time when open-market operations are draining cash from the financial system.

The first indicators for China’s economy this month signal its slowdown hasn’t bottomed out yet, despite banks extending record new loans in January. Private gauges of manufacturing and services fell to new lows, a reading of business confidence slipped, and interest in small and medium sized businesses deteriorated, the readings show. If confirmed in official data for February that starts to roll out from March 1, such weakness would suggest a slowdown in the nation’s old growth drivers may be deepening.

China’s repeated crashes should be a noteworthy example of the axiom: there is never just one cockroach (cockroach theory). Of course, Chinese cockroach dynamics also serves as manifestations of how markets boomerang against market perversion through various manipulations. 

For instance, all the measures used by the government or the Xi Jinping Put to support the market—the ban on short selling, the intimidation and the arrests of ‘malicious’ short sellers, the disappearance of top industry officials, the censorship of media, postponement of IPOs, the prohibition of sales by majority holders, the subsidies, the mandate by state enterprises to bolster the stocks, and the coaxing of the public to mortgage their houses or any assets just to buy stocks—have only backfired.

Not even January's massive (half a trillion usd) surge in bank lending has prevented the recent volatility. 

Yet today’s crash nearly expunges more than half of post lunar New Year rebound (as indicated in the report) which was partly supported by the government

Likewise today’s crash brings the Shanghai index to about 3% off the January 28 2016 lows or the November 2014 levels.

Nonetheless, China’s crashes also shows of the 'proportionality' of boom bust cycles or how the bust will be roughly proportional to the imbalances acquired during the inflationary boom

Yet, China's crashing markets will serve as blueprint to all other bubbles.

Quote of the Day: Why Global Defense Spending Will Be a Drag on the Global Economy

Australian author, financial analyst and former banker, Satyajit Das at the Marketwatch debunks the (Keynesian) myth of economic prosperity from the war economy (bold mine)

First, there is pressure to increase spending on defense and national security in the U.S., Europe and the U.K. Some economists have argued that this spending could boost economic activity. However, any rise will be artificial and short-lived — money expended on defense could otherwise have been put to more productive use, generating greater wealth. Moreover, defense spending will place additional stress on already fragile public finances in many countries.

Second, dislocations may affect normal trading and financial activities.

For example, between 2010 and 2014, Western investors invested over $300 billion in Russian stocks and bonds. Western sanctions on Russia now make it difficult for a number of heavily indebted companies to refinance existing foreign currency borrowing or raise new capital internationally. Western sanctions on Russia are also costly for European economies, especially Germany. Around 350,000 German jobs directly depend on German-Russian trade, with roughly 8%-10% threatened by sanctions.

Third, rising security concerns and political risk reduce the attractiveness of global supply chains and deter foreign investment. An uncertain geopolitical and global security environment may reinforce the trend to close economies, with capital controls and trade restrictions. For instance, China is moving to domestically source previously imported critical defense and infrastructure components to ensure self-sufficiency.

Fourth, actual conflict increases the cost dramatically. There is the direct cost of dealing with the issue. There is also the indirect cost by way of disruptions, restrictions on normal commercial and personal life, and the loss of confidence which impinges on economic activity. Even minor conflicts can disrupt critical resource supplies, such as oil or crucial minerals, and trade routes. It can displace large numbers of people, resulting in large numbers of refugees.

Fifth, even if the conflict is internal to a country or relatively small in scale, the collateral effects are significant. The Syrian civil war illustrates the tremendous humanitarian cost and the economic expense of dealing with the crisis. Germany has estimated the cost of integrating refugees fleeing the conflict may cost up to 900 billion euro over the long-term. The need to reintroduce border patrols within the EU may reduce GDP by 0.8% or around 100 billion euro, in direct costs as well as the effects on trade and tourism.

Combating and controlling failed states, resulting from conflict, such as those in the Middle East, Africa and central Asia, requires commitment of vast resources, by way of manpower and treasure.

Sixth, asymmetric warfare, cyber-attacks or isolated terrorist attacks, are costly to economies. Increased security measures designed to prevent or minimize the effects of such attacks are expensive. The large and rising homeland security costs in the U.S. and elsewhere is a large and unproductive expense.

In addition to the well-known economic problems of low growth, deflation, demographics, slowing productivity, and environmental issues, reversal of the peace dividend now weighs heavily on the prospects for the global economy.

Chart of the Day: Do Japanese Prefer Having Cats to Having Dogs (and Kids)?

Pet cats have been booming at the expense of dogs (and kids).

That's according to a report from Bloomberg

The number of cats kept as pets is on the way to overtaking that of dogs in Japan, while the number of children continues to drop steadily. In the fast-aging nation with people increasingly living alone, cats are finding favor because dogs are more demanding and need to be walked, according to Kaoru Souma, secretary general of Japan Pet Food Association.

Phisix 6,800: Team Viagra Take TWO!

Take one for the week was yesterday. 

See, another representation of what makes the “Best stock market in Southeast Asia”! Along with this, how and why the Philippines has attained “sustainable inclusive growth”! 

What one cannot achieve via through the normal trading sessions have to be accomplished via price fixing or “marking the close” from Team Viagra! 

The obvious purpose for this has hardly been about profits but about "fixing" the index level. Very much like politics, the PSEi’s position has become symbolical rather than a reflection of market forces. 

Such "marking the close" has become a regular feature since the 4Q of 2014. Yet its only accomplishment was to carve the 8,127.48 April 10, 2015. Since, no matter how frequent and powerful the actions, Team Viagra has been unable to prevent the downdraft to the current state. 

Now they seem so desperate to keep the spent mania from flagging further. 

Down 1.15%, Team Viagra erased a stunning .42% of the losses of the PSEi to close the day down by only .73%!

Today's operation centered on mainly four heavyweights which offset considerable losses from the broader market.

SM, which carries the largest Phisix market cap weight with a 10.14% share (as of the session close) delivered the meat of the loss offsetting actions from the last minute pump. The rest as shown above provided support. Note of the losses (red) turned gains (green) from last minute pre-run off pumps.
 

The above represents the most active issues for the day

Nonetheless, with Team Viagra, it's definitely more fun in the Philippines! 

And the stock market's session closing Viagra effect can be seen "ONLY in the Philippines"! 

Note: figures/images from colfinancial.com, Bloomberg, PSE and technistock.net. 

My purpose for such postings have been to document irregularities for posterity, which may serve as lesson to future generation practitioners: There is no such thing as a free lunch; perversion of the marketplace will have incite a blowback or will backfire.

Remembering Carl Menger, Founder of the Austrian School of Economics

In commemoration of Carl Menger's 176th birthday (yesterday), here's a lengthy excerpt of BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel and Austrian Economist Richard Ebeling's eulogy at the FFF.org:

Today is Austrian economist, Carl Menger’s, birthday. Born on February 23, 1840, he died on February 26, 1921, at the age of 81. Menger is most well known as one of the first formulators of the theory of marginal utility, separately though in published form almost simultaneously, with William Stanley Jevons and Leon Walras in the early 1870s. But this work also marked the beginning of a uniquely distinct “Austrian School of Economics” based on the theory of subjective value, of which he became viewed as the “founding father.”

Menger is also famous for his theory of “spontaneous order” explaining the emergence and development of social and market institutions, especially money, which may be considered an extension of the earlier contributions of the eighteenth century Scottish Moral Philosophers on the same theme. In addition, he was an active participant in the Austrian government’s commission that put Austria-Hungary on the gold standard in the early 1890s, and was a critic of both socialism and extensive government intervention in economic affairs.

While Carl Menger may have been the founder of the Austrian School, it was through the writings of his two inspired followers, Eugen von Böhm-Bawerk and Friedrich von Wieser, that the name and fame of “Austrian Economics” became widely known worldwide starting in the 1880s and 1890s.

Menger’s Influence on the Austrian Intellectual Milieu

Shortly after Menger’s death in 1921, Wieser wrote a tribute to his master, and explained the intellectual milieu in which Carl Menger’s Grundsätze der Volkswirtschaftsliche [Principles of Economics] appeared on the scene in 1871.

Wieser told that back in those days, students like himself and Böhm-Bawerk did their study of economics through the law faculty at the university, and he thought this gave them a solid and sound grounding to approach and appreciate the institutions of property, contracts, and various market institutions. But it did not provide an understanding of the workings of the market order, rather just an appreciation of its legal basis and prerequisites.

The German economics textbooks assigned were thorough in their own way, but lacked a sufficiently satisfying grounding in the logic of economic value, the emergence of prices, or the working of market competition. Plus, they were tainted by the anti-theoretical prejudices of the dominant German Historical School.

When Wieser and Böhm-Bawerk turned to the “classical economists” for such a theoretical foundation, in the writings of, say, Adam Smith and David Ricardo, they found an amazing analysis of the interactive working and coordination of market competition. But, Wieser said, they lacked a sufficiently “individualistic” approach to dig deep enough to show how out of the evaluations and actions of the individual participants of the market order there logically and empirically emerged the market process and its pricing and coordinating outcomes.

Wieser then said:

In the midst of this distress, we found at hand Menger’s ‘Principles,’ and suddenly all of our doubts were gone. Here was given to us a fixed Archimedean point, from which we found even more; we were given a full Archimedean plane, on which we were able to have a firm foundation and sufficient information to be reassured that we could proceed with confident steps.

Menger once told me how he had come to find this solid foundation. Menger was led to his theory of [subjective] value by the way prices were made in the money market and commodity markets, on which had had to report as a young man in the [Austrian] Civil Service. He saw that the markets were led in determining these prices by facts of demand of which the prevalent theory of prices took no notice. This observation brought him to an examination of human needs and their laws.

Menger’s Commonalities with Other Marginalist Thinkers

What Menger shared in common with the other formulators of marginal utility were the following insights:

First, value is not intrinsic to a good; it does not result simply from a quantity of labor that may have gone into a good’s production, as the classical economists had argued from the time of Adam Smith. Value is based on a human evaluation of the degree of usefulness and importance of a good under conditions of its scarcity.

Second, goods are not evaluated in terms of “classes” or categories of goods, for instance, all “water” versus all “diamonds.” Goods are evaluated in terms of discrete or “marginal” amounts of each particular good used or consumed.

Third, the marginal usefulness or importance each unit of a particular good acquired in succession is less (or diminishes) with each additional unit used or consumed.

Strangely enough, when Menger presented his theory of the diminishing marginal usefulness of units of a good acquired and employed in his Principles, he gave no name to the concept. The term grenznutzen, or “marginal use,” was coined by Friedrich von Wieser and became translated into English and generally accepted as “marginal utility.”

Menger’s Unique and Distinct Approach to Economics

What stands out about Menger’s formulation and development of the “marginal” concept is the unique way he approached the entire subject matter of economic analysis. He grounded the analysis immediately in a clear and insistent methodological individualism. He emphasized that the method of his analysis was to reduce the complex phenomena of the social and market order to their most elementary components – individual choosing and acting men – to explain the logic of their choices and conduct in satisfying their wants, and on that foundation to then analyze the manner in which the interactions of these individual choosers and actors generate the formation and patterns of that wider and more complex social and market order.

All things, Menger continued, are subject to the laws of cause and effect, and thus to satisfy their wants individuals must discover the “laws” of causality in the world in which they live and act, including the discoverable causal connections between useful objects and things that may be utilized to serve and satisfy men’s ends.

From this Menger presented what has been a hallmark of Austrian theory ever since, that is, the idea of stages of production through planned and implemented periods of production. Some means may be found to be directly and relatively immediately useful in fulfilling desired ends, but in many if not most cases, useful things are only found to be indirectly serviceable for those ends.

Thus, for a finished loaf of bread to be available for making a sandwich, there must be an oven and other ingredients (yeast, dough, etc.) out of which the bread may be made and baked. But to have the oven and these other ingredients, iron and other raw materials must have been mined and them manufactured into a useable oven, and the dough required the farming and the harvesting of wheat, etc.

This, then, led Menger to emphasize that the existence and undertaking of such causal processes were inescapably linked to the presence and importance of time in all things that men do. Or as Menger expressed it, “The idea of causality, however, is inseparable from the idea of time. A process of change involves a beginning and a becoming, and these are only conceivable as processes in time.”

Furthermore, once we appreciate and acknowledge the omnipresence of causality and time, we must also admit the reality of uncertainty. Since time includes not only a “past” and a “present” but also a “future,” we must deal with the fact that our ideas about our wants, the efficacy of the means at our disposal and the causalities set in motion “now” for an outcome “later,” may turn out to be wrong.

There exists in all of our actions the possibility that the future may be different than we have anticipated as the experienced events unfold leading to that point on the horizon towards which are actions are directed. Thus, from the beginning the Austrians highlighted the imperfection of human knowledge that makes disappoint and as well as success an ever-present and possible aspect of all that we do.

This way of thinking about and emphasizing the reality of the human decision-making circumstance also resulted in an implicit focus on what today the Austrians refer to as methodological subjectivism. That is, the insight that if we are to understand the logic and meaning in men’s actions we must appreciate how the actors, themselves, evaluate, interpret, and assign meanings to their own actions, the objects of the world that enter their orbit of relevance, and the actions and intentions of others with whom they may directly or indirectly interact.

Menger highlighted that in all planned acts an actor assigns meaning to some objects as useful consumer goods, and to others as indirectly useful producer goods of one type or another that are coordinated by the planner in complementary patterns of use through time-filled periods of production. These designations and causally connected production relationships do not exist or have meaning and relevance outside of a human mind giving meaning and arrangement to the things of the world in a particular way.

The Human Actor is More than a Mathematical Function

The famous Chicago School economist, Frank H. Knight, once remarked, “The entire theory [of marginal utility] is much more convincing in the loose, common-sense formulation of Menger than it is in the more refined mathematical version of Jevons and Walras.”

From the start, Menger did not view man as a mathematical variable reduced to mere quantitative dimensions. He presents and studies individuals in the realities of human circumstances and decisions. Thus, in his own exposition of the relationship between men’s wants and any useable means, he asks when would it matter to a person if some quantity of useful means were acquired or lost, in the context of the actor’s intentions, plans and meanings.

Read the rest here

At the Mises Blog, the great Carl Menger as excerpted from Jörg Guido Hülsmann's Mises: Last Knight of Liberalism

Also at the Mises Blog, the great Ludwig von Mises noted of Carl Menger as the Oracle of the Fall of Europe

Chart of the Day: World Avocado Economics

Interesting graphics from Reuters' Answers ON on the global shortage of Avocados.

Quote of the Day: Politicians are Inveterate Liars

Writes Robert Higgs, Senior Fellow in Political Economy at The Independent Institute (source of the below quote) and editor at Large of the Institute’s quarterly journal The Independent Review: (bold mine)

Between the would-be, public office-holder on the one hand and the citizen in general and voter in particular on the other, lies a huge barrier that precludes the establishment of any rational connection. Think of genuine “representative government” on anything other than a very small scale as a practical impossibility. Many reasons explain the existence of this barrier, including the logical impossibility of an agent’s accurately representing each member of a group of principals who do not agree among themselves, but certainly one of the most fundamental factors is that the office seekers often lie to the public, or at least obfuscate and hedge about their statements in a way that makes them de facto lies.

Thus, Mr. Blowhard promises that if you elect him, he will do X. After he is elected, however, he does not do X, but offers an endless litany of excuses for his misfeasance or malfeasance in office. In any case, the essential reality is that no one can hold the successful office seeker to account for his infidelity in carrying out his promises. Everyone is stuck with him until the next election, in anticipation of which he will spew out another ridiculous series of lies and worthless promises. The office-seekers’ lies cover pretty much the whole ground of their speech. Of course, they are not forthcoming about past defalcations, de jure and de facto bribe takings, and personal peccadilloes. They almost invariably misrepresent their true reasons for seeking office, putting the shiniest possible public-service gloss on their raw ambition and lust for power. And they rarely if ever reveal truthfully the actual coterie to which they will be ultimately beholden, normally the largest and most influential supporters in their electoral campaign. Instead, they ludicrously declare that they will invariably “serve all the people.”

In policy matters, they lie about everything, although some of their lies may actually spring at least in part from their ignorance of how the world works and from their ideological blindness, rather than from deliberate, knowing attempts to misrepresent themselves and situations they will have to deal with in office. The lies about domestic policy are perhaps somewhat less blatant because many members of the public have personal acquaintance or contact with various aspects of such government action, which limits how big a whopper a politician can hope to get away with, whereas in defense and foreign-policy policy the office-seekers, regardless of their personal preferences or knowledge, can always rely on the general public’s near-complete ignorance of foreign lands and the political, social, and economic conditions that prevail there, and hence there is no practical limit to the enormousness—and the enormity—of the lies they can tell in regard to these types of issues.

In the case of past presidents seeking reelection, it is a simple and oft-performed exercise to document the lies they told to gain reelection, usually by representing themselves in some fashion as “peace candidates,” even while in some cases they were actively maneuvering to involve the United States in foreign quarrels that might well have been avoided if the office-seekers/office-holders had been concerned with the nation’s genuine security and well-being, as opposed to their place in the history books as “great presidents” or “world saviors.” These cases are illustrative, too, of the uselessness of elections as checks on office-holders’ departures from their campaign promises. Voters who cast their ballots for Woodrow Wilson in 1916, for Franklin D. Roosevelt in 1940, and for Lyndon B. Johnson in 1964 in a quest to help elect the self-represented “peace candidate” must have been sorely disappointed by the actions these men took immediately after their reelections, but what could the voters do once so much fat was in the fire? By the time the next election came around, the world had been utterly transformed—and millions of lives had been lost, as well.

So, what possible intelligence can voters exercise in casting their ballots? They can vote in accordance with the appeal a particular candidate’s promises hold for them, but relying on candidates to carry out their promises would be childishly foolish. Anyone who pays the slightest attention to politics knows that politicians are inveterate liars; many would sooner lie than speak truthfully even if the truth did not thwart their purposes, because lying would be more congenial to their true, dishonest character. Thus, voters can do nothing more than throw ideological darts, casting their ballots for the candidate who makes the most appealing noises, has the handsomest face, or displays peacock-like the most fabulous partisan posturing.

To perceive any fixed and reliable link between what the candidates promise and what they deliver in office would be wildly counterfactual. Politicians have no more backbone than an earthworm. Even if they could not be bought—and most obviously can be—they are constantly at auction for rent, and the bidding never ceases. Thus, we can count on them with complete confidence in only one regard: their mendacious shilly-shallying.

Phisix 6,800: Another Team Viagra Day!

What would be of the Philippine stock market without Team Viagra?

Of course, Team Viagra has most likely been the secret ingredient to the recent attainment by the PSE of the “best stock market in Southeast Asia”. Let us not forget, Team Viagra may also be the elixir to “sustainable inclusive growth”.

49% of today’s closing gain of .53% came from “marking the close” pump! 

By statute, "marking the close" is considered "prohibited". But who cares about regulations for as these infractions work in the favor of the establishment?

Curiously, board volume emaciated to only Php 4.45 billion, but special block sales from STR and SCC padded these to Php 12.6 billion

Yet the main issues to deliver the last minute pump…

I won't repeat of the impact Team Viagra does to the marketplace.

Nonetheless, with Team Viagra, it's definitely more fun in the Philippines! And to add "ONLY in the Philippines"!

Note: figures/images from colfinancial.com, Bloomberg and technistock.net.

Quote of the Day: Money Changed Everything

From Author and Agora Founder, Bill Bonner at his website: 

Not one person in 1,000 realizes it, but America’s money changed on August 15, 1971. After that, not even foreign governments could exchange their dollars for gold at a fixed rate.

The dollar still looked the same. It still acted the same. It still could be used to buy booze and cigarettes.

But it was flawed money. And it changed the whole world economy in a fundamental way… a way that is just now coming into focus.

The Old Testament tells us that God chased Adam and Eve from the Garden of Eden with this curse: “By the sweat of your brow, you will earn your food until you return to the ground.”

From then on, you worked… you earned money… you could buy bread. Or lend it out. Or invest it.

Dollars – or any form of real money – were compensation… for work, for risk taking, for accumulating knowledge and capital.

Money is information. It tells us how much reward we’ve earned… how much things cost… how much profit, how much loss, how much something is worth… how much we’ve saved, how much we’ve spent, how much we need, and how much we’ve got.

Money doesn’t have to be “hard” or “soft” or expensive or cheap. But it has to be honest. Otherwise, the whole system runs into a ditch.

But the new money was a phony. It put the cart ahead of the horse. This was money that no one ever had to break a sweat to get. It was based on credit – the anticipation of work, not work that had already been done.

Money no longer represented wealth. It now represented anti-wealth: debt. So, the economy stopped producing real wealth.

The Fed could create money that no one ever earned and no one ever saved. It was no longer the real thing, but a counterfeit.

In this way, effort and reward were cut off from one another. The working man still had to labor. But it was the banker, gambler, speculator, lender, financier, investor, politician, or inside operator who made the money.

And the nature of the economy changed. Instead of rewarding the productive Main Street economy, it rewarded insiders… and the financial sector.

The penthouses of Manhattan and the summer houses of the Hamptons changed owners. Gone were the scions of Detroit factories and the titans of New York commerce. Gone were the people who had added to the wealth of the nation.

In their place were the Wall Street hustlers… the people who moved money around… taking it from the people who made it and giving it to the financial industry, the money lenders, the insiders, and the Deep State.

This process is misunderstood. It is thought that Wall Street greed and deregulation caused the shift. But Wall Street was just as greedy as it always was… And financial regulations increased dramatically throughout the entire period.

It was not human nature that had changed; it was the money. And it changed everything.

Phisix 6,800: Shocking! BSP Hid Data of OFW Remittances as October and November Monthly Reveals of CONTRACTIONs! PSE Censors 3Q Performance of Listed Firms!

The shift to negative interest rates is all the more problematic. Given persistent sluggish aggregate demand worldwide, a new set of risks is introduced by penalizing banks for not making new loans. This is the functional equivalent of promoting another surge of “zombie lending” — the uneconomic loans made to insolvent Japanese borrowers in the 1990s. Central banking, having lost its way, is in crisis. Can the world economy be far behind?—Stephen S. Roach, former chairman Morgan Stanley Asia and Senior Fellow at Yale University

In this issue:

Phisix 6,800: Shocking! BSP Hid Data of OFW Remittances as October and November Monthly Reveals of CONTRACTIONs! PSE Censors 3Q Performance of Listed Firms!

-Shocking! BSP Revamps 2014-5 OFW Remittances Data, Concealed October and November 2015 Massive Contractions!

-Negative Numbers Spur PSE to CENSOR 3Q 2015 Performance of Listed Firms as Philippine NGDP and PSE’s NGDP Goes on DIVERGENT Directions!

-Philippine Bonds: The Fascist Crony Political Economy and The Escalation of the Yield Curve Inversions!

-Robinson’s Land Corp: Leveraging UP on a Vulnerable Topline

-Phisix 6,800: Global Central Banks Talk Up Risk Assets as Philippine Stocks Approaches Overbought Conditions

Phisix 6,800: Shocking! BSP Hid Data of OFW Remittances as October and November Monthly Reveals of CONTRACTIONs! PSE Censors 3Q Performance of Listed Firms!

Shocking! BSP Revamps 2014-5 OFW Remittances Data, Concealed October and November 2015 Massive Contractions!

Just what has been going on with the Philippine central bank, the Bangko Sentral ng Pilipinas (BSP)?

Have they been panicking over the state of OFW remittances?

The BSP disclosed that they have reached their yearend target¹: “Personal remittances from overseas Filipinos (OFs) amounted to US$2.7 billion in December 2015, posting a 4.9 percent growth year-on-year. This is the highest monthly level recorded thus far. Consequently, full-year personal remittances from OFs reached US$28.5 billion, higher by 4.4 percent than the previous year’s level and exceeding the BSP’s projection of 4 percent for 2015”

That’s nice unless one sees how the supposed target had been met, and secondly, how the previous or original numbers had been glossed over by the current (December) report.

You see, the numbers for the November data in the December report had been different from the November report. Here’s the disclosure: “Personal remittances from overseas Filipinos (OFs) amounted to US$2.4 billion in November 2015, representing a year-on-year growth of 3 percent. On a cumulative basis, personal remittances in January-November 2015 rose by 3.4 percent to US$25.2 billion”².

Let us take personal remittances for November 2015: in the November 2015 report, the numbers were US $2.416 billion for the month and $25.25 billion in cumulative. These compared to December 2015 report’s US $2.06 billion for the month, and $25.7 billion cumulative. The difference for the monthly data alone was a staggering $356 million!

Because the headline numbers were different, so should this be reflected on the growth rates: for the same period based on November report, 3% and 3.4% for monthly and cumulative, respectively. That’s against a NEGATIVE 6.2% for the month and 4.4% cumulative!

Gadzooks huge NEGATIVE numbers!

I had the initial impression that these were merely one month ‘revisions’. But the BSP hardly makes revisions for OFW remittances.

So upon further scrutiny, I realized that the entire data set for the year 2014 to 2015 had been overhauled! (November data released January 2015 and December data released last week February 2015)

To highlight the difference, let me use the personal and cash remittance data on a cumulative basis for December 2014 extracted from both reports.

In the November report, December 2014 personal and cash remittance were at $26.97 billion and $24.348 billion, respectively. In the December report, December 2014 personal and cash remittance were at $ 27.273 and $ 24.628 correspondingly (see blue rectangles above). The difference amounts to $303 million and $280 or 1.2% a piece.

Yet once the base or reference numbers changes, everything else changes.

The critical question is why the sudden overhaul of the entire 2014 and 2015 data set???!! (I haven’t seen any explanation from the BSP’s report)

The BSP cited that they reached the target. But they also didn’t mention of the BIG NEGATIVE numbers from the altered data.

It’s stunning to see that the modified numbers revealed of two consecutive months where OFW remittances growth rates actually crashed! Yes, read my lips, remittance output substantially SHRANK!!! (see red rectangles at the above BSP table)

For October and November, monthly growth rate for Personal remittances cratered -4.1% and -6.1% while Cash remittances plummeted by -4.2% and -6.2%, respectively!!!!

Moreover, stagnation in August and September numbers compounded on the crash. Monthly growth rates for Personal remittances were -.8% and +1.3% while Cash remittances -.6% and +1.3% correspondingly!

So in the last 3 out of the 5 months for 2015, OFW remittance monthly year on year changes for both personal and cash output exhibited CONTRACTION!!!!

The last time remittances showed of growth shrinkage was in November of 2014 were monthly personal and cash remittances posted deficits of 4.5% and 4.4%. Apparently, the November 2014 episode seems to have paved way for this year’s incredible downturn. I warned about the spillover risks from November 2014’s remittance decline here.

Yet to compare with the original data (see green rectangle in the table above), the only negative number that surfaced in the monthly change was in August, specifically -.8% for personal remittance and -.6% for cash remittance. Two other months, particularly July and October posted less than 1% growth, namely .5% for both personal and cash remittance in July and .2% for both categories in October.

This implies that if the December figures were the accurate measure, then what the BSP did was to camouflage the crashes of the October and November figures, in the hope that December data would provide the necessary enhancements for the yearend! Astounding!

Nonetheless, what made the BSP hit their annual target was the sudden remarkable increase in the growth rate of the personal and cash remittances cumulative at 4.9% each, last December! But this came about after only a major recalibration of the remittance numbers for 2014 and 2015!

[As a side note 5% used to be the low end, look at the charts, now it is the high end]

Question is: How much of the yearend increase had been a result of the juggling of remittance numbers? Could it be that the 2014 figures have been deliberately suppressed in order to inflate the 2015 counterparts?

Notice too the end of the year numbers were hoisted by the huge surge in the growth rates of March and June 2015. The gains from these months padded up on the remittance data that essentially cushioned the erosion during the last 5 of 6 months! (see horizontal orange ellipses in BSP table above)

Just to cite the numbers for personal remittances: in March, for the revised December data, growth rates were 15.5% monthly and 9.4% cumulative. The original data registered 11% and 5.1%. Original BSP disclosure here. In June, for the revised December data, growth rates were 10.5% monthly and 9.0% cumulative as against the original data 5.8% and 5.3%, original BSP disclosure here.

Again, did the BSP wait for the December data in the hope that the numbers would improve significantly to elevate the yearend tally? In the apparent failure to meet the BSP’s expectations, did the BSP panic, thus prompting them to facelift the entire data set for 2014 and 2015 so as to cosmetically embellish the yearend outcome?

Has the government’s recent floating of an “OFW crisis” been a trial balloon or a public conditioning for this?

Yet even from the cumulative perspective, remittance growth rates, for both personal and cash in the 2H (specifically from the collapse of the 4Q), dived to its lowest level since October 2009!

Additionally, those revised numbers have not erased the inflection point or the law of diminishing returns or diminishing growth rates for OFW remittances (see orange ellipses)

If OFW remittances stagnated in Q4, then just how did the government compute for Household Final Consumption Expenditure for Q4 2015? (The same question should apply to the Q3 2015)

HFCE constant 2000 and NGDP both rose during the said period (upper window) even when the average monthly growth rate (based on revised data) of OFW remittances for the quarter decreased.

Previously, remittance growth rates mirrored the undulations of the NGDP and RGDP (constant 2000) as shown in the lower window. But for Q4 things changed. Again, HFCE, which accounted for 72% of the 4Q RGDP grew by 6.9% NGDP and by 6.4% RGDP even as the average monthly (nominal|) remittance growth rates for the same period shriveled by 1.5%. Stunning deviations!

Once again, OFWs have been stripped by government statisticians as economic heroes!

Said differently, just where did 6.3% Q4 GDP (5.2% NGDP), as well as, 6.1% Q3 GDP (4.4% NGDP) emerged from? (see lower window)

Contrary to consensus thinking, I have been warning that OFW remittances have not been static or permanently embedded growth numbers and have been vulnerable to global economic as well as geopolitical developments.

Now my warnings appear to have arrived.

And again, it would appear that the BSP has employed statistical mirages in order to beef up the highly symbolic and economic sensitive OFW remittance numbers.

Unfortunately, in spite of the Potemkin numbers, a sustained slump in remittances will show up in the real economy.

So expect one of the next hot political issues to be the “OFW crisis”.

Of course, forget that the reason OFWs exist have been because of the legacy of consistent government failures, as demonstrated by the slomo boiling frog collapse of the peso. The current boom bust cycle will only exacerbate on this.

And given the considerable data revisions which exposed of the massive downturn in OFW remittance growth rates in 2H 2015, just what will happen to the mythical consumer economy?

The ballyhooed ‘consumer economy’ has in reality has been about the massive debt financed race to build the supply side predicated on catering to mainly OFW spending!

Yet in the face of falling exports, wilting manufacturing, stagnating agriculture and slumping remittances, just where will the incantation of “domestic demand” emanate from?

Most likely from statistical Sadako!

Negative Numbers Spur PSE to CENSOR 3Q 2015 Performance of Listed Firms as Philippine NGDP and PSE’s NGDP Goes on DIVERGENT Directions!

It appears that the establishment has been getting so desperate to keep up with façade of the phony boom.

So they increasingly resort to rampant financial market (stock market, bonds and currency) pumps, statistical chicanery, flagrant media spins and information censorship and manipulation

Well as expected, the Philippine Stock Exchange (PSE) did it again.

Like in the second quarter, the PSE has CENSORED or blacked out the aggregate performance of ALL listed companies during the third quarter from their press release. So in the absence of disclosure, the PSE’s dismal 3Q fundamentals translated to a virtual VACUUM in mainstream media.

So what the PSE did was to announce the NINE month performance of the PSE’s composite members in their monthly outlook (December issue) WITHOUT the 3Q numbers!

And to consider that the distribution of PSE monthly outlook have been restricted to only paid subscribers, and that the monthly report are technical, and more importantly, long winded, the likelihood has been that the reach of audience for the content of such reports have been very limited.

But why does the PSE want to bury such information? Below is the original format

The answers as provided by the PSE³ (bold mine)

-The total income of listed companies decreased by 1.8% year-on-year in the first nine months of 2015. Data from the latest financial statements submitted by 2481 out of 260 listed companies showed that their aggregate income totalled P441.40 billion, P8.17 billion lower than the P449.56 billion income recorded in the same period last year. Out of the 248 reporting listed companies, 179 posted net gains, 68 posted net losses, while one posted zero income. The decline in overall earnings performance of listed companies was primarily brought about by higher foreign exchange losses and significant decline in metal prices.

-Listed companies garnered a combined P4.90 trillion in revenues during the first nine months of 2015, lower by 0.6% from their total revenues of P4.93 trillion in the same period last year

-The combined net income of companies comprising the PSEi amounted to P317.61 billion during the first nine months of 2015, 0.7% higher than their aggregate net income of P315.51 billion in the same period last year.

-The combined net income of PSEi companies represented 72.0% of the total net income of the 248 reporting listed companies, slightly higher than its 70.2% share to total income in the same period last year.

-Twenty nine of the PSEi members registered net profits, with TEL posting the highest net income for the period at P25.34 billion. SMPH followed with net profits amounting to P22.87 billion, while SM came in third with earnings of P19.43 billion. SM posted a 7.0% increase in income during the first nine months mainly due to higher revenue contributions of its key business segments.

-Twenty one of the thirty PSEi companies posted improved net income performances during the period with LT Group, Inc. (LTG), SMPH, Semirara Mining and Power Corporation (SCC), GLO, and PCOR, posting remarkable increases of 88.7%, 69.9%, 58.8%, 34.4%, and 34.3%, respectively. LTG recorded an income of P4.71 billion driven by the improved bottomline of its core businesses.

-Meanwhile, the remaining nine companies recorded decreases in their net income in the first nine months of 2015 with Bloomberry Resorts Corporation (BLOOM), Megaworld Corporation (MEG), SMC, Energy Development Corporation (EDC), and First Gen Corporation (FGEN), posting contractions of 145.3%, 56.9%, 53.2%, 43.5%, and 25.0%, respectively. Higher operating costs and expenses associated with the operation of the Sky Tower and related amenities pulled down BLOOM’s bottomline.

-Two out of six sectors posted higher net incomes for the first nine months led by the Property sector, which registered the highest growth at 6.4% for the period. The Services sector followed, with its aggregate net income rising by 4.1%. Meanwhile, total profit of companies in the Financials, Holding Firms, Industrial, and Mining & Oil sectors declined by 0.5%, 0.5%, 2.9%, and 54.1%, respectively.

-The net income of companies in the Small, Medium & Emerging Board (SME) increased by 6.2% to P187.98 million during the first nine months of 2015 from P177.03 million in the same period last year. The growth in mobile consumer business pulled up Xurpas Inc.’s (X) net profit by 19.0%. On the other hand, the net profits of Makati Finance Corporation (MFIN) and Alterra Capital Partners, Inc. (ALT) fell by 12.5% and 163.2%, respectively

Only two sectors have now been lifting the profits of the PSE universe as the majority have begun to underperform. It’s the periphery to the core in motion. The backlash from inflationary boom has been gnawing at the core of the bubble industries.

The PSE notes that aside from metals or commodities, foreign exchange has signified a key factor in the nine month deterioration.

As previously admonished⁴: (bold original)

For domestic production, prices of imported production inputs will also increase. Rising input costs should put a squeeze on the profits of producers. And profit margin strains will mean lesser investments, which subsequently should extrapolate to lesser outputs and diminished jobs and wage improvements.

And lesser production output means HIGHER domestic prices. In short, again whatever gains from the lower peso on OFW, exports, BPOs and or tourism will be mostly neutralized by rising domestic prices overtime.

And again, the ascendant domestic prices have been the effects of higher import prices.

Moreover, in the financial dimension, any USD based liabilities will require MORE peso to service. Once again this adds to the cost side of firms exposed on USD borrowings that will amplify debt servicing onus that may reduce access to credit, thereby, put strains on profits and magnify credit risks.

The PSE forgets that the profit squeeze has not just been about cost side, but likewise on the top line. This means that aside from higher prices on imported consumer goods brought about by the falling peso, those 10 months of 30%+++ money supply growth (July 2013 to April 2014) that have led to a belated surge in consumer inflation (3%+ for 13 months or from November 2013 to November 2014) have buffeted on the PSE’s gross revenues or the NGDP.

Curiously just where has mainstream’s touted double digit earnings growth for the PSE in 2015 been???

Remember, the above represents the Nine Month report for 2015.

Again, missing in the above had been the third quarter performance.

Well, the likely reason they have been expunged the 3Q from the report can be seen above

You see, reporting of losses may have been disallowed most probably because they are construed as politically incorrect. Revenues and profits for the PSE can only go up! And everything else outside this premise represents an anomaly or deemed as unreal.

Income of both PSEi and PSE listed firms were down by a huge 10.66% and 1.68% in the 3Q. NGDP (Gross revenues) of listed firms was down by -.6% but was slightly up by .46% for PSEi firms. Though NGDP showed slight improvements for both, income remained significantly down.

So essentially, the big income gains of 1Q, which was a result from the outperformance of select issues, diminished the declines of the NINE month report.

What a way to spin the story!

But haven’t you noticed of the disparity between real and statistical numbers?

The Philippine government announced that 3Q GDP grew by 4.4% NGDP or 6.1% (2000) constant/headline GDP, but the PSE’s NGDP (gross revenues) of all listed firms shriveled by -.06%!!!

Realize that the PSE’s NGDP, which accounts for street level accounting based activities, constitute 51.6% of the survey based statistical (Nominal or current priced) GDP.

What this exhibits has been that the PSE’s (street level) numbers and the Government’s (survey based) numbers seem to be pointing at DIVERGENT directions! Government says G-R-O-W-T-H! On the other hand, PSE firms say S-T-A-G-N-A-T-I-O-N!

So what we have been witnessing has been a blatant departure from real developments relative to glorifying headline statistical numbers.

As I commented on the bowdlerization of the 2Q report⁵

And this also demonstrates why statistical GDP has basically little relevance with actual economic conditions!

Instead of Gross Domestic Products, GDP should be called Grossly Deceptive Politics

And yet those 2Q unpleasant numbers signify as the smoking gun revelation of the hissing bubble ‘smoke and mirrors’ economy. The 2Q data essentially DEFIES the politically constructed one way consensus expectations.

And this shocking reality may have incited the Philippine Stock Exchange to exorcise, purge, exclude or censor such figures out of existence! Such that when the PSE reported 1H 2015 performance, 2Q seemed to have almost existed in a black hole.

Add 3Q to the picture.

Philippine Bonds: The Fascist Crony Political Economy and The Escalation of the Yield Curve Inversions!

Given that the government raised Php 25 billion in fund raising via 5 year tender last week, which reportedly drew in “double” the government’s offer from mostly banks due to “strong demand”, I expected a significant rally on domestic treasuries this week.

Yet my expectation was not fulfilled. The rally on the 5 year bonds turned out to be short lived as 5 year bond yields increased by 37.5 bps to 4.313% at the close of the week from last week’s 3.938%.

So the alleged “strong demand” for government “tenders” turned out to be a dud, as the secondary market sold the same treasuries (perhaps) right after bidding them up.

More of the same publicity gimmicks or smokescreens?

Moreover, I expected the peso to rally hard given that the government announced that they will raise dollars through “planned sale of dollar-denominated bonds”. It didn’t. The USD peso rose by .32% to Php 47.665 this week from Php 47.51 the previous week. Perhaps, the peso rally may happen when the sale will be formalized or concluded. There has been no definite schedule announced. Though it was tipped to be “soon”.

Yet the government have “hired eight banks” as their book runners.

Let me interpose my terse political inquiry on these.

Think of the banks that have been commissioned to underwrite and sell bonds in behalf of the government. They are bound to make millions of dollars in fees and commissions as agents for the government. These institutions are essentially beholden to the government by virtue of the latter’s administrative and regulatory controls, the distribution of economic rent from government activities (such as book running or underwriting government securities), and most importantly, as conduits and beneficiaries of financial repression policies imposed by the government (e.g. tax agents, intermediaries for the government securities, credit agents and etc.).

So do you think that such entities will risk or sacrifice all the prospective emoluments or economic rent and other privileges by citing risks from the current activities or by making radical downside G-R-O-W-T-H projections against the government’s outlook, or more explicitly, by deviating from the interests of the government? Do you think that the same financial entities will put their depositors’ and fiduciary interests ahead of that of the government?

Do you think mainstream media, whom are paid for by advertising revenues from mostly firms owned or attached or affiliated to these institutions, would publish materials or opinions against them? Do you think that academic experts, whose schools have been bankrolled or owned by the same or related institutions, would rail against their benefactors?

Much of what one sees as “debates” or “criticism” among media’s talking heads center on the superficial rather than a thorough examination of the system. Most of them are fixated on personalities.

And the centralization, or the particularly, the politicization of system is what makes everything inherently fragile or vulnerable to a meltdown.

By virtue of social policies, resources have virtually been funneled into vested interest groups affiliated with the government, and to the government. Such translates to the amassment of systemic distortions or imbalances.

And with everyone being told by the government, cronies, and by media lapdogs, backed by their ‘experts’, that everything has been hunky dory, these simply extrapolates to the desired sustainment of the facilitation of such invisible transfers—where, again, such invisible redistribution or hidden taxation has been intermediated by these private sector appendages of political institutions.

And what has been presented in media as economic news has signified as nothing more than sales pitches ornamented with statistical numbers and emblazoned with economic variables to justify the status quo.

This by the way HARDLY represents free markets at all. Instead, such are fascist-corporatist/cronyism political economy guised under the simulacrum of a market economy.

One cannot operate a genuine market economy with half of every transaction being perverted in favor of political agents through unsound monetary policies. Add to this the mountains of regulatory, tax and welfare mandates.

The market economy has been setup as the fall guy once these maladjustments will unravel.

So risks or negative news or developments that will serve as obstacles to the free lunches for the establishment will forcibly be submerged into oblivion. Such has been the likely reasons behind the BSP’s December OFW report and to the PSE’s 2Q and 3Q report.

Unfortunately for establishment, there is such a thing called the law of scarcity. And the law of scarcity tells us that the vast misallocation of resources will have natural limits regardless of what the establishment yearns for.

The fundamental lesson: There is no such thing as a free lunch.

And NO free lunch is being expressed today on the Philippine bond markets

Despite the sustained interventions to facelift the Philippine treasury markets, yield spreads point to a forthcoming significant stress in the domestic financial system’s liquidity.

As of Friday, the yield differential between the 10 year bond and 6 month bill has flattened to near zero (4.2 bps). Stealth interventions pushed the 1 month spread off from a negative spread last week. But the variance still remains at near zero (47.4 bps)

Yet the negative yield curve phenomenon has been spreading.

ADB’s benchmark the 10 year 2 year yield spread remains flat with only 23.8 bps away from zero. The 10yr-3yr spread has been on a second week of inversion. The 10yr-4yr spread has also inverted! The negative spread of the curve’s belly, the 10yr-5yr, has only deepened to 49.7 bps!

So despite constant interventions, negative yield phenomenon prevails.

While narrowing interest margins may dissuade banks from expanding credit, this may not be enough. Desperate for profits, banks may seek to replace thinning margins with volume. But the substitution of volume with margin means assimilating on more credit risk than necessary. And this is where things will get aggressively dicey.

And financial institutions will likely run rings around the regulatory climate.

Nonetheless, if credit conditions will tighten as the yield curve continues to indicate, then economic weakness can only be expected to permeate into a larger segment of the economy.

Unlike the consensus experts who read the economy through painting by the numbers or by shouting statistics, remember the economy represents a complex network of interrelated and interdependent agents. Like the Butterfly effect of the chaos theory, where a flapping of the butterfly’s wings may ripple into a storm, one’s sector’s weakness may spread into the rest of the economy, even while the mainstream remains blind to these.

Yet such blindness has not been because they are unintelligent, most of them are incredibly smart, but rather incentives to protect the status quo and the principal agent problem represent as the primary causes of such myopia.

The fantastic spreading of the negative yield spreads will most likely serve the key transmission mechanism for the unwinding of the domestic bubble.

In 2009, the BSP declared the adaption of an accommodative monetary policy, or the reconfiguration of the economy, by tweaking the yield curve as a means to promote domestic demand. Now the basis for the soi-disant “domestic demand” is being reversed by the market place.

Since Philippine asset bubbles have emerged and has been nurtured and fostered on credit expansion from the BSP’s credit easing policies, then a reversal of monetary accommodation either through policies or from the marketplace would entail of the taking away or undermining of the credit pillar. And once such pillar has been disestablished, then these bubbles will fall like a house of cards.

Robinson’s Land Corp: Leveraging UP on a Vulnerable Topline

One of the companies to have reported earnings for December 2015 has been key property developer and shopping mall operator, Robinsons Land (RLC)

Curiously, while RLC reported gross revenues to have jumped 12.5% for its first 3 months (RLC’s fiscal year ends in September) what has been evident has been real estate sales have significantly underperformed having been up by a measly 3.99%! Has this signified possible signs of weakening property sector in the 4Q?

RLC’s real estate sales have lagged for two straight years (up .26% in 2014)! (top window)

Yet shopping mall revenues, which grew by 14.38%, and which was responsible for the gist of the topline for the period, had largely been driven by the “contribution of the new malls namely Robinsons Place Antipolo, Robinsons Place Las Pinas, Robinsons Place Antique and Galleria Cebu”⁶. The company reported that “same mall rental revenue growth of 7%” and stunningly, “system-wide occupancy rate was stable at 95% as of December 31, 2015”.

From the surface, about half of RLC’s mall revenues came from existing malls and the other half from new malls.

Yet what defines same mall rental revenue? Has it been increases in rental rates? Or has it been from the overrides/royalties on the lessee’s store sales? Or how has these been distributed?

It matters because even from the government’s GDP, growth of retail sales moderated in Q4 to 7% from 8.7% in Q3 (current) or 7% from 8.3% (constant 2000). So if retail sales have been slowing, then most of the top line growth from same mall rents must have come from rate increases. So if rental rate increases stall, then RLC’s top line will be in jeopardy or will substantially fall.

Yet the addition of 4 malls (11.7%) to its inventory, which now has reached 38 malls, suggest that the contribution from new malls have not been optimized (I am speaking here of only malls not actual retail spaces in sqm for rent). What will happen to its vacancy rates, which are now at 5%, if diminishing returns affect the new malls? How will RLC maintain its topline growth conditions and its profitability?

It’s the first time I have encountered RLC mention “occupancy rates” in their December reports since 2009. So I have no idea what their definition of “stable” means. What I ascribed to as “stunning” was because the firm’s occupancy rates seem to have now fallen to US levels.

In the US, dead malls or the extinguishment of excess capacity over the years along with improvements in retail sales had brought about occupancy rates to rise to 94.2% at the end of 2014. As explained last week, this could be much lower today.

Yet if RLC, a major developer and mall operator, has vacancy rates of 5%, how much more for the rest of the industry, especially for the lesser known or established contemporaries? (Yes in my recent mall sorties I can attest to this bulging turnovers and vacancies)

And what will happen to the industry vacancy rates, not only if topline declines, but if the supply side like RLC will continue to add inventories? RLC reported a capex of Php 16-17 billion for 2016 up 6.67% to 13% from 2015’s Php 15 billion.

Here’s more. What has been striking from the report has been the dearth of cash flows from populist headline G-R-O-W-T-H! RLC’s receivables have ballooned by 49% in 2014 and 29.26% in 2015 even as real estate sales have been dismal. (lower left window) Has this been about late payments?

And like her peers, RLC has huge uncollected accounting profits.

Also because RLC has engaged in massive inventory buildup in 2014 and investments in 2015, financing of such activities entailed that the firm’s total debt swelled by 40.36% in 2014 and 69.33% in 2015 (lower right window)!

While RLC’s topline has become increasingly vulnerable to an economic downturn, the company has rampantly been levering or gearing up on expectations that Filipino consumers have hit the national lottery with no end!

RLC seem to have been transformed from a conservative (little debt) to a high roller (heavy debt) firm…all predicated on hope.

When the impact from those yield curve inversions spread to a broader sector of the real economy, backed by the sustained fall in the peso, RLC’s derring-do gambit will put her balance sheet in a parlous position.

RLC officials better be right that too the Philippines will be “immune” to external developments and that strong/robust/resilient “domestic demand” represents a linear thing. Though they didn’t directly say these, their balance sheet expresses on such convictions (demonstrated preference).

Actions have consequences. Actions premised on wrong expectations can have nasty consequences.

Phisix 6,800: Global Central Banks Talk Up Risk Assets as Philippine Stocks Approaches Overbought Conditions

Last week I wrote⁷

This is not to say that actions of central banks will have no effects on the markets. Rather, present dynamics have shown diminishing returns in terms of boosting risk assets. Or said differently, central bank magic has been fading. But it won’t stop them from trying.

Central bankers ensured that they were on the spotlights last week. They were there to soothe on the scathed nerves of increasingly apprehensive casino gamblers.

The Chinese central bank, the People’s Bank of China (PBoC), opened the lunar New Year by firming the yuan’s fixing, which according to the Bloomberg, “was the most in three months”.

China’s PBOC Governor Zhou Xiaochuan broke his long silence to declare support on the yuan by saying “there’s no basis for continued yuan depreciation”. Chinese officials stepped on the stimulus rhetoric in stating that they would be “making more money available to local governments to fund new infrastructure projects”. Authorities also floated the plan to lower “the minimum ratio of provisions that banks must set aside for bad loans, a move that would free up additional cash for lending”.

In the meantime, China’s January’s lending skyrocketed to a new record, HALF a trillion USD (3.42 trillion yuan or $525 billion) in a month!!! (see chart here). This comes even as January’s external trade has collapsed while December NPLs soar to milestone highs!

Meanwhile, ECB’s Mario Draghi reasserted that the European Central Bank won't hesitate to boost its stimulus in March if it believes recent financial-market turmoil or lower oil prices could weigh further on stubbornly low inflation.

Meanwhile, Federal Reserve Bank of St. Louis President James Bullard called for a delay in interest rate hikes saying that “I regard it as unwise to continue a normalization strategy in an environment of declining market-based inflation expectations”. Mr Bullard added, “The recent sell-off in global equity markets, along with increases in risk spreads in corporate bond markets, may have made this risk less of a concern over the medium term…These data-dependent changes likely give the FOMC more leeway in its normalization program” 

In the meantime, at the G-20 meeting, Bank of Japan’s Haruhiko Kuroda appealed to other counterparts “to find ways to stabilize global financial markets”.

The OECD joined the calls for fresh stimulus mostly from government spending and not just credit easing by central banks. They said that “Governments in the U.S., Europe and elsewhere should take "urgent" and "collective" steps to raise their investment spending and deliver a fresh boost to flagging economic growth…In its most forceful call to action since the financial crisis, the OECD said the global economy is suffering from a weakness of demand that can't be remedied through stimulus from central banks alone.”

Governments have been panicking over the latest financial market turmoil. And central banking coordinated opiates haves served to fuel massive short covering or short squeezes that have led to broad based resurgence in risk assets.

Most of Asia’s equity markets went into overdrive with benchmarks posting gains by 1.5% and above. (see left window)

Japan’s Nikkei, for instance, soared 6.79% this week after collapsing 11.1% the other week.

The intense tug of war between the bears and the bulls has been a manifestation of developing instability. Sharp volatilities are hardly signs of bottom. Instead they are most like manifestations of a denial phase.

The question is how long before central bank assurances begin to fade?

On the other hand, those central bank jawboning appears to have worked less in the favor of Asian currencies. Despite the risk ON, the USD has risen against most Asian currencies this week.

This means that the USD has ignored central bank assurances.

Meanwhile, the Philippines joined the global stock market party.

With this week’s 2.07% advance, the Philippine Phisix racked up its third week of substantial gains in four.

This week’s gains had been broad based. All sectors rose led by the service (+3.08%) and the industrial sector (+3.06%).

Among the 30 issue composite index, 25 registered gains while 5 posted losses.

Market breadth was heavily tilted towards advancers. The spread in favor of advancers hit the second highest level for the year.

Peso volume increased modestly. This week’s average volume at Php 7.232 billion was the second highest for the year.

(Due to space constraints posting of charts have been limited)

However, given the degree of advances over the past four weeks, specifically 11.63% from the January 21 2016 lows (or in 21 days), peso volume should have been way much much much bigger.

For comparison, the average peso volume during minor bear rallies in 2013 were much larger than today.

In August 28 to October 23 2013, where the PSEi returned 15.63% the average peso trading volume during the period was at Php 10.483 billion. In June 25 to July 24 2013, where the PSEi rallied by 17.53%, the average volume was at Php 8.295 billion.

During the 2016 cycle, from January 21, the average daily volume had been a puny Php 6.673 billion! This means that current volume accounted for only 64% of the August-October rally and 80.44% of the June-July rebound.

As previously noted, bear markets are characterized by rallies that have been fast and furious. A volumeless rebound seems indicative of a lack of conviction.

Yet at .58%, the rate of the average daily gains seems as decelerating, perhaps indicating signs of emerging fatigue.

Helped by several sessions of last minute pumps by Team Viagra, the PSEi now approaches critical resistance levels and have emitted signs of overbought conditions.

Yet current gains of the PSEi seem as hardly being supported by the still weak peso, the incredible spreading of yield curve inversions on domestic sovereign bonds and little signs of meaningful improvements in earnings.

Most of the gains have been anchored on HOPE.

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1^ Bangko Sentral ng Pilipinas Personal Remittances Exceed 4 Percent Growth Projection for 2015; Full-Year Level Reaches US$28.5 Billion February 19, 2016

2^ Bangko Sentral ng Pilipinas, Personal Remittances Sustain Growth in November 2015; Year-to-Date Level Reaches US$25.2 Billion January 15, 2016

3^ Philippine Stock Exchange, December 2015 Monthly Report VOL. XXII NO. 12

4^ see Phisix 7,050: The Peso in the Face of Crashing Emerging Market and ASEAN Currencies September 6, 2015

5^ See Phisix 6,900: Smoking Gun Evidence: PSE Listed Firm’s 2Q NGDP Drops By 3%, as Income Dives 7.5%! December 6, 2015

6^ ROBINSONS LAND CORPORATION AND SUBSIDIARIES SEC Form 17-Q Philippine Stock Exchange

7^ See Global financial markets have been undergoing tremendous volatility. February 15, 2016