Thursday, 18 June 2009

A very attractive view from the top

Outside the Box
John Mangun
Business Mirror

If you climb high enough up the mountain to get a really broad perspective on the scene, the world right now looks in pretty good shape. Of course, the global economy is in tatters, but the money world is only part of our daily earth existence.

The situation in Iraq and Afghanistan that has dominated the headlines for a decade is calming down. In fact, both places seem as chaotic and dangerous as certain areas of Chicago, New York, and Manila, for that matter.

North Korea keeps setting off nuclear weapons and punching missiles through the stratosphere but that may be less of a problem than it appears. The resident crazy despot in Pyongyang is about ready to “retire” and wants to show the old military guard that he still has the fire in his pants so that they will allow his junior “crazy despot” to take over when he drops dead.

Russia has pulled back from armed invasions of its neighbors, preferring now to use the old Soviet Union style of attack by putting up puppets trying to takeover through proxies as in Georgia and the Ukraine. But most of Russia’s foreign policy right now is like China’s: how do we get out of the US dollar without killing its value? Every time either country talks about replacing the greenback with another instrument, the dollar drops, further reducing each nation’s net worth. It must be tough having a monopoly on a commodity that no one wants.

China is caught in the middle of a complex riddle. A decade of financing US consumer purchases of Chinese products has its downside. It is like the sari-sari store owner who advances credit to every one in the barangay to boost sales and then realizes he has very little power to make them pay. Sure, the USA can continue to pay, but they keep wanting to use more dollars, which are really “promises to pay” with no intrinsic value. So China is running around the world trading dollars for raw materials which at least they can use to build something. The problem is that they have so much money in dollars there is almost not enough things to buy.

China and Russia aren’t the only ones trying to get rid of dollars. Chile literally shocked the financial world by starting to sell nearly 10 percent of its $40-billion foreign reserves. The Chilean peso jumped 15 percent yesterday as that government will use the proceeds from the sale of dollars to boost the local economy. It is a brilliant strategy that breaks with the silly notion that the only wealth that counts is wealth that is dollar-denominated. I wish our finance leaders had a little more creativity like Finance Minister Andrés Velasco Brañes. Of course, he never worked for any American bank.

Locally, things are becoming better by the week. Sure, the stock market took a large correction these last two days, forcing me to cut loss on our short-term trading positions until they drop to the next support level where we will buy again. But again, the big picture honestly could not be better.

I promise that I will restrain myself from making any more comments (at least for this column) about the “experts” economic forecasts for the Philippines.

But I cannot be stopped from simply reading the local news and commenting.

It was reported yesterday that local outsourcing companies will expand this year by as much as 200 percent. Only 6 percent said they would cut back while the other 94 percent said they would be stable or will grow, expecting to add over 25,000 new jobs. I suppose that sort of makes up for the few thousands overseas Filipino workers (OFWs) forced to return home. And keep in mind that each call-center employee generates eight times as much dollar inflow as an OFW. The industry’s biggest problem is not finding clients or even good agents. It is finding middle and top management. Some time I will tell you about the 27-year-old mother of three who, five years ago, started as a call-center agent and now is head of an account employing 600 people and generating P350 million a year in revenue.

Cebu Pacific Airlines is spending $1.8 to buy five new jets because its domestic and international business is so strong, expected to be up nearly 30 percent. It might increase its order to 10 planes. Remember, I said on Tuesday the global airline industry just revised its expected 2009 losses upward by 100 percent. I “guess Cebu Pacific’s move falls under Only in da Philippines.”

And you have to love this from the Philippine Star: “The country’s unemployment rate slipped to 7.5 percent in April from 7.7 percent in January despite the economy shrinking at its fastest pace in two decades in the first three months of the year.” Or maybe, could the economic numbers be wrong?

Philippine banks are in the best shape as far as the dreaded non-performing loans since 1997. In fact, the 3.95-percent factor is better than before 1997. In 2008, the ratio was at 4.85 percent. I guess this “recession” is good for our banks.

But the best news. Finally, there is someone who agrees with me. From PhilStar: “University of Asia and the Pacific professor and economist Bernardo Villegas expects the country’s economy to grow by close to 6 percent in the fourth quarter of this year. This [economic] crisis will shift economic power to China, India, Vietnam and the Philippines.” It’s been a good day.

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