Buy The Philippine Mining Index And ASEAN Bourses On Record Gold Prices

``In all countries and all civilizations, two commodities have been dominant whenever they were available to compete as moneys with other commodities: gold and silver. At first, gold and silver were highly prized only for their luster and ornamental value. They were always in great demand. Second, they were always relatively scarce, and hence valuable per unit of weight. And for that reason they were portable as well. They were also divisible, and could be sliced into thin segments without losing their pro rata value. Finally, silver or gold were blended with small amounts of alloy to harden them, and since they did not corrode, they would last almost forever. Thus, because gold and silver are supremely "moneylike" commodities, they are selected by markets as money if they are available. Proponents of the gold standard do not suffer from a mysterious "gold fetish." They simply recognize that gold has always been selected by the market as money throughout history.”-Murray N. Rothbard

Aside from the lessons of how to treat bullmarkets, there are two factors to ascertain or discover from gold’s rise:

One: To identify bullmarkets pertinent to gold’s actions and

Second: The possible implications of the gold’s resurgence to domestic gold and metal mining related issues.

The Relevance Of Gold-ASEAN Bull Markets

The Phisix and most of Asian stock markets are in a bullmarket. That has been a mantra of ours for the longest time.

In the fullness of time, perhaps the 2008 US housing bubble crisis will be portrayed as an intermission to the current phase of the bullmarket cycle.

No, relative economic success isn’t the main force that will fuel this boom, although this will be the “rationalization” or “justification” which mainstream will obviously utilize.

Instead what will drive this boom is the global bubble cycle (or what can be described as the Austrian Business cycle) that continually plagues the present state of the markets. Such cycles signify as the consequences of the world inflationism or the mainstream’s “central banking-fractional reserve-deficit spending” policy framework.

Since money isn’t neutral and where collective money printing would impact relative assets relatively, the likely magnet for the tsunami of “counterfeit” money (money from thin air and are unbacked by real savings) are sectors or nations that has eluded from developing bubble conditions during the last bubble cycle. In other words, where the supply side hasn’t generated excess capacity or malinvestments, “speculative” money is likely to flow or get funnelled into these focal areas.

They will be embraced as a surge in domestic consumption, swelling middle class, wealth transfer, demographic dividends, urbanization and alot of many other pretexts for a boom, but eventually like all bubble cycle most of these will be exposed as tomfoolery or a scam. That’s because the forces that would underpin such booms will likely be characterized by ballooning domestic credit, in households or corporate or both, and by leveraged international money flows.

Though, of course, one big factor which we cheer of is the broadening of economic freedom in many emerging markets, as seen by growing globalization of trade, investments and labor.

However, economic freedom is diametrically opposed to inflationism. Hence, two forces are fiercely counteracting or grinding upon each other. And economic freedom would have to endure from the ordeals of the volatility elicited from the falsified pricing mechanism in the marketplace derived from the current collective interventionist policies. Remember, all current actions have future consequences. Economic freedom thus is a long term proposition in the face of the adversarial forces of hidden taxation.

And it would be an irony to say that rising gold prices seem to be a “boon” to stock markets and other financial assets or the economy. That’s because rising gold prices exhibits the pathology of the endemic nature of the political agents to debase currency for political goals. The reason why rising gold prices appears as a benediction for the markets today is due to the “sweetspot” of inflation[1]- as seen by low interest rates and tolerable instances of inflation.

As Friedrich August von Hayek explained, (bold highlights mine)

``Now the chief effect of inflation which makes it at first generally welcome to business is precisely that prices of products turn out to be higher in general than foreseen. It is this which produces the general state of euphoria, a false sense of wellbeing, in which everybody seems to prosper. Those who without inflation would have made high profits make still higher ones. Those who would have made normal profits make unusually high ones. And not only businesses which were near failure but even some which ought to fail are kept above water by the unexpected boom. There is a general excess of demand over supply-all is saleable and everybody can continue what he had been doing. It is this seemingly blessed state in which there are more jobs than applicants which Lord Beveridge defined as the state of full employment-never understanding that the shrinking value of his pension of which he so bitterly complained in old age was the inevitable consequence of his own recommendations having been followed.[2]”

ASEAN’s Bullish Momentum

This welcome phase can vividly be seen in Figure 2.

Figure 2: Bloomberg[3]: Blossoming Bull Markets In ASEAN?

For major ASEAN nations, the marketplace seems ripe for a raging bull.

Indonesia’s Jakarta Composite Index (green line) has already transcended its 2008 high (!!), while the Philippine Phisix (yellow line), Malaysia’s KLCI (red line) and Thailand’s SET (orange line) are all within spitting distance.

If all four benchmarks manage to surpass their 2008 highs, then I’d presume that the region’s bubble cycle could only accelerate.

And following the recent market stresses within the EU zone where the European Central Bank (ECB) has already reactivated their own version of quantitative easing, coupled with the soon to be operational European Financial Stability Facility (EFSF), a combined €750 loan facility from the (€440 billion) EPSF, the IMF (€ 250 billion) and the European Financial Stabilization Mechanism (€ 60 billion), aimed at “providing financial assistance to Eurozone states in difficulty”[4], monetary conditions among major developed economies are likely to be very accommodative for an extended period especially in the light of Asian conditions.

And such disparate circumstances are likely to engender and amplify arbitrage or carry trade opportunities.

In the Philippine Phisix, market internals appear to be suggestive a looming major upside thrust (see figure 4)

Figure 4: PSE: Phisix and Advance-Decline Spread

The Advance-Decline spread (lower window) which is the daily tally of advancing issues less declining issues or a measure of market breadth or sentiment seems to be on the mend as the Phisix approaches its 29-month resistance levels (Upper window).

If the Phisix is to successfully breach the present resistance levels at about 3,350, we are likely to see a tight advance decline spread similar to the March-April pattern.

And if the present momentum extends, it won’t be far fetch that a test of the 2007 high at the 3,800 level will be the next topic of our discussion.

Meanwhile, the other major force, which we earlier we pointed out[5], is the potential ‘sustained’ rally in the Euro-US Dollar.

Philippine Mining Index Due For Yearend Fireworks

The other area which is likely to benefit from rising Gold prices is none other than the mining issues (see figure 5).

Figure 5 stockcharts.com: Gold and Global Mining Stocks

As gold has reached a new milestone, the benchmark of global mining stocks continue to trail or lag.

Of course, not all mining companies are created equal. And that’s the reason why I chose the Dow Jones US Mining (DJUSMG) and S&P/TSX Global Mining Index (SPTGM) to compare with gold. The activities of the general mining issues should smooth out the activities of gold miners (lowest pane; DJAPRT Dow Jones-UBS Precious Metals Total Return Index[6])

Dow Jones US Mining represents select US based gold and coal stocks[7] while the S&P/TSX Global Mining Index[8] is a global bellwether of Aluminium, Diversified Metals, Gold and Precious Metals and Coal and Consumable fuels. Both indices, while lagging, appear to be advancing. If the past will reprise, then the component issues of both benchmarks are going to do alot of serious catching up. But again, the performances of coal, industrial metals and others haven’t matched the performance of gold miners. Yet if we are right and eventually inflation accelerates then all these will rise, but the degree of increases will likely be different.

How should these apply to the local mining index?

The Philippine mining index is essentially a gold mining index with about two-thirds of the index weightings based on gold miners. The balance is distributed between coal (Semirara about 14% of the index as of Friday’s close), industrial metals (NIHao Mineral Resources 3.2%, Geograce 3.4%, and Atlas Consolidated 9.43%-Atlas is most diversified since it has also gold and silver) and oil (Oriental Petroleum 3.13%).

Figure 6: Philippine Mining Index And GOX

This suggests that like Dow Jones US Mining, the local mining issues appear to be far underperforming both Global diversified mining (as shown above) and conspicuously the gold miners see figure 6. Year to date, the local mining index is down 17.54% even as the Dow Jones Mining is up 3.07%.

Meanwhile, another US gold miner index, the CBOE Gold Index (gold line) seems hardly correlated with our local index or with gold related mining issues within the index. The GOX is up 10.6% on year to date.

The chart above consists of the top 5 mining issues in terms of capitalization, particularly Philex (red line), Semirara (green), Lepanto (orange), Atlas (black) and Manila Mining (violet). Since Philex made a spectacular nearly fourfold rise late last year, the Philippine Mining appears to be more inclined to reflect on Philex’s movements, given that Philex has about 43% of the index market cap.

Nevertheless, while there is no clear relationship between the US GOX and local mines to the upside, they have almost been as one to the downside during the Lehman collapse in 2008.

However one interesting observation is that the gist of the runs of many mining issues seems to occur during the last semester of the year, in 2006-2007 and in 2009. Of course this excludes the shock of 2008.

Hence, it is my impression that given gold’s recent fresh highs, combined with other factors mentioned above, along with seasonal and rotational effects, my next bet is that the far oversold mining index is likely to make a dramatic encore by the yearend.

---

[1] See Inflation’s Sweet Spot Augur For A Gold Breakout And Global Equity Market Rally, February 28, 2008

[2] Hayek, Friedrich August Can We Still Avoid Inflation? The Austrian Theory of the Trade Cycle

[3] Bloomberg.com, World Index

[4] Wikipedia.org, European Financial Stability Facility (EFSF)

[5] See Buy The Peso And The Phisix On Prospects Of A Euro Rally

[6] iPathETNs, Dow Jones-UBS Precious Metals Total Return Index

[7] Wikinvest.com Dow Jones US Mining

[8] Standard And Poors, S&P/TSX Global Mining Index

Three More Reasons Why The Euro Rally Should Continue

``Inflation is not the result of a curse or a tragic fate but of a frivolous or perhaps even criminal policy.” -Ludwig Wilhelm Erhard

Lady Luck seems to smile at us, given that our forecasts of last week appear to have been serendipitously realized. The Euro surged by 2.4% over the week and risk assets turned materially positive, exactly as we spelled out[1].

But of course, we hardly ever talk about ONE week, we allude to near to medium term which may cover the outcome for the rest of the year. Perhaps the Euro may recover to the 1.30 to 1.32 level by the yearend?

There are three more reasons why the Euro should persist to rally and why risk asset markets are likely to gain momentum.

First of all, emerging markets continue to lead the way in terms of economic growth[2], whereby EM economies may do some heavy weightlifting to buttress developed economies.

And the cyclical broad based EM led global economic recovery, as a result of the expansive monetary policies and from globalization friendly policies, will likely expand global trade.

By cyclical recovery we allude to the bubble cycle.

Yet considering what mainstream calls as ‘global imbalances’, seen in many ways as ‘savings glut’, ‘dearth of investments’ or ‘Bretton Woods II’, instead we see this in terms of the Triffin Dilemma, where an international reserve currency, particularly the US dollar, would need to run large deficits in order to finance this burgeoning global trade from the cyclical recovery.

The Triffin Dilemma, according to Wikipedia[3], ``was first identified by Belgian-American economist Robert Triffin in the 1960s, who pointed out that the country issuing the global reserve currency must be willing to run large trade deficits in order to supply the world with enough of its currency, to fulfill world demand for foreign exchange reserves.”

``The use of a national currency as global reserve currency leads to a tension between national monetary policy and global monetary policy. This is reflected in fundamental imbalances in the balance of payments, specifically the current account: to maintain all desired goals, dollars must both overall flow out of the United States, but dollars must at the same time flow in to the United States. Currency inflows and outflows of equal magnitudes cannot both happen at once.”

This is one explanation mainstream can’t accept because it puts into the light or magnifies the inherent flaws of the current monetary standard, which the theory projects as unsustainable. Of course, homemade or national policies exacerbate such conditions.

But the point is, mainstream sees that the de facto currency reserve standard as an entitlement that must never be compromised, hence espouse theories even where water, in its natural state, can move upstream.

For instance, some see monetary policies will be engineered to promote exports.

Figure 7 BCA Research: Bearish On US Dollar

According to BCA Research[4], ``The U.S. also needs strong exports and an improving trade balance to add to GDP growth. Last week’s news on the U.S. trade front was not encouraging, with the deficit widening again in April. Furthermore, cyclical and structural factors are pointing to even wider trade and current account deficits ahead. In turn, with the unemployment rate still near 10%, U.S. policymakers are also unlikely to tolerate significant strength in the dollar and the consequent drag on growth.”

This outlook sees the application of monetary policies as a ‘one way street’ or where the policy actions of the other pair (or the other nation which is represented by the opposite currency) may not offset those of the US. This is pretty much one sided because monetary policies are not only relatively dynamic but also has relative impacts from perpetually evolving policy actions.

Secondly, the implication is that export growth can only be achieved by devaluation. Hence the kernel of this mercantilist leaning view is that every nation will try to out-export each other by competitive devaluation, or the race to devalue via inflationism which presumptively leads to prosperity.

Yet this outlook could lead to fatal results, as Ludwig von Mises warned[5], (bold emphasis added)

``they depend on the condition that only one country devalues while the other countries abstain from devaluing their own currencies. If the other countries devalue in the same proportion, no changes in foreign trade appear. If they devalue to a greater extent, all these transitory blessings, whatever they may be, favor them exclusively. A general acceptance of the principles of the flexible standard must therefore result in a race between the nations to outbid one another. At the end of this competition is the complete destruction of all nations' monetary systems.”

In other words, nations don’t trade people do. Yet people don’t trade to generate economic growth, people trade to have a need fulfilled and or to obtain profits. Nations only account for the cumulative actions of individuals. Hence inflationism isn’t an optimum way to meet such goals.

Besides, merchandise trade (exports and imports) for the US is only about one-fourth of the economy, such that the call to devalue in order to support the export industry, which is only 12% of the economy at the expense of the 88%, would seem absurd. Moreover, US unemployment from the 2008 crisis has been less related to the export industry as most of the job losses has emanated from the bubble areas (e.g. mortgage, construction etc...).

For me, the Triffin Dilemma has played the biggest role in shaping the underlying trend of the US dollar. And a global recovery translates to a weaker US dollar.

Next, the credit risks seem tilted towards US states than from the Eurozone economies (see figure 8)

Figure 8: The Economist: American states' finances are worse than those of some euro zone countries

According to the Economist[6], (bold emphasis mine)

``RECENT comparisons made between some American states' finances and those of Greece are exaggerated. But credit-default-swap (CDS) spreads, which measure investors’ expectations of default, are wider for some American states than for some of the euro zone’s other peripheral economies. On June 17th the cost of insuring Illinois’ bonds against default hit a record high, rising above that of California, America’s largest municipal borrower. Both considered riskier than Portugal’s debt. New York and Michigan are higher than Ireland’s. Like euro-zone members, American states may not declare bankruptcy and cannot be sued by creditors. And like many European governments, legislators are reluctant to impose the pain necessary to close budget deficits.”

As we pointed out last week, the downtrodden state of the Euro has emanated mostly from overly depressed sentiment. This has constrained demand for the Euro and has been more than the problem of relative structural issues, which seem to lean against the US. Thus, when finical sentiment shifts, structural issues will come into play.

Importantly as the Economist explains, fiscal discipline may not be stringently observed by both the affected parties in the Eurozone and in the US states. That’s because this may not be politically palatable for politicians. This serves as euphemism more inflationism.

Lastly, if the Euro is soon destined towards disintegration, as alleged by some, then she is probably looking towards the inclusion of more nations to join her death leap.

That’s because the Eurozone has enlisted Estonia as her newest member. Estonia will be the 17th country to carry the Euro by January 1, 2011.

Earlier we dealt with Estonia’s free market leaning approach even towards dealing with the recent crisis[7]. And perhaps such accomplishment has been recognized by the Euro bureaucracy.

According to the New York Times[8], ``Meeting in Brussels, Europe’s 27 governments hailed the “sound economic and financial policies” that had been achieved by Estonia in recent years. They said Estonia would shift from the kroon to the euro on Jan. 1, 2011.”

And unlike Greece who fudged their data to foist herself into the EU membership, Estonia seems more qualified.

Or perhaps could it be that Euro officials have been desperately looking for an agitprop to buttress their position? This from the same New York Times articles[9],

“The door to euro membership is not closed because we are going through a sovereign debt crisis,” said Amadeu Altafaj, a spokesman for Olli Rehn, Europe’s commissioner for economic and monetary affairs. “Estonia’s admission is a sign to other countries that our aim is to continue enlarging economic and monetary union through the euro.”

“Continue enlarging economic and monetary union through the euro” even when the Euro is in the death throes? Hmmm.

In my view, these three factors, specifically, growing global trade which should expand US trade deficits and amplify the effects of the Triffin dilemma, the credit risks slanted towards US states more than the EU and Estonia’s as the Euro’s newest member should all add up to boost the Euro vis-a-vis the US dollar.

Of course, a better bet in place of the Euro should be Asian currencies, including the Philippine Peso.

---

[1] See Buy The Peso And The Phisix On Prospects Of A Euro Rally

[2] See Another Reason Not To Bet On A 2010 'Double Dip Recession’

[3] Wikipedia.org, Triffin Dilemma

[4] BCA Research Currencies: Still Broad U.S. Dollar Bears

[5] Mises, Ludwig von The Objectives of Currency Devaluation, Human Action, Chapter 31 Section 4

[6] The Economist, Risky business, June 18, 2010

[7] See Estonia’s Free Market Model And The US 1920-1921 Depression

[8] New York Times, What Crisis? The Euro Zone Adds Estonia, June 17, 2010

[9] Ibid

Parenting To Be Remembered

The conventional view of parenting is that parents shape their children's lives. But this perception is misguided.

Professor Bryan Caplan argues why, (Wall Street Journal) [bold emphasis mine]

``Parents may feel like their pressure, encouragement, money and time are all that stands between their kids and failure. But decades' worth of twin and adoption research says the opposite: Parents have a lot more room to safely maneuver than they realize, because the long-run effects of parenting on children's outcomes are much smaller than they look.

``Think about everything parents want for their children. The traits most parents hope for show family resemblance: If you're healthy, smart, happy, educated, rich, righteous or appreciative, the same tends to be true for your parents, siblings and children. Of course, it's difficult to tell nature from nurture. To disentangle the two, researchers known as behavioral geneticists have focused on two kinds of families: those with twins, and those that adopt. If identical twins show a stronger resemblance than fraternal twins, the reason is probably nature. If adoptees show any resemblance to the families that raised them, the reason is probably nurture.

``Parents try to instill healthy habits that last a lifetime. But the two best behavioral genetic studies of life expectancy—one of 6,000 Danish twins born between 1870 and 1900, the other of 9,000 Swedish twins born between 1886 and 1925—found zero effect of upbringing. Twin studies of height, weight and even teeth reach similar conclusions. This doesn't mean that diet, exercise and tooth-brushing don't matter—just that parental pressure to eat right, exercise and brush your teeth after meals fails to win children's hearts and minds.

``Parents also strive to turn their children into smart and happy adults, but behavioral geneticists find little or no evidence that their effort pays off. In research including hundreds of twins who were raised apart, identical twins turn out to be much more alike in intelligence and happiness than fraternal twins, but twins raised together are barely more alike than twins raised apart. In fact, pioneering research by University of Minnesota psychologist David Lykken found that twins raised apart were more alike in happiness than twins raised together. Maybe it's just a fluke, but it suggests that growing up together inspires people to differentiate themselves; if he's the happy one, I'll be the malcontent.

``Parents use many tactics to influence their kids' schooling and future income. Some we admire: reading to kids, helping them with homework, praising hard work. Others we resent: fancy tutors, legacy admissions, nepotism. According to the research, however, these tactics barely work. Dartmouth economist Bruce Sacerdote studied about 1,200 families that adopted disadvantaged Korean children. The families spanned a broad range; they only needed incomes 25% above the poverty level to be eligible to adopt. Nevertheless, family income and neighborhood income had zero effect on adoptees' ultimate success in school and work."

This doesn't suggest that parents should leave or abandon their children to their own fate. Instead parents should just relax and take life in stride.

Professor Caplan writes,

`` Watching television, playing sports, eating vegetables, living in the right neighborhood: Your choices have little effect on your kids' development, so it's OK to relax. In fact, relaxing is better for the whole family."

This also means that parents should relieve themselves of what one might call self-imposed pressures of forcing their children to live a life designed according to their ideals, because the ultimate goal, is according to Professor Caplan, to be remembered, " The most meaningful fruit of parenting, however, is simply appreciation—the way your children perceive and remember you."

Happy Father's Day!

Another Reason Not To Bet On A 2010 'Double Dip Recession'

Here another reason why it does not seem worthwhile to bet on a double dip recession.

This from the Wall Street Journal Blog, (bold highlights mine)

``This year is likely to be among the last in which developed economies account for the largest share of global economic output, according to a report published Wednesday by the Organization for Economic Cooperation and Development.

``The Paris-based think tank said that in 2010, its 31 developed-country members will account for 51% of world economic output. But with the rapid growth of China, India and other developing economies, that share has narrowed from 60% in 2000 and the OECD predicts it will shrink further to 43% by 2030.

“The world’s center of gravity has moved towards the east and south,” the OECD said. “This realignment of the world economy is not a transitory phenomenon, but represents a structural change of historical significance.”

The OECD said that as a result of the entry of China, India, the former Soviet Union and others into the global market economy from the early 1990s, the number of nations converging with the wealth levels of developed economies has risen to 65 from 12.

The OECD defines a converging economy as one in which growth in output per person is double that of developed economies.

Another consequence of the shift in global economic growth is the sharp fall in the number of countries defined as poor, to 25 from 55.

The OECD said that while the initial spur to growth in developing economies came from their move away from central planning and state ownership, two additional factors have contributed to the shift in economic power.

The rapid expansion of China, India and other large developing economies boosted demand for many commodities, to the benefit of producers in Africa, Latin America and the Middle East.

And many converging economies became net creditors rather than net debtors, keeping U.S. and global interest rates low.

Some comments

-Clearly the 'converging economy' dynamic is mainly a function of globalization. Voluntary exchange or free trade isn't a zero sum game as mistakenly thought by the mainstream. That because the benefits are broad based or dispersed.

To quote Murray N. Rothbard,

``The process of exchange enables man to ascend from primitive isolation to civilization: it enormously widens his opportunities and the market for his wares; it enables him to invest in machines and other “high-order capital goods”; it forms a pattern of exchanges—the free market—which enables him to calculate economically the benefits and the costs of highly complex methods and aggregates of production."

-second, the additional two factors mentioned, particularly the expanded use of commodities and a shift to net creditor status, are consequences of and not causal variables to the converging economies. As cited above, wider trade enables for added investments (higher commodity demand) and capital accumulation (net creditors).

-lastly, given the backdrop of increasing globalization, there are many additional variables that contribute to the complexity of markets and economies. Bottom line: the narrow focus on one or two issues may prove to be inadequate in making a cogent analysis.

What The Distribution Of S&P 500 Sector Weightings Seem To Say

Bespoke has a nice depiction in the distribution of weightings among different sectors constituting the US S&P 500.

Bespoke writes,

``Technology is currently the biggest sector in the index at 18.9%, and it has been the biggest since it overtook the Financial sector early on in the financial crisis. There has been quite a bit of movement in sector weightings in recent years. At the bear market low in March 2009, the Financial sector made up just 8.9% of the index. It has charged back since then and has nearly doubled its weighting to 16.3%. Consumer Discretionary, Industrials, and Technology are the only other sectors that have increased their weightings during the current bull market. Health Care has really dropped off, going from 16.1% at the bear market low to its current level of 11.8%. Energy has also dropped quite a bit from 14.3% to 11%. There are now five sectors with weightings that are between 10.5% and 11.8%. Utilities, Materials, and Telecom continue to have very low weightings, and combined they still make up less than the 7th largest sector. The performance of any of these three sectors has a very minimal impact on the overall direction of the market." (bold emphasis added)

Some observations:

-The steady growth of the technology sector, and its apparent leadership today appears to reflect on the fast evolving US economy into the information age.

-The recent upsurge of the financial exhibits massive inflationism

-who says the US consumer is dead? Consumer discretionary outperformed the others, second only to financials based on the changes on March 2009 and the current

-the growth of in the industrials also suggest that the US economy is seeing some 'progress'

-at the current circumstance, there is a tight competition in 5 sectors: health care, consumer staples, energy, consumer discretionary and industrials, where I think energy has been underappreciated.

Thought Of The Day: The Fallacy of Deficit Spending

Here is Andrew Coyne on deficit spending:

``And even if you thought deficit spending was the answer to a problem of insufficient aggregate demand, it was hard to see what relevance it had to the credit crisis, which was primarily a problem of supply. As the economist John Cochrane, of the University of Chicago, has written, imagine if several major oil refineries blew up at the same time, leaving gasoline in short supply: “Stimulating people to drive around would not revive gas sales.” All it would do is drive up gas prices. Substitute banks for refineries, and the point becomes clear.

(bold highlights mine)

Has Slowing Philippine Exports Been Indicative Of Asia's Trend?

Rebecca Wilder of News N Economics exhibits concern over the slowing growth in Philippine exports as portentous of a slowdown for Asia.

She writes, (bold highlights mine)

``But the Chinese release overshadowed the Philippines April trade report, which in my view, illustrates more transparently the slowdown in external demand that is likely underway across the region. In the Philippines merchandise exports increased 27.4% over the year in April, which was half the rate of the Bloomberg consensus and that in March, 42.7% and 43.8%, respectively.

``A negative export growth trend has been established - explicitly in the Philippines and likely going forward in China (see Goldman Sachs report below). And these countries have strong trade ties with Europe - the Eurozone was 15% of 2009 world GDP (PPP value) according to the IMF.

``Therefore, recent nominal appreciation of the Philippine peso and Chinese yuan against the euro, and expected real appreciation - Europe's self-imposed economic contraction stemming from harsh fiscal austerity measures will drag prices downward - may very well hamper the economic recovery for key Asian economies via the export channel."

I see this dynamic from a distinct prism.

Looking at the broader picture, Philippine share of external trade has been slowing-- from 100% (2004) to about 60% (today) of GDP, according to the chart from Google/World Bank. Even China's external trade has been slowing.

Alternatively this means economic growth is becoming more domestic oriented.

Yet, this comes in the backdrop of an ascension of global trade.

Growing global trade amidst a slowdown in China's share suggest that the global share of the export pie is becoming more diffused, as more nations participate.

The implication: global economic growth isn't anchored on China, nor is it predicated on exports.

Moreover, there are many factors that drive economics more than just a simplistic currency-export-economic growth model.

The following is the export performance of the Philippines, China and the world (top window) as well as the Philippine Peso (bottom window).

What I want to show is that Philippine exports peaked in 2002-2004 even when the Peso continued to fall. The Peso reached a trough of 56.20+ to a US dollar in September of 2005. That's ONE year after. Yet Philippine exports haven't picked up.

So the Philippine case essentially invalidates the assumption that weak currency equals strong export growth.

And I think this applies also elsewhere, for the simple reason that export products and markets are not homogeneous, which implies diverse degree of price sensitivity. In the information age, we are increasingly witnessing niche (tribal) markets.

Let me further show that measuring Philippine exports is relative.

As the chart from NSO illustrates, it is a mirage to think that 40+% growth momentum will be sustainable. And falling off the high "growth" levels need not translate to alarm bells.

That's because in reality, markets don't move in a straight line.

Taking a look at the breakdown of products exported, they only show that the export growth has been "broad based" (from manufacturing to commodity)--premised on a year to year comparison. This further suggests that any slowdown may be temporary.

Therefore, interpretations of a pause as impending signs of doom seem unwarranted.

Looking from the Philippine perspective, this implies that if micro developments refutes the macro interpretation, then the latter is likely an inaccurate assessment.