ResourceInvestor.com: The Time Is Now - Philippines Ready for Mining Resurgence

A treatise on our local mining industry by a foreign entity www.resourceinvestor.com (registration required). Need I say more?

The Time Is Now - Philippines Ready for Mining Resurgence
By Stephen Clayson

21 Jun 2005 at 08:00 AM EDT

LONDON (ResourceInvestor.com) -- Senior government figures from the Philippines have been addressing the European investment community in order to sell the highly mineralised archipelago as once more a viable destination for mining investment, thereby bringing to a close a recent period of animus towards the industry.

In an impassioned oration to manqué London investors, the honourable Jose de Venecia, Speaker of the Congress of the Philippines, reaffirmed his personal commitment to the further liberalization of foreign investment in developing the mineral wealth of the Philippine archipelago.

In the face of significant opposition, the Speaker has been instrumental in creating the legal framework within which foreign miners are now able to effectively control 100% of a project within the Philippines, with the proviso that the investment value of that project is greater than $50 million. However, the Speaker intends to attempt to extend the applicability of this status to projects of below this value. Under current regulations, projects of under $50m investment value must be at least 60% held by Filipino partners.

The process of reopening the Philippines to foreign investment in mineral development began with the Mining Act of 1995, but this legislation was then assailed by a legal challenge to its constitutionality. The constitutionality of this act was finally upheld by the Supreme Court of the Philippines late last year, as was the right of foreign miners to enter into Financial or Technical Assistance Agreements (FTAA) with the government in order to exploit mineral resources within the country.

It is under an FTAA that foreign firms can control 100% of a mining project requiring upwards of $50m of investment, though strictly speaking ownership of resources remains that of the Filipino government. Benjamin Phillip Romualdez, President of both the Philippine and ASEAN Chambers of Mines and also President of Benguet Corporation, the largest Philippine mining company, sees this as a mere technicality, and asserts that in practice, mining projects can be as securely held by foreigners as in any comparable nation. Crucially in addition, repatriation of capital and freedom from expropriation are explicitly guaranteed to investors under the 1995 Mining Act.

The only overt restriction on mining ventures of over $50m in investment value is that they strictly adhere to policies of sustainable development, id est those facilitating economic growth, social equity and environmental protection. The substance of these policies is enshrined in the Minerals Action Plan of 2004, which reportedly contains 57 strategies and 126 activities intended to serve to moderate the negative impact of large scale mining.

The government of the Philippines has also undertaken several other measures to encourage foreign investment in mining. These include the streamlining of the permitting process for all types of project, the invalidation of mineral claims to land identified as being made by speculators in favour of re-licensing these areas to parties willing to commit to their active development and various reforms of taxation, immigration and customs protocols.

Romualdez ascribes the positive change in attitudes towards mining on a political and popular level to the belief encouraged by the current government that foreign investment in mining can contribute significantly to the overall economic prosperity of the Philippines.

Indeed, for each new mining job created, it is estimated that between four and ten jobs will be created in other industries via multiplier effects. It is now widely accepted in the Philippines that there is quite significant potential for an enhanced mining sector to contribute to general economic growth. The Filipino government believes it cannot achieve this without substantial foreign investment, much of which will come from the global mining industry.

It is also notable that despite the recent hiatus, the Philippines has a long history of mining, and has retained some suitably skilled personnel and useful infrastructure. In addition, the country can claim to have the world’s third largest English speaking population. In terms of mineral resources, the Philippine archipelago is particularly prospective for nickel and for gold, though other metals are also present in abundance.

In the long term, the key issue for the mining industry will be the durability of the popular and political commitment to it. This seems well entrenched at present, but a political upheaval towards the radical left or an unfortunate series of disastrous incidents at mining operations could turn sentiments towards mining sour. However, there is no indication of the former at present, and western mining firms should by now have developed the procedures necessary to almost eliminate serious mishaps.

It does though seem vital to the industry’s future that as in many other locations, the operational imperatives prescribed by the Philippine government to mitigate the negative effects of large scale mining are followed to the letter. If this is truly recognised by the foreign firms that choose to move into the Philippines with the aim of tapping the archipelago’s mineral wealth, then the mining industry there may well have a bright future.

Financial Times' John Kay: Only the poor can make poverty history

I simply have to highlight on this very RELEVANT and timely topic by John Kay, Financial Times columnist, about economic upliftment. The LESSON: ECONOMIC salvation is NOT about politics but about ourselves....

Only the poor can make poverty history
By John Kay
Published: June 21 2005 03:00 | Last updated: June 21 2005 03:00

Published by the Financial Times

People in rich countries are not rich because people in poor countries are poor, nor vice versa. Rich countries are rich mainly because they have benefited from two centuries of evolution of political, economic and social institutions. Poor countries are poor mainly because they have not.

If this is even partly true, the capacity of rich countries to "make poverty history" is very limited. Rich countries can damage poor countries, by destroying their social structures or looting their resources, and they once did. But they have largely ceased to do this and when de-colonisation occurred there was widespread optimism about what could be achieved. Modern technology was available, so poor countries could be spared the long, unpleasant process of development experienced by existing rich countries. With sufficient investment in infrastructure, plant and machinery and education they could progress rapidly towards higher standards of living. Aid could bridge their funding gap. In retrospect, this all seems naive. Some still argue that these measures failed because of insufficient resources, but there is general acceptance that the principal weakness of the programme was inadequate attention to institutions.

But the modern mantra that institutions matter became equally simplistic. The complexity of historical experience was discarded in favour of the belief that the necessary institutions could be described in a few phrases - free markets, limited government, private property and fiscal prudence. Most poor countries given this medicine spat it out before it had time to take effect, which enables those who administered it to continue to argue for its efficacy. It does not really matter whether the drug fails because it is ineffective or because the patient cannot accept it.

Since then analysis and policy have focused on small-scale issues that make a demonstrable difference, such as the provision of malaria nets and pure water, free elementary education and the prevention and treatment of HIV/Aids. It is daunting to discover how many other changes are needed to make even these measures effective - nets must be re-impregnated with insecticide, education needs committed parents and educated teachers, HIV treatment requires a public health infrastructure and water systems maintenance. Even if such measures do not lead to rapid economic growth, and mostly they will not, they will make impoverished lives better.

But while thoughtful observers of international development have moved from advocating broad political programmes to targeted intervention, Sir Bob Geldof, for whom the lines "full of sound and fury, signifying nothing" might have been coined, has moved in the opposite direction. The first Live Aid concert sought funds for famine relief and was profoundly moving, but the supposed purpose is now to raise consciousness, not money. What should we do when our consciousness has been raised? The UK's Make Poverty History coalition offers advice: wear a white arm band, go to Edinburgh, send an e-mail to Tony Blair.

It is time to get serious. The good news about extreme poverty is that more people have been lifted out of it in the past 10 years than in any decade in world history; that this is mainly the result of rapid economic growth in China and India, which is in turn principally due to internal reform not external action; that the real contributions of rich countries have mainly been through trade and investment, not aid; and that world leaders have played only a minor though constructive role in that process. The lesson is that world poverty will be ended by the actions of poor people themselves.

We in rich countries can make a modest contribution but if the United Nations' millennium development goals to eradicate poverty are met, which is unlikely, it will be the achievement of the poor, not the rich, and the achievement of individuals, not politicians. The idea that leaders have the power to "make poverty history" but have been insufficiently engaged to exercise that power is ludicrous. Suggesting that political action is the source of economic advance reinforces the mistakes that have made poverty all too prevalent.

Philippine Daily Inquirer's Editorial Caricature: 'In Aid of Legislation'

The Quest for Power

I just love this caricature from today’s Philippine Daily Inquirer editorial page.

I think that the attendant controversies surrounding the recent wiretapping issues have been lucidly condensed by this cartoon; succinctly the message is…the quest for power.

While the mobs have been mesmerized by the recent drama (we Filipinos simply adore dramas and would find any event to make up our heart’s desire), it appears that the underlying factors driving today’s rumpus have been largely ignored. I do hope that we wake up before the drama does turn into a tragedy.

Asian Wall Street Journal: The myth of India's liberalization

The article from Asian Wall Street Journal highlights how intricate an economy like India functions under an equally complicated government ‘democratic’ system. There has been no facile solution despite the phenomenal growth seen with country lately while the negative aspects such as corruption, inefficiencies and rent seeking complexes are likewise as deeply rooted as can be seen in any emerging market country. India’s case should give our country’s improvers and messianic leader/s wannabe’s a lucid example how progress DOES NOT come with revolutions or illusionary salvation through the snap of the finger...

The myth of India's liberalization

Indian Prime Minister Manmohan Singh is due to visit Washington in a few weeks, and editorialists and commentators have already started writing about the emerging economic power of India. New Delhi’s decision to start liberalizing its economy in 1991 is touted as a seminal event in India’s history, the moment when it threw off the shackles of Fabian socialism and embraced free markets. It is the stuff of myth--and to a large extent, it is exactly that.

While part of India has benefited from being opened up to foreign products and influences, most of the country is still denied access to free markets and all the advantages they bring. India opened its markets in 1991 not because there was a political will to open the economy, but because of a balance-of-payments crisis that left it with few options. The liberalization was half-hearted and limited to a few sectors, and nowhere near as broad as it needed to be.

One would have expected India’s growth to be driven by labor-intensive manufacturing but, almost by default, it instead came in the poorly licensed area of services exports. The manufacturing sector, ideally placed in terms of labor and raw material to compete with China, never took off. India’s restrictive labor laws, a remnant of the socialist infrastructure that India’s first prime minister, Jawaharlal Nehru, put in place in the 1950s and 1960s, were politically impossible to reform. It remains excruciatingly difficult for most Indians to start a business or set up shop in India’s cities.

This is painstakingly illustrated in “Law, Liberty and Livelihood”, a new book edited by Parth Shah and Naveen Mandava of the Center for Civil Society in New Delhi, which documents the obstacles in the way of any Indian who wishes to start a business in one of India’s big cities. Messrs. Shah and Mandava write: “Entrepreneurs can expect to go through 11 steps to launch a business over 89 days on average, at a cost equal to 49.5% of gross national income per capita.” Contrast the figure of 89 days with two days for Australia, eight for Singapore and 24 for neighboring Pakistan.

But often, even this figure is just a notional one, and entrepreneurs find it next to impossible to get a legal permit to start a business at all. Street hawkers and shop owners in the cities often cannot get a license at all. (Even those who do have to comply with draconian regulations that offer so much discretion to the authorities that corruption is inevitable.) They survive by paying regular bribes to municipal authorities and policemen, which are generally fixed in such a way by this informal market that they can barely survive on what they earn, and cannot expand their business or build their savings. They are trapped in a cycle of enforced illegality and systematic extortion by authorities, which results in a tragic wastage of capital. It serves as a disincentive to entrepreneurship, as well as to urbanization, the driving force of growing economies.

Another disincentive to urbanization is how hard it is for poor people to get legal accommodation in the big cities. In Bombay, for example, an urban land ceiling act and a rent-control act make it virtually impossible for poor migrants to rent or buy homes, and they are forced into extralegal housing. The vast shantytowns of Bombay--one of them, Dharavi, is the biggest slum in Asia--hold, by some estimates, more than $2 billion of dead capital. For most of the migrants who live in these slums, India hasn’t changed since 1991. As that phrase from India’s pop culture goes, “same difference.”

India’s policymakers are aware of these anomalies, but it is an acute irony in India that any proposal to reform the bureaucracy has to first wind its way through the bureaucracy. Arun Shourie, a former disinvestment minister and a respected journalist, wrote in his recent book “Governance” that, “proposals for reforming [the] system are adopted from time to time, and decrees go out to implement the measures ‘in a time-bound manner.’ But in every case, the proposal is put through--some would say, it has to be put through--the same mill.”

It is in the nature of bureaucracies, Mr. Shourie points out, to endlessly iterate. He charts how the apparently simple task of framing a model tender document took the government more than 13 years, as drafts of it circulated between different committees and ministries. Anything even slightly more complicated, and with pockets of political opposition to it, like economic reforms, becomes almost impossible to implement. Dismantling state controls is only possible if there is political will and a popular consensus. None of these exist. On the contrary, there is a popular belief that the economic inequalities in India are caused or exacerbated by free markets.

The socialist left, a natural proponent of such views, believes that free markets are the problem and not the solution. India’s communist parties have blocked labor reform, opposed foreign investment and prevented privatization of public-sector units. They naturally have a vested interest in the “license-permit-quota raj,” as the web of statist controls is called. On all these issues they are supported, surprise surprise, by the religious right.

The Hindu right wing, led by the Bharatiya Janata Party and collectively known as the Sangh Parivar, also fears globalization. Its sustenance comes from identity politics, the impact of which is diluted by the opening up of the cultural mindspace to “foreign influences.” If people are busy chasing prosperity and gaining Western liberal values, they will naturally have less time to focus on “the Hindu identity,” and suchlike. Rabble rousers need the masses to be disaffected.

In between the socialist left and the religious right is the Congress, a party which occupies the center of the political space almost by default. Its position on issues is always malleable, and although it is currently the party of government, it leads a coalition that depends on the left for survival. The pace of reforms has not increased since it came to power last year, and is not likely to do so anytime soon. While the world focuses on the metaphorical bright lights of Bangalore, most of the country--indeed, much of Bangalore itself, which has been plagued by power and infrastructure problems recently--remains in darkness.

thisislondon.com: "Children Sacrifices in London"

And you probably thought human sacrifices can only be seen in the episodes of Indiana Jones or in the Jungles of Africa...

Well, this article/news from thisislondon.com "Children Sacrifices in London" says that the archaic rituals are actually being practiced in London by Christian fundamentalists, according to the article (press on this link)…

"Boys from Africa are being murdered as human sacrifices in London churches.

They are brought into the capital to be offered up in rituals by fundamentalist Christian sects, according to a shocking report by Scotland Yard.

Followers believe that powerful spells require the deaths of "unblemished" male children.

The Power of Suggestions

The Power of Suggestions

One of the farcical things that the administration has done lately is to restrict to airing of the controversial tapes while ignoring the fact that traditional or downstream media isn’t the only source. Downloading the transcripts from the PCIJ (Philippine Center of Investigative Journalism), I was able to ken on the alleged ‘smoking gun’.

Before I continue, I would like to share you this analogy. For example, I show you a portrait of spiffed up svelte young lady, what would be your immediate impressions about her? Probably just as what you see. But if I tell you that this lady sells her pleasurable services you would probably conclude that she is a slut as I have suggested, presumably on the thought that I have this personal knowledge over my declarations. Moreover, a similar conclusion could be derived if I showed you first her picture, then an album of ladies belonging to a brothel. In other words, the lady’s stature becomes inconsequential and what shapes your thought processes would now be as what I have painted her to be…a hooker.

This I think is an example of the ‘power of suggestion’ or in behavioral finance called framing. According to Charles Baudouin a Swiss-French psychiatrist and author of Suggestion und Autosuggestion is ‘defined as the force that presses an idea toward realization through feelings and images that enter the subconscious from an external source’. Or have it another way, Nietschze’s lumpen denken or as Bill Bonner explains, ‘instead of thinking about things you know, you are thinking about things you cannot know and cannot explain.’ In other words, it could be a case of passing judgments on things that we hardly understand or have no authority to. It is the same argument that ex-justice Isagani Cruz mentioned in his ‘Moro-moro at the Senate’ argument where the public is treated into a spectacle where the rules of evidences as required by the courts of law have been totally disregarded.

I asked my mom who resides in Hong Kong, untainted by the political bedlam, to read the allegedly controversial transcripts of the President and the Comelec commissioner and to give me her impressions about it. She says nothing anomalous but rather of a normal rational conversation.

What I am trying to drive at is that if one has no personal knowledge about what the controversies are all about then one would have ignored the conversations as plain jejunity whereas if I suggested that the tapes are about the election fixing then our thought process would naturally hunt down words or phrases that would confirm these ‘framed’ biases.

I would urge you to read the following alleged conversations by the President and the Comelec commissioner from PCIJ by clicking on this link. However, before proceeding, since your thoughts have been geared toward searching for the ‘cheat’ associated words, my suggestion is to ask to yourself in each of every transcripts if it can themselves mean ANY OTHER THING ASIDE FROM THE PURPORTED.

If your answer is YES, then myriad things comes into play, aside from the polemics of the message, its authenticity, the source, the medium and others. If your answer is NO, then this means that the messages for you are stark clear, and heads must roll.

Now again in the same context, the ‘mother of all tapes’, please press on this link to download the pdf files (67 pages) shows that the messages of the President have been mixed with all the other messages (remember the album analogy).

While it is true that the entire script could be seen as obnoxiously corrupted as seen by the rent seeking complexities by a senator, some local officials and to even party lists organizations, this merely shows that the extent of government inefficiencies has fostered undue discretionary powers to an electoral official who could possibly engage in prestidigitation to serve vested interests. In other words, the possible wretchedness seen within the tapes could be a simulacrum of systemic inefficiencies that nurtures these rent seeking or ‘patronage’ and graft ridden complex that continues to hobble the country’s progress.

In my humble opinion, while the tapes could be a ‘wake up call’ to electoral reforms, a change of administration is not the qualified solution unless we address the systemic infirmities that go with it. Otherwise, all these repertoires of mudslinging could only be construed as simply politically induced or ‘setting up for a power grab’. Plus Ca Change, Plus C'est La Meme Chose or The more things change, the more they remain the same.

Ronald Meinardus: 'Poor losers fan Filipino disenchantment' published by Japan Times

Ronald Meinardus comments in Japan Times 'Poor Losers fan Filipino disenchatment' that the current 'destabilization' in the Philippines could actually be all about "vendetta", an excerpt of the article (press on title to link to article)....

It is not surprising that most Filipinos blame the government and particularly President Gloria Macapagal Arroyo for the dire straits they see themselves in. Barely a year after her re-election to a six-year term, her popularity has dropped to the lowest level since she assumed power in early 2001.

In a democratic context, low popularity ratings and disenchantment with political leadership are not unusual. On the other hand, political rule is always bound by time limits; elections give the people the opportunity to judge and replace leaders they dislike or find ineffective. Political elections assume a stabilizing role as they provide the opposing forces a chance to assume power in a constitutional manner. One crucial condition for this political stability is that political contenders play by the basic rules (usually codified in the constitution). Conceding defeat after the elections and acknowledging the winner is one important element in what may be termed the consensus of democrats.

In the Philippines, this consensus does not exist. "You either win elections, or you are cheated," is a popular explanation in a country in which electoral fraud and vote manipulation remain a depressing routine. Up to this very day, the opposition forces have refrained from publicly accepting their defeat in the presidential elections held well over a year ago. Politicians of the opposition constantly challenge the political legitimacy of the presidency. Worse still for the incumbent: Many Filipinos seem to believe that Arroyo cheated her way into the presidential palace in May 2004.

In these days, the efforts of the opposition to undermine and eventually bring down the president are focused on allegations that members of the first family are being paid off by syndicates running illegal lotteries. Opposition lawmakers claim to have witnesses willing to testify that Arroyo's family members have taken kickbacks from criminal gangs running an illegal numbers game popularly known as jueteng.

Political irony lies in the fact that Arroyo's predecessor, Joseph Estrada, was ousted in 2001 in the course of a popular uprising after being accused of accepting money from jueteng lords. Not a few Filipinos continue to support the disgraced former leader. It is safe to assume that they are just waiting to take revenge for the ousting of their political idol.

Lepanto Consolidated A: The Next Market Darling?

MARKET Timing is an extremely difficult task, but successful traders do not actually ‘time’ the market but executes entry and exit points based on strategies derived from the technical picture, possibly in confluence with some fundamental reasons.

In the case of Lepanto Consolidated, the country’s largest gold producer, the technical picture as seen above shows of the following:

• The stock has undergone a full cycle. At the present setup it appears that the issue has broken out of its declining phase and at the moment is consolidating or bottoming out. This means the next phase could most likely be an advancing phase.
  
• Technical indicators appear to show some positive divergence meaning that while the chart is at the moment most probably at the ‘bottoming’ phase, signs of increased accumulations are beginning to emerge. As can be seen above, the higher upper window shows that the Money Flow index is rising in conjunction with a rising Chaikin Money Flow Index seen at the lower upper window.

The Chaikin Money Flow Oscillator is premised on the accumulation/distribution level. This indicator measures whether a particular security is undergoing accumulation (buying) or distribution (selling) activities. While the Money Flow Index is a momentum indicator that compares ‘positive’ to ‘negative’ money flows in order to identify the state of a trend.

Further, it could be noted that the volume (number of shares) seems to be rising during the past week as shown by the lower window (blue line) in the above chart. Friday’s volume of 21 million shares was last seen during February of this year. Since volume precedes price, the current activities seem to indicate that a brewing upside breakout could be seen anytime soon.

On the fundamental side, it is public knowledge that Canadian Mining Ivanhoe Mines , whom has extended to Lepanto Consolidated a 180-day $3 million loan, is presently at the maturing phase of its due diligence. This means that Ivanhoe Mining could be expected to formalize its proposal, whose package could possibly include the investments as well as Lepanto’s current hedged/forward sales position, anytime soon. So it appears that the current accumulation could possibly be in anticipation of this development.

That’s the way it looks from here.

Yahoo News: Philippine USD Bonds Improve, Some Still Worry

Philippine Bonds of late have manifested signs of dramatic improvements until the recent scandals. This yahoo report shows of how investors reacted to the latest political imbroglio and their corresponding outlook. Quoting the entire yahoo article…

Philippine USD Bonds Improve, Some Still Worry

By Oliver Biggadike
Of DOW JONES NEWSWIRES

SINGAPORE (Dow Jones)--Political uncertainty in the Philippines in recent days has stemmed a strong run in the country's dollar-denominated debt, but some analysts say the securities will resume their strengthening trend once the instability passes.

They say that the government's progress on fiscal reform is helping narrow the spread between yields on U.S. Treasurys and dollar debt issued by the Philippine government.

The Philippines, which is one of the most prolific Asian issuers of U.S. dollar bonds, passed tax laws on May 24 that cut from July most exemptions to the country's value-added tax and raise the tax rate in January 2006 to 12% from 10%.

That, together with improving sentiment for Asian high-yield issues, helped narrow the spread on the Philippines sovereign component of JPMorgan's Asia Credit Index to 388 basis points over U.S. Treasurys on June 6, its tightest since March, from its recent widest level on May 18 of 424 basis points.

"The worst seems to be over," said Lloyd Ong, credit analyst at BNP Paribas in Hong Kong. "The last few months (of underperformance) was due to the drawn out debate about the VAT bill."

Two days after the tax laws were passed, Fitch Ratings lifted its outlook for the Philippines to stable from negative. Fitch rates the Philippines at BB, one notch higher than Standard & Poor's BB- and two notches higher than Moody's B1.

But since June 6, the JACI Philippines spread has ballooned out to 423 basis points as of Thursday, following allegations that President Gloria Macapagal Arroyo rigged her 2004 election win and that her family received kickbacks related to an illegal numbers game.

Between Monday and Thursday, when the Philippine peso bucked the trend in other Asian currencies and weakened against the U.S. dollar, the JACI Philippines spread widened 33 basis points compared with a 14 basis point widening for the overall Asia Sovereign component of the index.

Arroyo has strongly denied the charges and has asked the Philippine justice department to investigate her family's role in the kickbacks.

Political analysts say that the president will probably survive the controversy and traders say that the spread widening is likely temporary.

"The only real downside is if the opposition is successful in convincing the people," said a Singapore-based trader. If the spread widens further, "it's probably a buying opportunity," he said.

On a more fundamental level, Martin Hohensee, head of Asian fixed income and credit research for Deutsche Bank, said Asian credits - including the Philippines - are improving their credit metrics.

"We're very encouraged by the low central bank rates (in the Philippines)," he said, noting that it improves the government's finances by keeping inflation at a high 8.5%.

"The fastest way for the Philippines to get out of its debt problem is real currency appreciation," he said, which is what happens when the exchange rate remains steady amid rising prices.

Some Say Govt Needs To Do More On Fiscal Reform

But some long-term investors aren't as positive, not because of the fuss swirling around Arroyo, but due to concerns of whether the Philippines has really turned the corner in long-term fiscal reform.

"The Philippines is the only large country in Asia where one has seen no structural improvement," said Nicolas Schlotthauer, who helps manage $2.5 billion in emerging market bonds at Deutsche Asset Management in Germany.

"The Philippines pay a higher interest-rate premium, but we see an extreme downside" due to the government deficits, he said. Of the money that Schlotthauer helps manage, around $200 million is in Asian U.S. dollar bonds.

Philippine bonds pay roughly 125 basis points more than Indonesia, another high-yield Asian issuer, Schlotthauer noted. "That's also required, given the risk," he added.

The Philippine government has said that this year it will use the additional VAT revenue, which it has estimated at PHP31 billion, to cut the deficit. In 2006, 70% of an estimated PHP105 billion in VAT revenue is earmarked for deficit reduction and Arroyo's goal is to balance the government budget by 2010.

"It's good that (the VAT hike) happened at all...but over the long-term, it's just not enough," Schlotthauer said. "Next to the low tax rate, (the losses at) the national power company is the central problem."

Ratings agencies have also cited losses at the state-owned utility National Power Corp. as an area of concern. Moody's Investor Service said in a June report that "the elimination of operating losses and restructuring of National Power Corporation...would also be positive factors" which could change the rating.

Others aren't as pessimistic and say that the long tenor of Philippine bonds gives the country time to fix its fiscal problems before the bonds mature.

Of the $15.3 billion Philippine U.S. dollar bonds on the JACI index, $12.7 billion have maturities longer than five years. Most recently, the Philippines in May sold $250 million of 10-year bonds and $500 million of 25-year bonds.

"Every time they do another $1.5 billion to $2.0 billion deal...it gives them more time to fix their deficit situation," said BNP Paribas' Ong.

June 9, 2005 Market Carnage Continues as Political Drama Unfolds

June 9, 2005 Market Carnage Continues as Political Drama Unfolds

As the assault on the probity of the incumbent government accelerates, the Philippine Stock Market and the Peso has taken most of the brunt of the prevailing political anxieties besetting the nation.

It is quite obvious to anyone with common sense that the gamut of controversies thrown by the political opposition is part of a destabilization ploy aimed to unseat the present government.

The objective here is to present the incumbent as similarly tainted in terms of corruption relative to the administration it previously deposed and as an apocryphal leadership whose electoral victory was allegedly obtained by fraud.

By virtue of media mileage, these actions are seen by your analyst as flagrant attempts to undermine the confidence of the present leadership so as to gain public support for any intended unconstitutional acts that it may opt undertake to achieve its objectives and also to provoke dissension among the military hierarchy from which a possible junta supportive of their cause may emerge.

Naturally when the foundations of the country’s political structure is put into doubt, investor confidence will be eroded as seen by the abrupt turnaround by the Phisix which is presently down by 7.5% in just three days!! This according to Bloomberg is the biggest drop since October 10, 2001, just right after several earth shaking local and international events as the EDSA II and III and the September 11 tragedy.

Now that the Phisix has broken practically all support levels except for the base from which it took off about 10 days ago, i.e. 1,855 to 1,858, this means that the critical support would be at 1,818 where after any successful encroachment would signify an ‘All hell break loose’ scenario.

Yes, as mentioned yesterday market internals continue to manifest marked deterioration. Today’s net foreign buying P 78.639 million was actually due to the special block sales of PLDT shares, otherwise, it would have recorded a net selling of about P 48 million!! Over the broader market, foreign money was also seen as net sellers. This obviously has been due to the panic stricken mood by local investors which appears to have influenced overseas capital to be similarly hesitant and antsy with the domestic market.

For the moment I would NOT recommend any ‘buying on dips’ as the Phisix has shown substantial volume on declines, which is a very bad signal! As much as the government has been destabilized so has been the Phisix! Again we cannot discount any forthcoming rally considering the sharp fall in the past 3 days, however such rallies maybe used as EXITING INSTEAD OF BUYING opportunities if NOT supported by EQUALLY LARGE volume, as seen during the recent selloffs.

Remember prudence is a better part of valor!

June 8, 2005 The Scourge of Politics

The Phisix slumped by another 49.74 points or 2.48% for the second straight day bringing total losses to an incredulous 4.77%. Wow, seven consecutive sessions of an accrued 10.35% gains and suddenly 4.77% in losses, what volatility!

Today’s decline came on a heavy volume of 1.764 billion, which makes your market observer, question the sustainability of the recent rally.

First, while the critical support level of 1,950 was sustained at the closing, the Phisix traded below the said levels for most of the trading day.

Second, internal indicators recorded substantial deterioration; advance decline differentials swelled lopsidedly in favor of declining issues, while except for the oil sector (particularly on Philippine Overseas gains), all industry subsectors posted notable declines.

Lastly, the breadth of foreign activities was mixed, while the Phisix managed to post a positive net foreign buying of P 131.4 million, over the broader market the buying and selling activities was slightly in favor of the buyers. This is in great contrast to the previous days were buying activities governed. Although most heavyweights, Ayala Land, Globe, PLDT, Bank of the Philippine Islands and SM Prime still posted inflows.

What we are seeing lately is an insulated development, while most of the Asian bourses have been moving forward the Philippine bourse appears to have lagged. It could be noted that the accelerated offloading by the locals seemed to have affected the sentiment of foreign capital movements which apparently manifested reduced buying activities and revved up liquidations resulting to the mixed market breadth. Naturally when the market is driven by the locals then given our inveterate impulsiveness, the concerns over the political stability would be the premier culprit to the latest carnage.

For the moment, the facts have changed in favor of the bears! While a rally could not be ruled out given the sharp (almost 5%) decline in two days, I would rather see a smoothing out of the recent selling pressures before reopening my trading positions. It is better to be safe than sorry.

Over the longer period unless we have a major political upheaval, I remain bullish over the prospects of the Phisix.

That’s the way it looks from here.

Philippine Mining Index: We are back for business!!!!!

Philippine Mining Index: We are back for business!!!!!

June 7, 2003: Nah, Today's Decline Was Hardly About Politics

Today’s hefty 48.02 points or 2.34% decline could easily be imputed to political concerns which I expect local ‘experts’ to mindlessly jump at.

However, dissecting on today’s activities we find that the drivers of the recent advance remains rather bullish with local equities as foreign money accounted for net inflows of P 166.758 million or about 19% of today’s aggregate turnover!

In addition, a rather striking observation is that the accumulation activities were seen over the broader market! Since foreign money accounted only for about 45% of today’s Peso turnover, this essentially translates to the locally led selloff.

It does appear that since the Phisix climbed by a stupendous 10.35% in just seven straight sessions, overseas investors anticipated the need for a correction and took defensive positions while taking on the gloomy local sellers.

Further, how can one conclude or extrapolate that the selloff was politically based when the Mining index jumped by 7%? Have not the political opposition used the opposition to the Mining Act of 1995 as part of their agenda? In short, if today’s reaction was politically induced then the Mining Index, whom should suffer from an ouster of the present administration, would have borne the brunt of the carnage. Apparently the market’s behavior today does not suggest of politics but rather on technicality. Read my lips....PROFIT TAKING.

Now Peso volume likewise was a lot less than the previous sessions which saw a frenzied run up, which goes to show that the ‘weak hands’ were today’s rulers. As far as the continuity of the downtrend, I’ll bet on the bulls.

Harvard Business' Stever Robbins: The Path to Critical Thinking

Market participants can easily be swayed by emotions, justifiably or unjustifiably, with their investing/trading activities especially based on current events or the news headlines. The latest controversy hugging the limelight puts a spotlight on the Philippine government’s credibility allegedly given the latest bugging exposé (which was put forth by the government itself in an apparent preemptive move). Again politics as national past time has once again reared it ugly head. Instead of focusing on productive activities the spectacle of intrigues and controversies dominates the economic and financial sphere. What atavism!

Before jumping on to any conclusions, I would rather suggest for you to read the following very informative article by Stever Robbins of the Havard Business Review…

The Path to Critical Thinking
May 30, 2005

by Stever Robbins

Can you write a refresher on critical thinking?

We business leaders so like to believe that we can think well, but we don't. Only one in seven even reaches the top 10 percent of quality thinkers.1 The rest of us haven't even read a book on critical thinking, much less practiced. We could fill a book on the topic, but instead, let's indulge in the highlights of what makes for good critical thinking about decisions.

What's logic got to do with it?

Nothing! We don't use logic to decide, or even to think. And a good thing, too, or the advertising industry would be dead in the water. Unfortunately, all of our decisions come from emotion. Emotional Intelligence guru Daniel Goleman explains that our brain's decision-making center is directly connected to emotions, then to logic. So, as any good salesman will tell you, we decide with emotion and justify (read: fool ourselves) with logic.

Purely emotional decision making is bad news. When insecurity, ego, and panic drive decisions, companies become toxic and may even die. Just look at all the corporate meltdowns over the last five years to quickly understand where emotional decision making can lead.

Critical thinking starts with logic. Logic is the unnatural act of knowing which facts you're putting together to reach your conclusions, and how. We're hard-wired to assume that if two things happen together, one causes the other. This lets us leap quickly to very wrong conclusions. Early studies showed that increasing light levels in factories increased productivity. Therefore, more light means more productivity? Wrong! The workers knew a study was being done, and they responded to any change by working harder, since they knew they were being measured—the Hawthorne Effect.

We also sloppily reverse cause and effect. We notice all our high performers have coffee at mid-morning, and conclude that coffee causes high performance. Maybe. Maybe not. Maybe high performers work so late and are so sleep deprived that they need coffee to wake up. Unless you want a hyper-wired workforce, it's worth figuring out what really causes what.

There are many excellent books on logic. One of my favorites is the most-excellent and most-expensive Minto Pyramid Principle by Barbara Minto. It's about logic in writing, but you can use it for any decision you want to think through in detail.

The trap of assuming

You can think critically without knowing where the facts stop and your own neurotic assumptions begin. We aren't built to identify our own assumptions without lots of practice, yet the wrong assumptions are fatal.

When we don't know something, we assume. That's a fancy way of saying, "we make stuff up." And often, we don't realize we're doing it. When our best performers leave, our first (and perhaps only) response is to offer them more pay, without realizing that other motivations like job satisfaction or recognition for accomplishments might be more important.

Finding and busting "conventional wisdom" can be the key to an empire. For decades, the standard video rental store model assumed that people wanted instant gratification and, to get it, they were willing to drive to a store, pay a rental fee for a few days' access, and then drive back to the store in a few days to return the movie. Thousands of big and small video rental parlors popped up across the country using this model. But Reed Hastings challenged those assumptions. He calculated that people would trade instant gratification for delayed, and would pay a monthly fee if they could have movies mailed to them, which they could keep as long as they liked. The result? Netflix. Estimated 2005 revenue: $700 million.

Assumptions can also cripple us. A CEO confided that he never hires someone who backs into a parking space. His logic (and I use the term loosely): The person will use time at the start of the day so they can leave more quickly at the end of the day. He assumes face time equals results. In whose world? Many people tell me they get more done in an hour at home than in eight hours in an interruption-prone office. How many great employees will he miss because he's not examining his assumptions?

Some assumptions run so deep they're hard to question. Many managers can't imagine letting people work fewer hours for the same pay. "If they go home earlier, we have to pay them less." Why? "Hours = productivity" is true of assembly lines, but not knowledge work. Research shows that it's not how much you work, but the quality of the work time that drives results.2 But in most workplaces, hours count as much as results.

Next time you're grappling with a problem, spend time brainstorming your assumptions. Get others involved—it's easier to uncover assumptions with an outside perspective. Then question the heck out of each one. You may find that one changed assumption is the difference between doing good and doing great.

The truth will set you free (statistics notwithstanding)

Have you ever noticed how terrified we are of the truth? We're desperately afraid that the truth will reveal us as incompetent. Our situation really is hopeless. We really aren't as great as we pretend. So we cling to our beliefs no matter how hard the truth tries to break free.

Guess what, recording industry: Electronic downloads have changed the nature of your business. Start asking how you'll add value in a world where finding, packaging, and distributing sound is a commodity. Hey, ailing airlines: Oil's expensive, customers won't pay much, and you have huge capital costs. That hasn't stopped Southwest, Jet Blue, and others from making a fortune.

Nothing tells the truth like solid data and the guts to accept it. But it's difficult in practice. When was the last time you identified and collected data that contradicted your beliefs? If you found it, did you cheerfully change your belief, or did you explain away the data in a way that let you keep your comfortable pre-conceptions?

Here is a great exercise for your group or company. Have your general managers list your industry's Unquestioned Truths, which they then must prove with data. When a Fortune 500 CEO recently ran this exercise, Surprise! Some "absolute truths" were absolutely false. Now he can do business his competitors think is nuts. Analysts will say he's off his rocker, until his deeper knowledge of truth starts making a small fortune.

One caveat: Be picky about where you get your data. The Internet can be especially dangerous. The miracle of technology lets one bad piece of data spread far and wide, and eventually be accepted as truth.

Help! I've been framed!

Not only may your data be disguised, but the whole problem itself may be disguised! It seems obvious: we're losing money, we need to cut costs. Not so fast! How you "frame" a situation—your explanation—has great power. Remember assumptions? Frames are big ol' collections of assumptions that you adopt lock, stock, and barrel. They become the map you use to explore a situation.

You're negotiating an acquisition. You're chomping at the bit. It's WAR!! Competition is all. The frame is combat!

Or, you're negotiating an acquisition. You're on a journey with the other party to find and split the value buried at the X. You still track your gains and gather intelligence, but the emphasis is on mutual outcomes, not "winning."

In a zero-sum one-time negotiation, a combat frame may be the best tool. But in a negotiation where you're free to develop creative solutions that can involve outside factors, the journey frame could work best. "Instead of $100K, why don't you pay $75K and let us share your booth at Comdex?"

Frames have great power! Presented with a potential solution to a problem and told, "This course of action has a 20 percent failure rate," few managers would approve. When that same solution is presented as having an 80 percent success rate, the same manager is going to consider it more deeply—even though a 20 percent failure rate means the same thing as an 80 percent success rate! The frame changes the decision.

Are you brave in the face of failure? Most people aren't. I recommend the responsibility frame: "What aren't we doing what we should?" The responsibility frame sends you searching for the elements of success.

The beauty is that no one frame is right, just different. The danger is when we adopt a frame without questioning it. You'll do best by trying several different frames for a situation and exploring each to extract the gems.

People are our greatest asset. Really

Critical thinking isn't just about what happens in our own brains. When you're thinking critically in business, bring in other people! We don't consider the people impact in our decisions often enough. In fact, we pooh-pooh the "soft stuff." We feel safe with factors we can calculate on our HP-12B. But in truth, business is about people. Multibillion-dollar mergers fail due to culture clash.

Customers, suppliers, partners, employees. They're as much a part of your business as that sparkly new PC you use to play Solitaire. How will your decisions change their lives? Imagine being them and let your imagination change your decisions.

The Gallup organization estimates that 70 percent of America's workers are disengaged, and disengaged workers are dramatically less productive, creative, and committed than engaged workers. Yet few strategy meetings ask, "How can we engage our employees more?" It's as if we say people are our greatest asset—but we don't really believe it. If you want to improve your critical thinking, get other points of view.

A stitch in time saves nine

Of course you know you should think about the consequences of your actions. But with information overload, quarterly earnings pressure, sixty-hour weeks…who has the time? We don't think much beyond the end of our nose.

But technology leverages the effects of our decisions throughout the organization and even across the globe. So good thinking demands that you consider consequences over many timeframes. Think out a month, a year, a decade, many decades. That tanning booth looks great when you consider how you'll look in a week, but is it worth looking like a leather overcoat ten years from now?

Long-term junkies like me are great at creating ten-year plans, but managing next month's cash flow? Not likely. Short-term junkies are more common; they're the ones who discount to make this quarter's numbers, while tanking the company in the process. You can do better by considering multiple timeframes.

I could go on, but there's plenty here to chew on. Think about a decision you're making, and pull in the rigor:

Make sure you understand the logic behind your decision.

Identify your assumptions and double-check them.

Collect the data that will support or disprove your assumptions.

Deliberately consider the situation from multiple frames.

Remember the people!

Think short and long term.

Good luck.

© 2005 by Stever Robbins. All rights reserved in all media.

June 6, 2005: Happy Second Anniversary for the Phisix Bulls

For the seventh straight session the Phisix posted gains of 28.55 points or 1.41% which evidently had been back by heavy volume by mostly overseas capital. During the said period foreign buying totaled P 1.808 billion or about 18% of total turnover where foreign activities, the dominant participant, accounted for about 58% of cumulative turnover.

In seven consecutive sessions the Phisix accrued gains of almost at 9.4%! The last time a similar brio was exhibited by the local market was in early June of 2003 which incidentally was two years ago! And by the same token, the drivers of the market had been the same participants…foreign capital! It does seem like the Phisix’s is celebrating its second anniversary of its advance phase! (Well is it?)

While, to quote Mark Twain, ``History never repeats itself; at best it sometimes rhymes”, the ‘ice breaker’ or the initial salvo or the backbone of the Phisix’s two year ‘ascent’ which in the past I have coined as the ‘Baon ni Gloria’ rally (as the rally came a week after PGMA’s state visit to the United States) was during the first half of June 2003.

Happy Second Anniversary

Let us reminisce with the chart above. The ferocious foreign driven rally in June of 2003 as you can see recorded 20.68% gains in 14 days (!!!) before retracing by as much as 27% of the gains incurred. After two months of consolidation or rangebound trading, the Phisix got its second wind to breakout from the range. The rest is history.

Now this is NOT to suggest that the same instance WILL occur outright, but this is to propound that IF the market dynamics remains on a SIMILAR wavelength as that in June of 2003 which was bizarrely seen last week extending until today, exactly two years ago, then the probability is for the Phisix to be in ‘rhyme’ with the 2003’s movements.

Now of course, a correction is imminent considering the rather fast pace of the recent climb, however for as long as the intensity of the foreign driven buying activities persists, any hiatus would most likely be mild or moderate.

While I do not exactly know or can pinpoint WHEN the pause will come, when it does, it should be interpreted as a buying opportunity in preparation for the next leg up (which I think would come as the FED does apply the brakes-most likely in August or September).

As legendary trader Jesse Livermore (Reminisces of a Stock Operator) once said `` the big money must necessarily be in the big swing. Whatever might seem to give a big swing its initial impulse, the fact is that its continuance is not the result of manipulation by pools or artifice by financiers, but depends on underlying conditions. And no matter who opposes it, the swing must inevitably run as far and as fast and as long as the impelling forces determine.”

In a bull market, the ideal thing to do is to stay long to maximize profits. In a bear market to be in cash to minimize losses. In a trading market, trade the support resistance levels, in the assumption that one can catch the peak and troughs. The recent manifestations of the market is bullish in backdrop rather than a trading market.

That's the way it looks for now.