WOW. Silent Stimulus Confirmed: The BSP Launched a Massive Bond Buying Operation in 1Q 2016!!!

Everyone loves an early inflation. The effects at the beginning of an inflation are all good.There is steepened money expansion, rising government spending, increased government budget deficits, booming stock markets, and spectacular general prosperity, all in the midst of temporarily stable prices. Everyone benefits, and no one pays. That is the early part of the cycle. In the later inflation, on the other hand, the effects are all bad. The government may steadily increase the money inflation in order to stave off the later effects, but the later effects patiently wait. In the terminal inflation, there is faltering prosperity, tightness of money, falling stock markets, rising taxes, still larger government deficits, and still roaring money expansion, now accompanied by soaring prices and ineffectiveness of all traditional remedies. Everyone pays and no one benefits. That is the full cycle of every inflation.” Jens O. Parsson, Dying of Money: Lessons of the Great German and American Inflations p .28

Another Bullseye!

Last June*, I suspected that the sudden reversal in the downtrends of the banking system’s loan portfolio, and consequently, M3 (domestic liquidity), which had been a function also of a U-turn domestic yield curve from tightening to a sharp steepening—had been a product of the BSP’s silent stimulus.

In a follow-up post**, I pointed to the intense ballooning of the BSP and the banking system’s balance sheets as additional circumstantial evidences of the undeclared or silent stimulus.

Now I provide direct evidences of the BSP’s furtive actions.

In the BSP’s data of depository corporations survey, the net claims on central government have skyrocketed to 2009 levels in % (2Q 2016) and the highest level ever in nominal values (today) as shown in the charts below.

The BSP defines*** Net Claims on Central Government as consisting of “domestic securities issued by and loans and advances extended to the national government (NG), net of NG deposits.”

In short, the Net Claims on CG shows of the BSP’s exposure to credit instruments issued by the national government.

 

In 2009, the BSP engaged in the same stabilization measures, but that was in response to the Great Recession or the Great Financial Crisis.

So what’s the reason for the current ‘emergency’ set of actions????

 

The BSP’s Net Claims on the central government made a volte-face and began its ascent in June 2015.

That’s about the time when the BSP’s measure of CPI sunk to 1.2% and lower. The official CPI plunged to a low of .4% in October 2015.

And that’s about the same period when net claims on the private sector (bank lending) cratered (see lower window red trend line). Net claims on the private sector tanked to a low of 11.6% (September) from its traditional range of 15-20%.

The fall in bank lending similarly reflected on the collapse of M3 (green trend line lower pane). M3, which had a simmering 30+++% growth rate in 2H 2013 and 1H 2014 or for 10 successive months, dropped to single digits over the same period.

(As a side note the BSP’s NCCG picked up pace and speed at the time when Philippine stocks crashed to a low in January 2016—the reason for the meltup! The BSP panicked over the crash in the PSEi to have momentarily “saved” it)

The risks of credit deflation, my friends, have scared the heck out of the BSP!

Proof?

During the same period, the BSP chief was all over talking about deflation. In fact, in a speech, the BSP governor even lectured journalists to write about them. 

Back then, I suspected that the BSP’s repeated deflation spiels signaled their intent to ease. I wrote****,

Has all these deflationary chatters have been about expectations of bouts of volatility? Has the BSP been using financial market volatility as camouflage to send interest rates down? Or could it be that they are using external factors as an excuse to talk down the markets? Or could the BSP even possibly use exogenous events as escape clause to exculpate them from accountability in case of a reemergence of volatility?

The problem was that an interest cut would be an admission of slowing statistical GDP, which would be a no no no no in the politically correct theme of G-R-O-W-T-H!

And remember, the essence of easy access to someone’s resources (credit) have all been pillared by G-R-O-W-T-H.

So instead of interest cuts, the BSP engaged in a massive government bond buying operation—or the local version of QE!!!!!!!! The BSP actually did cut rates this June under the cover of the interest rate corridor.

So I have been proven right, the BSP eased again.

The chart at the upper window above shows of the nominal Net Claims on the central government which has been at a stunning RECORD high!!!!

(see how history is in the making???!!!)

To consider: In 2009, the BSP’s actions were reactionary to a 7% crash in government revenues. But more than the BSP, the national government used fiscal spending, which grew by 12% that year, to “stabilize” the GDP. Hence, the deficit blowout.

The BSP, thus, monetized the government spending through open market operations or bond buying in 2009.

Fast forward today.

There has been no crash in government revenues yet. Government revenues have instead suffered a considerable slowdown.

So the implicit aim for such bond buying binge has been to raise NGDP, partly through bank credit expansion and partly through higher price inflation, so as to increase NOMINAL government revenues!!!! 

In short, the BSP expanded its subsidy to the National government first, and to the oligarchy (main users of credit and asset prices—as collateral for credit). 

But there is no such thing as a free lunch.

Nonetheless, from the trough of 2014, the annual fiscal deficit has started to swell.

And the response by the BSP has been to repeat what they believed that magically worked in 2009—today!  

Again, there hardly has been any perspective on balance sheets and the people’s purchasing power.

Back then or in 2009, household and corporate balance sheets were relatively better conditioned than today’s high leverage exposure.

The BSP hopes that a rise in NGDP won’t affect the purchasing capacity by Pedro, Juan and Maria.

But they’re flagrantly wrong.

In fact, the BSP’s present responses have been to treat symptoms of which have signified repercussions from the 10 months of 30+++% M3 growth rates which have signified as one of their own making (negative ‘trickle down’ real rates). Or it’s an irony for them to just double down on what has been emerging as a failed policy.  It’s like fighting fire by pouring gasoline on it!!!!

Yet the BSP’s Net claims on the central government signified about 17% of M3 last October, and this compares to Net claims on the private sector (bank credit) which represented about 69%.

With both BSP operations on NG debt and bank system’s lending activities running on full throttle, it’s why even the government’s GRPI and CPI have been on an upsurge—even if these numbers have meaningfully diverged in scale for political reasons! [Why Inflation Statistics Matter: Incredible. General Retail Price Inflation Skyrockets to Near 2014 Highs as BSP’s CPI Remains Muted! December 9]

And more importantly, it’s also why the risk for another sharp upturn or an explosion in M3 (similar to 2013-14) has only been amplified. And this would have a feedback mechanism with prices in the general economy similar to 2014. And once prices reach a point of political sensitivity, the BSP WILL BE COMPELLED TO TIGHTEN!

The BSP doesn’t even need to act, the market itself will!

For instance, in spite of the BSP’s bond buying, the belly of the yield curve, the 5-10 year domestic sovereigns, has been inverted for the fourth straight Friday! So it has not just been in stocks or the peso, even bonds have been experiencing convulsions!

The BSP is just repeating the same mistake it did but insanely expects a different outcome.

As further proofs, the Philippine central bank’s and the domestic banking system’s balance sheets remain at record highs!

And with all such massive CG debt monetization by the BSP, compounded by the banking system’s seething credit expansion, just where do you think the peso will be headed for????????

It’s sad to see of escalating signs of the peso’s role as sacrificial lamb at the altar of the political religion.

*Why Blowoff Episodes Reveals That The Boom Is The Disease! June 5, 2016

**The BSP Launched a Silent Stimulus: More Evidence; A Derivative Inflated GIRs June 13, 2016

***Bangko Sentral ng Pilipinas, Depository Corporations Survey FAQs

****Phisix 7,800: Record Phisix as the BSP Continues with Deflation Spiel! March 9, 2015; available online via Before It’s News

Curious Contrasting Headlines: One Says Joblessness at 9 year Low, Another Says Online Hiring Stalls, Which Is Right?

The tragedy of our time is the monoculture of ideas: all "thinkers" are forced to believe the same bullshit.—Nassim Nicolas Taleb, author of the Black Swan at Facebook

 

Yet a fascinating curiosity, two contrasting headlines. 

One says joblessness has been at the lowest level in 9 years (GMA).

The other says online hiring has stalled (Monster Employment Index October 2016).

Of course, joblessness technically differs from online hiring. But joblessness IS related or entwined to hiring. They are part of the employment process.

The basic job/employment process comes with: a company decides to hire, thus job opening/s is/are announced, and then the company conducts a due diligence for hiring and decides.

In short, people get hired FIRST from which they become employed, thus influencing the changes in job market conditions.

It doesn’t stop there. The job market is dynamic or employees are not static.

For many reasons, employees may elect to get employed, in the same line, under a different or new employer. Or, employees may opt for a new career path and move to a different line under another employer. Or, employees may also choose to move into a different position (same career path) or even different line of work under the same employer. Employees may likewise decide to do part time work (to complement present job) or even become full-time free-lancer/s. Employees may also move geographically predicated on any of the above conditions.

These constitute labor mobility. In short, labor mobility is categorized as either occupational or geographical.

Labor mobility is important, because with restricted job openings, changes in preferences for employees will reduce their options for employment. This means employees would be limited to either staying put or become unemployed.

So when a claim is made that joblessness is at so-and-so year high, then the embedded assumption is that there MUST be a CORNUCOPIA of AVAILABLE jobs to satisfy, not only employment absorption of the labor pool but more importantly, labor mobility.

But that’s not what online job market has been saying.

Monster.com announced that online job posting stalled in October.

Monster’s plight has really not been limited to just October, online jobs for the company has dramatically been in a cascade since 2014.

Monster has even revised part of its data to show for G-R-O-W-T-H. Unfortunately, the much desired confession hasn’t occurred even with its torturing of data.

Nonetheless, to provide a perspective of how big the losses have been, I used Q1 2015 as a base to connect the old data and the new one. Yet, whatever online G-R-O-W-T-H posting experienced this year, they haven’t matched the 1Q 2015 levels (upper right window). And if 1Q 2015 wasn’t reached how much more of the higher perch in 2014 (see upper left window)??!!!

For an apple to apple comparison, for the 3Q Monster’s online postings grew by a measly 3.9%. Will this number be sufficient to generate record joblessness?

Again it’s not just Monster, Jobstreet, the largest online job advertiser, has seen its postings plunging again. The present trend indicates a decline back to January 2016 lows. That’s based on unofficial data (my own weekly Thursday tabulation). And such numbers have been in a massive decline since I began tallying them (lower window).

Perhaps the number of online job providers has grown a lot faster than jobs being posted for market share for posting in these firms to have been significantly pruned.

If true, aside from the inadequate number of jobs advertised online, then this should evince of excess capacity for online providers. But I don’t see this as the present case.

The alternative interpretation is that job hiring is being coursed through different means, perhaps through direct hiring, or through an anachronism—back to the traditional print ads. The latter is unlikely.

The other explanation could be that most of the present job openings may not be from the private sector but from the public sector or the government.

Signs of these have emerged. The Philippine Statistics Authority (PSA) announced a job hiring binge this December. With at least 30 vacancies in 16 pages this would total to at least 480 jobs available. That’s just from one agency.

As I have been saying here, the shift to a leftist government will entail lots of jobs—except through the public sector.

But these jobs will come at the expense of the private sector. They are not symptomatic of real economic prosperity (as presented by surveys or by media).

Yet there are other ways to countercheck such populist claim.

Milestone joblessness should translate to, not only to increased number of available jobs, but also to increased competition to bid up wages of employees. Or higher demand for employees should imply rising wages.

But that’s not what has been happening….even from the government’s own numbers.

As I pointed out last October, the PSA’s own measure for wage and compensation, grew by only 3.1% and 2.72% in 2015. I know this signifies 2015 data. But 2015 serves as stepping stone to the 3Q.

However, not even current numbers support the claim.

Based on the PSA’s “total gross revenue index” for Q1: “Total Employment Index slightly declined by 0.04 percent from last year’s 3.8 percent…Meanwhile, Total Compensation Index decelerated with 4.5 percent growth as compared to the 6.0 percent expansion in the previous year…Total Compensation per Employee Index accelerated by 4.6 percent from 2.1 percent a year ago” 

For Q2: “Meanwhile, Total Compensation Index decelerated to 5.1 percent as compared to the 5.9 percent growth in the previous year…Total Employment Index registered a 1.1 percent growth, lower than the 2.8 percent growth in the previous year...Total Compensation per Employee Index accelerated by 3.9 percent, higher than the 3.0 percent growth a year ago.”

These numbers, which had been substantially LOWER than the statistical GDP (or even its HFCE component), have neither indicated of any scramble for hiring from expanded jobs nor of increased competition for employees that would lead to higher wages—all hallmarks of increased joblessness.

And given the string of unimpressive numbers, Q3 would unlikely have any material improvements.

Even more, amidst spiraling inflation, instead of flourishing wages, it has been salary loans that have been booming!

3Q data from the BSP showed that salary loans rocketed by a startling 60% over the same period last year!

Though a considerable factor for the spike in the said number could be due to the enrolment of more people (employees), such hardly exhibits sufficient wage growth. This rather serves as proof to the deepening leverage of the balance sheets of mostly lower income workers.

Wages and job conditions can also be seen through the lens of government revenues.

Government revenues, which incorporate personal income taxes, grew by ONLY 5.11% in 3Q, 1.1% in Q2 and 1.79% in Q1 of 2016.

These numbers hardly corroborate insights of a robust job market as presented. Of course, it may be true that perhaps tax exempt low income jobs may have flourished. But then again this means low quality jobs. And again, such would hardly be the case.

Why? Since corporate taxes and consumption taxes also make up the other two of the three largest components of government revenues, aside from wages and jobs, conditions supporting profits and consumption hardly validate the path to a 'jobs', or even an economic, nirvana!

So current government revenue conditions indicate that restrained profits translate to lesser investments, and thus reduced hiring. And the lowered number of jobs diminishes consumption.

That's the essence of the general state of  government revenues (give or take the collection leakages)

But the buck doesn’t stop here.

Funny but, if there has been any TRUTH to such salutary joblessness allegations, then why should the Secretary of the Department of Labor and Employment (DoLE) even sell or promote Russia as the new OFW destination??????

Shouldn’t “the lowest jobless rate in 9 years” extrapolate to a significantly less need for OFWs? Shouldn’t OFWs get employed domestically, for them stay with their families than be apart from them?

Or has it been that a bigger employment market for OFWs translates to current domestic job conditions as having characterized by a substantially wage deficient job growth?

And if so, why?

Or has there been real job growth at all?

 

Hasn’t the peso served as THE magnet, as the well as, THE marquee for overseas job migration since the 1960s?

What has changed?????????????

Or has it been because pollsters are required to say what they have been paid or told to say?

In closing, we are told that joblessness is at some record numbers based on survey. Fine. That’s their opinion.

Except that numerous real world evidences point otherwise: real online hiring has been flagging, government wage growth numbers have risen only a little above the rate of CPI, government revenues have grown even less, the government continues to promote overseas job migration, and worst, the peso continues to crumble.

Nassim Taleb in the opening quote has been spot on:  today’s tragedy of monoculture ideas is that we are forced to believe the same b.s.