In this issue
The Centrally Planned Boracay Paradise, July Bank Credit Benefited Political Industries; How To Beat the Ghost Month; Auto Sales Dive in July
-Bank Credit Flowed Profusely to Politically Influenced or Directed Industries
-Hotel Loans Improved Slightly, The Emerging Centrally Planned Boracay Paradise
-Credit Conditions for the Trade and Consumer Loans in a Collision Course, Auto Sales Crashed in July
-How To Beat the PSYEi 30’s Ghost Month? By Price Fixing!
The Centrally Planned Boracay Paradise, July Bank Credit Benefited Political Industries; How To Beat the Ghost Month; Auto Sales Dive in July
Bank Credit Flowed Profusely to Politically Influenced or Directed Industries
July’s banking loan data reaffirms what I have been saying here.
Sectors controlled and or directed by the National Government have been drawing resources away from the private sector.
Loans to sectors directed by the government have shown the best gains, namely Public Administration and Defense (+28.67%), Education (+24.53%), Transport (+22.85%) and Construction (+37.62%).
Figure 1
Banking Loans to the Financial intermediaries rockets last spurted to 35.95%, a high last reached in 2013!
Financial intermediaries consist of monetary intermediation, pension, insurance, trust, holding firms and others.
Gearing activities of the banking sector and PSEi listed firms has resonated with such non-bank financials. These may be about intermediating and arbitraging with leverage the funding requirements of the government.
Hotel Loans Improved Slightly, The Emerging Centrally Planned Boracay Paradise
On the other hand, the growth of bank loans to the hotel industry climbed by 4.9% last July. The few firms allowed to operate in Boracay may be part of this.
To put it more precisely, the system is being recalibrated to operate on a centrally planned socialist platform.
The unfolding war on Boracay continues to reinforce my expectations of Mr. Duterte’s thrust.
In the name of the rehabilitation of the environment, there will be purging of enterprises on the island. Strict controls will be imposed on the supply side.
And to comply with growing cost of regulations and mandates, entrepreneurial survival will latch on two instrumental critical binding factors: greater financing capacity and political connections. And because of expanded political controls, corruption will grow sizably, and the political class or state agencies will become the dominant owners of enterprises in the island…
Higher prices will be the consequence of the shrinkage of the supply base and the growing direct and indirect costs of compliance and interventions.
Boracay will now transform into a playground for the rich, the politically connected and the political class.
And a centrally planned economy won’t stop with the supply-side proscriptions, regulations, and control, but will broaden to cover even the demand-side! …
The administration’s fascination for centrally planned absolute controls will transform Boracay into a political-economic chokepoint.
While the island’s standard of living for the average constituents will diminish, the political class will grow. The asymmetric growth in income and wealth will fuel inequality, and subsequently, drive social tensions.
Meanwhile, rigorous controls will most likely spur a guerilla or underground economy, which would likely result in the worsening of environmental desecration.
Well here comes the centrally planned tourism resort.
Big businesses or businesses with political clout will the main beneficiaries….
Inquirer August 14: The Department of Environment and Natural Resources (DENR) is allowing the country’s biggest corporations to undertake environmental projects in six of nine wetlands on Boracay Island, amid the government’s ongoing rehabilitation.
BusinessWorld August 13: THE ABOITIZ Group, through its social development arm Aboitiz Foundation, has adopted and will rehabilitate Boracay Island’s Wetland #4 into a “linear urban park”.
Supply will be limited…
Philstar September 2: Anticipating the Oct. 26 re-opening of resort island Boracay, the Department of Tourism (DOT) has released an initial list of 25 accommodation establishments with a total of 2,063 rooms that are certified compliant with the requirements of the Boracay inter-agency task force and can begin operations when the island begins receiving visitors next month.
Demand will be controlled…
ABS-CBN August 31: Around 19,000 tourists may only be allowed to stay in Boracay Island once it reopens in October, Interior and Local Government officer-in-charge Eduardo Año said Friday. The tourist limit is based on the carrying capacity of the island given its number of workers and the local population, Año explained.
The public’s actions will be regulated, mobility will be restricted.
Inquirer August 22: As Boracay island is set to reopen on October 26, the Department of Tourism on Wednesday said it would no longer be a “party place.” “It won’t be like a really party place anymore. We want it to be more as it is, we want it to be more peaceful. We want to promote sustainable tourism,” Tourism Secretary Bernadette Romulo-Puyat said in an interview with ABS CBN News Channel
Inquirer August 28: Department of Tourism Secretary Bernadette Romulo-Puyat said smoking and drinking in public places would be banned in Boracay. “Definitely no more smoking and drinking sa white beach. Why? Because this is a public beach,” Puyat said during the Meet with Inquirer Multimedia forum on Tuesday.
Authorities will force their desired form of tourism on the public.
Inquirer September 2: Tourism Secretary Bernadette Romulo-Puyat has sought to ease the concerns of ordinary farmers as farm tourism take a foothold in the country. Farm tourism will help boost the agriculture sector, which constitutes just 9 percent of the country’s gross domestic product, Puyat said at the Meet Inquirer Multimedia forum last week.
And displaced locals will be bought for by welfare.
Inquirer, August 30: Residents of Boracay, who were rendered unemployed by the closure of the resort island to tourists, said the announcement of Tourism Secretary Bernadette Romulo-Puyat that only a “soft opening” would happen in October meant that their suffering would be prolonged….The Department of Social Welfare and Development and the Department of Labor and Employment have been providing cash-for-work, livelihood and other assistance to residents displaced by the closure.But Abañera said these were not enough. “It has been weeks since [the] release [of assistance]. The food assistance was [given] only once. And it’s only the fourth month of closure,” she said. Government assistance, she said, should continue and be increased especially since it was uncertain if many of the residents and workers could still regain their livelihood and resume work.
Almost everything I wrote back in April has begun to pan out. I expect a lot of unintended consequences from the centrally planned and operated paradise once it operates.
Credit Conditions for the Trade and Consumer Loans in a Collision Course, Auto Sales Crashed in July
July’s loan distribution shows proof of a massive imbalance playing out.
While household credit growth continues to retrench, the spike in the growth of the Trade industry’s bank credit persists.
Figure 2
Household credit growth dropped to 16.85% in July, the lowest since 2016, from 17.75% in June and 18.42% in May. On the other hand, bank credit to the trade industry grew by a sizzling 25.6% in July, the highest since 2015, from 25.23% in June and 23.43% in May.
While credit card growth raced to a record 22.9% in July, bank financing of auto purchases dropped to 18.15% in July from 19.86% in June and 22.05% in May.
Meanwhile, payroll or salary loans registered its first monthly contraction!
Auto loans accounted for the largest share of 45%. Credit card loans have a 42% share of household credit, salary loans 11.1%
If I’m not mistaken, the middle class has been ramping up the use of credit card to supplement their consumption in the face of rising street prices. Insufficient income to match spending habits? Well, plastic money does the trick!
On the other hand, I suspect payroll loans to reflect on the job and income conditions of lower income category
Meanwhile, in anticipation of a sustained boom in household spending, the trade industry has undertaken rapid expansion financed by leverage.
So the supply side’s expectations and the demand side’s cutbacks should lead to a massive collision course.
In the meantime, auto Sales crashed by 24.1% last July. Auto sales in % growth peaked in mid-2016 and have been in a declining trend. The increase in excise tax from TRAIN aggravated such decline. It was not its primary cause.
Yet, auto sales conditions demonstrate the fundamental economic axiom “if you tax something, you get less of it”.
The other factors for the decline must have been from the variable mix and degrees in the changes in (higher) financing costs, (reduced) liquidity and individual balance sheet conditions, (diminished) business expansion and (lower) real income and job growth.
A supply cap on TNCs (Transport Network Companies) is an example of how regulations limit sales thereby restricting the industry’s output, employment and income growth. The adverse effects on industry likewise affect its chain of supply and demand networks.
It is an irony to see growth in auto loans despite the sales collapse. This discrepancy may be about loan financing on sales or rent of used vehicles.
How To Beat the PSYEi 30’s Ghost Month? By Price Fixing!
How do you beat the jinx from a ghost month?
Figure 3
Answer: Don’t rely on the markets. Force prices up!
The PhiSYx gained 89.24 points or 1.15% this week. Price fixing pumps totaled 107.59 points or 1.4% from the close of August 24.
The implication: over 100% of this week’s gains were CAUSED by price fixing.
In the week ending August 24, the accrued weekly price fixing pumps of 55.52 points or .7% accounted for 30% of the 2.84% advance.
The total price fixing pumps for two weeks was 163.11 points.
On a monthly basis, the PhiSYx rose 2.39% or by 183.71 points in August, beating the ghost month.
The two week pumping alone was responsible for 88.8% of the monthly gains of the benchmark index controlled by 6 companies. How much more if we extend this count to include all four weeks?!
It is a dysfunctional market that exists only in the Philippines.
