Thursday, 19 May 2011

The double-minded Philippines

Business Mirror

Running in front of me was an SUV with two large bumper stickers. The one on the right side read “Aquino for President”; the left side sticker proclaimed “No to RH bill.”

This may be representative of the basic problem in the Philippines right now. The traditional definition of this condition is called “double-mindedness.”

The most accurate definition is probably found in the letter of Saint James, who wrote that, “A double- minded man is inconstant [inconsistent, unstable, uncertain, undetermined] in all his ways.” We are seeing the result of “double-mindedness” in too many places.

Malacañang wants both an “executive secretary [Little President] and a chief of staff [the other Little President?].

Anti-mining groups demand that the rights of Philippine indigenous people (IP) be absolutely respected while some of those same groups support a government plan to directly lease mining areas that would trample and destroy the IP’s right to private property in their ancestral domains.

One side demands a weaker peso to protect the interests of those 10 million overseas Filipino workers remitters while 90 million Filipinos suffer very high fuel costs because of a weak peso.

From Monty Guild, CEO and chief investment officer of Guild Investment Management: “Other currencies have been rising versus the US dollar, which has cushioned their economies. As an example, the Australian dollar has risen 23 percent versus the US dollar in the last 12 months. The price of oil has risen by 31 percent in US terms. Therefore, to Australians, crude oil is only up about 8 percent.”

Let me rephrase that to apply to your personal finances: “The Philippine peso has risen 4.5 percent versus the US dollar in the last 12 months. The price of oil has risen by 31 percent in US terms. Therefore, to Filipinos, crude oil is only up about 26 percent.”

Less than two weeks ago the Bangko Sentral ng Pilipinas (BSP) raised interest rates. At that time, BSP Governor Amando Tetangco Jr. said, “With these considerations, the board deemed it prudent to rein in inflation expectations further.”

From the BusinessMirror: “Monetary authorities said they would rather have the exchange rate approach the consensus rate P42 per US dollar and manage the external sector a tad more difficult than usual instead of having inflation average above forecast at 5.6 percent this year—which may happen if they didn’t increase policy rates.”

Yet this week, the Department of Finance (DOF) rejected offers to buy Philippine Treasury debt because the banks wanted a higher interest rate than the DOF was willing to pay. In other words, the BSP raised rates, acknowledging that the “external sector” (selling government debt) would be more difficult, but the DOF rejected the debt offers because it would be at a higher rate.

This “double-mindedness” of the two most important government money agencies was best expressed by Yvette Marquez-Carlos, who helps manage the $11 billion at BPI Asset Management, quoted by Bloomberg as saying, “Some government securities will probably need to align the rates accordingly with the central bank.” Ms. Marquez-Carlos was being kind and diplomatic. Had Bloomberg asked me, I would have said that the BSP and the DOF must have lost each other’s phone number because neither has the slightest clue as to what the other is doing and what the government interest-rate policy is supposed to be.

It is not just the government that is suffering from inconsistent thinking. While BSP Governor Tetangco sees a peso at 42 to the US dollar, the experts at First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) believe (from the Inquirer) “the peso is seen settling at 45.21 against the US dollar by the end of the second quarter as monetary authorities take steps to curb the local currency’s continuing ‘appreciation bias.’” Further, “The FMIC and UA&P study also said that demand for long-tenor Philippine debt paper may gradually rise as emerging markets make a comeback when the demand for US bonds wanes if Washington does not curb its high fiscal deficit. The paper explained that the likelihood of such a scenario is boosted by inflation continuing to fall below earlier expectations.”

Let me explain how inconsistent the thoughts are in those conclusions. At no time did the BSP imply any interest in stopping the peso’s appreciation bias. In fact, Tetangco said the opposite. If, as FMIC and UA&P believe, there will be more demand for Philippine debt, then all that new money flowing into the Philippines will make for a stronger peso.

Finally, their conclusions are “boosted by inflation continuing to fall below earlier expectations.” What?

The reason the BSP just raised interest rates is that inflation is continuing to rise above earlier expectations. Bloomberg: “Inflation risks ‘are tilted to the upside,’ Governor Tetangco said in an interview with ABS-CBN News Channel last week.”

To the subscribers of my “PSE Strategy Guide,” I have been saying for the past weeks that the stock market is in a period of hesitation and confusion, “double-mindedness.” Yesterday the PSE index was up 1 percent; Monday it was down 1 percent. Two weeks ago we were down a little over 2 percent, since then we are up a little under 2 percent. On Friday, April 8, the PSE closed at 4,241.10; last Friday, May 13, the closing price was 4,291.01. That is a net move of 51 points, or 1 percent, in five weeks.

A specific example is the shares of Alliance Global Group, a PSE Index component. In 18 weeks, AGI has been stuck between P11 and P12. This not a minor issue. AGI on average trades 100 million shares per week, equaling P1.2 billion in value. P21 billion has been bought of AGI with no movement.

Some are saying that the Philippines has no direction. Not true at all. The problem is that the Philippines is trying to go in too many directions at once…and not succeeding.

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1 comment:

  1. hi mr mangun,
    I would like to subscribe to your pse strategy guide,what do i need to do?

    Ronilo T. Ordona,