Sunday, December 08, 2019

Newton’s Law Aborts the Formative Nickel Mining Mania



Newton’s Law Aborts the Formative Nickel Mining Mania

The stock market’s breadth has so deteriorated such that even individual stock manias, expressed via price spikes and backed by tall tales, have become incredibly short-lived.

The upside spiral of nickel mining issues in September, mainly due to the ban on Nickel exports by the Indonesian government led to this conclusion.

To be clear, I am positive on the long term prospects of nickel mines, but current developments reveal the penchant of domestic markets to exaggerate pricing.


Newton’s Third Law of Motion, “For every action, there is an equal and opposite reaction”, has aborted a developing mania in nickel mining favorites.

Aside from plunging global nickel prices, the tumbling marketplace liquidity or lackluster volume has weighed on domestic miners.
 
Aside from the partial reversal by the Indonesian government on the ban on exports last November, which allowed for select miners, the crucial issue may have been the perceived bottoming of nickel inventories that have spurred a plunge in global nickel prices.

 
Nickel prices have dropped even before inventories may have hit the floor.

Neither has the huge gain in global nickel prices in the 3Q have filtered into Nickel Asia Corporation or NIKL’s revenues nor margins.

While Global Ferronickel Holdings or FNI’s margins posted significant improvements in the 3Q, surging nickel prices haven’t inspired a boom in output.

As Warren Buffett aptly stated, only when the tide goes out, do you discover who’s been swimming naked.

The Yield Curve Takes Control: Philippine CPI Increases to 1.3% in November


There are two kinds of statistics, the kind you look up and the kind you make up—Rex Stout from Death of a Doxy

The Yield Curve Takes Control: Philippine CPI Increases to 1.3% in November

The Forecasting Prowess of the Yield Curve; the CPI Cycle

The yield curve of the Treasury Markets, as I have been saying, presages statistical inflation. 
 
On the left of this chart is the 2012 based Consumer Price Index (CPI). On the right is the yield differential of the 10-year T-bond and the 1-year T-bill, as well as, the variance between the 1-year T-Bill and the CPI or the real yield.

The spread of the 10- and the 1-year curve has accurately foretold the direction of the 2012 CPI since the latter came to replace its 2006 predecessor in 2013.

The curve began to flatten ahead of the CPI in 2013 before the BSP raised rates in 2014. It commenced on steepening in 3Q 2015, a few months before the BSP opened the QE floodgates, pushing the CPI to reach a climax in 3Q 2018. The curve started to flatten anew before the BSP hurriedly raised policy rates beginning the 2Q 2018, whereby the CPI soon followed with a plunge. The flattening morphed into an inversion, a sign of extraordinary financial tightening, antecedent to the BSP’s chopping of policy rates, which started in the 2Q 2019. Such yield curve inversion, the first since at least 2000, is an indicator of heightened risks of a recession.   

The history of the BSP’s monetary policies can be found here.

Not only the CPI cycle, but the Philippine treasury yield curve seems to have even been predicting the crucial shift in BSP’s policy trends!

But the soothsaying prowess of the yield curve can be seen in a different light.

The yield curve, instead, projects the incumbent policies of the BSP, which drives the CPI cycle. And once the curve reaches a certain point from which the CPI follows with a time lag, treasury investors foresee and prices a turnaround on the BSP policies in response to such dynamic. The yield curve’s inflection points, thereby, represent the treasury market’s anticipation of the denouements of the peak and troughs of the CPI cycle.

Here is a truncated backstory.

In response to the tightening by the BSP in 2014, the CPI downshifted, after peaking in August 2014, for 14 straight months until it recorded two months of deflation in September and October 2015. The sharp and speedy decline of the CPI prompted the flattening dynamic of the curve to reverse in July 2015, reflecting the Treasury market’s expectation of the revival of the CPI from the BSP’s easing.

The BSP’s tightening process indeed ended with the opening of the QE spigot in the 4Q of 2015. This financial easing was supported by the record drop in its policy rates, which was implemented by the BSP in June 2016, presented under the camouflage of the adaption of the Interest Rate Corridor (IRC) System.

The yield curve steepened until it climaxed in January 2018, and four months later, in response to the surging CPI, the BSP began its 175 bps series of hikes implemented within 7-months. The CPI, meanwhile, hit a multi-year high of 6.7% in September 2018, 8-months after the curve began to flatten.

That January 2018 flattening cycle culminated with an inverted yield curve in March 2019, which from this milepost has sharply steepened to manifest the Treasury markets’ expectations of a resurgent CPI.

The BSP responded to the liquidity squeeze with a series of rate cuts, totaling 75 bps thus far, which started in May 2019, as anticipated by the curve. RRR cuts of 400 bps had also been used to ease financial tightness.

Nevertheless, because of radical political responses to the 2018 rice crisis, and statistical anomalies, if not skullduggery, the headline CPI still plunged to a 42-month low last October.

And because of the tenacious widening of the curve, which has clashed with the artificially depressed statistical inflation, confronted with a credibility dilemma, the National Government relented to publish a higher CPI last November.

Action Speak Louder than Words: Economists See No Inflation, Traders Price in Higher Inflation
 
The Philippine capital markets have a very thin participation rate from the general population. Like the stock market, the treasury market has been dominated by the financial institutions and also government financial institutions. But unlike the stock market, foreign participation may not be as significant. [Nota Bene: I’m sorry. I have no access to latest data, except to rely on old reports. Example in 2011, non-residents account for 10% share of local government bond]

As the Asian Bond Online reported in its 3Q 2019 Asian Bond Monitor: “Banks and investment houses remained the largest investor group in the Philippine LCY government bond market in Q3 2019, with an investment share slightly rising to 42.6% at the end of September from 41.9% a year earlier. Contractual savings institutions (including the Social Security System, Government Service Insurance System, Pag-IBIG, and life insurance companies) and tax-exempt institution (such as trusts and other tax-exempt entities) were the second-largest holders of government bonds. However, their share fell to 23.9% from 27.2% during the same period. The share of brokers and custodians was almost at par at 11.5% during the review period, while that of funds managed by the BTr inched up to 10.0% from 9.4%”

The treasury markets reveal the demonstrated preferences of the institutional participants or ‘action speaks louder than words’. What in-house economists and experts from financial institutions say has starkly been different compared with what their treasury departments do. Experts tell media that CPI should remain muted, but paradoxically, traders of treasury departments from these establishments don’t believe what their analysts have been saying!

And from this view, traders from various treasury departments have some indirect influence on the BSP’s policies.

November CPI Expands to 1.3% as Divergences Persist

The Philippine Statistics Authority reported that a jump in November’s CPI to 1.3%.

Curiously, despite the sustained significant deflation in the rice (-8.3%) and bread (-2.2%) CPI (-5.6%), which led to a slight -.2% deflation in Food CPI, the headline CPI still climbed! Add to this the irony of deflation in Transport CPI (-2.4%). The previous drivers of the suppressed CPI have failed to influence more downside on the headline!

What segments pushed the higher the CPI in November? According to the BSP: “The uptick in November headline inflation rate was traced mainly to higher prices of selected food items. Inflation rates for meat, fish, vegetables, as well as milk, cheese, and eggs increased in November compared to year-ago levels. At the same time, year-on-year inflation rates for rice, corn, as well as sugar, jam, honey, chocolate, and other confectionery were also less negative during the month. Meanwhile, year-on-year non-food inflation was unchanged in November as higher actual rentals for housing and upward adjustments in electricity rates due to the increase in generation charge were offset by the lower transport inflation during the month.”

As the headline inflation rose, the Core CPI slipped, the result of which has been to diminish the record divergence. Pls. see my past explanations.


or here


 
The headline CPI’s November advance has been a product of the increases in its subsectors, particularly, alcohol (+17.6%), household utilities (+1.2%), furnishings (+2.8%), health (+3.1%) and communication (+.3%) relative to the previous month.

However, the bizarre disconnect between the food CPI and the restaurant CPI persisted in November. 
 
While the food CPI was less deflationary (-.2%), restaurant CPI (+2.7%) was unchanged. Hence, the record spread had narrowed slightly.  

Such statistics tell us that consumers exist in a vacuum. Consumption of food at home and food at restaurants has little human and economic connection between them.

These statistics have little relevance to the real world.

Special Report: The Four Major Forces Influencing the PSE’s Brokerage Industry


The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism—Joseph Schumpeter 
Special Report: The Four Major Forces Influencing the PSE’s Brokerage Industry

The brokerage industry will continue to be impacted by four significant factors, mainly rooted from creative destruction: the shift to online trade, the downtrend in trading volume, asymmetric regulations, and the global trend of zero-bound commission rates.

Creative Destruction: The Shift to Online accounts

 
Client accounts jumped 25.4% to 1.09 million in 2018, according to the PSE. That’s still less than 1% of the total over 100 million population (108 million 2019 by Worldometer) or 1.4% of the estimated 73.5 million labor force.
 
Online accounts delivered over 100% of growth in 2018. Online accounts grew by 60.92% to 236,900, but brick and mortar accounts contracted 3.4% or by 16,266 accounts.

Online accounts have come to dominate the PSE’s client base with 57.44% share in 2018 from 44.76% in 2017.  According to the PSE’s data, the age brackets of 18 to 44 years captures about 70% share of online participants.

 
Total accounts growth spiked as retail participants chased 2017’s 25.11% returns and as the PSE reached 9,058.62 on 29th January 2018.

Shrinking Peso Trading Volume

Aside from the shift to the online platform, the second fundamental force affecting the PSE has been trading volume.

From 2009 to 2013, the PSEi carved a record high, backed by substantial volume expansion, signifying a genuine boom. That all changed after. Trading volume has been downhill since.

When the PSEi reached a fresh milepost of 9,058.62 in January 2018, this was primarily because of a narrowing breadth of participation, or increasing concentration of trading activities toward a few index sensitive issues.

For instance, the Sy Group of companies accounted for a whopping 32.95% share of the free float market index, as of November 2019, significantly higher than the 21.34% in November 2015. In perspective, the Sy group’s share of the index rocketed by a stunning 54% in 4 years at the expense of most of the member issues! 
 
Five firms account for 49% of the free float market cap or the headline index, as of the 5th of December 2019. Five issues are all it takes to move the headline index!
That’s the result of sustained marking the close pumps mostly concentrated on the Sy Group of companies. And this week’s magnificent facelifts!

Bloomberg publishes charts of most of the global bourses. It includes intraday charts.


Not a single benchmark in any of these bourses features an almost daily substantial marking-the-closes.
 
Anyway, ironically, as the peso trading volume declined, retail participation in the stock market trading escalated in 2018. The low volume rip eventually took its toll, the headline index retreated from its peak of 9,058 and have trudged since. New retail accounts, which likely chased the 2017-2018 runup, have been, mostly, bruised.

More importantly, the cascading peso trading volume has resonated with the BSP’s data of the banking system’s dwindling cash reserves, which also began in 2013. The shortfall in the banking system’s liquidity has percolated and affected the PSE’s trading volume.

In the 11-months of 2019, because of block sales, the cumulative peso trading volume was up 7.9% YoY. However, based on the board's transactions, the total 11-month peso turnover was down slightly by .92%, even when the PSEi posted a 3.7% return over the same period.

Furthermore, because a sustainable bull market depends on a concordant growth in volume, the deterioration in peso volume has prompted a redistribution from the broad market to select issues of the PSEi, which has been a consequence of selective pumping.

 
Selling activities have dominated trading activities in the PSEi even when the index hit 9,058 in January 2018. The decaying internals has been consistent until now.

So unless liquidity in the banking system improves, or unless foreigners become aggressively bullish the on domestic equities, the PSE’s peso trading turnover can be expected to remain lackluster.

And here is the thing. Brick and mortar brokers will be contesting a contracting share of clients in the face of diminishing peso turnover. Of the 130 active brokers, 30 have online facilities.

Given this scenario, the latest R&L Investment scandal shouldn’t be a surprise.

Asymmetric Regulations

The third force would be the regulatory environment.

Considering the difference in the operating platforms, regulations on brokers will diverge, which should likely favor online operators.

The R&L Investment scandal will possibly further skew the regulatory bias against the traditional brokers.

Moreover, aside from likely regulatory bias, the scandal will likely draw traditional accounts toward online operators, furthering the challenges of the brick and mortar platform.

Zero Bound Commission

The fourth critical force that would likely induce a radical change in the business model of the brokerage industry is the zero bound commission rates. The US has broken the ice.

From CNBC: “There may be no free lunch in the financial services industry, but there is now free trading of stocks, exchange-traded funds and options. Charles Schwab announced on Oct. 2 it would eliminate commissions on those products for retail and registered investment advisor clients on its platform. TD Ameritrade and ETrade quickly matched Schwab, and Fidelity followed suit a week later. Pershing is the only major custodian not to have cut commission rates to zero. While the change was not a big surprise, it represents a major turning point in the wealth management industry.”

 
Despite the net selling in 10-months of 2019, not only have foreign funds dominated trading activities, their share of the total volume has been increasing since the end of 2017.

And for the PSE to attract fresh or maintain the current level of interest of foreign funds, it will have to compete with the world to lower transaction and opportunity costs. Hence, not only to spread globally, this zero-bound commission rate trend can be expected to be embraced by the local industry eventually.

The thing is, Joseph Schumpeter’s “gale of creative destruction”, brought about by innovation, would induce a potentially disruptive overhaul of the industry’s business model.

The transition towards the online platform, tumbling trading volume, regulatory inequality, and zero-bound rates are the four major forces that will continue to influence the brokerage industry.

The existing participants will have to adapt to such technology-induced changes to compete intensely in acquiring the growth segment of the industry's market. But adaption in itself is no guarantee of survival or success.
...

Monday, December 02, 2019

October Bank Loans Tumbled to 9-Year Lows in the Wake of Rate Cuts and 200 bps of RRR Cuts, BSP’s QE Hits Record, System Leverage 110% of NGDP!

Friends, for alternative viewing pls. download the attached word document  ðŸ˜‰   



But under inflationary conditions, people acquire the habit of looking upon the government as an institution with limitless means at its disposal: the state, the government, can do anything. If, for instance, the nation wants a new highway system, the government is expected to build it. But where will the government get the money? — Ludwig von Mises

In this issue
October Bank Loans Tumbled to 9-Year Lows in the Wake of Rate Cuts and 200 bps of RRR Cuts, BSP’s QE Hits Record, System Leverage 110% of NGDP!
-October’s Liquidity Bounced as Bank Credit Tumbled to 9-year Lows, What Happened to the BSP’s Rate Cuts?
-If Total Banking Loans Fumbled, Why the Rebound in Demand Deposits? Why the Need for Massive Bank Liquidity Injections?
-Production Bank Loan Growth Hit 2010 Lows on Broad-Based Slowdown!
-Emergent Subprime Debt: Record Consumer Borrowing in the Face of a Slowing (real) Economy!
-BSP’s Debt Monetization Hits Fresh Record as Total Bank and Public Sector Leverage Reached 110% of NGDP!

October Bank Loans Tumbled to 9-Year Lows in the Wake of Rate Cuts and 200 bps of RRR Cuts, BSP’s QE Hits Record, System Leverage 110% of NGDP!

In a survey conducted by the Bangko Sentral ng Pilipinas (BSP), no such thing as a global recession may derail the rosy outlook of the Philippines, according to the banking system.

From the Inquirer’s “BSP survey: PH banks see bright horizon amid dark global recession clouds” (November 28): The Philippine banking industry remained optimistic about the country’s economy amid signs of a global recession just lurking around the corner, according to results of a survey by the Bangko Sentral ng Pilipinas (BSP). In a statement, the BSP said majority of respondents in the semi-annual poll, “Banking Sector Outlook Survey,” saw gross domestic product to grow between 6 and 7 percent in the next two years.

With banks aggressively raising money, what would they be expected to do? Would they candidly tell the public of the existing challenges in their balance sheets that may spread or ripple to the economy, which could raise their cost of accessing the people's savings? Or would they project painting the town red to ensure their easy and cheap access to the funding?

So let us see if the recent actions by the BSP have mitigated the obstacles faced by the banking industry.

October’s Liquidity Bounced as Bank Credit Tumbled to 9-year Lows, What Happened to the BSP’s Rate Cuts?

Last week, the BSP reported a glaring contradiction between bank credit expansion and domestic liquidity growth conditions.

First, domestic liquidity bounced. From the BSP: “Preliminary data show that domestic liquidity (M3) expanded by 8.5 percent year-on-year to about ₱12.1 trillion in October 2019, faster than the 7.7-percent growth in September. On a month-on-month seasonally-adjusted basis, M3 increased by 0.9 percent. Demand for credit remained the principal driver of money supply growth. Domestic claims grew by 6.7 percent in October from 7.5 percent in the previous month due mainly to the sustained growth in credit to the private sector…Meanwhile, net claims on the central government grew by 6.5 percent in October from 6.0 percent in September, reflecting the increased borrowings by the National Government.” (bold added)

Next, despite the record surge in household credit, production loan growth stumbled to a-nine year low pulling total loans to the same nine-year lows. From the BSP: “Loans from universal and commercial banks for household consumption grew by 26.7 percent in October from 26.2 percent in September, due to faster growth in motor vehicle, credit card, and salary-based general purpose consumption loans during the month. Meanwhile, loans for production activities—which comprised 87.2 percent of banks’ aggregate loan portfolio, net of RRPs—expanded at a rate of 7.5 percent in October, lower than the reported growth in September at 9.0 percent. The sustained increase in production loans was driven primarily by lending to the following sectors: real estate activities (18.4 percent); financial and insurance activities (11.6 percent); construction (28.9 percent); electricity, gas, steam and air conditioning supply (5.2 percent); and wholesale and retail trade, repair of motor vehicles and motorcycle (3.0 percent). Bank lending to other sectors also increased during the month, except those in professional, scientific and technical activities (-28.0 percent) and other community, social and personal activities (-34.4 percent).

If the principal driver of money supply growth is credit, then why has the steepened decline of the latter caused a vigorous bounce of the former?
Figure 1

Led by production loans, which recorded a sharp deceleration to 7.45% in October from 9.03% a month ago, total bank credit expansion likewise declined to 9.03% from 10.38%.

Interestingly, as both the rate of production loans and total loans fell to a 9-year low, growth in household credit rocketed further to set a new record high at 26.72%! (Figure 1, upmost window)

And total bank credit appears to have ignored the three rate cuts totaling 75 bps by the BSP (May, June and September)!

In a stunning U-turn, the BSP recently proposed another rate this December; the question is why?*

As a data-dependent institution, what has prompted the BSP’s stunning volte-face? Have banks not been reporting impressive multi-year highs in the growth rates of its revenues and profits this year? Which particular data set has the BSP been responding to?

Could it be about the sustained sluggishness in October’s banking credit and domestic liquidity conditions?


And there you have you it, the sharp decline of the rate of growth in bank credit expansion prompted the turnaround of BSP sentiment!

So not only has the 75 bps of interest cuts failed to arrest the downtrend in bank credit transactions, it has even accelerated it! 

Even worst, consumers have been accelerating the leveraging of their respective balance sheets, most likely to augment spending, in the face of a downshift in the real economy! The BSP’s Banking Consumer Loan data includes credit cards, auto loans, payroll loans, and others, but excludes real estate loans. How can such borrowing spree, unsupported by economic strength, not represent subprime or high-risk lending?

And has liquidity been improving when cash in circulation continues to languish, and when savings deposits remain stagnant? M2’s Savings Deposits commands the largest segment of M3 with a 21.95% share, while currency in circulation comprises 10%.

If Total Banking Loans Fumbled, Why the Rebound in Demand Deposits? Why the Need for Massive Bank Liquidity Injections?

Figure 2

If cash in circulation and savings deposits were a drag, what pushed up October’s M3?

The BSP liquidity data reveals blatant contradictions.

If the rate of total bank credit expansion plunged to a 9-year low, how can it be that Transferable Deposits or demand deposits, including managers’ and cashiers’ checks, be strengthening?

Transferable deposits grew 11.5% in October from 10% in September and 8% in August. Aren’t demand deposits the principal source of bank credit creation that works its way as money supply growth?

Why the enormous gap between the rate of change Demand Deposits and Total Bank Credit expansion?

Or what’s been vacuuming the bank’s money creation that impedes its transformation into cash?

And there’s more.

Why the long-term downside drift in M2’s savings deposits? Could it be that savings deposits, as the BSP noted in its 2018 Financial Stability Report, have been depleted not only to finance the bank’s lending operations, but also to act as a plug to the liquidity squeeze?  Why has the three-month rebound in Demand Deposits, perhaps partly emanating from the BSP’s record financing of the National Government, failed to uplift savings materially?

Recall that aside from the 75 bps policy rate cuts, the BSP’s October bank credit and liquidity reports incorporate the May to July 200 bps downside adjustments in Reserve Requirement Ratios (RRR). Bluntly put, freed liquidity has barely improved the banking system’s savings deposits conditions or even cash in circulation. And perhaps, the growth in Time Deposits may have signified deposits from borrowings by the banks and or by National Government. Time Deposits expanded 16.2% in October, an 18-month high, 15% in September, and 11.7% in August.

Because of Time Deposits, M2’s Other Deposits account grew 5.5%, the highest since January 2019’s 6.9%, but with the baseline still manifesting a downtrend, what’s to ensure that the current bounce is sustainable? A permanence of bailouts?

And after peaking in July, the simmering growth rate of Securities Other Than Shares Included in Broad Money or Deposit Substitutes have started to ease.  Deposit substitutes, comprising all types of money market borrowings by banks like promissory notes, repurchase agreements, commercial papers/securities, and certificates of assignment/participation with recourse, grew by 29.7% in October, down from 34.1% in September, and 38.4% in August. The BSP recently tweaked the definition of deposit substitutes, allowing it to be exempted from the reserve requirements, thereby freeing an estimated Php 28 billion to the banking system.

Why the need to redefine Deposit Substitutes, lower Reserve Requirements Ratio, the serial cuts in overnight policy rates, and institute a countercyclical buffer** if the banking system has been healthy, and free from maladies? Oh, this question should include the regulatory relief extended by the Insurance Commission on Pre-Need Firms in November 2018***.

And has the BSP and or banking system been juggling and puffing up numbers to look good?



Production Bank Loan Growth Hit 2010 Lows on Broad-Based Slowdown!
Figure 3

Interestingly, bank lending has been weak across the board last October. (Figure 3, upmost pane)

Only five of the twenty categories or 25% registered improvements on a month-on-month basis. These were the Professional (7.69%), Other communities (5.34%), Information and Communication (1.85%), water supply & utilities (.34%), and real estate (.15%). Among the largest decliners were mining (-11.92%), construction (-7.32%), and financial services (-6.01%). Improvements in Professional and Other communities reflect lesser credit contraction. Meanwhile, the latter three showed incremental gains on credit growth.

Four of the five largest sectors reported a significant slowdown in bank borrowing last October on a year-on-year basis. (Figure 3, middle window)

Growth in trade loans also moderated to 3.04%, the slowest since at least 2015. Financial intermediary loans also eased to 11.6%, a 26-month low. Growth in electricity, gas, steam, & air-conditioning decelerated to 5.23%, the slowest since at least 2015. Real estate loans had been the sole gainer, climbing at 18.42%, its highest rate since December 2017.

Construction ‘build, build and build’ loans also downshifted to 28.91%, the slowest pace of increase, since March 2018. (figure 3, lowest pane)

What happened to “build, build, and build” in October? The bank credit data aligns with the drop in NG’s overall expenditures (-1.37%) from the contraction in NG’s disbursements (-4.23%). So with a pullback in government spending in the first month of the 4Q, and if sustained, how might the GDP meet the DOF’s goals, except to massage the CPI?

Also have financial intermediaries been afflicted by the diminishing returns of the great bond boom? Or have they been retrenching from lending, not only to the public but also among themselves?

If such rates of decline will be sustained through the close of 2019, regardless of what the GDP numbers, the impact on the real economy should be evident.

Emergent Subprime Debt: Record Consumer Borrowing in the Face of a Slowing (real) Economy!

But if general lending has been down, consumers are borrowing at record speed and volume.
Figure 4

For the first time, the BSP placed the zooming household credit data ahead of the general bank lending in their press release, possibly highlighting in delight that something has boomed after all.

But credit statistics don’t seem to match actual industry outcomes.

For instance, although auto loans rocketed by a blistering 30.54% in October YoY, auto sales reported a mere 3.76% YoY in the same month. The banking system’s auto loans have reported four straight months of torrid growth rate from 25% to 30%. Ironically, auto sales have yet to make a significant showing to reflect these gains, with July sales at 13.45%, August’s -2.36% and September’s 2.26% YoY. (Figure 4, upmost pane)

Where has the money been flowing to given the brazen mismatch between the borrowing rate and sales?

And while household credit has zoomed at an unparalleled clip, possibly signifying sales boom on high-end stores, credit expansion from its supply side’s counterpart, or the trade sector has been plunging. So has the trade sector been responding to the lethargic growth in cash in circulation rather than the zooming credit card debt? (figure 4, middle window)

Since the BSP’s bank consumer lending portfolio excludes real estate exposure, given the pickup of loan growth on the production side, then consumer borrowing must be also have increased.

Nevertheless, the striking divergence between consumer and production credit use puts into the spotlight the decaying credit profile of the former.

BSP’s Debt Monetization Hits Fresh Record as Total Bank and Public Sector Leverage Reached 110% of NGDP!

What’s barely noticed has that the October liquidity report showed the breakout of to record levels of the BSP’s debt monetization program. (Figure 5, upmost window)
Figure 5

Again, from the BSP: “net claims on the central government grew by 6.5 percent in October from 6.0 percent in September, reflecting the increased borrowings by the National Government.”

Despite the mild pace, the BSP’s quantitative easing program reached a record Php 1.97 trillion, or about 13% of the estimated 10-month NGDP. On a year to date basis, the BSP has financed Php 56 billion, or 10.6% of the NG’s cumulative year-to-date domestic debt of Php 528 billion. Such direct injections from the BSP should have helped increased liquidity in the system, however, current numbers show otherwise.

What this has done instead has been to add distortions to the financial system, partly expressed by the bloating the public debt to reach just off the record Php 7.906 trillion. Though the rate of public and bank credit growth has been retrenching, their respective shares to the estimated 10-month nominal GDP have risen to 53.4% and 57.22% for an aggregate of 110.6%!  Total bank lending net of RRPs was Php 8.478 trillion in October. (Figure 5, middle and lowest pane)

Since there is no such thing as a free lunch forever, such rocketing debt numbers have dragged and will continue to weigh on economic performance.  And unfortunately, the more indebted the entire system, the more debt will be needed to kick the proverbial can down the road.

It’s why the BSP has not only been easing via regulatory reliefs (RRRs, Countercyclical Buffer and redefining Deposit Substitutes) and policy rate cuts, but add QE into this mix.

And this may be why the NG has taken a reluctant stance in their spending programs.

And all these will serve as a springboard to economic growth???

Good luck to the believers.