Uncanny Resemblance in Short Term Charts

You can accuse me of employing clustering illusion (looking for patterns) but the charts above appears to have some resemblance. 

Not only do they share similarities in the undulations of price actions, they share almost the same timeframe. 

The first chart actually represents the PSEi which includes today’s marvelous 1.33% close. It bottomed in the third week of January 2016 then made a parabolic run which has been in progress. 

The second (lower) chart is actually the Shanghai index, which had a temporary bottom in February 2015, then made a stunning almost ceaseless run. 

The Shanghai index peaked in mid-June 2015. 

The difference has been that from the lows, the Shanghai index stormed by 68% as against the Phisix at 27.33%. 

Yet should the Phisix maintain current pace of increases, we’d hit the rate of return of the Shanghai index at 60%+ or 9,750 by the end of the year.

Nevertheless, here is the bigger picture of the two over the same period. 

The upper left rectangle of the SSE represents the portion of the picture clipped and shown above. 

Meanwhile the sliced version of PSEi’s equivalent also in the red rightmost rectangle above.

Yet previous price actions showed of massive reversions to the mean. 

For the PSEi, could this time is different?

Charts: Climatic Manias in Motion!

For the top 100 cities, China’s property prices zoomed by 50% y-o-y according to the Wall Street Journal (as quoted by ZH)!!!!

Philippine PSEi seem to be following the footsteps in terms of the intensity of China’s property price actions. As of yesterday, the PSEi has surged by an astounding 26% in 4 months plus! This should be 27% if the PSEi closes 1% today. 

In 1Q 2016, China's credit expansion skyrocketed USD $1 trillion in 1Q! So the tsunami of money found its way to a nationwide property pump. This as against a relatively smaller amount of credit expansion from the BSP's silent stimulus, through the domestic banking system. The domestic version apparently spilled over to mostly the PSEi! That's because domestic property prices has shown little improvement (as noted yesterday) 

And as for my suspicions about rotational pumping on the top 5 issues, well it has been happening. Massive pumping has happened in the top 3 issues yesterday, SM, ALI and JGS while the rest is happening today!

BSP’s Silent Stimulus Has Had Tepid Results to the Philippine Property Sector in 1Q 2016! More Signs of Mounting Excess Capacity!

For the 1Q 2016, prices in Asia’s housing markets have been generally been weakening. According to the Global Property Guide, “Asian housing markets weakening, except China. Six of the eleven Asian markets for which figures are available saw house price increases during the year to Q1 2016, though most were just modest increases. In fact, only China's house prices rose strongly last year. Six Asian housing markets were stronger in Q1 2016 compared to a year earlier.” (bold original)

The regional slowdown means that the Philippines have been part of the current dynamic, where the "average price of 3-bedroom condominium units in Makati CBD rose by 3.9% during the year to Q1 2016, from y-o-y increases of 2.96% in Q4 2015, 5.41% in Q3 2015, and 6.61% in Q2 2015 and 5.4% in Q1 2015. Housing prices increased 2.54% q-o-q during Q1 2016".

So while high end property prices partially recovered from a big slowdown in 4Q 2015 on a quarterly basis, which essentially validates my suspicions last year, for the comparative 1Q period of 2015 (+5.4%) and 2016 (+3.9%), present growth rates have indicated of a 27% downturn in growth rates!

Positive growth still means demand outstripping or growing faster than supply though. So even if demand may slow, for as long as supply slows faster, then prices will reflect on positive growth. Or a credit fueled demand may have temporarily juiced up demand relative to supply.

The latter seems to signify the current operating environment of the Philippine property sector.

Here is how Philippine property prices (residential) performed during the 4Q 2015, according to the Bank for International Settlements data

It’s not just the perspective in the slowdown in 4Q 2015 housing prices, where BIS housing prices essentially confirmed the Global Property Guide’s observations.

But a more important factor has been that over the 6 year period (2009-2015), the boom bust cycle appears to have emerged. To wit, following a boom, Philippine housing (high end) property prices seem to have hit an inflection point and has been headed down!

The BSP’s monumental shift in monetary accommodation in 2009 lubricated a run in housing prices from 2009-2013. Yet the rate of growth of residential property prices peaked during the 2H of 2013. From there, it has been downhill.

So Q4 2015 and Q1 2016 numbers seem to only reinforce the current long term housing price dynamics.

And the more interesting factor is how money supply growth has coincided with housing property prices (lower window). The 10 month 30%+++ money supply growth in 2H 2013 to 1H 2014 seems to have been very crucial in the powering of housing prices to its zenith.

Since money supply growth petered out (partly due to the BSP’s slight tightening) in 2014, housing prices followed suit.

And now that the BSP launched a silent stimulus 4Q 2015-1Q 2016, such has filtered into housing prices as indicated by the Global Property Guide.

This appears to be similar in the way the Chinese government reignited their housing bubble with a whopping 1Q 2016 credit expansion to the tune of over USD$1 trillion!

And here is an even more interesting observation. While residential prices have been trending lower in Makati, land prices rebounded strongly (13.63%) in the 4Q of 2015.

The divergence is stunning. It seems to show that property developers continue with their race to build supply (thus the aggressive bids on land prices) even as topline growth (now confirmed in real estate sales by PSE listed firms in 1Q 2016) has been tapering!

If such dynamic holds then we are bound to see even more pronounced massive debt financed surplus capacity for the sector!

And yet more signs of the effects of the BSP’s silent stimulus in the context of the government’s measure of construction wholesale and retail prices.

Construction prices have almost simultaneously bounced backed in 1Q 2016!

From here it would look as if construction boom have been perked up again.

But such doesn’t seem to be the case.

An even more fascinating development has been that while real estate prices and construction prices have both rebounded, growth rates in construction permits have remained stagnant!

While it may be true, that the number of construction permits grew by 10.41% in the 1Q, the broader picture says that mom and pop construction activities have been mainly responsible for this. That’s because total floor area of indicated construction dropped by 2.9% over the same period, while total value of construction have dropped by a big 5.7%!

So smaller projects have been booming while bigger projects have been down.

Overall since the GDP is measured in terms of money spending, decline in the value of construction doesn’t speak well of the construction GDP. This means that in order to save the construction sector (statistical GDP), the government has to take its place (along with it the consequences).

And the biggest decline for the construction permits had emerged from residential activities. Residential floor area and value skidded -2.55% and -9.7% respectively. This compares to non residential which registered a mix showing of -.04 decline in floor area while value jumped 7.46%.

If construction permits have been accurate indicators of present and coming construction activities, then these numbers hardly corroborates a strong rebound in the real estate-construction sector.

And here’s more. The slowdown in construction permits appear to be reinforced by the BSP’s banking loans to the construction industry. Growth rates have fallen to 22.2% last April. It’s been in a downtrend since 2013. Such sagging trend has been in place, in spite of the BSP’s silent stimulus!

And while banking loans to the property sector spiked in January and February, it has declined in March and April. Banking loan growth rates to the sector has fallen back to 3Q 2015 levels.

Of course, we can’t rely on the sanctity of statistics because they have most been likely to be underreported. Perhaps, loans to the property sector are being alternatively financed through shadow banks, through off balance sheets, through diversion of loans from other industries to the real estate sector, through the bond markets, through intercompany loans, through private placements or through many other probable means.

Credit growth from stealth monetary easing has only incited massive wave of speculations similar to the present activities at the PSE even when construction activities demonstrate stark sluggishness.

What this only has shown has been of money illusion from the reopening of the monetary spigot by the BSP to rescue asset prices, the GDP and possibly to finance election spending.

And the ramifications from these have been to deepen economic discoordination as manifested by indications of broadening excess supply!

Desperate times calls for desperate measures?

As Growth Rates Slow, The BSP Toys with OFW Remittance Data Anew!

The BSP has been at it again!  

Or the BSP has been fudging with OFW remittance statistics again! 

(all bold mine) 

The BSP on January remittance data: Personal remittances from overseas Filipinos (OFs) increased by 3.2 percent year-on-year in January 2016 to reach US$2.2 billion, Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. announced today…. Likewise, cash remittances from OFs coursed through banks amounted to US$2 billion in January 2016, rising by 3.4 percent from the level posted a year ago. 

On February data: Personal remittances from overseas Filipinos (OFs) reached US$2.3 billion in February 2016, higher by 9 percent than the level posted in February last year…Similarly, cash remittances from OFs coursed through banks grew by 9.1 percent year-on-year to US$2.1 billion in February 2016.

On March data: In March 2016 alone, personal remittances amounted to US$2.7 billion, 1.4 percent higher than the year-ago level. Meanwhile, cash remittances from OFs coursed through banks in March 2016 amounted to US$2.4 billion, posting a growth of 1.5 percent year-on-year.

In their April disclosure, the BSP revised all three data. And they have all been substantially downgraded!!!

January personal and cash remittance (monthly) growth rates: 1.9% and 2.1% (original 3.2% and 3.4%). February: 8.3% and 8.4% (original 9% and 9.1%). March: NEGATIVE 1.3% and NEGATIVE 1.2% (original 1.4% and 1.5%)! 

The BSP then shifted the blame on banks for such revisions: “Revised per amended reports submitted by banks”

I recently noted the BSP adjusted the entire TWO year (2014 and 2015) data set in order to shield increasing accounts of NEGATIVE growth!

The BSP’s smoke and mirror trick appears to be to post data only that have been in the positive, from which they then shout or declare G-R-O-W-T-H! And when no one seems to be looking, they considerably reduce them. The BSP seem to be hoping that people will just buy the headlines. It seems that for them, these numbers have no real world implications. 

Monetary authorities can’t seem to handle several truisms.

One, the world economy has been slowing down fast.

Two, the law of diminishing returns simply means that considering the size (over 10 million people or 10% of population), OFW growth cannot expand FASTER than the population growth forever. That’s unless authorities have tacitly been working on to significantly drain the resident population!

Three, the quality of overseas job openings may also evolve.

Fourth, currency factors play a role. Weakening currencies where OFWs are employed may see their remittance diminish.

Fifth, global political developments also matter. The rise of nationalism (anti-immigration, right wing politics) may prove to be a significant barrier to overseas employment.

Sixth, the BSP can’t seem to take into context the contributions of domestic economy. For instance, the government has been shouting at the top of their lungs that the economy continues to boom, where jobs have allegedly been growing! Yet if true, then why wouldn’t OFW growth slow? Has the government come to believe that the Philippine residents can multiply its population at the rate of how Gremlins populate?

In a genuine economic boom, where job and income substantially grows, there will be little incentives for residents to work overseas or seek migration. The fact that there remain a good number of people looking for job overseas essentially defies the government’s account of an economic boom!

Or does truth or reality need to be contorted for the simple reason that all economic sensitive statistical numbers has to remain positive?!

You see, the entire credit fueled supply side boom in the shopping malls, hotels (tourism) and housing (vertical and horizontal) have been predicated originally from OFWs. So perhaps the BSP may have been concerned that any candid announcement of theirs might prompt for a slowdown in the race to build supply that may be reflected on the GDP.

And a slowdown in the GDP should be a taboo! That’s because a magnified GDP allows the government to have generous access to credit at the lowest costs! And it’s not just the government but also politically favored firms!

Again, hardly does the BSP seem to realize communications opacity or obscurity will have real world consequences. They may fudge data to boost GDP over the short term, but eventually such costs will emerge overtime in the form of slowing sales (demand), magnified vacancies (excess capacity), financial losses, slowdown or curtailment in investments, job losses, amplified credit risks, increased poverty and more.

Some of these have become apparent today.

This shows the kind of boom mentality entrenched in the consensus.  Such mentality bears no margin of safety and have all been anchored on a riskless-one way trade. The seeming disinformation employed by the BSP only feeds to such confirmation bias.

And that’s why there will be a rude awakening. OFW data have already been showing the way!!!!

Underperformance of the Top 5 Shows Why PSEi Still Trades Below April 2015 Highs

Underperformance of the Top 5 Shows Why PSEi Still Trades Below April 2015 Highs

We will not have any more crashes in our time.

- John Maynard Keynes in 1927

There will be no interruption of our permanent prosperity.

- Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928

Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months."

- Irving Fisher, Ph.D. in economics, Oct. 17, 1929

We feel that fundamentally Wall Street is sound, and that for people who can afford to pay for them outright, good stocks are cheap at these prices."

- Goodbody and Company market-letter quoted in The New York Times, Friday, October 25, 1929

Quotes from Gold-Eagle.com

As Asia’s markets tumbled over the week to reflect on global developments, only two bourses were left unscathed. Aside from Pakistan (+4.97%), the Philippine benchmark, the PSEi, even shined by advancing 1.5%.

The Sauve Qui Peut Pump and Reversion to the Mean

Given the breathtaking 1% marking the close pump last Monday, designed to project the PSEi’s exceptionalism, which was backed by another .36% end session push on Tuesday, it’s easy to construe that price fixing has mainly been responsible for this week’s outcome. Note 1.36% marking the close returns relative to the weekly 1.5% equals 91%.

The Manipulator’s contemporary creed: the PSEi must always rise and must not be permitted to go down! We have reached NIRVANA! So again, they will do whatever it takes to pump the index back to the April 2015 record highs even if this should mean even wilder upside actions.

Since the banks, Ayala Land and URC have weighed on the PSEi’s thrust to a new record (based on chart trends), this week’s runup was primarily focused on them! The banking trio, BDO (+5.02%), BPI (+2.32%) and MBT (+1.81%) PLUS Ayala Land (+3.37%) along with URC (+7.2%) were responsible for the gist of this week’s gains!

BDO 

BPI

URC

ALI

And as one would notice, vertical price actions have essentially shifted to these issues. (see charts above)

It’s truly depressing, if not revolting, to see how Philippine capital markets have been totally debauched in order for some segments of the society to continue to benefit from the invisible redistribution process channeled through negative real rates policies of the BSP.

Nevertheless, such represents one of the very essential traits of the boom-bust cycles which economic historian Charles Kindleberger vehemently warned about. Mr Kindleberger admonished that many resort to cheating or swindling in order to sustain the status quo premised on the motto of sauve qui peut (may he save himself, whoever can).

So to negate the effects of the recent crash, the frantic vertical pumping of the PSEi appears emblematic of such progressing malady. 

Even with the massive distortions brought about by actions directed at sauve qui peut, the history price actions indicates that all such collusive efforts will eventually be in vain. That’s because reversion to the mean has almost always prevailed. And reversion to the mean won’t happen only unless ‘this time is different’. Well is it?

As shown in the above chart, parabolic price spirals or vertical liftoffs in all four issues over the three years have all FALTERED.

And the common repercussion from forcible price escalations had been the Newton’s Third Law of Motion where “For every action, there is an equal and opposite reaction”. Or to paraphrase Newton: For every hysteric price pumps, there has been an almost equal and opposite reaction via price dumps! The obverse side of every mania is a crash.

PSEi 7,600: Top 5 Relative Underperformance

Let me further expand this thought with a discussion of relative performance between PSEi in 2015 and 2016.

First some notes.

As of Friday’s close, at 7,622.07 the PSEi remains 6.21% OFF the April 10 2015 high of 8.127.48.

The PSEi rose to April 2015’s record high in an incremental mode while today’s action has been from violent price surges. 

The current 5 month string of price spikes came in reaction to the 2016’s or New Year’s three week crash.

 

 

The ratio of returns of PSEi issues simply illustrates of the relative performance of PSEi issues, as of Friday, compared to the runup to the record high of 8,127.48 in 2015. 

Further note: The above are calculated from a year to specific week baseline—weekly close of April 10 2015 as against the weekly close as of June 17, 2016. A ratio of 1 means equal performance. A ratio of less than 1 equates to underperformance by the issue in 2016 relative to 2015. Whereas the ratio of over 1 means outperformance.

Five issues of the top 15 have massively outperformed in 2016, namely JGS, AEV, BPI, JFC and MPI. These are the issues that have mainly catapulted the headline index to the current levels.

With the exception of JGS, because these issues have mostly been from the latter half of the top 15 PSEi weighting scale, the impact of their record high prices have been insufficient to have pushed the headline index to a new high.

In the meantime, 5 issues have significant deficits (<.6%) but still positive returns, specifically GTCAP, BDO, MBT, ALI and SM. One issue has had a negative ratio: PLDT (which showed of negative returns for 2016).

Considering that the biggest two market cap issues have underperformed, this explains the gist of the distance between April 2016 record highs and the current levels.

Yet the biggest drag has been the fifth rank PLDT, which so far has delivered a negative year to date return (despite a three week 22.34% ramp!)

So the subpar comparative results of 3 of the 5 biggest market caps has contributed to the below record Phisix. This comes even if SM has reached record highs last May 2016.

 

This can be expanded when viewed from the aggregates

The scorecard of returns of the top 5, as of Friday’s close, at 10.44% relative to their returns in 2015 at 15.196% or the difference of 4.8% again reveals why the PSEi has still been below the April 2015 record.

Note that the top 5 issues carry a cumulative market weight of 38.41% as of Friday.

Considering that the biggest outperformance comes from the below the top 5 ranking but still within the top 15, the relative returns for the top 10 and 15 has narrowed—when seen from 2015 and today.

Yet in spite of the towering gains by SMC, PCOR and BLOOM, the average gains of the lower 15 of the PSEi index has been marginally inferior today at 9.48% relative to 9.66% in 2015. That’s because such biggest surplus returns, which came from the lowest rung, has only a combined weighting of only 2.15%. Whereas the underperformance of bigger weight issues from the lower half of the PSEi index, as EDC, ICT, MEG, AGI and DMC, has neutralized those gains.

Nonetheless, the market cap weight of the last 15 issues have accounted for only 19.06%. This tells why the performance of these issues has hardly contributed meaningfully to the overall conditions of the PSEi

Yet the PSEi average and weighted average returns has stark differences.

Seen on the average returns for the overall PSEi issues, there has been little difference (-.71%), at 10.52% year to last week (2016) relative to 11.232% in April 10 2015.

So if the PSEi climbs higher where average returns of the broader issues continue to escalate then average returns may exceed the 2015 highs returns even if PSEi remains below the watermark levels.

But seen from the market cap weighted returns of the PSEi based on year to the week ending April 10 2015 at 12.4% as against year to date of 9.64% (as of Friday) the underpeformance of the top 5, has become a lot more pronounced. Again that’s because of the top 5 subpar returns.

In short, the current seeming concerted thrust to violently inflate prices of TEL, ALI, the banks, and URC seems part of the covert exercise designed for the PSEi to forcibly reach its April 2015 record.

Yet as price pumps to bolster the headline index continues, the more prices have become dissociated or detached with reality. As one can see above, massive pumping has lifted PERs to 30,40 and even close to 50 levels!

As of Friday’s close, the average PER of the PSEi risen to 19 whereas the weighted PER was at 24.8%!

Who will be Right: Falling Peso Rising PSEi?

 

Finally the sauve qui peut pump has led to a bizarre convergence of the usually divergent USD php and the PSEi.

Gains accrued by the peso the other week was neutralized when the USD Php advanced .7% this week to Php 46.445

The USDphp usually moves in the opposite direction relative to the PSEi. Again the latter’s peculiar convergence must have likely been from the concerted pumping on the PSEi. Or has previous divergence now transformed into a convergence? From what grounds?

Now who would be wrong, the PSEi or the USD php?

Again Newton’s Law: The obverse side of every mania is a crash!