In Greece, Sales of Select Expired Goods Now Legal

In Greece, food shortages signified by food price escalation has prompted authorities to allow the sale of select “expired” foods.

From Voz Populi (translated via Google, hat tip zero hedge)

Greece will allow the sale of expired food at a price lower than the original, in a move that the government has not been able to justify but consumer groups have interpreted as evidence of their inability to stop the escalating cost of commodities. A ministerial decree just reviving an old regulation that authorizes supermarkets and grocery stores to sell food once the expiration date, Efe reported. "This regulation has existed for many years. And it is something that is allowed in the rest Europe. All I did was point out that these products must be sold at low prices. do not understand what is causing so much noise, "said Yorgos Moraitakis Efe, advisor to the Ministry of Development, Competition and Merchant Marine. The regulations exclude meat and dairy from the list of perishables that can be sold and sets a ceiling dates you can continue marketing.Thus, foods in which the expiration date is indicated by the day and the month, may continue on the shelf for another week. In the event that the "best before" only month and year point, the sale may be extended for one month, and in the event that the date indicated year alone, the sale date may be extended by one quarter.Though Moraitakis Efe declined to specify the reasons for this decision and merely noted that the legislation already existed, consumer groups and even government agencies have criticized the measure. "Virtually admit their inability to control prices," Efe reported Tsiafutis Victor Consumers Association 'Quality of Life', one of the oldest in Greece. 

Food Inflation 

In the Greece of the crisis, the wage and pension cuts and rising unemployment, food prices and commodities has not stopped rising.Between August 2011 and August 2012, the price of sugar shot up 15%, the eggs, 6.8% for butter by 3.2% and that of coffee, 5.9%, according to data from the Statistics Authority. "It is an immoral act," criticized Tsiafutis. "Instead of taking initiatives to control prices, allow the sale of food past the expiration date." Moreover, from the National Food Agency gets even concerned that the measure serves to something. "It is doubtful that these foods are to be sold at low prices, because the price control mechanisms have failed," said Yannis Mijas, president of this organization linked to the government. Indeed, the measure of how much states must be the initial price reduction, which is at the discretion of the merchant.To Mijas, selling expired food is also a moral dilemma, to divide consumers into two groups: those who can afford basic food and those who, because of poverty, "are forced to resort to dubious quality food."

Two observations from the above,

One, current events in Greece shows not of deflation but of stagflation.

Two, the result of inflationism has been bring about lower quality and or a deflation in value of goods and services that puts the consumers to higher risks. The above is an example of one of the immoral outcomes of inflationism

Chart of the Day: Global Warming Stopped 16 Years Ago

From the Daily Mail (hat tip Bob Wenzel)

The world stopped getting warmer almost 16 years ago, according to new data released last week.

The figures, which have triggered debate among climate scientists, reveal that from the beginning of 1997 until August 2012, there was no discernible rise in aggregate global temperatures.

This means that the ‘plateau’ or ‘pause’ in global warming has now lasted for about the same time as the previous period when temperatures rose, 1980 to 1996. Before that, temperatures had been stable or declining for about 40 years.

Exodus in Spain: More Foreign and Local Residents Emigrate

Early this year, I posted about the coming European diaspora. Current events seem to confirm on such trends as Spain continues to suffer from an exodus of foreign and local residents.

From ABC.es 

In the first nine months of the year have left Spain 420 150 people, of which 365,238 were foreigners and 54,912 Spanish, 37,539 more than in the same period in 2011, primarily for the Spanish emigration. 

Nationals who have left Spain increased by 21.6 per cent from the 45,161 who were between January and September 2011 to 54,912 this year, according to current population estimates published on Monday that the INE. The net migration-the difference between people coming and going, which was less than 137,628 people, of which 25 539 112 089 Spanish and foreign-and for the first time has been negative for the Spanish in all the Autonomous Communities.

As previously pointed out such dynamics are cumulative symptoms of the manifold policy failures in providing economic opportunities from the rampant interventionism by European governments such as Spain.

Graphic of the Day: When History Repeats….

This striking chart demonstrates why there have been patterns of similarities in history…

Writes Simon Black at the Sovereign Man (bold mine)

But it’s not just debt burdens that are problematic. ‘Rich’ countries in the West are also rapidly debasing their currencies, spawning tomes of regulatory impediments, restricting the freedoms of their citizens, aggressively expanding the powers of the state, and engaging in absurd military folly from Libya to the South China Sea.

Once again, this is not the first time history has seen such conditions. In our own lifetimes, we’ve seen the collapse of the Soviet Empire, the tragi-comical hyperinflation in Zimbabwe, and the unraveling of Argentina’s millennial crisis. Plus we can study what happened when empires from the past collapsed.

The conditions are nearly identical. Is our civilization so different that we are immune to the consequences?

Probably not. And the cycle that has befallen so many great powers before us– decline, collapse, turmoil, and reset– will likely happen in our time too.

But it’s not the end of the world. Not by a long shot.  It’s a complete reshuffling of the deck. A brand new game with brand new rules. And the old way of doing things (like printing money backed by nothing) will be resigned to history’s waste bin.

One of the things that we see frequently in history is that this transition occurs gradually, then very rapidly.

Think about the Soviet Union, which you may recall. One day, they were the greatest threat to the planet. The next day, the wall came down. It happened so quickly. It’s like what Hemingway said about bankruptcy– it happens slowly at first, then all at once.

Unfortunately we don’t know where we are along this path. And we won’t know until we’re over the cliff on the way down. Everything will feel normal until then.

The repetition of crises had been the outcome of the short term obsession of attaining political goals mostly through economic and political repression.

Thus it is equally nonsense to assert debt by itself creates all these troubles.

For instance this self-contradictory claim by populist analyst John Mauldin…

As an aside, it makes no difference how the debt was accumulated. The black holes of debt in Greece and in Argentina had completely different origins from those of Spain or Sweden or Canada (the latter two in the early '90s). The Spanish problem did not originate because of too much government spending; it developed because of a housing bubble of epic proportions. 17% of the working population was employed in the housing industry when it collapsed.

…who earlier admits that

Debt (leverage) can be a very good thing when used properly.

The reality is that debt can be distinguished through productive and consumptive activities where debts from consumption (welfare, government spending) and malinvestments (for instance convergence of interest rates and moral hazard from policies in the euro which brought about a bubble) have all been a result of interventionism or emanates from political policies that leads to business cycles or bubbles.

In a paper submitted to the classical liberal organization, the Mont Pelerin Society, which recently held a meeting in Prague, Terry College of Business University economics professor George Selgin gives a terse but insightful dynamic of the Euro crisis, (bold mine) 

Philip Bagus (2012) explains the particular course by which Greece was able to take the European Monetary Union hostage. Banks throughout the Eurozone, he says, bought Greek bonds in part because they knew that either the ECB or other Eurozone central banks would accept the collateral for loans. Thus a Greek default threatened, first, to do severe damage to Europe’s commercial banks, and then to damage the ECB insofar as it found itself holding Greek bonds taken as collateral for loans to troubled European banks.

In short, in a monetary union sovereign governments, like certain banks in single-nation central banking arrangements, can make themselves “too big to fail,” or rather “too big to default.” As Pedro Schwartz (2004, p. 136-9) noted some years before the Greek crisis: “[I]t is clear that the EU will not let any member state go bankrupt. The market therefore is sure that rogue states will be baled [sic] out, and so are the rogue states themselves. This moral hazard would increase the risk margin on a member state’s public debt and if pushed too could lead to an Argentinian sort of disaster.

Indeed, the moral hazard problem as it confronts a monetary union is all the worse precisely because sovereign governments, unlike commercial banks, can default without failing, that is, without ceasing to be going concerns. This ability makes their ransom demands all the more effective, by making the implied threats more credible. A commercial bank that tries to threaten a national central bank using the prospect of its own failure is like a suicide bomber, whereas a nation that tries to threaten a monetary union is more like a conventional kidnapper, who threatens to harm his innocent victim rather than himself.

Next, it is not debt alone, but rather attempts at the preservation of the status quo which has been founded on unsustainable political-economic premises through political and financial repression which makes conditions all the worst.

This means that the popularity of absolving culpability of those responsible for them, the “inattentiveness” to genuine conditions and or the cognitive fallacy of selective perception out of political bias or economic ideology signifies as principal reasons of the recurrence of patterns in history. 

This block excerpt from philosopher George Santayana gives as some useful lessons; from REASON IN COMMON SENSE Volume 1) [bold mine]

Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement: and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it. 

In the first stage of life the mind is frivolous and easily distracted; it misses progress by failing in consecutiveness and persistence. This is the condition of children and barbarians, in whom instinct has learned nothing from experience. In a second stage men are docile to events, plastic to new habits and suggestions, yet able to graft them on original instincts, which they thus bring to fuller satisfaction. This is the plane of manhood and true progress. Last comes a stage when retentiveness is exhausted and all that happens is at once forgotten; a vain, because unpractical, repetition of the past takes the place of plasticity and fertile readaptation. In a moving world readaptation is the price of longevity. The hard shell, far from protecting the vital principle, condemns it to die down slowly and be gradually chilled; immortality in such a case must have been secured earlier, by giving birth to a generation plastic to the contemporary world and able to retain its lessons. Thus old age is as forgetful as youth, and more incorrigible; it displays the same inattentiveness to conditions; its memory becomes self-repeating and degenerates into an instinctive reaction, like a bird's chirp.

Quote of the Day: Currency Devaluation is a Subsidy to Cronies

currency devaluation is merely a transfer of wealth from all of a nation's citizens to politically favored industries, usually export industries. It is no different from giving a subsidy to any domestic producer. The subsidy is paid by all the citizens of the subsidizing country, not by the foreigners who buy the subsidized good. They get a bargain. 

Furthermore, devaluation does not make a nation more competitive. It does nothing to spur increased domestic saving or external capital investment, which lead to the increased application of capital per capita, the only sources of increased worker productivity and the only sources of increased real wages. Devaluation does not reveal the onerous, wealth-destroying effect of economic regulation, not does it reveal the true costs of the welfare state, which relies on high taxes to fund present consumption at the expense of future prosperity. What the state spends cannot be saved and invested, no matter how cheap the currency. 

This is from Patrick Barron at the Mises Institute who talks about bad economic prescriptions, by a recently awarded expert, on the European crisis. 

It is important to point out that even the major proponents or advocates of inflationism-devaluation recognize the baneful effects from such policies. 

The inflationist advocacy represents more about heuristics and oversimpflication of reality which has been masked as pretentious economic analysis (through the fixation to aggregate based statistical models). 

Nonetheless, the mainstream who subscribe to such snake oil nostrums have  been blinded or brainwashed by political ideology (where they see social solutions as only coming from the "moral authority" of government through the quackery of pseudo-science models) or have been duped by the propaganda or machinations from vested interest groups or wishes to attain social desirability through conformity with popular "feel good" talking points, or have been afflicted by sheer ignorance.

It takes sheer common sense and real world observations to debunk such fallacies, which ironically, in the world of politics have been uncommon.

Has the Atomic Bombing of Hiroshima and Nagasaki been about the Cold War?

In the US, many political insiders opposed the gruesome atomic bombing Nagasaki and Hiroshima in 1945, which slaughtered civilians conservatively estimated at 75,000 and 150,000 respectively, saw the bombing as unnecessary.

The Washington Blog enumerates them and further reveals of the real reason why this tragic event occurred: as psychological deterrent to the Soviet Union (hat tip Lew Rockwell.com) 

From the Washington’s Blog (all bold original)

History.com notes:

In the years since the two atomic bombs were dropped on Japan, a number of historians have suggested that the weapons had a two-pronged objective …. It has been suggested that the second objective was to demonstrate the new weapon of mass destruction to the Soviet Union. By August 1945, relations between the Soviet Union and the United States had deteriorated badly. The Potsdam Conference between U.S. President Harry S. Truman, Russian leader Joseph Stalin, and Winston Churchill (before being replaced by Clement Attlee) ended just four days before the bombing of Hiroshima. The meeting was marked by recriminations and suspicion between the Americans and Soviets. Russian armies were occupying most of Eastern Europe. Truman and many of his advisers hoped that the U.S. atomic monopoly might offer diplomatic leverage with the Soviets. In this fashion, the dropping of the atomic bomb on Japan can be seen as the first shot of the Cold War.

New Scientist reported in 2005:

The US decision to drop atomic bombs on Hiroshima and Nagasaki in 1945 was meant to kick-start the Cold War rather than end the Second World War, according to two nuclear historians who say they have new evidence backing the controversial theory.

Causing a fission reaction in several kilograms of uranium and plutonium and killing over 200,000 people 60 years ago was done more to impress the Soviet Union than to cow Japan, they say. And the US President who took the decision, Harry Truman, was culpable, they add.

“He knew he was beginning the process of annihilation of the species,” says Peter Kuznick, director of the Nuclear Studies Institute at American University in Washington DC, US. “It was not just a war crime; it was a crime against humanity.”

***

[The conventional explanation of using the bombs to end the war and save lives] is disputed by Kuznick and Mark Selden, a historian from Cornell University in Ithaca, New York, US.

***

New studies of the US, Japanese and Soviet diplomatic archives suggest that Truman’s main motive was to limit Soviet expansion in Asia, Kuznick claims. Japan surrendered because the Soviet Union began an invasion a few days after the Hiroshima bombing, not because of the atomic bombs themselves, he says.

According to an account by Walter Brown, assistant to then-US secretary of state James Byrnes, Truman agreed at a meeting three days before the bomb was dropped on Hiroshima that Japan was “looking for peace”. Truman was told by his army generals, Douglas Macarthur and Dwight Eisenhower, and his naval chief of staff, William Leahy, that there was no military need to use the bomb.

“Impressing Russia was more important than ending the war in Japan,” says Selden.

John Pilger points out:

The US secretary of war, Henry Stimson, told President Truman he was “fearful” that the US air force would have Japan so “bombed out” that the new weapon would not be able “to show its strength”. He later admitted that “no effort was made, and none was seriously considered, to achieve surrender merely in order not to have to use the bomb”. His foreign policy colleagues were eager “to browbeat the Russians with the bomb held rather ostentatiously on our hip”. General Leslie Groves, director of the Manhattan Project that made the bomb, testified: “There was never any illusion on my part that Russia was our enemy, and that the project was conducted on that basis.” The day after Hiroshima was obliterated, President Truman voiced his satisfaction with the “overwhelming success” of “the experiment”.

We’ll give the last word to University of Maryland professor of political economy – and former Legislative Director in the U.S. House of Representatives and the U.S. Senate, and Special Assistant in the Department of State – Gar Alperovitz:

Though most Americans are unaware of the fact, increasing numbers of historians now recognize the United States did not need to use the atomic bomb to end the war against Japan in 1945. Moreover, this essential judgment was expressed by the vast majority of top American military leaders in all three services in the years after the war ended: Army, Navy and Army Air Force. Nor was this the judgment of “liberals,” as is sometimes thought today. In fact, leading conservatives were far more outspoken in challenging the decision as unjustified and immoral than American liberals in the years following World War II.

***

Instead [of allowing other options to end the war, such as letting the Soviets attack Japan with ground forces], the United States rushed to use two atomic bombs at almost exactly the time that an August 8 Soviet attack had originally been scheduled: Hiroshima on August 6 and Nagasaki on August 9. The timing itself has obviously raised questions among many historians. The available evidence, though not conclusive, strongly suggests that the atomic bombs may well have been used in part because American leaders “preferred”—as Pulitzer Prize–winning historian Martin Sherwin has put it—to end the war with the bombs rather than the Soviet attack. Impressing the Soviets during the early diplomatic sparring that ultimately became the Cold War also appears likely to have been a significant factor.

***

The most illuminating perspective, however, comes from top World War II American military leaders. The conventional wisdom that the atomic bomb saved a million lives is so widespread that … most Americans haven’t paused to ponder something rather striking to anyone seriously concerned with the issue: Not only did most top U.S. military leaders think the bombings were unnecessary and unjustified, many were morally offended by what they regarded as the unnecessary destruction of Japanese cities and what were essentially noncombat populations. Moreover, they spoke about it quite openly and publicly.

***

Shortly before his death General George C. Marshall quietly defended the decision, but for the most part he is on record as repeatedly saying that it was not a military decision, but rather a political one.

Let me add this paper from Stanford University authored by Gene Hu 

There is considerable evidence that the American perspective on the Soviet Union and the diplomacy that occurred between the U.S. and the Soviet Union prior to these powers entering into a full-blown Cold War, was influenced by the advantage the Americans had because they had developed nuclear weapons technology. The development of such technology moreover, was dramatically and conclusively demonstrated when Truman dropped the bomb on Hiroshima, then Nagasaki. There was no doubt in the world’s mind that the technology was real and that whoever controlled it, wielded an incredible power. One is tempted to conclude that while the bombing of Hiroshima possibly ended the war with Japan in ways that may have spared both sides lives, it also conveniently served to inform the world of the Americans’ superior military might.

History is written by the victors.

Whether these bombings were due to “insistence on unconditional surrender that was the root of all evil” (Philosopher GEM Anscombe per historian Ralph Raico) or as political psy-war meant as deterrent against the fast expanding forces of the Soviet Union, the barbarism from the use of weapons of mass destruction makes those whom unleashed it war criminals.

To quote historian Ralph Raico 

The destruction of Hiroshima and Nagasaki was a war crime worse than any that Japanese generals were executed for in Tokyo and Manila. If Harry Truman was not a war criminal, then no one ever was.

Quote of the Day: The Folly of Institutional Worship

The individual is king, and all these other things exist for the service of the king. It is a mere superstition to worship any institution, as an institution, and not to judge it by its effects upon the character and the interests of men. It is here that socialist and Catholic make the same grand mistake. They exalt the organization, which is in truth as mere dust under our feet; they debase the man, for whose sake the organization and all other earthly things exist. They posit a priori the claims of the external organization as supreme and transcending all profit and loss account, and they call upon men to sacrifice a large part of their higher nature for the sake of this organization. They both of them sacrifice man, the king, to the mere dead instrument that exists for man’s service.

(bold mine)

This excerpt is from writer, theorist, and 19th century individualist Auberon Edward Herbert in a splendid rejoinder against socialist J. A. Hobson in 1899. (libertarianism.org)

Cartoon of the Day: The Johari Window of Barack Obama

 

hat tip Lew Rockwell Blog

Phisix: Bullmarket Reprieve Represents Profit Opportunities

Life in general has never been even close to fair, so the pretense that the government can make it fair is a valuable and inexhaustible asset to politicians who want to expand government.-Thomas Sowell

Since I look at the world events from the big picture perspective, I hardly change on my views unless some random events (for me) should radically alter the embedded trends.

Following the FED-ECB announcements to support asset prices, I hold on to the premise that these actions combined with domestic interest rates are likely to feed through asset prices especially for ASEAN-Phisix markets

As I wrote last week[1],

artificially suppressed interest rates that have brought about a domestic negative real rates regime, as well as, foreign capital flow movements influenced by external credit easing policies (negative real rates and Quantitative Easing), are likely to further inflate bubble dynamics in the country and in the region, far more than their developed economy and BRIC counterparts.

Yet such credit driven boom will be interpreted by the mainstream as “economic growth” when in reality they represent a bubble cycle or systemic misallocation of capital in progression.

One must be reminded that bubbles come in stages. So far the Philippines seem to be at a benign phase of the bubble cycle.

Again bubbles will principally be manifested on capital intensive sectors (like real estate, mining, manufacturing) and possibly, but not necessarily, through the stock markets.

This means that for as long as the US does not fall into a recession or a crisis, ASEAN outperformance, fueled by a banking credit boom and foreign fund flows operating on a carry trade dynamic or interest rate and currency arbitrages (capital flight I might add), should be expected to continue.

And again I will maintain that ASEAN’s record breaking streak may be sustained at least until the end of the year 2012.

Yet such streak will strictly be conditional to the political-economic developments abroad, as well as, on the monetary engagements by major central banks.

It is important to point out that given the fragility of the current external environments shocks, which may be viewed as a random or “black swan” event, should not be discounted.

Nevertheless global markets as indicated by major benchmarks mostly retrenched this week.

The current pullback (dark maroon bars) essentially represents reversals from last week’s material gains (light maroon bars). This is particularly true for ASEAN markets, India, Russia, France and the US.

So far, this suggests of an environment marked by trading range or a consolidation period.

For the Phisix, the current retreat off the recent record highs should be seen as countercyclical correction phase which normally follows a landmark upside breakout. This should be used as an opportunity to position or accumulate depending on the industry.

From a technical support-resistance perspective, the correction phase brings back the Phisix to the former resistance level (about 5,365), currently the minor support level.

Should the profit taking stage continue, then the 5,175-level can be seen as the next stop or the next support level.

Although my guess is that this bullmarket reprieve is likely to be short and narrow

Rotational and Seasonal Forces at Work

I may further that a rotation process typifies this week’s sectoral performance.

The mining index, which has lagged the broader market last week (light violent) and for the rest of the year, has considerably outperformed this week (dark violent).

Rotating leadership has been the crux of the inflationary boom in the Phisix.

As I pointed out last week, I expect 2013 to be the year where the mining index would regain their leadership. The alternating annual leadership since 2007, not only accounts for the normative rotational process, but also of the truism of “no trend moves in a straight line”, and or, the reversion to the mean.

I would add that seasonal factors could also be a factor in play.

The September-October window has been notorious for major stock market crashes[2].

But given that the US Federal Reserve and the European Central Bank’s recent announcement of “unlimited” buying of bonds (estimated at $2 trillion or more), particularly aimed at providing support to financial assets, the likelihood of a nearby crash seems vastly reduced.

Again as pointed out last week, instead what we may be seeing could be the “buy the rumor, sell on news” dynamic. The massive build up of expectations from central bank steroids priced in a boom. The realization brought about by these central banker’s moves to reflate the system may have triggered some profit taking activities.

So “sell on news” could have been compounded by seasonal weakness[3]. This perhaps could be due to back to school expenditures in the US, and for the Philippines, second semester[4].

Yet as October culminates, we should expect an acceleration of the price recovery of the Phisix and ASEAN bellwethers which will likely come in the backdrop of the ECB’s active engagement of asset purchases. This should emanate from the activation or institution of the permanent bailout fund, the European Stability Mechanism[5].

Parallel Universe: Markets and Economic Reality Diverge

Lingering global economic weakness could be a factor too.

However, this seems likely a subordinate force. That’s because massive interventions in the marketplace have spawned a parallel universe—where prices of financial assets have departed from economic reality.

Proof?

The Phisix continues to break into new highs even as a sharp fall in Philippine exports last August will likely to weigh down on statistical economic growth and on earnings of export based publicly listed companies.

Contra mainstream expectations, whom have mostly been entranced by political illusions, the decline in exports validates my prognosis last July[6]. 

Yet no amount of downward revisions of company earnings[7] has put to halt to the year-to-date advances of US equity benchmarks specifically, the Dow Industrials 9.1%, the S&P 500 13.6% and the Nasdaq 16.85% in spite of this week’s substantial 2%+ of losses for each of them.

Similarly no amount of downward revisions[8] has been an obstacle to substantial year-to-date gains of over 10% for industrialized economies of ex-Japan Asia; Singapore, Hong Kong, Australia and New Zealand, except for Taiwan and Korea whom are up by 5%+. For emerging Asia the story has been the same, Thailand, Philippines, India, Vietnam and Indonesia has been on fire with 10-20% gains except for Malaysia (8%+).

This serve as more proof that in a world of fiat money, corporate earnings have hardly been a major factor in determining the price direction of equity markets.

Now that the FED-ECB has thrown the gauntlet for significantly more interventions, mainstream analysts have begun to bloviate about a “recovery” in earnings, i.e. to justify even higher prices.

If downside revisions hardly influenced stock prices to reflect on its “actual” state, the same analysts have now suggesting that “improvements” in earnings will extrapolate to higher stocks. It’s a bizarre twist of logic.

The Asian outperformance has been bruited as sporting a low beta relative to the US S&P and Euro Stoxx[9] which seem to imply of “decoupling”.

This placid state of relative low beta has accounted for the non-recessionary environment for the US. The notion of decoupling in a deeply interconnected world and financial markets resonates Sir John Templeton’s four most dangerous words in investing, “This time is different”[10]

As the Asian Development Bank warns[11],

Yet, the Lehman shock in 2008 and the ongoing eurozone debt crisis have tested the resilience of these markets, and the threat of financial contagion is real. A closer analysis shows that shock and volatility spillovers from both crises to Asian markets are quite significant.

Finally the main empirical evidence on why ASEAN has been relatively outperforming the rest of Asia…

…can be seen from ASEAN’s credit growth[12], where ASEAN has surpassed the region’s industrialized and major emerging market counterparts.

As I have repeatedly been pointing out, these have been the outcome of lesser fiscal baggage, which brings about more traction on the negative real rates imposed by their respective central banks, and from the steep yield curve, which induces the banking system to issue more credit to take advantage of the spread.

All these constitutes as main ingredients to a credit bubble.

The Progressing Inflationary Boom, Political Feel Good But Cruel Intentions

Internal market indicators remain buoyant

Despite this week’s retrenchment in major Phisix weighted issues, broadbased sentiment have been perking up behind the scenes.

The weekly averaged daily trades have been rebounding. This means either that there have been more market participants or that current participants have been trading or churning their accounts more frequently. To do so suggests of confidence in the marketplace.

The rebound in daily trades has equally been confirmed by a bounce in the average number of issues traded daily.

Confidence has also been diffusing to the extent where market participants have been dabbling with third tier issues.

And considering the lack of liquidity, third tier issues tend to generate outsized returns that often magnetize people afflicted with the gambler’s tick.

The supercilious idea by certain bureaucrats that some speculators have formed into syndicates of “trading gangs”[13] to take advantage of others through manipulation of the markets via social media misses the point entirely: Inflationary booms electrify the gambler’s adrenalin or the speculator’s dopamine[14].

Both charts above reveals of the broad based yield chasing phenomenon brought about by negative real rates regime.

Since incentives drives people’s actions, the incentive to punt or to wager has been prompted for by the desire to eke out returns on an environment imposed upon the unwitting public of policies that penalizes savings and rewards irresponsibility and fecklessness.

The narrowing people’s time preferences only encourage wanton wagering.

In reality people’s response to incentives from government’s  manipulation of the marketplace signify as symptoms of the bubble or business cycle in motion.

Read my lips: Don’t mistake effects as the cause; it is government policies that incentivize on most of such malfeasance.

Yet people don’t realize that at the peak of a mania, imprudence becomes the norm. (see above diagrams)

As late economist Lionel Robbins wrote[15],

And if they do not last — and you can see that once people have been seized with the speculative mania it would take a continuously increasing inflation to keep them going — if these conditions do not last, then these mistakes are revealed.

The fact that authorities cannot see these manifests of their cluelessness or of their dishonesty by attempting to pass the blame onto the marketplace what truly has been a policy design, i.e. To promote aggregate demand through consumption and speculation via inflationary “euthanasia of the rentier” policies.

Let me add that if local authorities can’t seem to see this, ironically the IMF has[16]

“It is a concern,” said Laura Kodres, an assistant director in the IMF’s monetary and capital markets department, told reporters in Washington today. “The low interest rates environment has a lot of other effects besides lowering interest rates to consumers.”

“Widespread evidence suggests that a prolonged period of low short-term interest rates encourages excessive risk taking” by financial institutions, the IMF wrote in a chapter of its Global Financial Stability report released today.

If financial professionals are gullible enough to fall into the low interest rate trap, then how much more the retail investors?

Yet pretentious attempts to control prices from supposed unwieldy behavior by the markets through feel good sounding regulations represents as the alter ego of inflation.

As the great Ludwig von Mises warned[17],

The second mischief is that those engaged in futile and hopeless attempts to fight the inevitable consequences of inflation — the rise in prices — are masquerading their endeavors as a fight against inflation. While fighting the symptoms, they pretend to fight the root causes of the evil. And because they do not comprehend the causal relation between the increase in money in circulation and credit expansion on the one hand and the rise in prices on the other, they practically make things worse.

This week’s substantial retreat by the Phisix has hardly accounted for as a broad market decline. This only solidifies the theory of rotation or relative pricing from an inflationary boom as evident in the stock market.

Many took profits from outperforming Phisix issues and shifted to the mining industry and to other third tier issues.

Nevertheless these signify as signs that market participants still desire to remain engaged with the stock market.

Amidst QE: The Mighty Peso and Prospective Foreign Fund Flows 

Finally it has been clear that local investors have been instrumental in providing most of the support on the domestic market so far.

Typically, foreign funds accounts for about 40-45%

This matches the fund flows monitored by the IMF where foreign fund flows to emerging market bonds and to equities have remained modest through most of 2012.

This dynamic I expect to change soon.

A simple clue can be seen below

I have argued that domestic financial repression policies by developed economies will eventually prompt for more dramatic yield chasing dynamic or euphemism for capital flight on a global scale.

While all central banks have been engaged in either printing money or adding digital entries to their balance sheets, the difference is on the degree.

The highly impressive strength by the Philippine Peso exhibits this seminal phenomenon.

The Peso has been rising against the European euro, the Japanese yen, the British pound and even the Chinese Yuan. I purposely excluded the US dollar since everyone has been fixated on this, as well as, the Swiss franc which has been anchored to the euro. Nevertheless, the mainstream will be surprised to realize that the Peso has been outperforming currencies of major economies; no not because of grandeur accomplishments by political leaders but as consequence mostly from the war on interest rates from monetary actions

I believe that the Japan may spearhead that capital flight to ASEAN[18] 

Considering that the valuations of currencies have to take into account principally the demand and supply as per the great Professor von Mises’ advise [19],

The valuation of a monetary unit depends not on the wealth of a country, but rather on the relationship between the quantity of, and demand for, money. Thus, even the richest country can have a bad currency and the poorest country a good one.

The supply of money remains relatively in favor of the Peso. That’s because the Bangko Sentral ng Piliipinas, or the BSP, does much less in balance sheet expansion than her peers. Oh yes you can ignore or take the verbal waffling or twaddle about the BSP refusing to print money with a grain of salt, unless they obscure or change the definition of money creation. In reality they have been doing as their peers[20].

On the demand side, the underlying and largely ignored credit boom has been painting the Philippines and the ASEAN peers as providing the economic “growth” premium.

Bottom line: Despite the current fragility from global economic anxieties, I expect financial repression in developed economies to funnel significant amount of money into ASEAN region and into the Philippines.

For now, unless stagflation becomes a clear and present danger, expect the Phisix and ASEAN markets to reach new highs until at least the year end, provided no external shocks emerge.

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[1] see Phisix-ASEAN Bellwethers at Fresh Record Highs October 8, 2012

[2] Wikipedia.org List of stock market crashes and bear markets

[3] Business Insider September Is The Worst Month For Stocks — But Do You Realize HOW Bad It Really Is? September 3, 2012

[4] See Austrian Business Cycle and September Market Crashes June 27, 2012

[5] See Europe’s ESM Activated, Expect ECB to Rev Up on the Printing Press October 9, 2012

[6] See I Told You So Moment: Philippine Exports Hit in August, October 12, 2012

[7] Ed Yardeni S&P 500 Revenues & Earnings October 9, 2012

[8] DBS Group Research Economics Markets Strategy 4^th Quarter September 13, 2012

[9] DBS Research ibid

[10] Parkman Bob Consider these 'words of wisdom' about investing SirJohnTempleton.org September 20, 2006

[11] Asian Development Bank ASIA BOND MONITOR SEPTEMBER 2012 ADBOnline.adb.org

[12] IMF Regional Economic Outlook Asia and Pacific Regional Economic Outlook––October 2012 Update, October 11, 2012

[13] See The Philippine SEC’s Phantasm of “Trading Gangs” October 14, 2012

[14] See The Magic of Central Banking Talk Therapy July 28, 2012

[15] Lionel Robbins The Twofold Roots of the Great Depression: Inflationism and Intervention, October 1, 2010, Mises.org

[16] Bloomberg.com Low Interest Rates May Lead to Risky Behavior, IMF Says September 28, 2012

[17] Ludwig von Mises Inflation and Price Control May 27, 2005

[18] See Will Japan’s Investments Drive the Phisix to the 10,000 levels?, March 19, 2012

[19] Ludwig von Mises STABILIZATION OF THE MONETARY UNIT—FROM THE VIEWPOINT OF THEORY (1923) THE CAUSES OF THE ECONOMIC CRISIS p.18 Mises.org

[20] See How True is it that the BSP Refuses to Print Money? October 9, 2012