Duterte Administration’s First Month: July Government Revenues Tumbles by NEGATIVE 4.6% as Deficit Swell by 57%!

The Bureau of Treasury updated its fiscal data to include the July—the first month of new administration.

 

Though I expected some boost to the data, given the inaugural month for the new administration, this just didn’t happen.

July collections for the Treasury (BIR, BOC and Non tax income) yoy fell by a substantial 4.6%! Since expenditures popped by +4.86% yoy, deficit ballooned by +57.36% to Php 50.667 billion over the same period!

 

Instead of using my excel, here is the Bureau of Treasury’s own chart depicting the current balances of the government.

Ok since this represents the first month then this could partly be about 'birth pangs' or transitional challenges.

But the downturn in revenues is unlikely to improve, because this has been a trend. As I wrote earlier: “That’s because falling tax collections have been a trend. The rate of growth of tax collections has been in downtrend since Q1 of 2015, or even from a longer period or from Q4 of 2012. 

Growth contraction appeared in FOUR out of the last 8 months!

For the 7 months of 2016, government collections were essentially flat (up only by a measly .6%) over the same period!

And even worse, the data reveals of a progressing divergence: A smoke and mirror between government collection and published GDP performance: “What a paradox: NGDP has been climbing since the low of Q1 2015 even as tax collections growth has been plunging to reach to its recent low (1Q 2016)!"

 

Amidst the much ballyhooed GDP,  government nominal revenues has been plateauing or flattening! Yes fact versus statistics!

In short, diminishing returns of the bubble economy have become apparent even in government collections.

Of course, part of this should signify the administrative component in term of collections efficiency or leakages. But in general, government revenues are likely to reflect on the real conditions of the economy

Additionally, the new government’s massive campaign on the war on drugs, where the economic effects of"crowding out" have already appeared even in government funding earmarks, PLUS the proposed freewheeling spending programs as declared in the SONA ensures that expenditures will zoom.

This comes even as massive curbs on businesses/enterprises activities (war on mining, oligarchy, endo, colorum, transport network vehicle services as uber and grab, vendors and more) underwrite the scenario of lesser economic activities for the private sector—thereby reduced tax collections.

Moreover, since government expansion comes in the face of reduced domestic production, imports will surge—as current conditions have presented.

 

This is will hardly be about G-R-O-W-T-H, but about substitution. Higher cost of doing business entails for import substitution.

With trade and fiscal balances in the red, which eventually may spillover to the current account, those derivatives enhanced GIRs will come under pressure. Strains from embedded dollar shorts will come out of hiding.

External liabilities will continue to bulge, as it has been during the past 9 months through June (Bureau of Treasury data here).

So instead of transitional challenges, July’s red numbers are likely to signify the baptism of fire—the onset of the deepening trend of red inks for government's fiscal balances.

Of course, this is not to discount interim monthly bounces.

Think of what this means to the peso, interest rates, bond prices and ultimately earnings, the real economy and stock prices!

And a last prediction, because of the penchant for the superhero effect, the government will most likely pursue HIGHER taxes (aside from debt and inflationism) to finance the growing financial gaps. This runs contrary to what has been said about the lowering of corporate taxes. They may lower corporate taxes (by a token amount) but significantly boost consumption related taxes.

Signs of the ‘Bezzle’: Wow! Incensed Fixers Pumped a SHOCKING (Record) .93% to Keep PSEi 7,800 Intact!!!!

Ladies and Gentlemen, may I present…RAGE as expressed in the stock market!

 

Selling pressure dominated the entire session in a seeming carbon copy of yesterday. 

The difference was in the degree of response at the closing bell. Yesterday’s marking the close of 59.55 points chopped down the day’s loss from 1.4% to just .64%. Today’s action eclipsed yesterday: a mindboggling (perhaps a record) 72.74 points or the near elimination of the total loss of 1.03% to just a marginal .1% deficit due to an astounding .93% pump!!!!

This was a sign of a massive hissy fit that had overwhelmed the index managers from two successive days of selling.

So incensed index managers wanted to deliver this message in clarion: We will NOT LET THE PHISIX FALL BELOW 7,750!!!!

One may add: We will DO WHATEVER IT TAKES to send the PSEi back to record highs! All those whom have sold will REGRET!

Rage. Fury. All wrapped in a statement ventilated by a ferocious .93% pump!

And here’s more. In two days a total of 132.39 points or a stupefying 1.7% pump from last Friday’s close of 7,845.49 had been used to shore up the index.

I’m certain that the two day pump has etched a record.

Peso volume difference from yesterday’s 59.55 points pump was Php 2.4 billion (volume variance between regular session and closing). Or a big chunk of yesterday’s pump came was financed by Php 2.4 billion

Today’s record or quasi record was a humongous Php 5.54 billion (Php 12.95 billion minus Php 7.41 billion)!

I’m quite sure lots of third party money are being funneled to take unnecessary risk just to attain symbolical gains.

What cannot be established through regular pricing MUST be attained through price fixing!

Yet such kind of intensive engineered pumps tells us why a BW-SSO blowoff episode can happen! 

It has been already happening intraday!

ALL major sectors participated on this D-Day operations!

 

Look at the staggering price leaps that turned lead into gold (red to green right rectangles)!

To explain some of the biggest movers

SMPH was pumped by a gigantic 4.75% (biggest pump was in December 2015 at 8%) to deliver a fantastic 2.93% return for the day!!!! So from a depth of -1.83% to +2.93%!!! Flabbergasting!

JGS was inflated by a grand 2.9% to end the day up by another remarkable 1.3%!

BDO and SM had been propped up by colossal 2.7% and 1.04% to post 2.05% gain while the latter’s losses were trimmed to 1.02% from 2.06%

Sy owned companies have been favorites of manipulators. Has such actions been meant to implicitly keep the owners' at top spot at the Forbes Philippine richest?

 

The PSEi could have turned positive, but these issues were “dumped”. These virtually spoiled the party or the objective of a total reversal for the day.

Because bidders were much organised, minority dumps were essentially suppressed.

[Perhaps part of this may also be due to window dressing]

Yes stock market's marking the close spikes ONLY IN THE PHILIPPINES! 

This also shows that when the cost of gaming the markets are low, then manipulation flourishes.

Deception, fraud and unscrupulous activities accompany all major market tops [Kindleberger’s sauve qui peut (save himself who can)]. 

Great examples: Enron in 2000, Madoff and US rating agency-investment bank collusion in 2008 and the “bezzle” or embezzlement according to economist John Galbraith in 1929, from Chapter VIII “The Great Crash 1929” (source)

“In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in – or more precisely not in – the country’s business and banks. This inventory – it should perhaps be called the bezzle – amounts at any moment to many millions of dollars. It also varies in size with the business cycle. In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression all this is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks.”

These massive pumps are likely symptoms of the “bezzle” operating underneath.