Phisix 6,800: 6.3% 4Q GDP; Why Has December Imports Collapsed by 26%??? Philippine Bank Stocks Plunge!

…the expansive fiscal and monetary policies implemented by governments to spur growth might have laid the foundation of the next economic crisis…Those debt-financed fiscal policies and accommodative monetary policies had been only moderately successful in promoting growth, with public and private debt levels in the world now too high…Fiscal as well as monetary policies have reached their limits. If you want the real economy to grow there are no shortcuts which avoid reforms…Talking about further stimulus just distracts from the real tasks at hand. We, therefore, do not agree on a G20 fiscal stimulus package as some argue in case outlook risks materialise…The debt-financed growth model has reached its limits. It is even causing new problems, raising debt, causing bubbles and excessive risk taking, zombifying the economy".—Wolfgang Schaeuble Germany's Minister of Finance at the G-20

In this issue:

Phisix 6,800: 6.3% 4Q GDP; Why Has December Imports Collapsed by 26%??? Philippine Bank Stocks Plunge!

-4Q GDP at 6.3%? Really? Then Why Has December Imports Collapsed by 26%???

-Has the December Import Crash Been Symptoms of a Formative Global Recession?

-December Import Crash: Where was Strong Domestic Demand?

-December Import Crash: Statistical Ruse to Buoy 4Q GDP?

-Phisix 6,800: Mixed Performance, Divergence and Overbought Conditions

-Has the Pummeling of Banking Stocks Signified the Effects of Yield Curve Inversions?

-Global Stock Markets: Oil Prices as Du Jour Stimulus and the Cockroach Theory

Phisix 6,800: 6.3% 4Q GDP; Why Has December Imports Collapsed by 26%??? Philippine Bank Stocks Plunge!

4Q GDP at 6.3%? Really? Then Why Has December Imports Collapsed by 26%???

The headline of the week should highlight of the incredible collapse by December imports!

Yet haven’t we been told that 4Q GDP rose by 6.3% (NGDP 5.2%) which became the fodder for panic buying in domestic stocks???

So what just did happen to December imports?

Here is the government’s PSA on the December meltdown¹: (bold emphasis added)

The   total   imported   goods by the country for the month of December 2015 amounted to $4.056 billion, a decrease of 25.8 percent from $5.470 billion recorded during the same period a year ago. The decrease was due to the negative performance of nine out of the top ten major imported commodities for the month led by other food & live animals (-47.9%).  The other eight negative performers were: feeding stuff for cereals not including unmilled cereals (-33.1%); electronic products (-30.3%); miscellaneous manufactured articles (-18.1%); mineral fuels, lubricants and related materials (-14.1%); telecommunication equipment and electrical machinery (-9.0%);   iron and steel (-5.4%);    transport equipment (-3.3%); and industrial machinery and equipment (-3.2%).  Moreover, total imports for the year 2015 registered a 2.0 percent increase, that is from $65.398 billion in 2014 to $66.686 billion in 2015).

The balance of trade in goods (BOT-G) for the Philippines in December 2015, registered a surplus of $603.03 million.   This is in contrast with the $667.47 million trade deficit in the same month last year. 

While, basically the domestic financial markets ignored the data, the government panicked. The government via the National Economic and Development Authority even issued a statement intended to mollify the public²: (emphasis mine)

The Philippine Statistics Authority reported today that the total payments for imported goods in the country declined by 25.8 percent in December 2015, the steepest monthly year-on-year decline recorded since April 2009 when it fell by 37.1 percent. This halted the six consecutive months of positive growth in imported merchandise.

“Despite this decline in December, strong domestic demand will prop up imports growth in the near term, as we expect continued expansion in inward shipments of power-generating machines, office and electronic data processing machines, and telecommunications equipment. Investor confidence in the country is still growing and is seen to increase investments. This will in turn boost demand for imports of capital goods as well as raw materials and intermediate goods,” said NEDA Deputy Director-General and Officer-In-Charge (OIC) Margarita R. Songco.

In December 2015, the value of imported capital goods, a leading indicator of strong economic activity, remained resilient as it increased 20.9 percent to US$1.5 billion in December 2015. This accounted for 37.8 percent of total merchandise imports for the period.

But the downturn in imports of raw materials & intermediate goods (-53.2%) and consumer goods (-20.3%) pulled down total imports. Import payments for raw materials and intermediate goods declined in December 2015 with lower imports of materials & accessories for the manufacture of electrical equipment (-74.1%) sourced mainly from Taiwan, Japan and Singapore. This partly mirrors the decline in global electronic and semiconductors sales in December 2015 due to softening global demand. 

Nonetheless, NEDA sees household consumption remaining strong with upbeat consumer confidence, low inflation, low interest rates, better employment opportunities, and still positive outlook on remittances inflow, which bodes well for imports of consumer goods.

If one reverts to the PSA data, of the 10 sectors measured, only imports of metal products registered an advance (by 19.8%), so it’s not clear where the alleged advance in capital goods imports emanated from.

In contrast, the PSA seem to have indicated significant declines of capital goods imports, in particular, “Transport Equipment, contributing 8.4 percent to the total import bill was the country’s    third    top import for the month amounting to $340.16 million.   It declined by 3.3 percent compared to last year’s value of $351.75 million. Imports of Industrial Machinery and Equipment ranked fourth with 6.5 percent share and reported value of $262.21 million in December 2015.  It dropped by 3.2 percent from $270.80 million in December 2014”. (bold original, italics mine)

So what the PSA data seem to have manifested was that December’s import plunge has not only been broad based, which affected major industries from capital goods, intermediate goods or inputs for reexports, and to consumer goods, but even worst, the scale of December’s crash—based on nominal USD value—has almost resonated with that of 2008-9!!! (see nominal USD value chart from tradingeconomics.com in the lower window)

Let me repeat, the crash wasn’t just in growth numbers but in nominal USD levels (or import’s NGDP).

As usual, the December import breakdown had to be sanitized by the recitation or incantation of “strong domestic demand”

Additionally, for some in the mainstream, the December data had to be rationalized and sterilized as a product of uncertainties from the coming elections: “Every time there is a presidential election, investment tends to slow significantly… I think a lot of private sector investment is holding back waiting for the (election) results - to have more certainty”

I posted the data of Philippine imports during the 4 pre-Presidential election periods to denote of three things:

One. If imports were a product of political “uncertainty” then the adverb “Every time” represents an unalloyed bilge. Why? Only ONE presidential election reveals of a declining import trend. Guess when was that? Answer: 1998, or the Asian Crisis!

Elections of 1992, 2004 and 2010 showed of INCREASING nominal value import trends.

Second. Perhaps the observation from a % standpoint could somehow be right (but this seems dubious, I have no data on this though). But NADA ZAP ZILCH ZERO of the four election period revealed of a dramatic one month crash.

While 1998 showed of a steep decline, it was a consequence of a series of monthly deficits. Moreover, it was a manifestation of a regional and not a global dynamic similar to the GFC 2008-9. Elections had little to do with it.

Third and lastly, both the above tell us that the spin “political election uncertainty equals crashing imports” represents a fallacy of composition.

Political election uncertainty equals crashing imports is simply FALSE!

Has the December Import Crash Been Symptoms of a Formative Global Recession?

Yet NO one seems to even give an effort to figure out why those imports crashed at all.

The mainstream’s kneejerk or mechanical reaction has been to strenuously DENY warts and all such number—as an anomaly or fundamentally unreal.

Yet has those earlier big import gains (June to November) led to a vast stockpile of excess inventories? Or has demand suddenly vaporized? Or could it have been both?

How much of those big imports gains were due to the frontloading of inventories in expectation of further weakening of the peso?

How much of those significant jump in imports have been a consequence from false expectations brought about by media and the establishment G-R-O-W-T-H spin?

Has the collapse in electronic products imports been additional symptoms to the deepening of the export recession?

The decline in global trade has been accelerating and spreading.

While such dynamic can be partly blamed on falling prices (see left), even trading volume has shown signs of inflection (right window).

And those aggregate numbers can be seen in the region’s merchandise trade. China’s exports and imports crashed 11.2% and 18.2% in January. Japan’s exports and imports also collapsed 12.9% and 18% during the first month of the year. Global trade barometer South Korea has both its external trade data in a freefall as February exports crumbled 17.4% while imports tanked 17.3%. Such was a follow through from January’s numbers at NEGATIVE 18.5% and NEGATIVE 20.1%. South Korea’s January’s dismal trade data according to Channel News Asia was the “worst downturn since the depths of the global financial crisis in 2009”.

Among the ASEAN majors, Thailand’s exports tumbled by 9% in January as imports cratered by 12.37%. Indonesia’s trade numbers had even been worse, exports plunged 20.2% while imports slumped 17.5% over the same period. The recent crash in the rupiah hardly boosted exports.

There were exceptions though. Vietnam reported that while exports grew 2.9%, imports skidded 6.6% in February. It’s only Malaysia which posted gains for both exports and imports last December at a skimpy 1.4% and 3.2% respectively.

In other words, marginal gains yet susceptible to declines…all depending on global economic conditions

And sad to say that if the current momentum of global trade intensifies, then a global recession could be within the cards in 2016 or in 2017.

The point is here that it would be arrantly myopic to believe that the Philippines would be immune to global developments.

All these major economic factors—OFW remittances, BPOs, tourism, external merchandise trade, FDIs or even portfolio flows—have been closely linked or tied to the conditions of the global economy.

Most importantly, the above factors have been driven by the direction of the USD.

December Import Crash: Where was Strong Domestic Demand?

And it would be equally naïve, if not disingenuous, to believe in the Keynesian catechism of strong domestic demand!

Yet whatever happened to strong ‘domestic demand’ last December?

Why has strong ‘domestic demand’ been unable to forestall, or at least mitigate, December’s massive import breakdown? Using NEDA’s own explanation “consumer goods (-20.3%) pulled down total imports”, yet the same agency bifurcate with the claim “NEDA sees household consumption remaining strong”.

Huh? By overlooking the cause of falling consumer goods exports, just how can one make a conclusion that household consumption will remain strong? Abracadabra???!!!

Curiously, this is the same 4Q period when the BSP revealed in their revised data that OFW remittance monthly rates posted a CONTRACTION or a NEGATIVE aggregate monthly number!

Again just where will domestic demand come from?

Agriculture and manufacturing has been stagnating, exports have been in a recession as OFWs remittances have been trending towards zero (or even negative) growth.

Yet media, authorities and their experts make it appear as if these sectors don’t have the demand to affect the real economy. As if the weakening of these sectors won’t infect or spread to the other sectors. The public has been made to believe that the economic activities have little relevance from one sector to another.

Yet what happens to the frantic race to build supply capacity in order to cater to them? Will incomes and earnings from these bubble industries be enough to sustain them? Will overcapacity not lead to a decline in investments that would affect current investments and jobs?

Let me use the Robinsons Land (RLC) case which I discussed last week as example. RLC officials admitted that occupancy rates in 2015 were at 95% or vacancy rates were at 5%. Seen from an industry basis, given the spreading weakness of the general economy (which should now include imports and probably wholesalers), the rush to build supply would risk the ballooning of the vacancy rates or the lowering of occupancy rates.

Yet the swelling of vacancy rates would not only put pressure on the profits of property developers and mall operators, they are going to heighten strains from credit conditions—which have financed the supply side growth as well as the demand side growth via receivables—both of which will impact capex growth.

Media quoted that RLC announced that capex for 2016 would be at Php 16-17 billion from Php 15 billion, which should represent only 6.7% or 13.3% growth. Given the headline bullishness of the industry, those numbers can be seen as surprisingly conservative!

But I discovered RLC has been saying the same capex Php 16-17 billion benchmark numbers since 2014. In late 2014, RLC declared capex at Php 15-17 for the year 2015. Same goes for 2014 where Php 16 billion was the broadcasted capex spending.

In other words, RLC’s capex spending for the past 2 years hardly went beyond Php 15 billion yet every announcement would seem like growth because of the increase in the so-called top line numbers as announced by the company.

And since the public don’t seem to look back, but to trust every word of what the establishment says, they continue to harbor the impression of G-R-O-W-T-H!

In reality, RLC’s capex has hardly grown, may not likely grow and could even contract this year in spite of the firm’s present announcements.

The reason for this as previously explained, has been the insufficient cash flows for any meaningful capex growth, and that the firm have become increasingly depended on credit to finance operations, residual expansions and sales.

Yes such is another wonderful example of the money illusion: The illusion of growth as a function of credit expansion.

Moreover, just where are the jobs?

While government narrative has been that jobs continue to grow, this hasn’t been supported by the real world. In case of online jobs, job placements continue to crash. 2015 was a crash for the entire year relative to 2014.

Despite the company’s repeated spin that job placements will improve, Monster.com’s employment index continues to founder.

The firm notes that for December, “Philippines registered a -36% year-on-year decline in online recruitment activities in December 2015. Although still negative, this is an increase from the -46% reported in November 2015. - The BFSI industry had the steepest year-over-year growth at 6%, while the Production/Manufacturing, Automotive and Ancillary sector saw the most decline at -63% Customer Service jobs experienced the highest growth at 6% year-over-year, while Hospitality & Travel fared the worst at -63%” ³

While it may be true that -36% may look like an improvement from -46%, -36% remains a huge negative number.

Gosh, has political correctness pushed us to become so dense or obtuse such that we cannot or have been prohibited to even distinguish a collapse from growth?

While having picked up job placements in the same way as Monster.com last December to early January, online firm A’s numbers continues to deteriorate.

I will have to exclude Online Job B from future reports because job postings have been in a monumental meltdown: from 36k last April to just 1.5k last week!

Heck, how are companies today recruiting people? Via the more costly traditional media where readership are being eroded by the web? Or through viral or word of the mouth?

Nonetheless, those job placements seem to reflect on the real conditions of the economy rather than those sanguine headlines.

As a side note, here is the government’s employment index as of 3Q 2014.

From the PSA⁴: (bold mine) Total Employment Index increased at 2.8 percent growth slower from its 4.0 percent growth in the same quarter last year. Trade pulled down the index with a 1.4 percent drop from the previous year. The rest of the industries slowed down: Real Estate at 5.7 percent (from 11.2 percent); Private Services at 4.4 percent (from 6.3 percent); Manufacturing at 3.6 percent (from 4.0 percent); Mining and Quarrying with 2.7 percent (from 3.2 percent); Finance with 2.1 percent (from 10.0 percent); and Transportation and Communications with 0.1 percent (from 3.9 percent). Only Electricity and Water rebounded from a drop of 2.2 percent to positive 0.4 percent this year.

So I get it. Employment is down. But based from the government’s survey, consumer based spending is up therefore headline 3Q GDP has been computed as UP 6.1% (NGDP 4.4%)!

Low is HIGH, down is UP, few is Many!

December Import Crash: Statistical Ruse to Buoy 4Q GDP?

Yet let me offer a REASON to doubt on the PSA’s IMPORT numbers.

Perhaps this may have been designed to bloat 4Q GDP

Remember GDP= C+I+G (X-M)

where GDP represents the summation of Consumer, Investment and Government spending PLUS net exports (or exports MINUS imports).

Considering that imports have surged in October (16.9%) and November (10.1%), as exports have declined by 10.8% and 1.1% over the same period, the government would have a difficult time reconciling the ocean of difference as a consequence of big NEGATIVE net exports to produce its 4Q GDP numbers 6.3% (current 2000) and 5.2% NGDP.

So what they may have done was to crash the December imports! And perhaps pass on the deducted numbers into the future. So the audacity by the officialdom to claim “anomaly” or convey of confidence predicated on “strong consumer demand”.

The circumstantial evidence? Bureau of Customs collection was only down 2.7% in December year on year! [Note: The Bureau of Treasury has not officially disclosed on December numbers so I have to rely on media’s account on this.]

Or has the Bureau of Customs padded on the December numbers?

It is likely that December’s crash has represented both real and statistical frills.

Yet another possible statistical ruse to embellish the GDP. Of course, I have noted here that revving up the GDP has been primarily designed to gain access to credit⁵.

All these have been intended not only to buoy the political capital of politicians but most importantly, as originally formulated, GDP was engineered for politicians to gain access to public’s resources. Applied particularly in modern or contemporary times, GDP have been designed to help ensure easy ACCESS to cheap credit.

Easy access to credit is required to finance political spending.

Easy money policies not only translate to easy access to cheap credit, it entails lower costs for maintaining debt.

As proof, the Philippine government was able to raise $2 billion bonds which had record low coupon rates the other week. Any nice topline will serve as enough inducements to a world desperately scrambling for yields

Nonetheless experts say that now is the best time to buy stocks because of election spending!

Yet if jobs and investments have been in a decline, just where will such spending come from? Pork barrel based spending, which are merely transfers from taxpayer to politicians are sustainable sources of spending?

Has it not been truly bizarre where election uncertainties would be attributed by certain experts as causing the import collapse which the other seems as a reason to buy stocks? Experts seem as grasping at the straw to keep the illusions alive.

Phisix 6,800: Mixed Performance, Divergence and Overbought Conditions

And speaking of stocks, the Philippine equity benchmark, the Phisix, closed down with a marginal .31% deficit this holiday abbreviated trading week.

The slight decline had been a manifestation of a mixed market. It has likewise represented the aggressive use of last minute pumps or marking the closes in two days by Team Viagra to stave off substantial losses.

From a technical perspective, after reaching its first resistance level, the Phisix (PSEi) appears to be in a consolidation phase, with incipient signs of overbought conditions

The mixed market can best be seen from the sectoral performance, where outcomes had been divergent for the week. Two industries posted gains while the rest or the majority registered losses.

The banking-financial sector led the losers, down by a surprising 3.54% followed by the other three, the mining (-1.34%), service (-.69%) and the property sectors (-.22%).

Gains from the industrial (+1.23%) and the index heavy holding sector (+.48%) provided the offsetting force to cushion the index’s retreat.

Yet among the PSEi components, 9 issues advanced while 19 issues declined. Meanwhile, two issues were unchanged.

The broader market was evenly split between the dominance of advancers and decliners on a daily basis during the 4 day session.

Nevertheless in aggregate, for the week, advancing issues eked out a slight margin of 13 over declining issues over the week.

Average weekly peso volume was at still light at Php 7.142 billion. But volume had been buttressed by special block sales, mainly from Semirara and Star Malls. Special block sales at Php 9.1 billion, accounted for about 31.85% for the week’s total volume.

As I have noted last week, the peso rally may happen when the sale of USD bonds will be formalized or concluded. Apparently, the $2 billion record low coupon rates fund raising by the government through USD bonds the other week escaped my radar screen. So this has likely spurred the peso to rally or the USD Php to fall by .315%.

And it is important to note that the recent steep rally in Asian stocks has mostly been supported by the temporary weakening USD.

Has the Pummeling of Banking Stocks Signified the Effects of Yield Curve Inversions?

It’s interesting to observe of the quasi crash by the banking index last week.

As noted above, the banks represented the biggest drag on the index where the banking and financial sector slumped 3.54%!

In the recent past, the bank and financials index (green) have been tightly correlated with the price movements of the PSEi (red). However this week, the banking index dived even as the PSEi had mostly held ground.

The headline index consists of THREE banking issues which are considered heavyweights. Said differently, the three firms—namely BDO Unibank, Bank of the Philippine Islands and Metrobank with respective PSEi share weightings of 5.2%, 5.2% and 3.84% as of Friday’s close—have been part of the top 15 biggest market cap.

In the same pecking order, curiously the same issues suffered -1.98%, -6.86% and -4.74% for the week.

Mainstream media reports seem eerily silent on this. Why?

I have long propounded that the yield curve will ultimately matter. Actions at the bond market and the yield curve determine the direction of the interest rates as well as the interest rate arbitrages by financial institutions.

The core financing of the Philippine bubble principally depends on them.

Despite this week’s big rally on Philippine treasuries, brought about by the $ 2 billion bond raising, with the bulk of the recovery occurring at the front end, the recent declines in banking stocks could have reflected on the recent inversion of the many parts of the domestic yield curve.

As examples, spreads of the 10 year 1 month bill bounced off last week’s inversion (upper left). The 10-2yr spread remains very flat or at 41 bps (upper right). The 10-3yr spread moved away from negative to ZERO (lower left). The curve’s belly, the 10yr-5yr variance remains NEGATIVE for the third week -19.8 bps (left).

And in spite of this week’s big rally in Philippine treasuries which led to the slight widening of spreads, the overall trend remains headed toward INVERSIONS (green sloping downtrend line).

Severe flattening of yield spreads to negative spreads or the yield curve inversions point to the dramatically tightening liquidity environment. Such translates to diminishing arbitrage from maturity transformation (borrow short-lend long) or the shrinkage of net interest margins for banks. Of course, the secondary effect would entail of lesser credit activities from the banks.

And considering that credit has functioned as the lifeblood of the contemporary zero bound formal economy, then this will likely have a spillover effect on the real, mostly, formal economy, as well as to asset prices.

As I have noted in the past⁶:

Said differently, a reduction of credit activities will lead to a substantial repricing of the considerably overpriced and mispriced assets.

Hence, overpriced and mispriced assets maybe vulnerable to violent adjustments (a.k.a crashes)…

Now if half of the banking balance sheets have constituted loans and other the half have been divided into financial (and property) assets, and fees, then both will similarly be vulnerable to a downturn in economic activities and from a hefty repricing of assets.

To make a long story short, this means there will be a transmission and feedback mechanism through the sequence of slowing credit growth to NGDP to earnings to asset pricing to credit risk and vice versa.

So if my suspicions are correct, then this week’s divergence between bank stocks with the general markets will hardly last.

Instead, price action of banks could be ominous of a convergence, a forthcoming selling episode. Add to the likelihood of the mean reversion are likely signs of overbought conditions.

And perhaps by next week, we may know from the BSP’s disclosure whether January 2015’s credit and liquidity data will corroborate on this week’s bank selloffs.

As of December, the rate of expansion of both bank credit and domestic liquidity appears to have resumed its descent, down to 13.1% (see below) and 8.3%.  

With the exception of the last two quarters of 2015, bank credit growth has mostly mirrored GDP activities whether seen from annualized (top) or quarterly (bottom) or when compared to NGDP or current based (real) GDP.

In short, GDP has mainly been a function of mostly credit conditions.

Moreover, credit intensity or credit required to produce GDP has been accelerating to the upside even as NGDP and banking system loan growth have both in decline. This implies that the former have been declining more than the latter. This also suggests of the diminishing returns from credit growth on the statistical GDP. And more importantly, the rise of credit risks.

For all the bullishness being foisted on the public by media—which have mainly been premised on statistical charades, financial market pumps, roseate projections by mainstream outfits, and economic sophisms masquerading as ‘expert’ opinions to defend the status quo by denying all possible risks—has been the utter blindness to very foundations to the ungluing of the façade.

Global Stock Markets: Oil Prices as Du Jour Stimulus and the Cockroach Theory

Global stock markets had been sharply volatile last week.

Stock markets of many developed nations have swung from big gains to big losses and back to big gains.

Meanwhile Chinese stocks rallied strongly at the start of the week, to only succumb to a 6.41% crash last Thursday. Thursday’s crash echoed on the January’s end of the month version. Nonetheless, following the announcement that China’s central bank had “some monetary policy space” and “multiple policy instruments to address possible downside risks” on Friday, aside from signs of nudging by the government on the stock market, the Shanghai index closed up by .95% to trim the week’s loss to 3.25%

However the character of global markets seems to have changed. China’s influence over global markets appears to have dissipated or has shifted mostly to the price of oil. In short, for now, developments in the Chinese stock markets have been sidelined for other concerns particularly on oil. Add to the subsidiary concerns have been the Brexit or British Exit from the EU.

While the G-20 meeting was also factor that helped revived the ‘animal spirits’, it was oil that took the limelight.

US crude’s WTIC’s 10.5% spike coupled with Brent oil’s 7.1% surge fed into many developed economy’s stock market gains.

And instead of the former populist theme where “low oil prices equals bigger consumer spending” that should translate to “higher” stock markets, today’s low oil prices have now extrapolated to lower stocks and vice versa. Or, the correlation of stock market movements and oil prices has increased.

Reason? Bloomberg offers four theories: Low oil prices equals global recession, low oil prices will ignite credit defaults, low oil prices equals low investments and finally low oil prices equals rebalancing of portfolios that means liquidations of non-oil assets.

Global stock markets have become so fickle to look for anything to whet on their speculative juices.

So instead of previously fixating on central bank activities, ‘stimulus’ seems to have shifted on how major oil producers agree or disagree to manage oil prices via prospective changes in production output.

Additionally, because of the tightening correlation between oil and stocks, establishment entities like the Wall Street Journal have even suggested that central bank buying activities should include oil in their large scale asset purchasing programs or QE (with reference to the Bank of Japan or BoJ)

This looks increasingly as more signs of desperation to anchor onto something as central banks magic appear to be fading.

Yet what seems to have been overlooked has been the US dollar. The presently weak US dollar (as shown by the Bloomberg dollar index at the right window) has provided much space for oil’s rally.

And while it may be true that low oil prices will likely increase pressures on highly leveraged energy firms that may lead to defaults, the problems have not been confined to the oil sphere.

There hardly is a single cockroach. The appearance of a cockroach extrapolates to more hidden ones. That’s based on the cockroach theory of finance. And the energy sector could be just one of the many debt impaired ‘cockroaches’ that has emerged.

According to the Bloomberg, 5,000 publicly listed energy firms have a combined $3.6 trillion in debt. Such scale of debt has been distributed as $2.1 trillion in bonds, and the rest, could be in bank loans. While not all will be affected, many will.

And cockroaches have definitely been surfacing.

Aside from stock market and currency crashes, presently, the Standard & Poor’s US Distress Ratio for junk bonds has already reached 2009 crisis levels. And the sustained rise of the distress ratio points to even more defaults ahead.

And the contagion or ‘spillover’ dynamic has only been escalating, as analyst Wolf Richter explained⁷: And it’s not just the oil-and-gas and the minerals-and-mining sectors that are getting crushed. Of the 607 distressed bond issues in the ratio, 172, or 28%, are oil-and-gas related and 80 bond issues, or 13%, are minerals-and-mining related. The remaining 59% are spread across other the spectrum…In terms of total debt, the third largest sector on the distressed list is Telecom with 31 S&P rated issuers and $33.5 billion in distressed debt, followed by Utilities, where distressed debt has soared 58% in just one month (!) to $32.5 billion, spread over 37 distressed issues. 

And yet even more cockroaches. The gold-oil ratio seems to be a harbinger of even more volatility, which combined with tightening of global liquidity and financial conditions could even lead to a major adverse event ahead.

The BCA Research recently warned⁸: The gold/oil ratio has made all-time highs recently. Not only is this ratio a liquidity vs. growth indicator, but it also takes a real time pulse of investor angst, rendering it a reliable fear gauge (see chart). Worrisomely, crude oil volatility has spiked to levels last seen during the Great Recession, and is also signaling that the VIX will follow suit in the coming months.

While oil prices may be today’s darling, it is just one of the many symptoms of imbalances that have been unraveling or undergoing violent adjustments. Eventually, I expect such fixation to lose footing.

Finally, it has been a curiosity for Citigroup, one of the largest banks in the world (13th based on relbanks.com in 2015) to declare that “chances of a global recession are already high and only going up”.

Mainstream banks usually don’t go against the interests of political institutions. That’s unless recession has already been extant or when such institutions are trying to sell something. The latter seems to be the case for Citigroup.

So while the firm says global recession is “increasingly probable”, “it's not necessarily unavoidable”. That’s because such would be conditional to Citigroup’s prescriptions. According to Bloomberg, “To avoid a recession and to avoid a greater slowdown in potential output growth than is warranted because of worsening demographics, the world needs a global version of what we would call 'Abenomics plus,'" which in Citi's terms would be easy monetary policy coupled with fiscal stimulus and structural reform that would include "material deleveraging."

In short, make sure that government subsidies flows to us and recession will go away.

___

1 Philippine Statistics Authority External Trade Performance: December 2015 February 24, 2016

2 Businessworld.com NEDA statement on Dec. imports February 24, 2016

3 Monster.com Philippines’ E-Recruitment Witnesses Slight Improvement, Despite Negative Growth Monster December Employment Index

4 Philippine Statistics Authority Total Gross Revenue Index of Industries grew by 4.3% in Q3 2015 February 24, 2016

5 See Phisix 6,900: 3Q GDP Shocking Divergence: The Official and Untold Story! GDP of PSE’s Listed Firms Turn NEGATIVE in 1H! November 29, 2015

6 See Red Alert: Philippine Bonds Warns of Rapid and Dramatic Deterioration of Domestic Liquidity Conditions! December 20, 2015

7 Wolf Richter Now It’s Even Worse Than it Was When Lehman Collapsed, But It’s “Contained” Wolfstreet.com February 26, 2016

8 Anastasios Avgeriou Is Volatility Set To Spike? February 24, 2016

Quote of the Day: Whose Conspiracy?

From former economist, blogger and Assistant Secretary of the Treasury for Economic Policy Paul Craig Roberts at this website

What disturbs me is that no one in authority or in the mainstream media has any interest in checking the facts. Instead, those who raise awkward matters are dismissed as conspiracy theorists.

Why this is damning is puzzling. The government’s story of 9/11 is a story of a conspiracy as is the government’s story of the Boston Marathon Bombing. These things happen because of conspiracies. What is at issue is: whose conspiracy? We know from Operation Gladio and Operation Northwoods that governments do engage in murderous conspiracies against their own citizens. Therefore, it is a mistake to conclude that governments do not engage in conspiracies.

One often hears the objection that if 9/11 was a false flag attack, someone would have talked.

Why would they have talked? Only those who organized the conspiracy would know. Why would they undermine their own conspiracy?

Recall William Binney. He developed the surveillance system used by NSA. When he saw that it was being used against the American people, he talked. But he had taken no documents with which to prove his claims, which saved him from successful prosecution but gave him no evidence for his claims. This is why Edward Snowden took the documents and released them. Nevertheless, many see Snowden as a spy who stole national security secrets, not as a whistleblower warning us that the Constitution that protects us is being overthrown.

High level government officials have contradicted parts of the 9/11 official story and the official story that links the invasion of Iraq to 9/11 and to weapons of mass destruction. Transportation Secretary Norman Mineta contradicted Vice President Cheney and the official 9/11 story timeline. Treasury Secretary Paul O’Neill has said that overthrowing Saddam Hussein was the subject of the first cabinet meeting in the George W. Bush administration long before 9/11. He wrote it in a book and told it on CBS News’ 60 Minutes. CNN and other news stations reported it. But it had no effect.

Whistleblowers pay a high price. Many of them are in prison. Obama has prosecuted and imprisoned a record number. Once they are thrown in prison, the question becomes: “Who would believe a criminal?”

As for 9/11 all sorts of people have talked. Over 100 police, firemen and first responders have reported hearing and experiencing a large number of explosions in the Twin Towers. Maintanence personnel report experiencing massive explosions in the sub-basements prior to the building being hit by an airplane. None of this testimony has had any effect on the authorities behind the official story or on the presstitutes.

There are 2,300 architects and engineers who have written to Congress requesting a real investigation. Instead of the request being treated with the respect that 2,300 professionals deserve, the professionals are dismissed as “conspiracy theorists.”

An international panel of scientists have reported the presence of reacted and unreacted nanothermite in the dust of the World Trade Centers. They have offered their samples to government agencies and to scientists for confirmation. No one will touch it. The reason is clear. Today science funding is heavily dependent on the federal government and on private companies that have federal contracts. Scientists understand that speaking out about 9/11 means the termination of their career.

The government has us where it wants us—powerless and disinformed. Most Americans are too uneducated to be able to tell the difference between a building falling down from asymetrical damage and one blowing up. Mainstream journalists cannot question and investigate and keep their jobs. Scientists cannot speak out and continue to be funded. 

Truth telling has been shoved off into the alternative Internet media where I would wager the government runs sites that proclaim wild conspiracies, the purpose of which is to discredit all skeptics.

Bank of Japan's War on Cash: Demand for Safes and Big Denomination Yen Notes Soar! Gold Priced in Yen Surges!

At the outset of the imposition of NIRP,  the average Japanese seem to be vehemently pushing back on the Bank of Japan’s (BoJ) attempts to shanghai their resources.

First, the imposition of NIRP has only caused fissures in the establishment. This can be seen in mainstream media, as well as in the reactions of several politicians to the BoJ

According to Fidelity/DJ Business News (February 18)

A clash Thursday between Japan's central-bank chief and lawmakers highlighted the downside of negative interest rates: They are making the Japanese public feel negative.

Bank of Japan Gov. Haruhiko Kuroda, who announced the nation's first move into minus rates three weeks ago, found himself dodging a concerted attack in Parliament from lawmakers who charged the policy was victimizing consumers and sending a message of despair.

Next, in anticipation of non bank savings, sales of safes (and safety boxes) have suddenly boomed!

From Fortune.com (February 23, 2016)

Negative interest rates mean customers effectively pay a fee for parking cash in banks, so Japanese citizens are beginning to hoard yen, according to the Wall Street Journal, and they need somewhere to put it.

Sales of safes have doubled from the same period a year earlier at chain hardware store, Shimachu, according to theJournal. The chain has already sold out of one model worth $700. Others savers are considering more unconventional storage spaces.

“In response to negative interest rates, there are elderly people who’re thinking of keeping their money under a mattress,” Mariko Shimokawa, a Shimachu saleswoman told the Journal.

Third, real cash demand has spiked as exhibited by zooming demand for the yen's big notes!

From Bloomberg (February 24, 2016)

Demand for 10,000-yen bills is steadily rising in Japan, even as the nation’s population falls and the use of credit cards and other forms of electronic payment increases.

While more cash might sound like a good thing, some economists are concerned that it shows Japanese households are squirreling away money at home instead of investing it or putting it into bank accounts -- where it can make its way back into the financial system and be put to productive use.

That’s a big problem for Prime Minister Shinzo Abe and his central bank chief, Haruhiko Kuroda, as they try to spur consumption and reflate the stuttering economy.

The mountain of cash in Japan amounts to almost 100 trillion yen ($890 billion), equivalent to about a fifth of the size of the economy. And last year the number of 10,000-yen notes, the biggest bill, increased by 6.2 percent, the largest jump since 2002.

Increased demand for big note cash has likewise surfaced in Europe.

Lastly, gold prices in yen has likewise surged.

Despite the recent correction in the prices of gold based on USD, the yen price of gold continues upward as shown in the chart from the World Gold Council.

Perhaps my observation is being incrementally affirmed

Coupled with growing ban on cash by governments mostly under NIRP, the likelihood of imposition of myriad capital controls, prospective bail-ins or deposit haircuts on troubled banks, and or even perhaps outright protectionism, probably gold senses a massive disruption in the banking system, and the large scale drying up of global liquidity as the public gravitate towards cash with gold functioning as an alternative medium of exchange.

Confiscations of private sector resources to finance desperate bankrupt governments will likely deepen. From zero bound, to zero to negative and to the war on cash, as well as, to various capital, transactional and people controls, these shows of the slippery slope of the government's thrust.  So it won't take long, when governments will likely expand their prohibitions or increased regulations to include safes and safety boxes and gold ownership. Add guns to it. Yes people will need guns to protect their home based savings.

So What Else is New (February Edition)? Shanghai Index Crashed 6.41% Today!

In the case of China’s stock market crashes history seem, not just rhyme but repeat. Last January 26th, the Shanghai index plummeted 6.42%. 

The same index crashed 6.41% today or about a month from January’s crash.

Today’s crash was another broad based event.

The Bloomberg on today’s crash:

China’s stocks tumbled the most in a month as surging money-market rates signaled tighter liquidity and the offshore yuan declined for a fifth day.

The Shanghai Composite Index sank 6.4 percent at the 3 p.m. close, extending its declines this year to 23 percent. About 400 stocks on the gauge fell by the 10 percent daily limit. The overnight money rate, a gauge of liquidity in the financial system, climbed the most since Feb. 6. The Hang Seng China Enterprises Index retreated for a third day.

The return of volatility in mainland equities will raise the stakes for the nation’s policy makers as Shanghai prepares to host finance chiefs and central bankers from the Group of 20 meetings tomorrow. Today’s declines have almost wiped out a 10 percent rebound from a January low...

China’s overnight repurchase rate increased 16 basis points to 2.12 percent. Some banks were obliged to set aside more funds as reserves at a time when open-market operations are draining cash from the financial system.

The first indicators for China’s economy this month signal its slowdown hasn’t bottomed out yet, despite banks extending record new loans in January. Private gauges of manufacturing and services fell to new lows, a reading of business confidence slipped, and interest in small and medium sized businesses deteriorated, the readings show. If confirmed in official data for February that starts to roll out from March 1, such weakness would suggest a slowdown in the nation’s old growth drivers may be deepening.

China’s repeated crashes should be a noteworthy example of the axiom: there is never just one cockroach (cockroach theory). Of course, Chinese cockroach dynamics also serves as manifestations of how markets boomerang against market perversion through various manipulations. 

For instance, all the measures used by the government or the Xi Jinping Put to support the market—the ban on short selling, the intimidation and the arrests of ‘malicious’ short sellers, the disappearance of top industry officials, the censorship of media, postponement of IPOs, the prohibition of sales by majority holders, the subsidies, the mandate by state enterprises to bolster the stocks, and the coaxing of the public to mortgage their houses or any assets just to buy stocks—have only backfired.

Not even January's massive (half a trillion usd) surge in bank lending has prevented the recent volatility. 

Yet today’s crash nearly expunges more than half of post lunar New Year rebound (as indicated in the report) which was partly supported by the government

Likewise today’s crash brings the Shanghai index to about 3% off the January 28 2016 lows or the November 2014 levels.

Nonetheless, China’s crashes also shows of the 'proportionality' of boom bust cycles or how the bust will be roughly proportional to the imbalances acquired during the inflationary boom

Yet, China's crashing markets will serve as blueprint to all other bubbles.

Quote of the Day: Why Global Defense Spending Will Be a Drag on the Global Economy

Australian author, financial analyst and former banker, Satyajit Das at the Marketwatch debunks the (Keynesian) myth of economic prosperity from the war economy (bold mine)

First, there is pressure to increase spending on defense and national security in the U.S., Europe and the U.K. Some economists have argued that this spending could boost economic activity. However, any rise will be artificial and short-lived — money expended on defense could otherwise have been put to more productive use, generating greater wealth. Moreover, defense spending will place additional stress on already fragile public finances in many countries.

Second, dislocations may affect normal trading and financial activities.

For example, between 2010 and 2014, Western investors invested over $300 billion in Russian stocks and bonds. Western sanctions on Russia now make it difficult for a number of heavily indebted companies to refinance existing foreign currency borrowing or raise new capital internationally. Western sanctions on Russia are also costly for European economies, especially Germany. Around 350,000 German jobs directly depend on German-Russian trade, with roughly 8%-10% threatened by sanctions.

Third, rising security concerns and political risk reduce the attractiveness of global supply chains and deter foreign investment. An uncertain geopolitical and global security environment may reinforce the trend to close economies, with capital controls and trade restrictions. For instance, China is moving to domestically source previously imported critical defense and infrastructure components to ensure self-sufficiency.

Fourth, actual conflict increases the cost dramatically. There is the direct cost of dealing with the issue. There is also the indirect cost by way of disruptions, restrictions on normal commercial and personal life, and the loss of confidence which impinges on economic activity. Even minor conflicts can disrupt critical resource supplies, such as oil or crucial minerals, and trade routes. It can displace large numbers of people, resulting in large numbers of refugees.

Fifth, even if the conflict is internal to a country or relatively small in scale, the collateral effects are significant. The Syrian civil war illustrates the tremendous humanitarian cost and the economic expense of dealing with the crisis. Germany has estimated the cost of integrating refugees fleeing the conflict may cost up to 900 billion euro over the long-term. The need to reintroduce border patrols within the EU may reduce GDP by 0.8% or around 100 billion euro, in direct costs as well as the effects on trade and tourism.

Combating and controlling failed states, resulting from conflict, such as those in the Middle East, Africa and central Asia, requires commitment of vast resources, by way of manpower and treasure.

Sixth, asymmetric warfare, cyber-attacks or isolated terrorist attacks, are costly to economies. Increased security measures designed to prevent or minimize the effects of such attacks are expensive. The large and rising homeland security costs in the U.S. and elsewhere is a large and unproductive expense.

In addition to the well-known economic problems of low growth, deflation, demographics, slowing productivity, and environmental issues, reversal of the peace dividend now weighs heavily on the prospects for the global economy.

Chart of the Day: Do Japanese Prefer Having Cats to Having Dogs (and Kids)?

Pet cats have been booming at the expense of dogs (and kids).

That's according to a report from Bloomberg

The number of cats kept as pets is on the way to overtaking that of dogs in Japan, while the number of children continues to drop steadily. In the fast-aging nation with people increasingly living alone, cats are finding favor because dogs are more demanding and need to be walked, according to Kaoru Souma, secretary general of Japan Pet Food Association.

Phisix 6,800: Team Viagra Take TWO!

Take one for the week was yesterday. 

See, another representation of what makes the “Best stock market in Southeast Asia”! Along with this, how and why the Philippines has attained “sustainable inclusive growth”! 

What one cannot achieve via through the normal trading sessions have to be accomplished via price fixing or “marking the close” from Team Viagra! 

The obvious purpose for this has hardly been about profits but about "fixing" the index level. Very much like politics, the PSEi’s position has become symbolical rather than a reflection of market forces. 

Such "marking the close" has become a regular feature since the 4Q of 2014. Yet its only accomplishment was to carve the 8,127.48 April 10, 2015. Since, no matter how frequent and powerful the actions, Team Viagra has been unable to prevent the downdraft to the current state. 

Now they seem so desperate to keep the spent mania from flagging further. 

Down 1.15%, Team Viagra erased a stunning .42% of the losses of the PSEi to close the day down by only .73%!

Today's operation centered on mainly four heavyweights which offset considerable losses from the broader market.

SM, which carries the largest Phisix market cap weight with a 10.14% share (as of the session close) delivered the meat of the loss offsetting actions from the last minute pump. The rest as shown above provided support. Note of the losses (red) turned gains (green) from last minute pre-run off pumps.
 

The above represents the most active issues for the day

Nonetheless, with Team Viagra, it's definitely more fun in the Philippines! 

And the stock market's session closing Viagra effect can be seen "ONLY in the Philippines"! 

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

My purpose for such postings have been to document irregularities for posterity, which may serve as lesson to future generation practitioners: There is no such thing as a free lunch; perversion of the marketplace will have incite a blowback or will backfire.

Remembering Carl Menger, Founder of the Austrian School of Economics

In commemoration of Carl Menger's 176th birthday (yesterday), here's a lengthy excerpt of BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel and Austrian Economist Richard Ebeling's eulogy at the FFF.org:

Today is Austrian economist, Carl Menger’s, birthday. Born on February 23, 1840, he died on February 26, 1921, at the age of 81. Menger is most well known as one of the first formulators of the theory of marginal utility, separately though in published form almost simultaneously, with William Stanley Jevons and Leon Walras in the early 1870s. But this work also marked the beginning of a uniquely distinct “Austrian School of Economics” based on the theory of subjective value, of which he became viewed as the “founding father.”

Menger is also famous for his theory of “spontaneous order” explaining the emergence and development of social and market institutions, especially money, which may be considered an extension of the earlier contributions of the eighteenth century Scottish Moral Philosophers on the same theme. In addition, he was an active participant in the Austrian government’s commission that put Austria-Hungary on the gold standard in the early 1890s, and was a critic of both socialism and extensive government intervention in economic affairs.

While Carl Menger may have been the founder of the Austrian School, it was through the writings of his two inspired followers, Eugen von Böhm-Bawerk and Friedrich von Wieser, that the name and fame of “Austrian Economics” became widely known worldwide starting in the 1880s and 1890s.

Menger’s Influence on the Austrian Intellectual Milieu

Shortly after Menger’s death in 1921, Wieser wrote a tribute to his master, and explained the intellectual milieu in which Carl Menger’s Grundsätze der Volkswirtschaftsliche [Principles of Economics] appeared on the scene in 1871.

Wieser told that back in those days, students like himself and Böhm-Bawerk did their study of economics through the law faculty at the university, and he thought this gave them a solid and sound grounding to approach and appreciate the institutions of property, contracts, and various market institutions. But it did not provide an understanding of the workings of the market order, rather just an appreciation of its legal basis and prerequisites.

The German economics textbooks assigned were thorough in their own way, but lacked a sufficiently satisfying grounding in the logic of economic value, the emergence of prices, or the working of market competition. Plus, they were tainted by the anti-theoretical prejudices of the dominant German Historical School.

When Wieser and Böhm-Bawerk turned to the “classical economists” for such a theoretical foundation, in the writings of, say, Adam Smith and David Ricardo, they found an amazing analysis of the interactive working and coordination of market competition. But, Wieser said, they lacked a sufficiently “individualistic” approach to dig deep enough to show how out of the evaluations and actions of the individual participants of the market order there logically and empirically emerged the market process and its pricing and coordinating outcomes.

Wieser then said:

In the midst of this distress, we found at hand Menger’s ‘Principles,’ and suddenly all of our doubts were gone. Here was given to us a fixed Archimedean point, from which we found even more; we were given a full Archimedean plane, on which we were able to have a firm foundation and sufficient information to be reassured that we could proceed with confident steps.

Menger once told me how he had come to find this solid foundation. Menger was led to his theory of [subjective] value by the way prices were made in the money market and commodity markets, on which had had to report as a young man in the [Austrian] Civil Service. He saw that the markets were led in determining these prices by facts of demand of which the prevalent theory of prices took no notice. This observation brought him to an examination of human needs and their laws.

Menger’s Commonalities with Other Marginalist Thinkers

What Menger shared in common with the other formulators of marginal utility were the following insights:

First, value is not intrinsic to a good; it does not result simply from a quantity of labor that may have gone into a good’s production, as the classical economists had argued from the time of Adam Smith. Value is based on a human evaluation of the degree of usefulness and importance of a good under conditions of its scarcity.

Second, goods are not evaluated in terms of “classes” or categories of goods, for instance, all “water” versus all “diamonds.” Goods are evaluated in terms of discrete or “marginal” amounts of each particular good used or consumed.

Third, the marginal usefulness or importance each unit of a particular good acquired in succession is less (or diminishes) with each additional unit used or consumed.

Strangely enough, when Menger presented his theory of the diminishing marginal usefulness of units of a good acquired and employed in his Principles, he gave no name to the concept. The term grenznutzen, or “marginal use,” was coined by Friedrich von Wieser and became translated into English and generally accepted as “marginal utility.”

Menger’s Unique and Distinct Approach to Economics

What stands out about Menger’s formulation and development of the “marginal” concept is the unique way he approached the entire subject matter of economic analysis. He grounded the analysis immediately in a clear and insistent methodological individualism. He emphasized that the method of his analysis was to reduce the complex phenomena of the social and market order to their most elementary components – individual choosing and acting men – to explain the logic of their choices and conduct in satisfying their wants, and on that foundation to then analyze the manner in which the interactions of these individual choosers and actors generate the formation and patterns of that wider and more complex social and market order.

All things, Menger continued, are subject to the laws of cause and effect, and thus to satisfy their wants individuals must discover the “laws” of causality in the world in which they live and act, including the discoverable causal connections between useful objects and things that may be utilized to serve and satisfy men’s ends.

From this Menger presented what has been a hallmark of Austrian theory ever since, that is, the idea of stages of production through planned and implemented periods of production. Some means may be found to be directly and relatively immediately useful in fulfilling desired ends, but in many if not most cases, useful things are only found to be indirectly serviceable for those ends.

Thus, for a finished loaf of bread to be available for making a sandwich, there must be an oven and other ingredients (yeast, dough, etc.) out of which the bread may be made and baked. But to have the oven and these other ingredients, iron and other raw materials must have been mined and them manufactured into a useable oven, and the dough required the farming and the harvesting of wheat, etc.

This, then, led Menger to emphasize that the existence and undertaking of such causal processes were inescapably linked to the presence and importance of time in all things that men do. Or as Menger expressed it, “The idea of causality, however, is inseparable from the idea of time. A process of change involves a beginning and a becoming, and these are only conceivable as processes in time.”

Furthermore, once we appreciate and acknowledge the omnipresence of causality and time, we must also admit the reality of uncertainty. Since time includes not only a “past” and a “present” but also a “future,” we must deal with the fact that our ideas about our wants, the efficacy of the means at our disposal and the causalities set in motion “now” for an outcome “later,” may turn out to be wrong.

There exists in all of our actions the possibility that the future may be different than we have anticipated as the experienced events unfold leading to that point on the horizon towards which are actions are directed. Thus, from the beginning the Austrians highlighted the imperfection of human knowledge that makes disappoint and as well as success an ever-present and possible aspect of all that we do.

This way of thinking about and emphasizing the reality of the human decision-making circumstance also resulted in an implicit focus on what today the Austrians refer to as methodological subjectivism. That is, the insight that if we are to understand the logic and meaning in men’s actions we must appreciate how the actors, themselves, evaluate, interpret, and assign meanings to their own actions, the objects of the world that enter their orbit of relevance, and the actions and intentions of others with whom they may directly or indirectly interact.

Menger highlighted that in all planned acts an actor assigns meaning to some objects as useful consumer goods, and to others as indirectly useful producer goods of one type or another that are coordinated by the planner in complementary patterns of use through time-filled periods of production. These designations and causally connected production relationships do not exist or have meaning and relevance outside of a human mind giving meaning and arrangement to the things of the world in a particular way.

The Human Actor is More than a Mathematical Function

The famous Chicago School economist, Frank H. Knight, once remarked, “The entire theory [of marginal utility] is much more convincing in the loose, common-sense formulation of Menger than it is in the more refined mathematical version of Jevons and Walras.”

From the start, Menger did not view man as a mathematical variable reduced to mere quantitative dimensions. He presents and studies individuals in the realities of human circumstances and decisions. Thus, in his own exposition of the relationship between men’s wants and any useable means, he asks when would it matter to a person if some quantity of useful means were acquired or lost, in the context of the actor’s intentions, plans and meanings.

Read the rest here

At the Mises Blog, the great Carl Menger as excerpted from Jörg Guido Hülsmann's Mises: Last Knight of Liberalism

Also at the Mises Blog, the great Ludwig von Mises noted of Carl Menger as the Oracle of the Fall of Europe

Chart of the Day: World Avocado Economics

Interesting graphics from Reuters' Answers ON on the global shortage of Avocados.

Quote of the Day: Politicians are Inveterate Liars

Writes Robert Higgs, Senior Fellow in Political Economy at The Independent Institute (source of the below quote) and editor at Large of the Institute’s quarterly journal The Independent Review: (bold mine)

Between the would-be, public office-holder on the one hand and the citizen in general and voter in particular on the other, lies a huge barrier that precludes the establishment of any rational connection. Think of genuine “representative government” on anything other than a very small scale as a practical impossibility. Many reasons explain the existence of this barrier, including the logical impossibility of an agent’s accurately representing each member of a group of principals who do not agree among themselves, but certainly one of the most fundamental factors is that the office seekers often lie to the public, or at least obfuscate and hedge about their statements in a way that makes them de facto lies.

Thus, Mr. Blowhard promises that if you elect him, he will do X. After he is elected, however, he does not do X, but offers an endless litany of excuses for his misfeasance or malfeasance in office. In any case, the essential reality is that no one can hold the successful office seeker to account for his infidelity in carrying out his promises. Everyone is stuck with him until the next election, in anticipation of which he will spew out another ridiculous series of lies and worthless promises. The office-seekers’ lies cover pretty much the whole ground of their speech. Of course, they are not forthcoming about past defalcations, de jure and de facto bribe takings, and personal peccadilloes. They almost invariably misrepresent their true reasons for seeking office, putting the shiniest possible public-service gloss on their raw ambition and lust for power. And they rarely if ever reveal truthfully the actual coterie to which they will be ultimately beholden, normally the largest and most influential supporters in their electoral campaign. Instead, they ludicrously declare that they will invariably “serve all the people.”

In policy matters, they lie about everything, although some of their lies may actually spring at least in part from their ignorance of how the world works and from their ideological blindness, rather than from deliberate, knowing attempts to misrepresent themselves and situations they will have to deal with in office. The lies about domestic policy are perhaps somewhat less blatant because many members of the public have personal acquaintance or contact with various aspects of such government action, which limits how big a whopper a politician can hope to get away with, whereas in defense and foreign-policy policy the office-seekers, regardless of their personal preferences or knowledge, can always rely on the general public’s near-complete ignorance of foreign lands and the political, social, and economic conditions that prevail there, and hence there is no practical limit to the enormousness—and the enormity—of the lies they can tell in regard to these types of issues.

In the case of past presidents seeking reelection, it is a simple and oft-performed exercise to document the lies they told to gain reelection, usually by representing themselves in some fashion as “peace candidates,” even while in some cases they were actively maneuvering to involve the United States in foreign quarrels that might well have been avoided if the office-seekers/office-holders had been concerned with the nation’s genuine security and well-being, as opposed to their place in the history books as “great presidents” or “world saviors.” These cases are illustrative, too, of the uselessness of elections as checks on office-holders’ departures from their campaign promises. Voters who cast their ballots for Woodrow Wilson in 1916, for Franklin D. Roosevelt in 1940, and for Lyndon B. Johnson in 1964 in a quest to help elect the self-represented “peace candidate” must have been sorely disappointed by the actions these men took immediately after their reelections, but what could the voters do once so much fat was in the fire? By the time the next election came around, the world had been utterly transformed—and millions of lives had been lost, as well.

So, what possible intelligence can voters exercise in casting their ballots? They can vote in accordance with the appeal a particular candidate’s promises hold for them, but relying on candidates to carry out their promises would be childishly foolish. Anyone who pays the slightest attention to politics knows that politicians are inveterate liars; many would sooner lie than speak truthfully even if the truth did not thwart their purposes, because lying would be more congenial to their true, dishonest character. Thus, voters can do nothing more than throw ideological darts, casting their ballots for the candidate who makes the most appealing noises, has the handsomest face, or displays peacock-like the most fabulous partisan posturing.

To perceive any fixed and reliable link between what the candidates promise and what they deliver in office would be wildly counterfactual. Politicians have no more backbone than an earthworm. Even if they could not be bought—and most obviously can be—they are constantly at auction for rent, and the bidding never ceases. Thus, we can count on them with complete confidence in only one regard: their mendacious shilly-shallying.

Phisix 6,800: Another Team Viagra Day!

What would be of the Philippine stock market without Team Viagra?

Of course, Team Viagra has most likely been the secret ingredient to the recent attainment by the PSE of the “best stock market in Southeast Asia”. Let us not forget, Team Viagra may also be the elixir to “sustainable inclusive growth”.

49% of today’s closing gain of .53% came from “marking the close” pump! 

By statute, "marking the close" is considered "prohibited". But who cares about regulations for as these infractions work in the favor of the establishment?

Curiously, board volume emaciated to only Php 4.45 billion, but special block sales from STR and SCC padded these to Php 12.6 billion

Yet the main issues to deliver the last minute pump…

I won't repeat of the impact Team Viagra does to the marketplace.

Nonetheless, with Team Viagra, it's definitely more fun in the Philippines! And to add "ONLY in the Philippines"!

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

Quote of the Day: Money Changed Everything

From Author and Agora Founder, Bill Bonner at his website: 

Not one person in 1,000 realizes it, but America’s money changed on August 15, 1971. After that, not even foreign governments could exchange their dollars for gold at a fixed rate.

The dollar still looked the same. It still acted the same. It still could be used to buy booze and cigarettes.

But it was flawed money. And it changed the whole world economy in a fundamental way… a way that is just now coming into focus.

The Old Testament tells us that God chased Adam and Eve from the Garden of Eden with this curse: “By the sweat of your brow, you will earn your food until you return to the ground.”

From then on, you worked… you earned money… you could buy bread. Or lend it out. Or invest it.

Dollars – or any form of real money – were compensation… for work, for risk taking, for accumulating knowledge and capital.

Money is information. It tells us how much reward we’ve earned… how much things cost… how much profit, how much loss, how much something is worth… how much we’ve saved, how much we’ve spent, how much we need, and how much we’ve got.

Money doesn’t have to be “hard” or “soft” or expensive or cheap. But it has to be honest. Otherwise, the whole system runs into a ditch.

But the new money was a phony. It put the cart ahead of the horse. This was money that no one ever had to break a sweat to get. It was based on credit – the anticipation of work, not work that had already been done.

Money no longer represented wealth. It now represented anti-wealth: debt. So, the economy stopped producing real wealth.

The Fed could create money that no one ever earned and no one ever saved. It was no longer the real thing, but a counterfeit.

In this way, effort and reward were cut off from one another. The working man still had to labor. But it was the banker, gambler, speculator, lender, financier, investor, politician, or inside operator who made the money.

And the nature of the economy changed. Instead of rewarding the productive Main Street economy, it rewarded insiders… and the financial sector.

The penthouses of Manhattan and the summer houses of the Hamptons changed owners. Gone were the scions of Detroit factories and the titans of New York commerce. Gone were the people who had added to the wealth of the nation.

In their place were the Wall Street hustlers… the people who moved money around… taking it from the people who made it and giving it to the financial industry, the money lenders, the insiders, and the Deep State.

This process is misunderstood. It is thought that Wall Street greed and deregulation caused the shift. But Wall Street was just as greedy as it always was… And financial regulations increased dramatically throughout the entire period.

It was not human nature that had changed; it was the money. And it changed everything.