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
