The Myth of Stock Market Electoral Honeymoons‏

Pls don’t fall for claims that post Presidential election returns will mechanically be positive.

New administrations do not signify as free lunches.

Stock markets are not merely about prices and price pumping. Stock markets are underpinned by claims on future income streams.  Besides, stock markets are also titles to capital goods. Therefore, prices should incorporate such capital formation process (and not bubbles which means price misalignments)

And it isn’t just statistics that matters (or presentations which shows election equals returns y-o-y) as all historical events had been underpinned by unique circumstances. Understand that most of these numbers have been cherry picked.

FVR’s electoral victory in 1992 which led to the 1993’s behemoth 179% rally in the Phisix emerged out of historical monumental low valuations due to the following factors (but not limited to them):

1) The Phisix collapsed in 1979 and stagnated until the Marcos regime was ousted in 1986.

2) The Philippine economy also suffered a balance of payment crisis in 1984 where external debt had to be restructured which had been signed in 1984 by president F Marcos.

3) The old central bank Central Bank of the Philippines which suffered sustained deficits (over Php 300 billion in liabilities) had to be replaced by the BSP in 1993 via the New Central Bank Act

4) The political economy had to endure repeated coups which hounded Cory Aquino regime

5) Natural catastrophe such as 1990 Baguio earthquake and the 1991 Pinatubo eruption 

These factors virtually kept very cheap stocks from advancing to reflect on improvements under the Cory Aquino regime. 

Dr Marc Faber in his book Tomorrow’s Gold (p 215) explained how incredibly cheap Philippine stocks had been in 1986 

I can recall several instances when stocks in high-inflation economies became dirt cheap: The Philippines in 1985/86, Argentina in 1989 and Peru and Brazil in 1990. In the Philippines during the early 80s, high inflation and poor economic, social and political conditions under the Marcos regime had driven down stock prices and the value of the Peso. By 1985, the Commercial Stock Index was down by 76% in US Dollar terms from its all time high of 1980. The Mining Index had declined by 94% and the Oil Index by 97%. The combined market capitalization of the six biggest companies (at the time Benguet, San Miguel, PLDT, Atlas, Philex and Ayala) had fallen to only US $340 million and the entire Philippine stock market amounted to less than US $500 million (today, even after the 1997 Crisis, it is around US $25 billion). PLDT was selling for less than US $40 million and at 1.7 times earnings. San Miguel had a market cap of only US$60 million—less than the value of its 75%-owned Hong Kong-listed subsidiary. By its peak over US $4.5 billion. So, if strategists wanted you believe that US stocks are looking cheap, just remember the valuation of Philippine shares in 1985!

Elections hardly played a role in the stock market in 1998. The PSEi was crushed from the Asian crisis even when Erap won by a 23% margin landslide (which was way bigger than the 2010 and 2016 version both at 15+%). 

There was hardly any stock market honeymoon for Erap 

Because the Phisix collapsed by a terrifying 68.6% in 19 months (!!!) from February 1997 to September 1998, the Phisix had a huge 145% dead cat’s bounce from the said September low to July 1999. [This cherry picked data has been interpreted by some as electoral honeymoon.] 

Yet such bounce eventually was totally eviscerated or wiped out by 2001 after Mr. Estrada was ousted!

GMA’s 2004’s rally came about because the PSEi emerged from the 7 year bear market brought about by the Asian crisis (1997-2003).   

The rally today, which has been a legacy from PNOY’s landslide triumph in 2010, developed in response to the crash of 2008.   

The Great Recession crash, which had little bearing on the economy, proved to be a wonderful opportunity. 

Most importantly, such rally has reflected on the BSP’s pivotal monetary easing in 2009 which served as automatic stabilizer against the global financial recession. 

In summary, GMA 2004 and PNOY 2010 stock market rallies were grounded on post bear market recovery responses. 1992 FVR’s 1993 rally emerged out of the clearing away of the various factors that suppressed the stock market rally during the Cory regime. 

1998 Erap’s magnificent massive landslide win which should have spurred C-O-N-F-I-D-E-N-C-E hardly delivered a honeymoon. 

Prevailing stock market sentiment has signified as a dominant force behind each of the post-election rallies. It was why the apprehensions from the Asian crisis had proven to be a key factor that inhibited any rally. A collapse happened first before the rally. 

More importantly, hardly any one of the stock market rallies from the post 1986 constitution elections had been rooted on ultra high valuations! 

Remember, new administrations are no free lunches.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Well, today was supposed to be another follow through.

 

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

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

However things reversed coursed at the close.

Frenzied pumping turned into frantic dumping!

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

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

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

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

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

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

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

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

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

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

There is no such thing as a free lunch.

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

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

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

This seems like déjà vu.

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

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

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

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

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

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

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

 

 

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

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

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

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

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

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

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

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

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

Note:

1 All charts are nominal peso based.

2 Market cap ranking according to Friday’s weights

3 Market cap ranking has been different during comparable threshold periods

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

1 SM

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

2 ALI

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

3 JGS

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

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

4 SMPH

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

This comes in the face of slowing eps growth

5 TEL

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

6 AC

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

7 URC

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

8 AEV

 

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

Today stunning 2.6% surge is an example.

9 BPI

 

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

10 BDO

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

11 MBT

 

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

12 GTCAP

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

13 JFC

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

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

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

14 MPI

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

15 GLO

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

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

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

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

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

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

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

Or have Philippine stocks become totally unhinged to fundamentals?

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

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

Manipulation, Brexit and the Ignorance Fallacy

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

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

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

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

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

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

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

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

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

For the Mainstream: Prices Have Been Unanchored to Fundamentals

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

 

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

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

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

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

Yuan Movements will Reflect on the Peso 

 

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

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

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

The peso has essentially tracked the Chinese offshore yuan.

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

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

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