Phisix 7,250: Philippine Peso Tumbled by 1.3%! Why?; The Perspective from the Stock Market Cycle

By its very nature, a government decree that “it be” cannot create anything that has not been created before. Only the naive inflationists could believe that government could enrich mankind through fiat money. Government cannot create anything; its orders cannot even evict anything from the world of reality, but they can evict from the world of the permissible. Government cannot make man richer, but it can make him poorer—Ludwig von Mises

In this issue

Phisix 7,250: Philippine Peso Tumbled by 1.3%! Why?; The Perspective from the Stock Market Cycle

-Philippine Peso Tumbled by 1.3%! Why?

-Global Governments Desperately Try To Reflate The Risk Markets

-How Traders Can Profit from the Stock Market Cycle

-Defining the Stock Market Cycle

-The Stock Market Cycle Circa 1986-2003

-The New Millennium Stock-Market Cycle

-The Fundamental Case of the Distribution-Decline Phase

-Can The Stock Market Cycle Be Broken? Yes By Destroying the Currency

Phisix 7,250: Philippine Peso Tumbled by 1.3%! Why?; The Perspective from the Stock Market Cycle

Philippine Peso Tumbled by 1.3%! Why?

Just what happened to the Philippine peso?

The Philippine peso unexpectedly got creamed last week. The peso was crushed by a shocking 1.3%! This happened when neighboring currencies were largely serene, had seen less volatility and has posted mix performance for the week.

The USD php closed at 46.65 last Friday

Media largely attributed the pesos’ weakness on election uncertainties. Perhaps.

Has this been about “Comeleak” where online hackers reportedly infiltrated a government agency responsible for the national elections? Hackers were able to compromise the agency’s database of 55 registered voters. If so, then this should be knee jerk.

Or could these have been writing on the wall for the sudden upsurge in the popularity and the likelihood of a strong man rule bubble-‘leftist’ regime?

If so, then this should be expected. A leftist regime means bigger government at the expense of the private sector. This not only means lesser economic freedom, it means civil liberties will become repressed.

From an economic viewpoint, how will big government be financed? More taxes to fund bigger government spending in the face of lesser economic activities?

Yes, lesser economic activities should be expected from a flurry of mandates, regulations, prohibitions, expanded bureaucratic-welfare-warfare spending (or even possible nationalizations) and, wider capital controls as well as from the feedback of higher taxes and deepening use of inflationism.

Will the regime resort to more debt in order to finance burgeoning deficits from increased spending?

While the two (higher taxes and debt) won’t automatically translate to a weak peso, the question is what happens if the taxes will not be enough to satisfy political spending goals or even interest payments on debt? Will the BSP be compelled to monetize debt and spending? Well, the latter represents a surefire way to destroy the peso.

There are so many examples of how leftist governments maim their constituents rather than advance their welfare. Apparently soundbites matter more.

Yet hasn’t recent election developments manifested a stark irony?

What has happened to all the years of headline boom? What happened to record Phisix and the landmark high bonds, the previously strong peso, zooming property prices and soaring GDP? If surveys have been accurate, then why has a big segment of the population drifted to embrace leftist utopia? Why has the same segment distanced itself from the incumbent which has supposedly delivered an economic boom? To consider, a big following of the self-declared leftist candidate has been from the upper class. Some real world disconnect eh?

As it appears, asset bubbles have made people believe in short term fixes for social malaise.

As I have previously discussed, they have come to believe in the superhero effect. The image of the superhero is one of an almighty supernatural being (authority) who would swoop down and vanquish the villains (oppressors) while rescuing the damsel in distress (oppressed). The difference is that the superhero is a (comic, movie or media) fantasy, while the superhero effect as political solution would account for a critical tradeoff between populist short term remedies as against its longer term socio-economic consequence, where the latter likely will be accompanied by a shroud of unintended, if not tragic, effects.

And another paradox, it’s interesting to see people passionately ramble about “change” in defense of their candidates. But national candidates have almost all been attached to, or have roots to the old guards of the political establishment. Furthermore, has there been any difference from them but to offer to the voting public free lunches?

Plus ça change, plus c'est la même chose!

Back to the Peso.

It’s been a satire to see the peso fall amidst the BSP’s recent announcement where OFW remittances jumped by pretty hefty numbers in February. But as I have pointed out, the BSP massages its data according to how they data would look good. Besides, one month does not a trend make. The overall OFW growth trend remains downward (see lower window above)

Yet I posit another angle for last week’s fall of the peso. Two weeks back I have noted that the BSP’s forex holdings under its GIR has skyrocketed to milestone highs. I then asked¹, “Could it be that derivative forward cover contracts could soon be expiring that would lead to a hefty decline in GIRs for the BSP to have borrowed from the national government in order to cushion on the coming drop?”

If this has been accurate, then this could explain the peso’s weakness. The BSP will have to rollover these contracts, otherwise the GIR shrinks.

Don’t forget of the inverse relationship between the Phisix and the Peso. The Phisix and the peso have been trading at a tight range over the past two weeks. Yet the USD Peso broke out on Friday.

Has this week’s peso fall been an anomaly? Will it rally back? Or will the inverse relationship be sustained where the Phisix will play catch up and fall along with the peso?

Truly interesting developments.

Global Governments Desperately Try To Reflate The Risk Markets

Another very intriguing development: Increasing signs of desperation by governments to shore up or rescue asset markets since the January meltdown.

Last week, the central bank of Sweden, the Swedish Riksbank announced that they will expand on their QE program, while leaving their negative interest rate unchanged.

The ECB released its guidelines for corporate bond buying this week. Apparently, overseas entities with euro area exposure are likely to be beneficiaries too²: Corporate debt instruments issued by corporations incorporated in the euro area whose ultimate parent is not based in the euro area are also eligible for purchase under the CSPP, provided they fulfil all the other eligibility criteria.

So the ECB’s upgraded QE or ECB subsidies will now spread to some of the privileged enterprises abroad. The net result: European stocks flew! German Dax soared 3.2% while the French CAC advanced 1.6%. Most of US stocks, particularly banks, moved higher this week.

And in the realization that negative interest rates have instead backfired, such that bank credit growth has stalled, the Bank of Japan (BoJ) has floated on possibility of providing subsidies to commercial lenders by offering “a negative rate on some loans, according to people familiar with talks at the BOJ” last Friday, as well as, “a deeper cut to the current negative rate on reserves”, according to Bloomberg.

Early this week, the BoJ signaled that they might also increase their stock market purchasing activities through ETFs, according to the CNBC. And at the start of the month, the Japanese government has also indicated that they might use “helicopter money drop” by “distributing child care vouchers and shopping coupons to encourage consumer spending” according to the Nikkei Asian Review.

How stock market gamblers loved these Keynesian subsidies; Japan’s equity benchmark Nikkei 225 spiked by 4.3% this week!!!

Remember, the Japanese economy has had three recessions over the past 5 years! This means practically all the stimulus thrown by Abenomics has only been sucked into an invisible black hole!

Additionally, even with Friday’s rally, the Nikkei remains 15.8% off from its June 24 2015 highs! And because of the recent slump in stocks, and because Japan’s JGB market has been rendered almost entirely illiquid from BoJ’s buying, Japanese corporate pensions suffered its “the first drop in their overall asset value in five years” according to Nikkei Asia. The BoJ now holds a whopping 35.2% of the JGB market as of March 2016, according to Japan Macro Advisors. And the drying up of liquidity has forced yields even lower! This week alone, 40 year JGB fell to a stunning record low of less than .3%!

JGB markets have entered the twilight zone!

In spite of the BoJs action, Japan’s economy remains in doldrums as people increasingly hoard cash and where even some elderly citizens purposely commit crimes so they may get caught and imprisoned. With reduced income from BoJ’s intrusiveness, what better option for these senior citizens to live under government custody thereby compounding on the increasingly burdened Japan’s welfare state!

Maladjustments, distortions and mispricing from sustained interventions have only been mounting. Politicians will never come to realize that there is no such thing as a free lunch until it is too late.

The embrace of free lunch by the government has been even more frantic in China.

China’s government reported a runaway in credit boom in the first quarter as total social financing soared to $766 billion as shown above courtesy of yardeni.com! This is a record of sorts.

The Chinese government has been desperately trying to maintain or buoy asset price levels to prevent a credit meltdown by injecting even more credit into a system already drowning and choking in credit.

Yet money from credit expansion has to flow somewhere.

Obviously it has rekindled or reignited a property boom, where new home price rose in 62 out of 70 major cities, according to the SCMP. China’s property bubble has become “two tiered” with the high end cities experiencing rapid growth as against a slower appreciation for less prominent cities.

Additionally, retail speculators appear to have jumped into the commodity sphere that has prompted authorities to clampdown on such activities.

From Reuters/Resource Investor³: China's commodity exchanges are trying to cool their markets as benchmarks rallied rapidly this week, with turnover of a single rebar contract on Thursday worth nearly 50% more than the total value traded on the Shanghai stock exchange. Chinese investors - both funds and individuals -- appear to be making big bets that a rise in infrastructure spending will be positive for battered commodities such as steel and iron ore, turning their interest away from equities after a crash last summer that has driven.

For instance, steel reinforcement or rebar futures has spiked by 54% in 2016 as of April 21, according to Bloomberg.

So whatever rally that has been appeared in the commodity markets may have been an outcome of China’s runaway credit. Said differently, China’s credit boom has spilled over to the global commodity markets.

But as the credit boom spreads, so has defaults. From Fitch ratings⁴: Thus far in April, two other SOEs have missed bond payments while a third has had trading of its notes suspended. These were on top of a number of other onshore corporate bond defaults by private-sector firms so far this year

And surging accounts of defaults has been pushing up yields of corporate bonds as well as government bonds. And it appears that even when the Chinese government “pumped in 680 billion yuan through reverse repo auctions, shy of a record 690 billion yuan it injected in January, when demand for cash spiked before the Chinese New Year holidays”, “China’s benchmark money-market rate climbed the most since June, reflecting tight cash conditions”⁵

So instead of participating in the asset inflation bacchanalia, China’s Shanghai index tumbled -3.86% over the week

So even when government tries desperately to reflate their respective markets, there have been to many cracks in the system, where money printing doesn’t produce results as expected—even in the short term where they are supposed to matter most!

How Traders Can Profit from the Stock Market Cycle

Every stock market participant is fundamentally a trader. And a stock market trader is one who seeks to acquire advantage or to generate profits from the price spread between entry and exit points in a specific security.

Yet traders are categorically different. They vary in the means to accomplish their desired ends, namely:

One, traders contrast in the time dimension of consummating transactions. There are day traders or scalpers. There also those who take on extended holding period, say a week or weeks, or a month or months. And there are many others where time investment involves even longer durations, that may span from a year/s or even decade/s. The latter are usually considered as “investors”.

Aside from capital gains or profits from price arbitrages, corporate dividends may play an important role in the portfolio of usually long term traders or investors.

Two, traders use different tools such as chart analysis and or fundamental analysis (e.g. economics, finance, statistics, behavioral science/psychology and or others) to establish their trade positions.

Many traders also utilize on informal means to acquire trade position. Such informal tools includes hearsay, information from insiders, tips derived from social networks or from media, recommendations of analysts or experts, whether from mainstream institutions or from independent operators and more.

Three, though the basic goal is to profit, there are different juxtaposed objectives for participants to engage in the stock market.

There are traders who depend on trade for a living. Other traders manage their own or family’s portfolio. Professionals manage other people’s money which may include the matching of asset and liability (e.g. insurance and pensions). Some traders use the stock market to seek thrill or to get satisfaction from a dopamine release. For many others, the stock market can be an instrument for social signaling or to bolster their testosterones or uplift one’s social status. The stock market can also be used as a device fulfil gambling impulses, to dawdle time away or even to seek diversion from other activities.

Fourth where there is little time and effort to dwell on the stock market, some people ‘trade indirectly’ through placements into financial vehicles operated by mostly institutional fiduciary agents (mutual funds, UITFs, ETFs).

On the other hand, investors may piggyback on the putative track records or historical performance of certain money manager/s through the latter’s managed financial vehicles.

Portfolios managed by professionals are usually not limited to the stock market. Or professional portfolios usually include other asset classes such as bonds and currencies. They may employ “shorts” or even sophisticated hedges through derivatives. But this is beside the point.

So there hardly is a one size fits all formula to satisfy objectives of individual traders/ investors.

Having shown the difference in the objectives and the conduct of affairs by traders/investors/professionals on the stock market, it is important to focus on a key aspect on the treatment of stock market trade: TIME relative to volatility

As a general rule, the shorter the time frame, the more sensitive trade positions are to volatility.

For instance, day traders rely on the intraday gyrations of prices of securities for trade. The greater the volatility, the more opportunities for trade. So volatility should be a magnet for day traders.

On the other hand, investors, whose objectives have been formulated based on the longer term risk-reward tradeoff considerations, will be less concerned of short term volatility. That’s unless their objectives have suddenly been accomplished (for rewards) or triggered (for risk).

Longer term traders and investors are likely to see short term volatility as “noise” rather than “signals”. Value guru and mentor to Warren Buffet, Benjamin Graham has a popular axiom which captures such essence, “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

Hence, in the face of volatility, perspective over the time horizon is of quintessential significance for one’s calculation of the risk reward conditions.

Defining the Stock Market Cycle

Stock market prices have a natural proclivity to establish general movements or set trends.

As noted above, these trends occur in the short term (seconds, minutes, hours, days) and simultaneously over the longer term (weeks, months, years). Think of such dynamic as trends evolving within trends.

Nonetheless, established trends eventually break, or set an opposite direction.

Moreover, long term trends signify as the outcome of cumulative short term trend actions. Yet long term trends follow the same sequence: they are established, they break, where counter trends are subsequently shaped, and which eventually becomes entrenched to assume the general trend in motion.

The transitional changes in the major price trends constitute as the distinctive phases of what is known as the stock market cycle. The reason it is called a ‘cycle’ is because of the repetition of same set of disparate sequential major trend actions or ‘patterns’.

Hence, volatility embedded in the financial markets, or in the stock market in particular, can be depicted as cyclical (reinforcement of the underlying trend) or countercyclical (opposed to the main trend). And the unfolding series of price volatility, for or against a major trend, could highlight on the transitional phases of the stock market cycle. For instance, a succession of short term price actions in contravention to the main trend may suggest of an inflection point or a reversal of incumbent major trend.

Again the stock market cycle primarily comprises a sequence of four distinct correlated phases of long term trends in transit.

The phases are according to Visual Economist/Alpha Trends:⁶

1) Accumulation: Occurs after a drop in prices. Process of buyers gaining control from sellers which leads to markup.

2) Markup: Bullish phase of a stock’s life is defined by higher highs and higher lows. This is where you want to get long on breakouts and after short-term pullbacks. Rallies are “innocent until proven guilty”.

3) Distribution: Occurs after a prolonged price advance. Sellers gain control of prices, which leads to decline.

4) Decline: Bearish phase of a stock’s life. This is where you want to be short, so look to sell short fresh breakdowns after minor rallies have exhausted themselves. Rally attempts are “guilty until proven innocent”.

The stock market cycle serves as an important guide to traders/investors in the context of the general direction of prices of stocks or indices.

By identifying the particular phase of the cycle, a trader may be able to assess on the price directions, and consequently, construct their trade positions based on the risk reward conditions.

The Stock Market Cycle Circa 1986-2003

Historical price trends at the PSEi (courtesy of chartsrus) have been no stranger to the stock market cycle.

Hindsight is 20/20.

The four different phases that evolved in 1986-2003 reveals of the existence of the stock market cycle.

The accumulation phase happened in 1986-1992. Within the stated period, though the Phisix had an upside tendency, it experienced wild volatility.

In the aftermath of the Philippine balance of payment crisis (1983-84), which was a product of the boom bust cycle of the 1970s, and the overthrow of the authoritarian Marcos regime in 1986, the Phisix experienced two booms which were ironically truncated by two botched coup attempts. Political obstacles proved to the barrier and source of volatility.

The Phisix found its bottom in 1991 following a short bear market which was triggered by political uncertainty from the second aborted coup

A year after, the Ramos administration, which emerged triumphant from the presidential elections of 1992, ushered in the mark up phase which it helped catapult

Understand that the boom in the Phisix then had also been reflected on her neighbors.

Such mark up phase climaxed with the astounding 173% returns in a single year or in 1993!

The January 1994 top eventually became THE critical obstacle to the bulls. This marked the beginning of the distribution phase.

The blitzkrieg by the bulls in 1993 spawned intense volatility. And such volatility was vented in 1994-1995, where the Phisix endured three accounts of bear market selloffs (bear market strikes). The Phisix wanted to correct the imbalance accumulated from the one year spike, but apparently, the bulls wouldn’t hand it to them on a silver platter.

At the end of 1995, the bulls got a second wind to drive the Phisix back into the 1994 high. Unfortunately, after marginally breaking out of the January 1994 watermark, in February 1997, the wheels came off for the bulls.

After three years, February 1997 marked the advent of the declining phase. The February peak and its consequent string of crashes brought to the surface the Asian crisis in July of the same year.

It took six long years for the Phisix to cleanse itself from the blight of the boom bust policies of the 90s.

Nevertheless, the four transitional phases highlighted on the completion of the 17 year stock market cycle.

The New Millennium Stock-Market Cycle

Yet the closure of the 1986-2003 stock market cycle appears to have brought about a NEW or today’s contemporary stock market cycle.

Because current actions are still evolving, identifying the phases of the stock market cycle have been more like looking at road signs or at a compass to establish or approximate one’s whereabouts.

In response to US recession brought about by the dotcom bubble bust, the US Federal Reserve imposed a series of rate cuts (6.5% to 1%). Apparently, the Fed’s actions spurred a global carry trade which helped put a floor on the Phisix in 2003.

The end of the Phisix secular bear market in 2003 was simultaneously the baptism of the new millennium generation of the Phillippine stock market cycle. Such marked the onset of the accumulation phase.

Like in the 1980s, where the accumulation phase ended with amplified volatility, the culmination of the same accumulation phase transpired with the US mortgage bubble bust in 2007, which triggered the Great Recession. The Phisix slumped 51% with hardly any structural economic or financial blemishes.

The 2007-2009 bear market of the Phisix was mainly impelled by external influence.

The BSP’s pivot towards monetary accommodation in 2009 in response to the Great Recession must have served as the catalyst to the transition from the accumulation phase to the mark up phase. The then relatively clean balance sheets of the Philippine economy functioned like a sponge to the BSP’s free money giveaway. 

 

A bank credit boom sparked a widespread inflation on Philippine assets as property, stocks, bonds and the peso soared (see blue trendline). Statistical Nominal GDP also surged (see red bars). Bank credit ballooned by 140% or a CAGR of 15.7% from end 2009.

The Phisix roared to a record high in May 2013. But this was stalled by the Fed’s taper tantrum. Yet on the same year, money supply surged by 30% annualized for 10 consecutive months as consequence from sustained torrid pace of credit expansion.

The spike in M3 ensured that bear market of 2013 proved to be transient (see red trend line). A new high was forged in April 2015. Yet such high was equally a product of the rigging of the headline index.

But as the rate of growth of bank lending began to ebb, the same declining dynamic has also been reflected on the money supply growth which filtered into the NGDP during the last two years.

So the new Phisix high eventually lost ground. Worst, two market crashes emerged in August 2015 and January 2016.

The stock market cycle suggests that when “sellers gained control of prices” such is sign of a distribution phase. Additionally, when rallies become “guilty until proven innocent”, such likely heralds a transition towards the declining phase. 2015’s 2H activities resonated with both of this.

Narrowing breadth also adds to the signs of distribution phase, or when “interest from momentum traders shifts to more active issues”.

Today’s fast and furious rally, as with April 2015, has been spearheaded by mostly eight issues.

And signs of incipient decline were apparent in the January 2016 crash when a “pattern of lower highs and lows below the declining longer term moving averages” transpired.

In other words, present symptoms suggest that April 2015 has most likely served as the end of the mark up phase and a possible transition to distribution-decline phase.

Also, from the trough of 2003 through the landmark high of April 2015, the bull market has reach about 12 years of age. This would be a little over the age of its predecessor 11 years, or when the Phisix peaked in February 1997 from a bullmarket which began in 1986.

It is important to understand that the stock market cycle is purely a perspective of price patterns. Chartists tacitly embrace the efficient market hypothesis (EMH) where “asset prices fully reflect all available information”, so their focus on price actions rather than fundamentals.

However, my narrative of fundamentals has been intended to explain price actions.

The Fundamental Case of the Distribution-Decline Phase

Fundamentals support the changeover to the distribution-decline phase.

One, 2015 has shown a significant decline in earnings growth of publicly listed firms. Additionally, Philippine bank lending growth which has pillared NGDP has been decelerating. Or NGDP has mirrored on bank credit growth activities.

To add, M3 crashed in late 2014 through the first semester of 2015 which almost resonated with NGDP and earnings growth. The crash of M3 growth from its previous boom has been instrumental in the direction of CPI.

In the previous M3 spike which was reflected on CPI these proved to be emergent strains on the purchasing power of residents. Pressures on the purchasing power compounded by increasing signs of excess capacity, I believe, has meaningfully contributed to the declining trend in NGDP for both government national income accounts as well as in (the top line) listed firms.

Furthermore, PSEi’s annualized returns have been trending down too. (see blue bar charts above)

Even more, valuations bolster the transformation case to the distribution-decline phase.

The BSP’s data on the Phisix annualized price earnings ratio (PER) points to 2015 PER levels at 1995-96 highs! Awesome!

So eps levels seem to resonate with the transitioning stage of the stock market cycle.

Understand that Phisix 2016 has not been similar with Phisix 1995.

The index composition has been different. The same variances should apply to regulations, trading platform and PSE and broker operations. Importantly, the way to the present level of overvaluations may have also been unique. 

 

For Phisix circa April 2016, the top 5 biggest market cap issues which carries a 37.99% (as of Friday) share weighting at the PSEi, has an average PER of 27.58%!!! (as of April 21)

The top 10, which has an aggregate market share weight of 65.19%, has an average PER of 25.55!!!

The top 15, which has an aggregate market share weight of 80.12%, has an average PER of 25.12!!!

So the top half of the PSEi has reached 1996 levels in the context of valuations!!

However, the average PER of the Phisix 30 as of April 21 was at 18.317.

This means that the average PERs of the lower 15 or the PSEi benchwarmers at 11.5 has diluted on the PER of the top half to reduce the PER average of the headline index.

In short, what you see is not what you get. The latter’s 11.5 has offset the top 15’s 25.12 to generate an average of ONLY a PER of 18.32 for the headline index.

So while weight of the PSEi’s price movements have been concentrated on the top 10, the lower 15’s diminished PERs effectively sanitizes or camouflages on the significant overvaluations embedded on the headline index.

The mirage of statistics.

Even Warren Buffet’s favorite stock market indicator, the market cap to gdp seem to resonate or converge with the stock market cycle and the PER levels.

At 2014’s 91.95, the PSEi’s market cap to GDP is just shy a few points shy of the 1996’s 97.35 high, based on World Bank data!

I am not aware of how the World Bank comes up with their numbers but based on the BSP’s data on the PSEi’s market capitalization divided by the National Statistics Nominal GDP I get a 101.35 in 2015 and 112.73 in 2014!

The Phisix closed at 7,230.57 in 2014. The Phisix was last traded at 7,255 in April 22, 2015. In short, after two years, the Phisix remains at 2014 levels.

None of these suggest of a worthy reward -risk tradeoff in favor of reward. Instead current conditions tilt the balance to risks relative to potential returns.

So even if the bulls succeed to break past the 7,400 threshold level, the stock market cycle, valuations, economic fundamentals serve as considerable headwind for a sustained thrust upwards.

That’s unless the fundamental function of the stock market to allocate capital has totally been broken.

Besides, it is not just 7,400, the previous high of 8,127.48 is now a key resistance level.

Can The Stock Market Cycle Be Broken? Yes By Destroying the Currency

One may ask: can the stock market cycle be broken? But of course! Why not?

Prices essentially depend on fundamentals—earnings, liquidity, economic, financial or even political conditions.

If the Philippines should have a leftist administration who will rigidly adapt leftist political programs, then the Phisix may indeed break to record highs.

Question is, at what cost?

And such record highs won’t stand on a similar ground as today. The record highs won’t be reflective of policy induced market mispricing or even economic conditions. Instead, like her Latin American peers say Venezuela or Argentina, where their respective equity benchmarks are shown above, they are likely to reflect a run on the currency—a crack up boom!

So one can have record stocks in the face of massive supply (food, energy, toilet paper) shortages in the economy and a capital city branded as the most violent in the world, all because of a collapsing currency, such as Venezuela.

____

1 See Phisix 7,250: More Proof of 2015’s EPS Fiasco: Crashes in JOLLIBEE and MEGAWORLD’s EPS Growth! PSEi’s Record 8,127’s First Anniversary April 10, 2016

2 ECB ECB announces details of the corporate sector purchase programme (CSPP) April 21, 2016

3 Reuters.com China commodity exchanges crack down on speculation as rebar volumes soar Resource Investor.com April 22, 2016

4 Reuters.com Fitch: China SOE Defaults Pose Credit Tightening Risk April 21, 2016

5 Bloomberg.com China's Money Rate Gains Most Since June While PBOC Injects Cash April 22, 2016

6 Visual Capitalist This Market Cycle Diagram Explains the Best Time to Buy Stocks April 19, 2016

Quote of the Day: The Global Warming Theory has Failed. Money, Politics and Ideology have Replaced Science

In celebration of Earth Day, the Weather Channel founder John Coleman vented: (source USA Today/ht zero hedge)

The environmentalists, bureaucrats and politicians who make up the U.N.’s climate panel recruit scientists to research the climate issue. And they place only those who will produce the desired results. Money, politics and ideology have replaced science.

U.N. climate chief Christiana Figueres has called for a “centralized transformation” that is “going to make the life of everyone on the planet very different” to combat the alleged global warming threat. How many Americans are looking forward to the U.N. transforming their lives?

Another U.N. official has admitted that the U.N. seeks to “redistribute de facto the world’s wealth by climate policy.” The former head of the U.N. climate panel also recently declared that global warming “is my religion.”

When all the scare talk is pushed aside, it is the science that should be the basis for the debate. And the hard cold truth is that the basic theory has failed. Many notable scientists reject man-made global warming fears. And several of them, including a Nobel Prize winner, are in the new Climate Hustle movie. The film is an informative and even humorous new feature length movie that is the ultimate answer to Al Gore’s An Inconvenient Truth. It will be shown one day only in theaters nationwide on May 2.

As a skeptic of man-made global warming, I love our environment as much as anyone. I share the deepest commitment to protecting our planet for our children and grandchildren. However, I desperately want to get politics out of the climate debate. The Paris climate agreement is all about empowering the U.N. and has nothing to do with the climate.

Quote of the Day: Why Saudi Arabia May Become The Mideast’s Newest Hotspot

Writes historian Eric Margolis at the Lew Rockwell.com

Saudi Arabia and the Gulf states have been de facto US-British-French protectorates since the end of World War II. They sell the western powers oil at rock bottom prices and buy fabulous amounts of arms from these powers in exchange for the west protecting the ruling families.

As Libya’s late Muammar Kadaffi once told me, “the Saudis and Gulf emirates are very rich families paying the west for protection and living behind high walls.”

Kadaffi’s overthrow and murder were aided by the western powers, notably France, and the oil sheiks. Kadaffi constantly denounced the Saudis and their Gulf neighbors as robbers, traitors to the Arab cause, and puppets of the west.

Many Arabs and Iranians agreed with Kadaffi. While Islam commands all Muslims to share their wealth with the needy and aid fellow Muslims in distress, the Saudis spent untold billions on casinos, palaces, and European hookers while millions of Muslims starved. The Saudis spent even more billions for western high-tech arms they cannot use.

During the dreadful war in Bosnia, 1992-1995, the Saudis, who arrogate to themselves the title of ‘Defenders of Islam” and its holy places, averted their eyes as hundreds of thousands of Bosnians were massacred, raped, driven from their homes by Serbs, and mosques were blown up.

The Saudi dynasty has clung to power through lavish social spending and cutting off the heads of dissidents, who are routinely framed with charges of drug dealing. The Saudis have one of the world’s worst human rights records.

Saudi’s royals are afraid of their own military, so keep it feeble and inept aside from the air force. They rely on the National Guard, a Bedouin tribal forces also known as the White Army. In the past, Pakistan was paid to keep 40,000 troops in Saudi to protect the royal family. These soldiers are long gone, but the Saudis are pressing impoverished Pakistan to return its military contingent.

The US-backed and supplied Saudi war against dirt-poor Yemen has shown its military to be incompetent and heedless of civilian casualties. The Saudis run the risk of becoming stuck in a protracted guerilla war in Yemen’s wild mountains. The US, Britain, and France maintain discreet military bases in the kingdom and Gulf coast. The US Fifth Fleet is based in Bahrain, where a pro-democracy uprising was recently crushed by rented Pakistani police and troops. Reports say 30,000 Pakistani troops may be stationed in Kuwait, the United Arab Emirates, and Qatar.

Earlier this month, the Saudis and Egypt’s military junta announced they would build a bridge across the narrow Strait of Tiran (leading to the Red Sea) to Egypt’s Sinai Peninsula. The clear purpose of a large bridge in this remote, desolate region is to facilitate the passage of Egyptian troops and armor into Saudi Arabia to protect the Saudis. Egypt now relies on Saudi cash to stay afloat.

But Saudi Arabia’s seemingly endless supply of money is now threatened by the precipitous drop in world oil prices. Riyadh just announced it will seek $10 billion in loans from abroad to offset a budget shortfall. This is unprecedented and leads many to wonder if the days of free-spending Saudis are over. Add rumors of a bitter power-struggle in the 6,000-member royal family and growing internal dissent and uber-reactionary Saudi Arabia may become the Mideast’s newest hotspot.

Two things, if this becomes true, which could part of what I have been discussing, then what should happen to Philippine OFWs?

Next, as for Saudi's public arbitrary/summary execution of the political opposition under the cover of drug dealing, will this resonate with the political climate in the Philippines under a new potential populist 'strong man rule' regime?

Updated to add: there goes the bug which automatically shrinks font to the smallest--again! Sorry for this

Phisix 7,250: 73% of Index Gains from Team Viagra! (Log April 21)

The operations of Team Viagra have not only become regular but bolder and more intense. 

For today session, virtually 74% of the day’s gains come from the session end spike 

Which bourse in the world shows of the same phenomenon? Only in the Philippines! Only at the PSE. 

In today's world, manipulations are now considered a virtue (even called reforms) hence the PSE was awarded as the best bourse of ASEAN in 2015.

Yet the brazen gaming of Philippine stock market reveals of increasing signs of desperation. 

Why? Because fundamentals have been exposed as having little relevance to current stock market pricing or levels.  The public in 2015 had been told that stocks was about G-R-O-W-T-H. So the April 10 2015 record--which eventually sputtered. 

Now that 2015 is a fact and G-R-O-W-T-H was nowhere to be found, the stock market pumping has become even more furious. 

So in the likely dread of the repetition of August 2015 and January 2016 crash, gains from current momentum has to be sustained AT ALL COST! And so the more drastic and desperate the end session pumps by manipulators! 

Just look at the sectors which had been forcibly pushed higher. 

Apparently the main thrust for the day’s operation has been banks. And they were followed by the regulars, the holding and property sectors. 

Since it is obvious that a break of 7,400 won't happen with just 8 issues alone, manipulators had to generate a bandwagon effect from the other PSE issues

And since banks have largely lagged the recent meltup and so this likely "marking the close" pump. You see gains can't be achieved via regular market pricing, so manipulation is required.

A stunning more than 100% of BDO’s gains today was from the closing pump. As one would note, BDO was marginally down (in red) prior to the market intervention phase where the marking the close occurred. 

BPI emerged from the grave to rise by 1.24% today. The last minute pump was 1.3%, which means, like BDO, more than 100% came from the coordinated push, since BPI was down prior to the intervention phase. 

78% of MBT’s gains for the day was from the same maneuvering. 57.8% of ALI’s gains were from the same operations. So on and so forth. 

The above are the major beneficiaries. Yet some others had pumps, but the scale has been lesser than as pointed above. 

Given the intensity of the coordinated chicanery, it is even a surprise that the PSE closed up by only .78%. Today’s operations appeared as if it was engineered for 1% or more gains. 

The lack of liquidity and the palpable tolerance by regulators and by the PSE has only been facilitating the commission of such irregularities. And since stocks are now status symbol, as well as policy tools which serve as a mechanism for the redistribution of wealth in favor of authorities and the establishment so why would they stop a good thing going? 

But of course, there is no such thing as a free lunch forever.

Flagrant pumping with little support from fundamentals means imbalances will just keep mounting. And symptoms of imbalances, as consequence from the lack of respect and perversion of the markets, can be seen via vastly mispriced  securities. And this means current conditions are unsustainable.  And sorry to say, that such pumps would mean August 2015 and January 2016 crashes will most likely not be in isolation. The obverse side of every mania and manipulations is a crash.

Note images charts and data from PSE, Bloomberg, Colfinancial and technistock

Central Bank Panic: Sweden's Central Bank Expands QE! Keeps Negative Interest Rate

Why has the stock markets of developed economies run amuck over the past week?

The US S&P

Europe's Stoxx 600

Japan's Nikkei 225 (not update for today's or April 21st trade where the said index spiked by 2.7%)

My guess? Aside from the supposed agreements by oil producers to cut oil production, which has become a key stimulus, another substantial part of the answer could be from the implicit Shanghai Accord. Global central banks appear to have undertaken an unannounced coordinated project of implementing monetary easing of their respective domestic financial system designed to propel risk asset markets higher or stoke the 'animal spirits'. Such tacit project, which may have emerged during the G-20 meeting in February, have been sold to the public as intended for inflation and growth enhancement.

Stock markets have become an instrument for policy making, thereby its sustained perversion. Thus, as global central banks remain on a panic mode, such translates to panic buying for stock market casino gamblers whom are the main beneficiaries from such policies.

Well, Sweden's central bank just announced an expansion of QE

From Marketwatch.com

The Swedish central bank raised its bond-buying target to 245 billion Swedish krona ($30.35 billion) on Thursday, saying the move, coupled with the bank's negative benchmark interest rate, is aimed at holding down the national currency and safeguarding a rise in inflation.

The revised policy plan will see the Swedish Riksbank, the world's oldest central bank, buy an additional SEK45 billion in government bonds in the second half of this year, on top of the SEK200 billion it is in the process of buying by the end of June.

Its main interest rate will remain at minus 0.5% where it has been since February.

Yesterday the Bank of Japan signaled that it may expand the purchasing of stock market ETFs

From Yahoo.com

Bank of Japan Governor Haruhiko Kuroda said on Wednesday the central bank's presence in the exchange-traded fund (ETF) market is "not too big," signalling that topping up purchases of ETFs could be a real, near-term option.

Later today, the ECB will have its decision day. Global markets seem all focused on central bank actions.

In short, to keep stock markets in suspended animation, away from the reckoning of harsh economic reality, central banks will continue to rain "stimulus" on stimulus addicts.

Phisix Operation Team Viagra Log April 20, Sharp Losses of China’s Shanghai Index Possibly Eased by National Team Interventions

Well, there has been no let up when it comes to cosmetically sprucing up the Philippine headline index.

While today’s intraday price actions had mostly been less volatile, “marking the close” pump contributed to the erasure of a staggering 42% of the day’s loss which tallied at -.19%.(see below)

As been noted yesterday, the apparent task by the index has been to keep PSEi from falling below 7,200.

However, instead of bolstering the index via the broader market, they opted to play safe today.

So the use of two major issues from two key sectors. 

SMPH’s share price magically jumped by a stunning 1.6% at the last minute market intervention phase to close the day up by 1.82%. This means that a whopping 88% of SMPH’s gains had been due from "marking the close". So SMPH pushed the property index and the PSEi higher.

On the other hand, AC was down by a big 1.7% just right before the close. However, index managers pushed the said stock by .9% to reduce the day’s decline to just .8%! Or close to half of AC's deficit was expunged courtesy of the index manipulators. So AC contributed to the push in both the headline and the (holding) sector index

Almost daily price fixing of the index and the PSE: only in the Philippines!

Oh by the way, Chinese stocks tanked by 2.31% today. But the day’s loss had been mitigated by what I would suspect as interventions from the "national team".

Unlike the Philippines, at least the Chinese government admits to these interventions.

The Shanghai index dived by as much as 4.4%, post lunch, before its sudden surge to wipe out 47.5% of said deficit at the near close. The Google chart above accounted for the last five day intraday sessions of the Shanghai index. And the huge pump can be seen in the rightmost side of the chart.

As one would note, pumping occurs at almost each session close (see red boxes). 

The difference is that the Philippines version signifies a Viagra like response as price fixing occurs at the last minute or during the transition from regular market trading to market intervention phase, hence the "marking the close", this compares to the last quarter of each session push as seen in the Chinese version. The Chinese national team ought to import Philippine price fixers.

The role of the Chinese national team as indicated in today’s Bloomberg report: Signs of stabilization in the world’s second-largest economy and speculation of buying by state-backed funds helped send the Shanghai Composite up 12 percent since its low on Jan. 28. China reported the economy grew 6.7 percent in the first quarter, in line with estimates, while industrial output and retail sales in March beat expectations. China stepped up intervention in its financial markets after stocks extended last year’s $5 trillion selloff and the yuan fell to a five-year low.

Moreover, China’s central bank the PBoC via its agency State Administration of Foreign Exchange (SAFE) have been indirectly amassing stocks.

From the Nikkei Asia

Consider Wutongshu Investment Platform, which is wholly owned by the State Administration of Foreign Exchange. Since last year, the fund has acquired at least 30 billion yuan ($4.62 billion) worth of shares.

Wutongshu was established in November 2014, with 100 million yuan in capital. It is reportedly led by He Jianxiong, a former director-general of the international department at the People's Bank of China. Recently, the fund's name has cropped up on the rosters of major shareholders of at least 12 listed companies.

As of Friday, its holdings in Shanghai Pudong Development Bank were valued at around 11 billion yuan, while those in Industrial and Commercial Bank of China (ICBC) were worth about 6 billion yuan. The institutional investor also runs a pair of investment companies. It appears the strategy is to have the parent increase its weighting of bank stocks, while the two units are likely focusing on other industries.

It wasn’t stated whether SAFE’s Wutongshu Investment Platform directly intervened or intervened through intermediaries from which the company provided financing. So the Xi Jinping Put has been extended to use the PBoC's SAFE.

As for today’s weakness in Chinese stocks, the same Bloomberg report seem lost to explain today’s actions

Traders struggled to explain the reason behind the sudden selloff, which isn’t an unusual occurrence in a market dominated by individual investors. Interest in mainland equities has been fading this month after March’s 12 percent surge amid concern that improving economic data will prevent the government from adding stimulus. Wei Wei, an analyst at Huaxi Securities Co. in Shanghai, says the slump is triggering concern that the panic seen at the start of the year, when the equity gauge sank 23 percent in the space of a month, could return.

Perhaps the lifting of the ban last April 8 on large shareholder selling of more than 1% of the stake may have been a factor. The easing of selling restrictions allows large shareholders to sell up to 1% of the total in a three month period, according to the Nikkei Asia

The other factor could be from reports that China’s $ 3 trillion corporate bond may have started to unravel

From another Bloomberg report yesterday

Spooked by a fresh wave of defaults at state-owned enterprises, investors in China’s yuan-denominated company notes have driven up yields for nine of the past 10 days and triggered the biggest selloff in onshore junk debt since 2014. Local issuers have canceled 61.9 billion yuan ($9.6 billion) of bond sales in April alone, and Standard & Poor’s is cutting its assessment of Chinese firms at a pace unseen since 2003.

While bond yields in China are still well below historical averages, a sustained increase in borrowing costs could threaten an economy that’s more reliant on cheap credit than ever before. The numbers suggest more pain ahead: Listed firms’ ability to service their debt has dropped to the lowest since at least 1992, while analysts are cutting profit forecasts for Shanghai Composite Index companies by the most since the global financial crisis…

China’s leaders face a difficult balancing act. On one hand, allowing troubled companies to default forces money managers to pay more attention to credit risk and accelerates government efforts to curb overcapacity. The danger, though, is that investor panic leads to tighter credit conditions, dealing a blow to President Xi Jinping’s plan to keep the economy growing by at least 6.5 percent over the next five years.

Economic figures for March reveal a growing dependence on debt. China’s aggregate financing -- a broad measure of credit that includes corporate bonds -- almost doubled from a year earlier to 2.34 trillion yuan, exceeding all 24 forecasts in a Bloomberg survey as policy makers turned on the taps to support economic growth.

If the latter (emergent signs of corporate bond strains) will be or serve as the cause that may be aggravated by the former (1% selling rule), will the Chinese national team be able to stop the tidal wave of selling?

And to extend the thought, will the local or Philippine counterpart be able to forestall a potential chain effect from the above?

Interesting

Note: Philippine data/images from Bloomberg, technistock, colfinancial, and the PSE

Quote of the Day: What Goes Around Comes Around, Even Central Banks Suffer from Negative Rates

Spontaneous Finance Blog's Julien Noizet pointed out that the perceived "free lunch" from negative interest rates hasn't been free, not even for central banks which has implemented them:

Central banks are indeed big players on the market due to their OMO and related policies that involve purchasing and selling billions of assets in order to influence market prices, aggregate amount of high-powered money and interest rates. They also invest in other currencies and commodities and place cash with other central banks.

Unfortunately, a number of their placements are now generating negative returns and yields on their fixed income investments (often government bonds) are now very low, if not negative.

The irony of the whole situation is that central banks initiated their conventional and unconventional policies partly in order to help (i.e. force) the private sector to take more risks (‘search for yield’). What goes around comes around, and it is now central banks’ turn to follow the same route. In short, they are now turning into vulgar commercial banks that attempt to please their shareholders (i.e. budget-constrained governments who need this cash).

But in doing so, they also potentially endanger their capital base.

If something cannot go on forever, it will stop (quote attributed to the late economist Hebert Stein)

Phisix 7,200: Operation Team Viagra Log April 19

The year 2015 has demonstrated that the gamut of wild pumping activities, which impelled the Phisix towards the April 10 2015’s 8,127 milestone, had been nothing more than destabilizing intensive speculative bids. Such frenzied bidding has been anchored on the popular delusion of G-R-O-W-T-H, which, as I rightly predicted, turned out to be a mammoth flop. 

Of course, that was just a part of the story. 

The other scintillating facet of 2015 has been the massive rigging of the local equity prices.Such rigging process originated at the 2H of 2014.

Apparently, both factors remain present today. 

Perhaps in fear that the Phisix would break technical support, which may lead credence to the formation of the gigantic 4 year Head and Shoulder pattern, operation team Viagra ensured the headline index would remain within striking range of the May 2013 record threshold. The May 2013 high has palpably served as a mighty resistance level. 

So with the use of another “marking the close”, today’s loss was trimmed by an incredible 42% at the closing second. 

Three sectors participated in the concerted pump. The service sector contributed to the gist of the loss mitigation operations. The industrial and the property sector functioned as tactical flanking support for today’s loss alleviation program 

Perhaps Operation Team Viagra may have read from this blog that in order to break 7,400 they would need a "broader or broad based" participation. 

So indeed, a key part of today’s index management or price fixing program emerged from some of the underperformers. 

By virtue of price fixing, service sector leaders, PLDT and GLO morphed from deep red to suddenly green. 

In the case of PLDT, a huge loss of .98% magically closed up at .33%, from the massive +1.3% push. More so with GLO. Down by an enormous -1.3%, GLO was marvelously transformed at the close with a 1.38% advance, from another stunning 2.7% pump! 

As of last Friday, based on market cap weight, TEL ranked fourth while GLO ranked 18th. 

Energy producer EDC too was a beneficiary of a +1.6% pump that reduced the firm's loss to just .34% today.

Three of the four issues which benefited from today's pump were in the top 20 most active.

Price fixers seem to think that the discounting function of markets has been rendered irrelevant and obsolete by them. Or that they seem to believe that their actions have only beneficial consequences where the falsification of market prices would be a free lunch for them forever. 

Well good luck to them. 

Yes brazen equity price manipulation only in the Philippines!

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

What Was the US Fed Chair Janet Yellen's Secret Meeting with US President Obama All About?

Former Congressman Ron Paul offers an explanation at his website: (bold added)

This week, President Obama and Vice President Biden held a hastily arranged secret meeting with Federal Reserve Chairman Janet Yellen. According to the one paragraph statement released by the White House following the meeting, Yellen, Obama, and Biden simply “exchanged notes” about the economy and the progress of financial reform. Because the meeting was held behind closed doors, the American people have no way of knowing what else the three might have discussed.

Yellen’s secret meeting at the White House followed an emergency secret Federal Reserve Board meeting. The Fed then held another secret meeting to discuss bank reform. These secret meetings come on the heels of the Federal Reserve Bank of Atlanta’s estimate that first quarter GDP growth was .01 percent, dangerously close to the official definition of recession.

Thus the real reason for all these secret meetings could be a panic that the Fed’s eight year explosion of money creation has not just failed to revive the economy, but is about to cause another major market meltdown.

Establishment politicians and economists find the Fed’s failures puzzling. According to the Keynesian paradigm that still dominates the thinking of most policymakers, the Fed’s money creation should have produced such robust growth that today the Fed would be raising interest rates to prevent the economy from “overheating.”

The Fed’s response to its failures is to find new ways to pump money into the economy. Hence the Fed is actually considering implementing “negative interest rates.” Negative interest rates are a hidden tax on savings. Negative interest rates may create the short-term illusion of growth, but, by discouraging savings, they will cause tremendous long-term economic damage.

Even as Yellen admits that the Fed "has not taken negative interest rates off the table," she and other Fed officials are still promising to raise rates this year. The Federal Reserve needs to promise future rate increases in order to stop nervous investors from fleeing US markets and challenging the dollar’s reserve currency status.

The Fed can only keep the wolves at bay with promises of future rate increases for so long before its polices cause a major dollar crisis. However, raising rates could also cause major economic problems. Higher interest rates will hurt the millions of Americans struggling with student loan, credit card, and other forms of debt. Already over 40 percent of Americans who owe student loan debt are defaulting on their payments. If Federal Reserve policies increase the burden of student loan debt, the number of defaults will dramatically increase leading to a bursting of the student loan bubble.

By increasing the federal government's cost of borrowing, an interest rate increase will also make it harder for the federal government to manage its debt. Increased costs of debt financing will place increased burden on the American people and could be the last straw that finally pushes the federal government into a Greek-style financial crisis.

The no-win situation the Fed finds itself in is a sign that we are reaching the inevitable collapse of the fiat currency system. Unless immediate steps are taken to manage the transition, this collapse could usher in an economic catastrophe dwarfing the Great Depression. Therefore, those of us who know the truth must redouble our efforts to spread the ideas of liberty. If we are successful we may be able to force Congress to properly manage the transition by cutting spending in all areas and auditing, then ending, the Federal Reserve. We may also be able to ensure the current crisis ends not just the Fed but the entire welfare-warfare state.

Could this be why US stocks continue to surge? Could this be part of the Shanghai Accord?