PSEi Price Fixing: Shocking Pump to 8,000 and then Dump back to 7,800! Has All These Been a Prearranged Inauguration Pump???

Before I present to you today’s shocking pump and dump let me first elaborate on what I said yesterday as

And each ‘correction’ has been met by even more vicious and or violent buying! And correction can’t seem to even happen within the day!

Following Brexit, global stocks suffered a meltdown which climaxed on Friday June 24th where US stocks slumped by over 3%.

The initial reaction of Philippine stocks was to intuitively echo on Wall Street’s fall. The PSEi dumped 1.8% at the opening bell.

As regional markets were bloodied, some local entities decided that losses would not be permitted for Philippine stocks. So a series of pumping took hold. 

Why would a rational investor engage in panic buying when they can buy at more reasonable prices, especially under a risk off circumstance?

Who would initiate a series of violent pumping actions if not in anticipation of immediate price increases? Or if not to fix the market? And if the former, then why should a price surge happen at all? Somebody found the fountain of youth?

And we are not talking of one or two stocks; we are talking about the headline index. And for the PSEi to respond dramatically means that there had been a concerted and coordinated buying spree across the majors! That is, the violent upside move by the PSEi represented an organized or syndicated set of actions! In short, this was all about the gaming the index.

So the PSEi reversed its 1.8% loss to close the lunch recess at all square.

Then the “afternoon delight” became operational post lunch break. Not content with the .63% gain, the price fixing operators ensured that gains had to be material—so the .5% marking the close! Total gain of the day 1.13%!

All in all the Phisix had a fantastic intraday 4.73% swing!

And note that extraordinary fluctuation came with only Php 6.8 billion inclusive of block trade!

Whoever did these wanted to make a statement: the PSEi is INDOMITABLE!!! (for whatever reasons)

Then came yesterday’s intense 1.72% pumping backed by only Php 7.6 billion of trade!

So in three days including Tuesday’s -.63% correction, the PSEi generated a return of 2.2%!

Well, today was supposed to be another follow through.

 

Riding on the coattails of a big rally in Wall Street and the inauguration of the new administration, the PSEi lunged to a flabbergasting 2.33% intraday gain at the early session which it held for most of the day!

Market participants believed that the Phisix had reached a nirvana! And at such level, it was just a little over one hundred points away from April 2015’s 8,127.48!

However things reversed coursed at the close.

Frenzied pumping turned into frantic dumping!

The PSEi found itself in down by as much as .38% at the last minute prior to the market intervention phase. The early 2.33% ramp had all vanished!

Hoping to contain the damage and rescue whatever was left of the euphoria, index managers applied CPR, they used marking the close to push the index back to just -.03% down! 

Overall, the PSEi had another monumental pendulum swing totaling 5.39%!

This is no stock market. This is a rigged casino!

All major indices were down. Yet price fixers used several firms representing the respective mainstream industries:

Banking: MBT had a shocking 5.2% marking the close to suddenly end up by .39%! Yes this means MBT was down by 4.81% and had to be bailed out!

Services: TEL suddenly soared to close up by 1.9% following a stunning 2.2% maneuver!

Property: SMPH also abruptly closed 1.11% from a 2.82% push! Yes SMPH was also down by 1.71% prior to the close!

And peso volume was at a hefty 15.36 billion! This means that sellers suddenly emerged!!!

If all these represented “part of the prearranged inauguration backdrop for the new administration” as I said last night then what happens now?

There is no such thing as a free lunch.

Since the post election, specifically May 10, a total of Php 360 billion of peso turnover (or Php 9.5 billion in 38 days) had been involved in the pump the PSEi to 7,800.

Who financed this? And how was such stunning meltup been financed? Have these been through bank credit?

And what happens to all those who bought from the top if financed by credit? If the PSEi falls, will such loans be called upon? Will these trigger liquidations that would set about an avalanche of selling?

This seems like déjà vu.

At the post April’s 2015 record, aside from a wish for 10,000 at the end of his term, the former president paid a visit to the PSE.

I pointed at the foreboding signs of mania in climax (May 3, 2015)

Here is a trivia, aside from being heads of states of two of the largest ASEAN nations, what does Philippine President Aquino and Indonesian President Widodo share in common?

Well the answer is that both presidents graced their respective stock markets in April where both indices had been at record highs. In addition, both political leaders delivered their desired targets for their respective stock markets during the said occasion.

The above was actually a follow up on my earlier warning (April 19, 2015)

I am reminded of the fateful BW bubble that turned into a scandal. BW’s preposterous 52x run climaxed with the visit of Macau’s casino mogul Stanley Ho to the PSE. This eventually was followed by the stock’s monumental collapse back to its origins!

Manipulating the markets in order to please politicians…will history repeat???

 

 

Phisix Goes Berserk, Storms to 7,800, Comparing 2013, 2015 and Today‏

Not even Brexit or the weakening Peso or slowing volume (Php 7.6 billion) has been able stop or temper the ferocious bidding dynamics.

And each ‘correction’ has been met by even more vicious and or violent buying! And correction can’t seem to even happen within the day!

Current price actions essentially represent the deepening and intensifying convictions of the one way street for Philippine stocks by the participants.

And perhaps this could be part of the prearranged inauguration backdrop for the new administration.

As of today’s close the Philippine 30 composite issue benchmark is just 4.1% shy of April 2015 record high!

The four year chart depicts the three critical highs: May 2013, April 2015 and the ongoing panic buying process

The PSEi chart has been intended to serve as template for the top issues that make up the PSEi.

As of Friday, these issues have accounted for 81% of the market cap weight. This means that price action of these 15 issues have essentially contributed the meat of the ongoing fiery meltup.

Note:

1 All charts are nominal peso based.

2 Market cap ranking according to Friday’s weights

3 Market cap ranking has been different during comparable threshold periods

4 Respective 2013 and 2015 highs have been marked by red arrows. 

1 SM

SM has marginally surpassed 2013 and 2015 record levels. Nonetheless the forceful push to attain current conditions.

2 ALI

ALI’s chart almost resonates with the PSEi. Again note of the violent push to current levels via parabolic price actions. ALI has yet to carve a new record.

3 JGS

Like SM and ALI, third ranked JGS have currently undergone a series of scorching vertical price actions.

However, it seems that JGS has either met an exhaustion point or could just be consolidating

4 SMPH

While SM and JGS appears to have hit a wall, the load of the current gains by the Phisix has been from ALI and SMPH’s eye popping blistering meltup.

This comes in the face of slowing eps growth

5 TEL

A big factor why the PSEi has not reached 8,147 given the fantastic gains by SMPH, JGS, AC, SM and AEV has been due to TEL’s bear market. But index managers have been earnestly trying to spike TEL’s price using 4G as an excuse

6 AC

Like SM, AC has marginally breached the April 2015 record. Again such record has been from Viagra stimulated price actions

7 URC

Another reason the PSEi has yet to breach 8,127.48. URC remains significantly off the highs of 2015. URC’s lagging performance shows why it become a drag on the fervent push to 8,127.48

8 AEV

 

AEV’s awesome push to new highs. Much of its parabolic gains has emanated from ‘marking the close’.

Today stunning 2.6% surge is an example.

9 BPI

 

Banks have also weighed on the path to 8,127.48. So the belated push! Push! Push!

10 BDO

BDO too has also been a laggard. So push! Push! Push!

11 MBT

 

MBT too. MBT has a history of short term bubbles. Nonetheless without banks 8,127 will be an elusive dream, so push push push!!!!

12 GTCAP

GTCAP has experienced less drastic price action. While GTCAP recently slightly surpassed the 2015 level, it has yet to show a meaningful breakout.

13 JFC

JFC was immune to the emerging market meltdown in 2013. The food company’s share prices soared even as the rest were sold down.

However, in 2015 it peaked ahead of the pack or prior to April 10.

Presently JFC seems in a consolidation mode. It has been drifting a little above the 2015 watermark. JFC has been one of the PSEi’s most expensive stocks

14 MPI

MPI used to be under the top 15. But because of its “infrastructure” story it has managed to move in a vertical fashion. It has broken past the 2013 (and 2009) highs. But MPI has a fantastic history of mini boom bust cycles.

15 GLO

GLO was also one stock that was hardly affected by the May 2013 selloff.

GLO experienced a remarkable runup going to the April 10 PSEi 2015 highs where it belatedly peaked. Ironically GLO gave back everything when it tumbled back to its May 2013 level in December 2015 and in January of this year.

Now it is making the same pre-April 2015 push.

So there are presently EIGHT issues or more than half of the top 15 at new record or drifting at 2015 record highs.

All eight issues have been products of violent pumping and pushing.

Even for issues below April 2015 highs, there have been current attempts to frantically pump them.

Are Philippine stocks reflecting on a new earnings boom? Are they also impervious to external risk? Have they been reflecting on the silent stimulus?

Or have Philippine stocks become totally unhinged to fundamentals?

PSEi 7,650 and the Philippine Peso in the Shadow of Brexit and the Faltering Yuan

Developing internal contradictions at the Philippine financial markets have been truly amazing.

Manipulation, Brexit and the Ignorance Fallacy

Index managers continue to force the PSEi higher with the aim to beat the 2015 highs even when political risks both here and abroad have been mounting.

Friday’s stunning 5.88% swing is an example of how Philippine stocks have become playground of manipulators.

The Phisix had a strong opening to soar by 1.08%. When the Brexit news emerged, the Phisix made a roundtrip, where all gains had been erased. Gains turned into losses and the losses intensified for the PSEi to hit an intraday low 7,538. At the said level, the PSEi was down by -2.5%, immediately after lunch.

But then, the afternoon delight pumping operations came into action. Panic buying emerged to chop off losses to just 1.55% at the pre-market intervention phase. At the runoff, marking the close caused the PSEi to close lower by only 1.29%. Or marking the close shaved .26% losses!

Manipulators want to make the public believe that the Philippines would be immune to any exogenous shocks. And that Philippines stocks represent economic G-R-O-W-T-H and prosperity even when they are symptoms of brazen manipulations and popular delusions or mania.

There is no country in the world that has a stock market that sees marking a close as a regular feature. Not even China and Japan where interventions at the stock market by the government represents part of the official policy.

Naturally, media came out to say that Brexit equals little risk for the Philippines because of “macroeconomic stability”.

So once again they go on to chant or recite statistics, as if these numbers are talismans that would successfully drive away evil spirits. Yet these are historical numbers. And numbers are subject to change in the face of changing events.

They said the same on Greece and on China. And because such events have been temporarily curtailed, they have come to believe of the invincibility of the Philippines. It has been presupposed that because such adverse climate has not yet happened, it WON’T happen. They think that the absence of evidence is enough to argue for its resilience. Yet this represents the ignorance fallacy or “absence of evidence is not evidence of absence.”

For the Mainstream: Prices Have Been Unanchored to Fundamentals

I just received a note from a bank urging their depositors not to keep their money idle and have them work through the financial markets through the various funds they offer.

 

It’s really sad and unfortunate to see how to such institutions sell products to the gullible public, based on seeming misinformation, by ignoring valuations and the attendant the risk involved. They instead switch the public’s focus on price trends as if prices have been unanchored to the fundamentals of securities. And they seem to think that corporate fundamentals have loose ties or connection with the domestic and international economic conditions.

The two month PSEi pump as shown that in the context of price earnings ratio (PER), PSEi 7,650 has NEVER been about G-R-O-W-T-H but about grand deceptions channeled through massive price multiple expansions!

At 7,650, PERs of market cap weighted PSEi has now reached a treacherous nosebleed levels at 24.92! Such PER levels has signified a few points away from the highs reached during 1996! While the average PER of PSEi 30 has climbed back to 19.12!

But of course who would like mess with an entrenched public conviction that the Philippine bull market is impervious to risks?

Yuan Movements will Reflect on the Peso 

 

But then again, currency traders appear to disagree with stock market manipulators.

Down by 1.08%, the peso was the second worst performer after India’s rupee -1.32% (partly due to the sudden departure of central bank governor Ragu Rajan). The USD php closed at 46.495 last Friday from the other week’s 46.445.

Note that the peso and stocks has had an inverse correlation, where the rise in the USD eventually meant downward PSEi and vice versa.

The peso has essentially tracked the Chinese offshore yuan.

So if the yuan persist to weaken in the coming days, which I expect (given that Brexit will likely aggravate China’s dollar “short” conditions), then the peso will also likely reflect on the yuan’s weakness.

Now of course, stock market manipulators can do what they want to do.

But such contradictory forces will imply that one of the anomalies will have to be repriced…most likely in a violent fashion.

 

Why the War on Mining Will Fail!

Statist Prohibition: The War on Mining

The Duterte regime is an administration based on prohibition.

During the post election period, I deduced that the composition of the cabinet, and not their pronouncements, will determine the incoming administration’s policies:

Understand that cabinet positions signify as heads of the implementing agencies of the government. Hence when the president uses his apparatchiks to execute his political programs, the political path or direction veers toward the leftism. 

Additionally, I wrote of the significance of the Environment and Natural Resources department to the left.

Environment: Land is a key factor of economic production. And this is why the environment position is also critical in as much as it is for the agriculture. The communist aim is for the complete control over resources. This not only secures funding for their programs, it is also designed to ensure logistics and control of production. 

So when Mr Duterte offered anti-mining fanatic and tycoon Ms Gina Lopez the DENR post, such has partly affirmed on my suspicions of the left leaning policy direction of the incoming regime.

It is an example of revealed preferences. Action speaks louder than words.

Yet today’s environmental politics have become a vehicle for socialism in disguise. For instance, Patrick Moore founder of the Greenpeace abdicated from the organization he established because “Greenpeace took a sharp turn to the political left, and began to adopt policies that I could not accept from my scientific perspective.”

A pro-business environment cannot just happen when the cabinet is comprised of members of the red brigade, military bureaucrats, and appendages of cronies. That’s because hardly any of them—based on their experience, interests, network and ideology—has been shaped by free markets.

But they all have a common ground: statism. The difference is on how their different versions of statism should work.

Even worse, because of such divergence, their interests would likely run antithetical to each other. Duterte’s cabinet essentially represents a cauldron or mishmash of internal contradictions. Once operational, the cabinet will likely be filled with tensions from conflicts of interests.

Nevertheless, it is Mr Duterte’s political inclinations that ultimately will matter. Early this June, he reaffirmed or reiterated to deny that he is a communist and instead that he declared that he represents ‘left of center’. Of course he has to reject communism. That’s because the military won’t likely accept a communist leadership. Besides, left of center and communism can signify a wordplay, left of center can also be defined as soft core communism.

One may ask, wouldn’t two heads be better than one? But the quality of diversity matters. Policy decisions from the current makeup of the Duterte cabinet will hardly be about the miscellany of the merits between market economy and interventionism, but rather, it would largely characterize interventionism. Again the stark difference will be that of the essence of redistribution: the beneficiaries and the losers of competing interest groups, as well as its mechanics (how to go about such process)

In short, policy decisions will mostly be about division of spoils: who will gain and who will lose.

From Mr Duterte’s actions, through Ms. Lopez, he has already condemned or blackmailed the mining industry.

Why the War on Mining Will Fail

The stock market’s response to the Lopez appointment represents a typical reaction to the surge in political risks due to perceived policy uncertainty. In particular, this is called regime uncertainty or business apprehensions over property rights. Or distressed business confidence, as explained by Austrian economist Robert Higgs, from “investors’ private property rights in their capital and the income it yields” that “will be attenuated further by government action.” And “such attenuations can arise from many sources, ranging from simple tax-rate increases to the imposition of new kinds of taxes to outright confiscation of private property. Many intermediate threats can arise from various sorts of regulation, for instance, of securities markets, labor markets, and product markets. In any event, the security of private property rights rests not so much on the letter of the law as on the character of the government that enforces, or threatens, presumptive rights”¹

So in consideration that according to Philippine Republic act no. 7942¹, “All mineral resources in public and private lands within the territory and exclusive economic zone of the Republic of the Philippines are owned by the State”, this implies that should Ms Lopez impose a ban on mining, all it takes is for her to do is to revoke all the mining claims. And by doing so, such would incite assets of all mining companies to evaporate!

Of course, an outright ban on mining is easier said than done.

Remember, contrary to the fantastically simplistic utopian mindset of billionaire Ms. Lopez, the mining industry is not just statistics or economic or financial numbers. It involves lives of hundreds of thousands of people who survive from it. The government also depends on the industry for its taxes. So an outright ban will have very very very nasty (social stability, economic and political) consequences, something which both Mr Duterte and Ms Lopez will surely live to regret on...if they impose a total ban.

Here are the numbers.

Based on the data from the Mines & Geosciences Bureau in the 1H of 2015 in the formal mining industry there were an estimated 234-235 thousand people employed (2014-1H 2015) and the government also raked in Php 32.27 billion in taxes in 2014 and Php 13.76 billion in 1H of 2015. The sector had a gross production output of Php 204.7 billion in 2014 and Php 108.21 billion in 1H of 2015.

Of course this represents only the formal economy.

The mining sector represents a puny segment of the Philippine economy with a share of 1Q 2016 1.24% and 2015 1.06% (RGDP) or .9% and .8% based on NGDP, and with .2% of total taxes revenues in 2014. And this is the reason why it is being bullied and blackmailed.

And because the Duterte regime believes that the bubble economy will continue to provide them with the necessary tax revenues for their pet boondoggles, they believe that they can exorcise the mining industry of environmental evils through intimidation.

Here is an example. Take a look at this comment: "I will require you to go to Canada or Australia, learn how to mine the precious metals inside the bowels of the earth and do it. Because ... (if) you are spoiling the land, I will cancel it without hesitation." 

 

The overweening Mr Duterte practically believes in fairy tales. He essentially thinks that he can achieve market based performance with socialist repression. Canada and Australia are basically relatively liberal economies even from the mining standpoint. These countries invite investors and promote competition. They do not bully or intimidate them.

His model China has even become the top gold producer in the world. As for China’s role as top gold producer, that’s because the central bank has become its principal buyer!

Once the bubble economy begins to corrode and where prices of metals soar, such industry bullying will come to an end. Ban on mining will transform to welcome back mining!

Of course, another reason why mining won’t likely be totally banned is because the Bangko Sentral ng Pilipinas not only buys gold from the miners (even illegal miners), they get revenues from sales to them!

So I expect the BSP to oppose a total ban.

Of course, a total ban will fail too.

Here is a simple thought exercise.

What happens when hungry people see food in a vacant land in the neighborhood? Will they one, instinctively go and pick the food up? Or two, will they wait for the government’s permission to pick the food up? Or three, just ignore the food?

If your answer is number one, then just replace food with gold or other open pit minerals. This means that people will mine products regardless of what government says. That’s because minerals have value. So when minerals are accessible for mining, the public will mine it. Such is the reason why they become a source of livelihood whether or not the government approves on them.

Meanwhile, number two represents the government’s chimerical position where people should behave as sheep (sheeple)

This is an example of why guerilla mining have proliferated.

In fact, they have represented what the Duterte and Lopez tandem have been bellyaching about. The 2014 slide from the Chamber of Mines shows us that only 2% of the million hectares of mineable properties are covered by permits! And yet these 2% account for as the responsible miners being subjected to political harassment. This reveals that much of the mineable properties are being subject to guerilla mining.

Proof?

This Reuters April 2015 report says that there are about 300,000 small scale or guerilla gold miners.

Small scale miners used to sell to the BSP. Apparently because law of economics say that when one raises the cost of something, one also get less of it. So when the BSP increased taxes (excise and withholding) such led to vastly reduced sales and output. And the alternative response by the informal economy has been to increase smuggling!

"Smuggling activity could still be prevalent," he said, adding many small-scale miners also operate without proper permits. By law, all gold produced by small-scale miners must be sold to the Philippine central bank.

Data from the MGB showed gold sold by small-scale miners and traders to the central bank in 2014 was worth only 180 million pesos ($4 million) based on current foreign exchange rates, compared with $25 million in 2013, $47 million in 2012, $764 million in 2011 and $962 million in 2010.

"Gold production (by small miners) in 2014 was about 18 tonnes, down from about 30 tonnes before the BIR started collecting taxes from small miners," Jasareno said, referring to the Bureau of Internal Revenue, which in 2012 ordered the imposition of a 2-percent excise tax and 5-percent withholding tax on gold purchases

See what higher taxes can do?

That’s economics at work.

Of course, part of the reason why output has collapsed can also traced to the recent bear market 2012-2015 of gold prices.

I believe that with NIRP central bank policies in place, such bear market in gold HAS ENDED.

But the increase in smuggling activities simply means going around higher costs of doing business.

So to apply total ban on mining simply means to induce a shift in mining activities to the underground. And such shift would translate to magnifying the risks to the environment.

I don’t think that Mr. Duterte’s cooperatives will work too. Reason? Mining is a capital and technology intensive industry. Just where will cooperatives get funds and expertise? From the government?

Cooperatives will only mean corruption, inefficient mining and aggravation of the despoliation of the environment.

And mining won’t be stopped no matter how the government prohibits it. That’s even if they shoot to kill the population involved in them. If they resort to the latter, then expect a civil war.

Instead, the more practical direction is that mining will again serve as another aspect of the regime’s division of spoils. Mining will become a haven for Duterte cronies.

Perhaps one may expect that the Lopez group and their allies or network, will not only become media friendly to the Duterte regime, they may become eventual mining magnates.

Sorry MVP, Mr Duterte says you are out. But the Lopez Group is in!

The nice part about policymaking is that errors in policy judgements have no consequence for policymakers. Yet the bigger the error, the mechanical response has always been to double down. More of the same is needed!

Yet if death penalty should be re-imposed then this should first be applied to them. Policy errors affect, not just one or a few people, but millions.

___

1 Mines and Geosciences Bureau Republic Act No. 7942 AN ACT INSTITUTING A NEW SYSTEM OF MINERAL RESOURCES EXPLORATION, DEVELOPMENT, UTILIZATION AND CONSERVATION

1 Robert Higgs Regime Uncertainty, Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War Independent review 1997 p. 568