Telemedicine: Health Care of Tomorrow

From Teladoc.com (hat tip Prof Mark Perry)

1. You wake up one morning with sudden cold-like symptoms: stuffy nose, cough, congestion. You don’t want to miss time at work by sitting in an urgent care or ER waiting room. What to do?

2. Simply log in to your account or call 1-800-Teladoc to request a phone or online video consultation with a Teladoc doctor. You can use Teladoc from home, work, on vacation, or while traveling internationally. The average doctor call back time is 22 minutes.

3. A U.S. board-certified doctor or pediatrician licensed in your state reviews your Electronic Health Record (EHR), then contacts you, listens to your concerns and asks questions. It's just like an in-person consultation. There is no time limit to the consult.

4. The doctor recommends the right treatment for your medical issue. If a prescription is necessary, it's sent to the pharmacy of your choice.

5. Teladoc costs far less than in-person visits: $38 or lower, depending on your plan design. Teladoc charges the credit card you provided when requesting your consultation or your billing information on file. You can request a receipt for deductibles or reimbursement, if needed. The doctor updates your HIPAA-compliant EHR based upon the consultation. Teladoc is a qualified expense for HSA, FSA and HRA accounts.

6. At the end of every call, the doctor will ask if he's answered all of your questions, and we'll follow up to make sure you're delighted with the service.

I am hoping to see telemedicine flourish not only abroad but also in the Philippines soon.

I understand that the Philippine government has initiated telemedicine aimed at the remote areas. But I don’t think the government is the answer.

And yes this could be seen as a sunshine investment opportunity.

Nonetheless, considering the exponential growth of the internet in the Philippines, where usage now is about 6.3% of the population and growing...

Chart from Google Public Data

...digital healthcare trends will surely be headed in this direction.

Cartoon of the Day: Evolution of the Welfare State

The caricature above shows how communal unity, what in the Philippines has been known as the Bayanihan Spirit, transforms into a culture of entitlement.

I’d like to add an important missing element in the sketch: the use of the threat of violence (the gun via taxation) in forcing people to pull the cart.

Thanks to Cato’s Dan Mitchell

Loss of Economic Freedom means Business Exodus: The California Experience

This is what happens when Economic Freedom gets curtailed: economic opportunities shrivels as investors leave for better alternatives. In short, money goes where it is treated best.

The California experience from CNN:

Buffeted by high taxes, strict regulations and uncertain state budgets, a growing number of California companies are seeking friendlier business environments outside of the Golden State.

And governors around the country, smelling blood in the water, have stepped up their courtship of California companies. Officials in states like Florida, Texas, Arizona and Utah are telling California firms how business-friendly they are in comparison.

Companies are "disinvesting" in California at a rate five times greater than just two years ago, said Joseph Vranich, a business relocation expert based in Irvine. This includes leaving altogether, establishing divisions elsewhere or opting not to set up shop in California.

People respond to incentives. This is what regulators and policymakers everywhere, including the Philippines, don’t seem to understand.

Ben Bernanke on QE 3.0: Not Now, But An Open Option

Signaling channel is an esoteric tool used by central bankers to project future stance of monetary policy. The objective is to influence market expectations by transmitting the possible courses of actions that the central banks may undertake.

This exactly defines the current actions of US Federal Reserve chairman Ben Bernanke on the contingent option to exercise QE 3.0.

The other day Mr. Bernanke floated a trial balloon, today he demurs.

From Bloomberg, (bold emphasis mine)

Federal Reserve Chairman Ben S. Bernanke told Congress that the central bank isn’t currently ready to embark on a third round of government bond-buying to stimulate the economy.

“We’re not prepared at this point to take further action,” Bernanke said today, in response to a question from Senate Banking Committee Chairman Tim Johnson, a Democrat from South Dakota. Johnson asked Bernanke why the Fed wasn’t immediately starting a new stimulus program given the weak economic recovery and rising unemployment...

In House testimony yesterday, Bernanke said the Fed still has tools to spur growth, and that “we have to keep all the options on the table,” driving share prices higher. Bernanke told Senators today that policy makers want to see if the economy rebounds as anticipated in the coming months, and that they are keeping a close eye on inflation.

Should the economy turn out to be weaker than expected, the central bank may provide more monetary stimulus, Bernanke said. A third round of quantitative easing, or QE3, is an option if a recent economic slowdown persists and deflationary forces re- emerge, he said.

As part of policy communications, I don’t think that this had been meant to only test the market. I think this serves part of the mind conditioning where QE 3.0 will be used eventually. By laying down the QE option, the unstated purpose is to imprint the notion of access.

Yet it’s not a question of IF but a WHEN.

Economic slowdown or deflation has merely been used as justification. I see this ‘slowdown-deflation’ pretext as tied either to the US congressional vote on the debt ceiling (see earlier explanation here) or to the evolving political and market conditions in the Eurozone (see here).

Anytime a perceived risk to the banking system surfaces, whether in Europe or the US or in Asia, the QE option for central banks, has been the recently adapted standard.

Understand this.

Will We be part of the 100 years old Club?

Will we live to be 100 years old?

Me, no. Maybe for you and the younger generation the chances are likely a yes.

The rapid advances in technology will likely enhance this process. Futurist Ray Kurzweil predicts that man may reach immortality by 2045. It’s an incredible, fascinating and optimistic thought.

Nevertheless, the Economist projects there will be more than 1 million centenarians by 2100, they write

MOST countries celebrate the survival of a citizen for a century with a letter from a president or monarch, or even some cash. This is just about feasible at the moment, when centenarians are still comparatively rare, but it will not be the case for much longer. The chart below, drawn from UN data, shows projections for the five countries that will have more than a million centenarians by the end of the century. China will get there first in 2069, 90 years after its one-child policy was implemented.

I don’t know how the UN came up with these projections.

What I know is that:

The US has the most centenarians 70,490 as of September 2010. Japan has 44,449. (Wikipedia.org) Following charts from Google's Public Data

Life expectancy has been expanding as more people have been enabled to trade freely.

Trade brings about the innovation in technology which has vastly contributed to this extended lifespan. Of course increasing wealth from trade has also been a factor.

Yet if people will indeed grow older as the UN or Kurzweil predicts, then there will be further strains on current Bismarckian government welfare system. This means radical changes will confront the current governments founded on the industrial age society.

Also despite longer lifespans which should add to the global population, I don’t believe in the Malthusian crap about “peak” resources. Under free markets, people’s ingenuity will prevail.

At the end of the day, the sustainability of longer lifespans will ultimately depend on the state of free markets and economic freedom.

Video: Ron Paul versus Ben Bernanke: Is Gold Money?

Ron Paul slugs it out with Ben Bernanke (hat tip: Bob Wenzel)

The best part of the exchange:

Ron Paul: Do you believe that gold is money?

Bernanke: No.

Ron Paul: Why do central banks hold gold?

Bernanke: It is an asset, like Treasuries. They're not money.

Ron Paul: Why hold gold, and not diamonds?

Bernanke: Oh, tradition, I suppose.

Photo of Pacquiao-Cotto fight from Regiekun Blog

Ben Bernanke Hints at QE 3.0

I told you NOT to call on the poker bluff being peddled by some analysts and officials who claim that there will be no extension of Quantitative Easing 2.0.

Chairman Ben Bernanke floats the trial balloon for QE 3.0.

From Marketwatch.com (bold emphasis mine)

While the Federal Reserve believes that the temporary shocks holding down economic activity will pass, the central bank is examining several untested means to stimulate growth if conditions deteriorate, including another round of asset purchases, dubbed QE3, Fed chairman Ben Bernanke said Wednesday in remarks prepared for the House Financial Services Committee. Bernanke discussed three approaches to further easing in his prepared remarks. One option, Bernanke said, would be for the Fed to provide more "explicit guidance" to the pledge that rates will stay low for "an extended period." Another approach would be another round of asset purchases, or quantitative easing, or for the Fed to "increase the average maturity of our holdings." Finally, the Fed could also reduce the quarter percentage point rate of interest that it pays to banks on their reserves, "thereby putting downward pressure on short-term rates more generally." Bernanke was clear to stress that easing was not the only option under consideration and that the next Fed move could well be to tighten. At the moment, Fed officials see a recovery that "will likely remain moderate," Bernanke said, with the unemployment rate falling "only gradually." Inflation is expected to subside in coming months, he said

There you have it. QE 3.0 is on the pipeline.

Italian Crisis: Banking Cartel Addicted to Bailouts

The Economist proposes that Italy is in a better place than Greece in terms of debt.

According to the Economist

FEARS over the safety of Italy's government debt would take the euro-zone crisis to a new phase: for its members a choice between breaking up the project and sanctioning big transfers from healthy economies to struggling ones; for banks a question of how to manage exposure to the world's third-largest bond market. When Italian spreads over German bunds ballooned at the end of last week and kept moving in the same direction on July 11th and the morning of July 12th, it looked like that moment of panic had arrived. Markets have since calmed down a little and rightly so, according to this chart, which ranks countries by their debt burdens. But until markets get a clear signal from European governments that they are willing to do whatever it takes to stand behind the euro, the gyrations will continue.

I think the issue of the debt crisis represents a camouflage to what is truly at work here.

To me, the Italian (or the Greek) crisis is no more than an extension of saving the scalp of the badly pummeled European Central Bank sponsored banking (cartel) system.

From Bloomberg,

French banks, including BNP Paribas SA and Credit Agricole SA (ACA), have the most at risk from the euro- region’s debt crisis infecting Europe’s largest borrower: Italy.

At the end of 2010, French banks carried $392.6 billion in Italian government and private debt, according to data from Basel, Switzerland-based Bank for International Settlements. That’s the most for financial institutions from any foreign country and more than double held by German lenders.

At the end of the day, the ECB will ride to rescue the cartel, despite the current rhetorical differences, which has reportedly been the kernel of the current financial turmoil at the Eurozone.

That’s what central banks had been established for. And that’s what they’ll do as they have previously done in the US or in Greece.

And the US will likewise participate indirectly via the IMF and or through foreign currency swaps and or via another asset purchasing program (Quantitative Easing) that would possibly channel money through the Eurodollar market to the stricken banking system as with QE 2.0.

And this is why gold has now been trading at $1572+ as of this writing (kitco.com). And this is likely why gold prices seems likely to make another milestone breakout to set a fresh nominal record highs pretty soon.

The Increasing Role of Commodity Currencies as Forex Reserves

Here is more proof of the declining role of the US dollar as the de facto international currency reserve.

From BCA Research (bold emphasis mine)

In addition to the dollar, four currencies – the euro, British pound, Japanese yen and Swiss franc – have accounted for the vast majority of FX reserves. For most of the last decade, it was these currencies (especially the euro) that benefited from the dollar’s relative decline in global reserves. But there has been a new development to central banks’ diversification strategy; since early 2009, central banks have been looking to what the IMF simply classifies as “other currencies”. From 2% in early 2009, “other currencies” now account for almost 5% of total reserves; the holdings of these alternative currencies increased by $300 billion over a two year period. While the IMF does not provide any further information, we speculate that it largely consists of the commodity currencies: the CAD, AUD, NZD and perhaps the SEK and NOK. For these relatively small economies, $150 billion of annual capital inflows is an enormous amount to absorb. Bottom line: Central banks in emerging economies will continue to shift a portion of their new reserves into non-dollar currencies.

So diversification away from the US dollar continues to deepen.

But this time this has not been limited to currencies of other major economies, but more evidently to currencies which are backed by commodity production-exports.

With gold knocking at the recent highs and copper also within striking range to the recent highs (oil has been creeping higher while silver still consolidating after an explosive run), the likelihood is that given the persistent crisis in major economies, which are constantly being resolved by the printing press, we should see a more expansive role for commodity currencies as international foreign reserves.

The other way to view this is that the growing role of commodity currencies signifies a symptom known as “flight to real value” to a disease known as “inflationism”.

How Global Equity Markets have Measured Up to the PIIGS Crisis

My favorite equity monitor site, Bespoke Invest has a nice updated graph on the performances of global equities as of yesterday.

Here are my observations:

Of the 78 global benchmarks shown, only 24 or 30% of the countries have registered gains.

Although most have been in the red, the degree of losses have not been on a bear market scale.

The current top performer has been Venezuela, who along with Greece shares, represents one of the highest default risks.

8 of the 24 top gainers hail from Asia.

As I keep pointing out, ASEAN mainstays have been among the biggest gainers: Indonesia (7^th), Malaysia (14^th) Philippines (18^th) and Thailand (19^th) which has been moving in near synchronicity.

Among the BRICs, only Russia is in the winning column. India and Brazil have suffered hefty losses.

Brazil may endure a recession next year, following an inversion of its yield curve—oops! chart below from Bloomberg

Vietnam's equity bellwether, which has been among the worst losers, has a yield curve that has likewise been leaning towards inversion ala Brazil.

chart from ADB’s Asian Bonds Online

Vietnam’s equity has been fumbling from her government’s attempt to contain inflation by tightening the monetary environment. So the yield curve has reflected on this concern.

Among the G-7, the US and Germany are the only gainers ranked 12^th and 16^th.

Video: The Role of Glass in the Information Age

I saw this fantastic Corning video ad at the Mises Blog.

Some thoughts:

Resources are finding wider applications or use in the rapidly innovating technology sector.

Glass could play an enlarged or a more substantial role in the information (digital) age, as portrayed by the video ad.

As an investment theme, the glass industry could signify a 'pick and shovel' play on the technology industry.

Surging Demand for Emerging Market Currencies

China’s yuan will be traded in the Chicago’s CME group this August.

According to the Bloomberg,

CME Group Inc., the world’s largest futures exchange, said it will start yuan contracts to meet rising demand among global investors for products denominated in the Chinese currency.

Trading of the futures, which will be listed on the CME exchange, is due to begin Aug. 22 for September 2011 settlement, the Chicago-based group said in a statement released in Singapore yesterday. The contracts will be quoted in interbank terms, reflecting the number of yuan per dollar, it said.

If China aims to challenge the US dollar’s role as international currency reserve then convertibility is a necessary step towards attaining this goal.

But what caught my eye was the following observation.

From the same article, (bold emphasis mine)

“We see the success of these new contracts following a similar pattern to that of our other emerging-markets products such as Russian ruble and Brazilian real,” Roger Rutherford, London-based managing director of foreign-exchange products at CME, said in the statement. “Given the yuan’s movement toward greater convertibility and the growing offshore trade of the currency in Hong Kong,” the products will enable customers to manage currency risk, he said.

Futures contracts in the ruble and real have seen year-to- date growth of 350 percent and 450 percent respectively, the statement said. CME foreign-exchange volumes averaged 930,000 contracts per day in 2010, up 49 percent versus 2009, reflecting average daily notional value of $120 billion, it said.

So it’s not all about China but about major emerging markets. China would only add weight to this basket.

Yet this looks very much to me as added evidence of the US dollar’s declining role as a reserve currency.

Harry Potter and the evolving Film Franchise Model

In today's digital (information) economy, even the movie business model has been changing

The Economist observes,

WHEN the final instalment in the saga of Harry Potter's education is released in cinemas on July 15th the franchise is likely to become the second biggest ever, measured by box-office revenue. Hollywood has fallen for the franchise model which, like the child or spouse of a famous politician, starts with the advantage of name recognition. It has also become keen on what the studios call "pre-sold" films—stories based on a book (like Harry Potter) or a toy (like Transformers). People familiar with these things can often be persuaded to sit in a dark room and eat popcorn for 90 minutes while they are brought to life on screen. This has helped to solve an old problem in the industry: how to prevent a franchise from fizzling out after the first couple of films.

For a crispier view pls click here to redirect link to the Economist

My guess is that audiences today prefer sequels to box office hits which is probably why Film Franchising seems to be a blossoming model. Maybe the film industry got a clue from telenovelas or serial dramatic programming.

This only demonstrates how the marketplace has been in a constantly evolving process.

Censorship as Price Controls

The problem of inflation has usually been met by policy responses of price controls. This basically signifies deflection of culpability from government policies to the private sector.

But when reality becomes too hard to contain, the next step would be for government to impose censorship on media so as not to upset the political environment.

Argentina seems to be applying this recourse.

Reports the Wall Street Journal, (hat tip: Douglas French of Mises Blog)

Argentina's government has filed criminal charges against the managers of an economic consulting firm, escalating its persecution of independent economists.

A federal court official said Friday that a judge is evaluating the charges but has yet to decide if it is appropriate to begin investigating them.

The government is charging MyS Consultores with "publishing false information about inflation data" to benefit themselves and their clients. The criminal complaint alleges that MyS's data also lead to speculative behavior in Argentina's bond market.

MyS Managing Partner Rodolfo Santangelo described the charges as "ridiculous" and said the firm's inflation data do not affect financial markets.

Consumer prices rose 9.7% in May from a year ago, according to the national statistics agency, Indec. But virtually all economists say annual inflation surpasses 20%—one of the world's highest rates—angering government officials who dismiss inflation as a problem.

It won’t be long when such machination will be applied elsewhere including the Philippines.

Greece Bailout Financed by Inflationism and the Cross of Gold Speech

Hello inflationism.

The Greece bailout has gradually been revealing this option.

From the Financial Times (bold emphasis mine)

European leaders are for the first time prepared to accept that Athens should default on some of its bonds as part of a new bail-out plan for Greece that would put the country’s overall debt levels on a sustainable footing.

The new strategy, to be discussed at a Brussels meeting of eurozone finance ministers on Monday, could also include new concessions by Greece’s European lenders to reduce Athens’ debt, such as further lowering interest rates on bail-out loans and a broad-based bond buyback programme. It also marks the possible abandonment of a French-backed plan for banks to roll-over their Greek debt.

As European leaders work on the details for the Greece Bailout 2.0, financial markets are putting pressure on another member of the crisis affected PIIGS: Italy

Again from the Financial Times,

US hedge funds are placing large bets against the value of Italian government debt, directly shorting the bonds of the eurozone’s third-largest economy.

The funds have increased the size of short positions in the last month, speculating that investor concerns over the country’s ability to fund itself may spread from Europe’s periphery to Italy, according to investors in the funds briefed on the strategy.

So as the market pressure intensifies on the PIIGS, the serial bailouts will mostly be financed by inflationism. (of course part of the orchestrated interventions would imply price controls such as restriction of short sales)

As I previously noted,

So like the US, the above only reveals that the Eurozone crisis will mean that Greece and the PIIGS will experience bailouts after bailouts after bailouts. Thus, an implied currency war in the process until the unsustainable system of fiat money collapses or people awaken to the risk thereof and apply political discipline.

For now, the policy of bailouts and inflationism will continue to be the central feature of today’s global policy making process where currency values will be determined by the degree of relative inflationism applied.

This reminds me of the champion of inflationism in the US, William Bryan Jennings who made this stirring ‘Cross of Gold’ speech on July 8, 1896 or about 115 years ago.

To quote Bradley Jansen at freebanking.org,

History reminds us that Bryan campaigned not only for monetary debasement but prohibition of alcohol and the teaching of evolution (he wanted it banned in church-related as well as public schools). In fact, the chief proponent of monetary debasement was also the leading light against the teaching of evolution at the Skopes trial in 1925.

The Jennings creed of monetary debasement has been the central dictum of policymaking around the world, embodied by central banking.

Yet, with the entitlement-welfare crisis in parts of Europe, the looming debt crisis in the US and several developed economies, and with gold knocking at near record highs, William Bryan Jennings must be spinning in his grave.

Quote of the Day: Change is Ageless

Another magnificent words of wisdom from marketing guru Seth Godin (bold emphasis mine)

At some point, most brands, organizations, countries and yes, people, start talking about themselves like they're old.

"We can't stretch in that direction," or "Not bad for a 60 year old!" or "I'm just not going to be able to learn this new technology." Even countries make decisions like this, often by default. Governments decide it's just too late to change.

The incredible truth is this: it never happens at the same time for everyone. It's not biologically ordained. It's a choice. It's possible to put out a hit record at 40, run a marathon at 60 and have your 80 year old non-profit change its business model. It's not as easy as it used to be, but that's why it's worth doing.

Change indeed is a choice.

Video: Incredible Technology 3D Printer

With a secret powder and binder materials, 3D printers can replicate tools or other objects. (hat tip Don Boudreaux)

This is simply amazing

The Causal Realist Perspective to the Phisix-Peso Bullish Momentum

Strictly unedited. I am in a hurry so I won’t be posting a quote for today.

It would seem as another victory lap for us considering that events continue to validate our assessment and prognosis of the markets.

Last week, we focused on several clues which possibly heralded on the next major move of the market over the short and medium term. This week highlighted the fulfillment of this short term prognosis.

This remarkable substantiation by the market of our analysis justifies as another “I told you so” moment.

Again, all signs have been in apparent consolidation, which prominently foretells of this rapturous pivotal moment of truth: bullish chart formation, rallying peso, improving market breadth, expanding bullish sentiment of both local and foreign investors, and now the transition from divergences to convergences in the price actions of global equity markets.

It has definitely been a rare instance to see all these variables move in harmony, which gives us further confidence to say that the next leg up should account for as a major move (barring any external shock)

The Causal Realist Approach versus Mechanical Charting

I would like add to my previous discourse about the ubiquitous brilliance of everyone during bullmarkets especially when applied to the value of charts.

As previously noted[1] charts should function as guidepost to measure theory. Charts should not be substituted for theory.

From a Mengerian causal-realist perspective, the search for cause-and-effect relationships or causal laws "exact laws" in the marketplace under the fundamental economic dimensions such as prices, wages and interest rates, as observed in reality should be the imperative analytical approach.

As Dr. Carl Menger wrote on the preface of his magnum opus[2], (bold highlights mine)

I have devoted special attention to the investigation of the causal connections between economic phenomena involving products and the corresponding agents of production, not only for the purpose of establishing a price theory based upon reality and placing all price phenomena (including interest, wages, ground rent, etc.) together under one unified point of view, but also because of the important insights we thereby gain into many other economic processes heretofore completely misunderstood. This is the very branch of our science, moreover, in which the events of economic life most distinctly appear to obey regular laws”

In other words, mechanical charting does not establish the cause and effect relationship of economic variables relative to the possible distribution outcomes that would be reflected on future prices.

Instead, mechanical charting assumes that all relevant information have been incorporated in past and present prices from where patterns and formations are used as the principal metrics to ascertain future prices or outcomes.

All these are based on historical determinism where past performance is presumed to sufficiently impute the necessary statistical relevance to produce high rates of predictive successes.

This echoes the highly flawed Efficient Market hypothesis[3] which sees financial markets as “financially efficient” which have been founded on Rational Expectations theory[4] which similarly sees errors as emanating from ‘random’ factors than from inherent knowledge asymmetry, in the assumption that “outcomes that are being forecast do not differ systematically from the market equilibrium results. As a result, rational expectations do not differ systematically or predictably from equilibrium results”.

With the way various government interventions has been distorting the distributional balance of the marketplace and the economy, information asymmetry has been magnified enough to undermine such assumptions—and this is precisely why boom bust cycles exists!

Warren Buffett has been right. There won’t be the investment savant Warren Buffett whom we know of, if financial markets resembled ‘efficiency’.

To quote Mr. Buffett[5],

I'd be a bum on the street with a tin cup if the markets were always efficient.

Investing in a market where people believe in efficiency is like playing bridge with someone who has been told it doesn't do any good to look at the cards.

It has been helpful to me to have tens of thousands (of students) turned out of business schools taught that it didn't do any good to think.

Bottom line: Each tool has its proper use.

The Causal Realist Perspective to the Phisix-Peso Momentum

Applying the Causal-Realist approach to the local markets, a review of the Phisix chart (black candle) reveals that last week’s head and shoulder breakout (blue trend line and light blue arcs) was further confirmed by this week’s .92% advance (violet circle). Year-to-date, gains of the Phisix have accrued to 4.53% the highest for 2011.

However, the local benchmark attempted a similar breakout from the nominal all time high record set last November at 4,413 (green horizontal line) but apparently was repulsed by intra-week profit taking.

This resistance level poses as the NEXT TARGET which I think should be encroached anytime soon.

The Philippine Peso (red candle) further confirms the action of the Phisix.

The Peso’s continued rise vis-a-vis the US dollar decline appears to be representative of the relative demand for Peso assets. Part of this can be seen through the actions of foreign fund flows into the Philippine Stock Exchange. Fund flows can also happen to other domestic assets as real estate, bonds, FDIs or etc...

I pointed out last week that foreign buying manifested seminal signs of expansion as the Phisix crawled higher prior to these colossal breakouts.

This week, net foreign buying nearly trebled. This was apparently boosted by Metro Pacific Investment’s [PSE: MPI] $200 million (P 8.64 billion) private placement[6], half of which was subscribed by MPI parent First Pacific Co. of Hong Kong.

Yet the Peso’s action (yahoo lower window) seems congruent with the actions of Asia’s currencies.

The ferocious rally of the Peso (1.01%) this week was equally reflected on the Bloomberg-Reuters ADXY (a basket of Asian currencies, upper window) although the latter’s gain came at a much modest pace.

And the rally on Asian currencies seems to have been bolstered by net foreign inflows into the region. But this week’s inflows comes with a particular oomph for the Philippines, according to the Emergingmarkets.me[7] (bold emphasis mine)

Asia funds attracted the greatest volume of new money, totalling $634 mln and equal to 0.26% of AUM. China funds attracted $355 mln (0.4% of AUM), their best week since end April as investors were not put off by the disappointing PMI Manufacturing report and prospects for further rate rises. In terms of % of AUM, Philippine funds attracted the most new money equal to 12.4% of AUM[8] and Malaysia funds reported new money equal to 7.5% of AUM

This explains the significant role of the Peso’s outperformance.

Similarly the buoyancy of Asian currencies has been manifested on the equity markets where most of Asian bourses have posted advances.

ASEAN markets seem to have reconverged and has exploded this week.

Despite Thailand’s SET amazing 4.51% post election jump (red orange), the SET remains slightly off the recent highs compared to this week’s simultaneous breakouts of the Indonesia’s JCI (orange) and Malaysia’s KLCI (red).

Of course the Phisix (green) is just about to surpass the record threshold set last November, along with her neighbors.

As one would note, evidences all add up to suggest that this nominal resistance level, which the Phisix attempted to breakout, will likely be history in the coming sessions.

The reconvergences of ASEAN and Global Equity markets could be adding fuel to the bullish momentum.

Secondary Effects: Market Sentiment, Breadth and Sectoral Gains

Despite the hefty gains by the Peso predicated on foreign inflows, local investors still dominates trading, the share of foreign transactions as % to total trade (in Pesos) remain below 50% (green line).

This implies that aside from the growing positive sentiment being exuded by foreign entities, locals have been net buyers, which also suggest that locals have been turning broadly sanguine.

And this buoyant sentiment has been clearly reflected on the improvements in the sectoral performance, market internals and market breadth.

The advances have been broad based. Basically, ever sector posted gains.

However, the industrial sector vastly outclassed all other sectors powered by hefty gains of San Miguel, Petron and Universal Robina. In second place was the Property sector which had been followed by the mining and oil sector.

So apparently we seem to be encountering signs of the rotational process at work

This brings us to Peso volume.

As I said last week, (bold emphasis mine)

A rising Phisix will induce more trades that will be reflected on volume expansion. That’s how reflexivity theory incentivizes people: As prices go higher more people will start chasing prices and higher prices will be read as improvements on economic and corporate output which will further lead to rationalizing of price chasing dynamics, hence, the feedback loop.

In further validation of our observation, the surge of the Phisix has been accompanied by a spike in Peso weekly volume. Although part of this jump can be attributed to the special block sales of the MPI.

We should expect the ascendant Phisix to be accompanied by higher volume. The growth in volume should confirm the strength and the continuity of the current uptick. [Of course we can argue how this reflexivity feedback mechanism will be financed. But this won’t be my story today]

Bottom line: All these demonstrates how the Austrian causal-realist theory is strongly being confirmed or supported by current market actions whether seen in the Peso or the Phisix or Asian equities and currencies.

These indicators seem to be reconverging to reinforce our prediction that momentum will strongly favor the bulls where a successful breakout from this nominal resistance level should posit that the Phisix will likely be headed for the 4,900-5,000 level at the end of the year.

And as with last week’s experience, no trend will move in a straight line.

We are likely to see vastly mightier upside actions than downside swings over a cumulative basis. Such actions will be represented through the price trends.

Yet barring any emergence of fat tail risk, we should expect this bullish momentum to continue.

Post Script: Seasonal Forces and US Consumer Credit Growth

As a final thought, some might argue that the strength we are seeing this July could signify as seasonal forces at work. And that the next two months, which traditionally represent the weakest seasonal link, could jeopardize or upset this evolving dynamic.

While seasonal factors may have some statistical influence over the markets over the past years, as shown in the chart above[9], which applies to the US and which would have a spillover effect to the Asian region, given today’s highly fluid environment where the marketplace has constantly been bombarded with all sorts of government interventionism, my impression is that the cumulative effects of these policies will tend to overrule the influences of seasonal forces.

In addition it’s worth pointing out that consumer credit growth in the US has been vigorously expanding[10].

While others may see this as constructive, once the trillions of dollars in excess reserves held at (and created by) the US Federal Reserve for the banking system[11] (right window), will be converted into loans (probably consumer loans) then we should see further spike in inflation down the road (yes this means higher commodity prices). Thus, the current surge in US equities could be reflective of this inchoate symptom, which again could be a factor in taking precedence over seasonal forces.

---

[1] See I Just Can’t Get Enough: Philippine Phisix Emits Intensely Bullish Signals, July 03, 2011

[2] Carl Menger, Principles of Economics, Preface p. 49, Mises.org

[3] Wikipedia.org Efficient-market hypothesis

[4] Wikipedia.org Rational expectations

[5] Optimmumz.com Efficient market hypothesis

[6] Inquirer.net Metro Pacific raises P8.64B to finance infrastructure projects, July 8, 2011

[7] Weafer Chris WEAFER COMMENT: Equity fund flows: Keeping the faith…but hedging the specifics July 8, 2011 EmergingMarkets.me

[8] AUM means Assets Under Management.

[9] Chartoftheday.com Dow Average Monthly Gain

[10] Federal Bank of Cleveland Data Updates, July 8, 2011

[11] Federal Reserve Bank of St. Louis Graph: Excess Reserves of Depository Institutions (EXCRESNS)

Graphic of the PSE’s Sectoral Performance: Mining Sector and the Rotational Process

The Philippine Stock Exchange has endured its first boom bust cycle this new millennium. We may be segueing into the second.

The graphs below narrate on the sectoral performances since 2007 (5 years)

Below is the year to date performance

2011

Some observations:

The mining sector has prominently led in 2007 and 2009. So far in 2011, the mining sector continues to pull away.

The mining sector has been the worst performer in 2008. Newton’s third law of motion seems to be in play “For every action, there is an equal and opposite reaction.” Mining as the best performer becomes the worst performer during bear markets.

Outside the mining sector the best performers had been

2007: service

2008: service (least decline)

2009: industrial

2010: holding (industrial- second spot)

2011: holding (second spot)

Bottom line: Market leadership rotates. This comes even in the face of the clear outperformance of the mining sector.

If history will rhyme, 2012 may see other sectors takeover the leadership from mining. But I wouldn’t bank on this as the past 5 years does not reflect on the same conditions for 2012.

Investing Guru Joel Greenblatt: Focus on the Long Term

From Joel Greenblatt, author of The Little Book That Beats The Market and The Big Secret For The Small Investor, as interviewed at the Forbes [bold emphasis added]

if you look at top performers over the last decade, the top 25% of managers that have outperformed – came out with the best record for the last ten years – 97% of those top managers spent at least three years in the bottom half of performance.

79% spent at least three years in the bottom quartile of performance. And almost half, 47%, spent at least three years in the bottom 10% of performance. So all their investors left if they did that, but these are the ones who ended up with the long-term record. Most people leave them, most people don’t stick around for long enough.

Some important pointers from Mr. Greenblatt’s excerpt

Two lessons from planting (farming) which can be applied to investments:

1) time is essential or a prerequisite for a fecund harvest (in equities, outsized payoffs) and

2) we reap what we sow.

From such perspective one should realize that a portfolio built for the long term would likely undergo or endure early testing periods where underperformance represents a necessary but insufficient groundwork for prospective outperformance “Alpha”.

My experience with the domestic mining sector strongly relates to Mr. Greenblatt’s advise—patience ultimately rewarded by a time induced outperformance (following several years of underperformance).

Next, short term yield chasing activities represents as the common sin or shortcomings by the average investor.

Little has such adrenalin rousing actions been comprehended as a tactical folly based on two cognitive biases:

-hindsight bias or “inclination to see events that have already occurred as being more predictable” (or Mr. Warren Buffett’s rear view mirror syndrome) and

-survivorship bias or “logical error of concentrating on the people or things that "survived" some process” or chasing of current winners or market darlings.

Finally, the short term yield chasing approach vastly underperforms long term portfolios (see chart from Legg Mason’s Michael Mauboussin “A Coffee Can Approach”) since this represents as high risk-low return tactic which significantly diminishes returns.

Bottom line: Focus on the long term on the platform of understanding how the market works or has been evolving. In short, surf the bubble cycles.

From one of Warren Buffett’s best advise ever:

Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.