Phisix 7,550: Massive 'Marking the Close' Pump Saves the Day!

The Philippine benchmark threatened to close at last Thursday’s 7,505.03 level. But given the seeming sensitivity to territorialism, perhaps market riggers see 7,500 as the last remaining buffer-bastion dividing record Phisix and its doom and thus requiring a massive stand.

Unlike the recent days where their maneuverings seemed to have hardly worked, this time market manipulators employed a last minute combo blitzkrieg of the afternoon delight pump + marking the close pump--in a very short span or burst of time--to bring the Phisix from a deep red to positive grounds.

Intraday the Phisix breached 7,500 (7,498.1). That was during the am session. Although bulls managed to fight back to put some cushion from the 7,400 nexus. (charts courtesy of colfinancial and technistock)

At the pm session, bears kept bulls from an early afternoon push. Bulls appeared to have even lost ground to fumble back to 7,510 (-.55%). 

With just 10+ minutes before the pre-market segment which divides the regular and the runoff session, index managers mounted on a full scale pump on key issues on all major sectors. This climaxed with a massive marking the close!

Essentially, manipulators erased the pm low of -.55% and even added +.13% representing today’s closing gains for a total of an incredible .68% pump!

As I have been saying here, there will be no record without those manipulated pumps.

The pump comes with a light volume of Php 6.86 billion. To add special block sales this would total Php 7.12 billion. 

Interestingly despite the massive pump, the bears had been in control of the market: losers thrashed gainers 102 to 74! (PSE June 3 quote). 

As a reminder, record Phisix has been about a 15-20 issue rotational headline management pumps in the face of half of the population of listed issues in BEAR markets!

So despite all the move to manage the headline, bears remain lurking at the shadows.

Just look at the awesome coordinated panic buying!

And these signify the four major issues that delivered the gist of the last minute pump! 

Record Phisix or a colossal sham from market manipulation?

Has Rising Treasury Yields Been Due to BSP’s Tightening?

This mainstream article wants to show that current market stress at Philippine treasury markets has been about clashing policies between the Philippine government and the central bank, Bangko Sentral ng Pilipinas (with emphasis on the latter)

From Bloomberg: 

The Philippine central bank’s plan to auction term deposits is coming at the worst possible time for a government reeling from surprisingly bad economic growth data. 

The weekly sales, aimed at soaking up excess cash that could spur investments in risky assets, will allow lenders to compete for a fixed volume of deposit access to Bangko Sentral ng Pilipinas. BDO Unibank Inc., the country’s biggest lender, sees them helping to push up the secondary-market yield on three-month government bills to as high as 3.25 percent by year-end, from 2.46 percent on Monday. 

Rising borrowing costs may make it harder for President Benigno Aquino to revive an economy where growth slowed to a three-year low of 5.2 percent in the first quarter. The International Monetary Fund said the “significant negative surprise” would force it to review its expansion forecasts, even as it predicted a pickup in exports and public spending. 

So what this article attempts to show has been rising yields has been the result of BSP actions. And such action has supposedly been meant to align market rates with policy rates. 

More… 

While the Philippine benchmark interest rate was raised from a record-low 3.5 percent last year to 4 percent currently, market rates have yet to catch up. The one-month bill used as a benchmark for pricing bonds and preferred shares was showing a yield of 1.96 percent on Monday, according to data from the Philippine Dealing & Exchange Corp. 

The reason I show the 1 month bill's two month chart above is to expose on how media fudged on the statement that “market rates have yet to catch up” by pointing at yesterday’s 1 month bill ONLY!

The article has been partly accurate to report of the June 1 1.96% rate, but apparently the article forgot to mention that the same yield (one month treasury bills) hit a HIGH of 3.721% on May 21, 2015 or just two weeks back! 

And from May 15 to May 26 yield of 1 month bill has traded at over 3.5%! 

Additionally, 1 month treasuries have become very volatile since April when there has been NO talk of “soaking up excess cash”. 

So the notion that “market rates have yet to catch up” appears misleading. It is true with reference to the date of reporting. But it is false in a general sense because rates have already caught up with policies...until last week.  

So media here applies data mining or selective perception. 

The article goes on to insinuate that BSP tightening has been about macroprudential policies: 

Manila is in the midst of a building boom that will add a record number of apartments over the next two years. Policy makers introduced measures in 2014 including capping the collateral value of mortgages at 60 percent amid concern prices were rising too fast. Property loans by Philippine banks rose 6.8 percent in the fourth quarter, accelerating from 4.5 percent in the previous three months, central bank data show. 

The monetary authority wants to soak up excess cash so that movements in the benchmark interest rate will more effectively convey policy to the market and interest rates will move closer to it, Deputy Governor Diwa Guinigundo said in April, when he unveiled plans to offer term deposits with tenors from one month to a year.

First of all, the article didn’t mention WHY BSP wants to soak up cash to “effectively convey policy to the market and interest rates”.  

The article’s seeming objective has been to project rising coupon yields as consequence of BSP actions rather than from market forces. 

But the chart above tells you that this has hardly been accurate. Rates have been rising even PRIOR to yesterday’s article! 

And going back to the why, has BSP’s purported desire to “tighten” been because of a credit boom? 

Well while it is true that banking loans still sizzles at 10% growth rate, it has been shrinking. And the notable slowdown of bank credit growth has been broad based and not limited to some sectors.

And the broad based slowdown in credit growth has equally been reflected on M3 growth and CPI inflation. 

So the cumulative developments in bank credit, money supply and CPI have been indicative of tightening—a mainly market based tightening 

Second, the article didn’t mention that the BSP in 2014 has already been engaged in a series of partial tightening moves, in particular raised policy rates, SDA rates, reserve requirements, ordered hike in the banking system’s capital and stress tests. 

All these added to eight measures going to October. 

Third, contra the idea that present BSP actions wants to soak up liquidity, other press release say otherwise: (Philstar May 29 2015) “The BSP continues to see monetary policy as appropriate given the continued growth in the economy and the good prospects for the rest of the year,” Tetangco said in a text message to reporters. 

In fact in recent (February) speeches, the BSP governor has floated the risks of deflation. Yet the de facto central bank standard in approaching “risks of deflation” translates to more easing. 


So what could be possible explanation of the conflict here? Has media misinterpreted the BSP or has media misrepresented the BSP, or has there been a mix up in the BSP official communications or could the BSP be deliberately confusing the public? 

Besides to suggest higher rates have been a product of BSP actions means that the BSP has been soaking up cash since NOVEMBER… 

…that’s because yields from 1 month to 3 years have been ascendant from November through April (or until those interventions appeared)! 

But due to some unseen or undefined circumstances the same yields have been violently forced down! 

A better way to look at such dynamic should be through the yield curve. 

What does the yield curve say? 

Relative to the 1 month yield they have been FLATTENING. 

And NOT only have they been flattening, there have been recent instances of major INVERSIONS! 

That inversion caused somebody to aggressively intervene to drop 1 month yields. Who could they be? 

And it’s not just the 1 month, this applies to the entire spectrum! 

Since late November yields have generally been flattening. But because a flattening will signify as bad news for G-R-O-W-T-H somebody decided to force a sharp steepening (red rectangle)! 

So here is my frame of the current developments: 

The flattening yield curve has partly been the outcome of BSP’s March to October’s tightening. However, more substantially, they have come to signify the system’s growing balance sheet problems that are being ventilated on Philippine treasury markets! Yield curve flattening has been a long time process, it's only now where we see an acceleration or intensification.

And because current developments in Philippine treasuries doesn’t speak well of the heath of the credit system there has been an onslaught of interventions from faceless entities to manage the yield curve. 

Now rising yields are being rationalized by media to deflect on the real issue. 

Yet the charts above reveals of the seeming egregious publicity disinformation stint to misrepresent current conditions in the treasury markets by media!

DBP official: No Market Manipulation, Just Rule Breaking!

Last weekend, I pointed  to the charge by the Philippine state owned entity the Commission on Audit that the state development bank, DBP engaged in 'wash sales'.  Such allegation, I used as an example of the likely ongoing market manipulations in Philippine financial markets.

A DBP official dispute such claims (from ABS-CBN)

"There was no market manipulation, we sold and bought at the same price," DBP President Gil Buenaventura said in a phone interview.

He said the "strategy" was to sell the bonds, which were being held in the bank's trading account, before they lost more value. Then the bank bought them back and place them in the bank's so-called hold-till-maturity account, where it is bond interest payments that are recognized, not their value. All the transactions were done by Metrobank's First Metro Investment Corp. unit.

Buenaventura admitted these may seem suspicious and the traders may have broken some bank and Bangko Sentral ng Pilipinas rules in the process.

Well that's his opinion. 

Nonetheless the admission of having to infringe on rules reveals that the bank has engaged in market hanky-panky, regardless of definitions

Of course, like all personality based politics, the bank's reaction has been to file "administrative charges against its treasurer and two other Treasury employees". 

Yet without media's exposure, this kind of things will just go on.

Anyway when the sensation fades, I expect a whitewash on this

However based on APEC Competition Policy & Law Database on price manipulation regulations in the Philippines, 'wash sale' is defined by them as

A wash sale occurs when a customer enters a purchase order and a sale order at the same time through the same broker/dealer. The ownership of the stock does not change. This would normally be done to create the appearance of activity in a security. See, U.S. v. Minuse, 114 F. d. 36, 38 (1940).

Additionally, the Philippine Security and Exchange Commission (SEC) has a previous record of indicting "wash sale" as criminal activity. 

So in my opinion, the claim "we sold and bought at the same price" that had  been done by the same broker, unless my comprehension is wrong, looks very similar to the description of wash sale as having entered "a purchase order and a sale order at the same time through the same broker/dealer. The ownership of the stock does not change."

And since wash sale according to the SEC falls under Section 24 of the SEC Regulation Code along with marking the close, and since the title of Section 24 states: "Manipulation of Security Prices; Devices and Practices" then this likely means that based on SEC's classification--the self described activity by the state bank--would seem to fall into category of "manipulation"

But since this is a legal issue I lay my hands off. 

Quote of the Day: Cronyism depends on the credit bubble

Capitalism takes you into the future… with innovation, failure, and surprise. You invest, you lose your money, you try something different, and you stumble forward. Capitalism is constantly burying its mistakes and discovering tomorrow. 

Cronyism, on the other hand, keeps you in the past. It is today and yesterday trying to stop tomorrow from happening. By bribing public officials (they are remarkably cheap; in terms of return on investment nothing else comes close)… restricting… regulating… controlling… central planning… bailing out well-established businesses… rewarding stockholders… paying off voters, lobbyists, and special interests… and distorting the political establishment, with its geriatric candidates and tired themes. 

And guess what? Cronyism depends on the credit bubble. The future is where new wealth is created. When you try to stop or twist the future into the shape want, you prevent this wealth from ever happening. 

So, you switch from creating wealth now to taking wealth from the future, so you can consume it now. That’s how the credit bubble got so big. And that’s why almost nobody wants to see it pop. 

Cronies owe money. They borrow money. They depend on borrowed money for their budgets, their spending, their bonuses, their portfolios, their welfare checks, and their special privileges. They all depend so heavily on borrowing that few of them – whether in academia, media, business, finance, or government – can see the truth… let alone speak it. 

They are all paid not to see it. And if they do see it, they keep their mouths shut.

This excerpt is from Agora Publishing head Bill Bonner at his website Bonner & Partners

Phisix 6,700: Why the June 1st Banking-Financial Sector Pump

Obviously peeved by the last minute ‘dump’ last Friday, which had largely been centered on banks, index managers returned with a vengeance to put in place what had been lost. 

Using banks as key issues for the push, market manipulators pumped back the 1.2% to the PSEi index that had vanished due to Friday’s last minute dump (see blue rectangle). 

And 30.53 points or 33.96% of the June 1st PSEi’s close had been from marking the close. 

Curiously the 'panic day buying' and 'afternoon delight' stratagem which culminated with the 'marking the close' pump came with ONLY a very lean Php 5.79 billion peso volume (see right). 

Padded with Php 1.279 billion of assorted special block sales, total volume for the day still ended with a light Php 7.02 billion. 

And again the substantial index gains came with a NARROW 88 to 85 margin—in favor of advancing issues. (PSE quote June 1) [charts from colfinancial left, technistock right) 

So the oversold bounce appears to hardly persuade the broader market to participate (which again has been the dynamic since May 2013) 

What prompted this post has largely not been about the market manipulation angle, although it is important to mention this because they have been interconnected, but rather of the concentration of pump on 'select' financial issues. 

As you can see, yesterday’s 1.2% headline gains had been due to the financial benchmark's amazing 2.49% gains and which had been seconded by the holding sector's 1.36% 

And again the 34% contribution of 'marking the close' has largely been from finance (right) and holding (left). 

As I have been saying here, there won’t be a record without those illegitimate activities which both the PSE and the SEC tolerates. 

The big finance pump gave me an initial impression that the BSP may have been about rate cuts, but this apparently hasn’t been so. 

So with huge gains in the financial sector, I opened the charts of the bank and financial sector to see what today’s activities have been about. 

These are the 13 issues comprising the Bank-Financial index, I have noted a month back that about TWO THIRDs of them have been in bear markets 

That’s yesterday’s 3 issue pump led by BPI (4.29%), BDO (2.78%) and Metrobank (+1.68%). 

The charts above reveal of massive technical damages. Index managers would need a lot to work on to repair them. 

With market cap weights of BPI at 5.57%, BDO at 5.28% and Metrobank at 4.18% as of yesterday’s close, total weighting for these issues adds to 15.03% of the PSEi basket. Their significant share in the free float market cap based index makes them part of the top 15 issues in the basket. This explains part of the pump which obviously has been intended to paint the headlines but which the broader bank-finance issues hardly participated.

And proof broad market lack participation in pictures...

 

Except for AUB, a vast majority of the charts above have been lower than when I last posted them. 

Of course, the recent sell off CONTRIBUTED to their current plight. 

 

My next guess for yesterday's run up was about ‘liberalization’, but again the above says maybe not.

Yet the above speaks loudly of the quality of the recent record high--a hoax perpetrated to bamboozle the public into believing in the illusions of vast improvements in the nation's economic health conditions.

So it’s no wonder why index managers have been so desperate to fix the headline numbers.