Saturday, 27 August 2011

Complete standstill

9 August 2011

It’s not your set, folks.

If you don’t see President Aquino inaugurating any new bridge or farm-to-market road on your television newscasts, don’t blame the TV crew.

Blame instead the administration for its underspending.

Or should it be, more appropriately, nonspending?

According to a news report, not one of 20 bridges worth P4.05 billion, or farm-to-market roads worth P2.5 billion—has been built since Congress approved them last year.

At a House budget hearing last week, Cagayan de Oro Rep. Rufus Rodriguez was said to have been hopping mad when he learned that financing for the farm-to-market roads for his district had yet to be released by the agriculture department.

The legislator gave Agrarian Reform Secretary Virgilio de los Reyes a tongue-lashing and became even more livid when de los Reyes said only four of the 20 designs for the bridges had been approved, and that the rest, including the congressman’s, were still on the drawing board and must be validated by the public-works department.

De los Reyes told the committee hearing that the pre-fabricated bridges made of steel would be imported from France. “The design alone takes a long time. At the rate the designs are being drawn and technically validated, and then pre-fabricated bridges are hauled in, I’d say the construction would be finished in 10 years.”

Rodriguez then said: “It is now August and here we are already talking about the P1.816-trillion national budget for 2012, yet you are telling us the projects for 2011 remain a design? What are you waiting for? Christmas?”

Another lawmaker, however, defended de los Reyes, saying he should not be blamed since the Tulay ng Pangulo project was transferred to the Department of Public Works and Highways this year.

Amid all this, Budget Secretary Florencio Abad said he was optimistic government spending would pick up in the second half of the year, with projects ready to start.

According to Abad, the bottleneck in spending in the first half was caused by a policy requiring agencies to complete a list of projects to be undertaken under lump-sum allocations, and that with the lists completed in the middle of the year, the implementation of the various projects can now be rolled out in the second half.

The Aquino administration touted public-private partnership (PPP) as its flagship economic program early on, claiming that this would address the need for vital infrastructure, the lack of which had proven to be a big disincentive to foreign investors.

But one year later, from the officially announced list of 10 priority PPP projects, the list was pruned down to five, and now one hardly hears about any PPP project ready to take off.

If fighting corruption is the rationale for the extreme frugality in public spending, then perhaps it’s understandable for the Aquino administration to take a long, hard look at every project that’s proposed for public funding.

But it’s quite another thing to let everything grind to a halt from sheer inertia and bureaucratic inefficiency.

We expected the Aquino administration to hit the ground running from Day One. Instead, we have a laid-back national leadership that seems to be taking up too much time frantically looking under the bed for evidence of corruption instead of tweaking the specifications of roads and bridges so that the public may derive maximum benefit from infrastructure. Perhaps it should be reminded that time and tide wait for no man, and that the nation needs to quicken the pace of economic and social development because the poor cannot wait forever for deliverance from their wretched state.

Thursday, 25 August 2011

What’s wrong with the PSE?

Business Mirror

If there was a magic wand that could be waved at the Philippine Stock Exchange (PSE), the two basic changes that I would like to see are longer trading hours and a much higher float of publicly owned shares of listed companies.

In a couple of months, the trading hours will be extended by one-and-half hours. That is a baby step to proper trading hours but it is a start. Next year, the exchange plans to extend trading even longer with a lunch break in between sessions. The lunch break is completely silly and makes the PSE look like it is still in the age of writing prices on a chalkboard. I guarantee you it is going to be very difficult to get stockbrokers to come back after lunch. PSE brokers and investors have never worked a full day so it will be a huge cultural shock.

They will get used to it once they have missed a few profit opportunities from being absent.

The PSE and Securities Exchange Commission are eventually going to have to get serious about the public ownership and free-float rules for public companies. Far too much of the percentage of public ownership of far too many companies is minimal. Local corporations often see public ownership as a necessary evil to raising money in the stock market. For many, the only reason to be listed on the PSE is to be able to provide a market value for their shares in order to be able to provide a reasonably accurate corporate value when they borrow money.

Unfortunately, we will never have a stock exchange that meets global 21st century standards until listed companies are required to have and monitored to insure at least 25 percent of their shares in the hands of the public. This would increase volume of trading and the amount of public investment. It could be accomplished by both the issuance of new shares and stock dividends. Share prices would be reduced as the number of shares increases, making it easier for smaller investors to get in the market.

Those are my only two complaints.

So what’s right with the PSE?

If you want to play, you have to pay

Crashing markets, stock, real estate, or whatever, are caused by asset-price bubbles. Asset-price bubbles are caused by buyers buying with borrowed money. Very few asset-price bubbles and subsequent price devastation can be attributed to cash purchases.

Most investors on the PSE have never traded with borrowed money, buying stocks on margin. Local stockbrokers do offer margin-trading facilities but only for a very favored few issues that have relatively stable price movements.

In the West, no one buys with cash; it is all bought with borrowed money. As a result, a 20-percent drop in the stock price means a 40-percent drop in the investor’s portfolio. Margin trading creates increased volatile price movements as “ordinary” selling can become “extra-ordinary” selling to cover margin calls as the stock price goes lower.

Humans still push the buttons

The 21st century saw the advent of computer trading, using the ‘”black box,” or “robo trading.” Tell your computer to buy if the price drops 3 percent and to take a profit if it goes 10 percent higher. Great. Like an autopilot, set it and forget it. As high as 80 percent of all trades in 2008 were computer generated.

Problem is too many of the computers are programmed to think the same. If all the computers buy at 10 and sell at 12, you get the crazy markets as we have now. Add to the equation what is called HFT, or “high-frequency trading,” which accounts for 70 percent of all entered orders, and prices swings become even more ridiculous.

HFT computers enter thousands of orders a day, trading for a few fluctuations either up or down. Stocks in the US have dropped 50 percent and more in a few seconds and then gone up by as much, also in a few seconds because all the HFT computers are hit with thousands of the same buy/sell orders at the same time.

At the PSE, we do things the old-fashioned and sensible way; a human makes the order decision and even then you get wild, very short-term price action but not as bad as with the “black box.”

The PSE is far from reaching its potential. But good things are happening. The move to do all that is possible to develop online trading is a very important positive step. This will allow investors, particularly those outside of Metro Manila, to participate in the stock market.

On a personal note, you can follow “mangunonmarkets” on Twitter.

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Monday, 22 August 2011

So you want to be a stock trader

Business Mirror

There are two types of people in the stock market: those who buy and sell to make quick profits or traders, and those who buy and hold for longer-term appreciation or investors.

Few start off as “traders” as most people are aware that the stock market can be very unforgiving to the novice and inexperienced. However, even the most prudent and conservative “investor” has felt a wave of envy and greed wash over them while looking at their blue-chip investment going no place while some unheard-of issue goes up 40 percent in one day. That’s normal.

The next day, the “investor” suddenly becomes a “player” or “punter.” They saw how easy it was to make a huge profit in three hours and want to get onboard. We have all been there.

Short-term stock trading might mean a few hours or a few days. I must admit there is probably no greater financial high than seeing that stock you just bought explode to the upside.

While I will continue to explain with the highest degree of concern for your financial safety that short- term trading is not for the amateur, nonetheless, I will share with you some of the techniques you might want to use to avoid getting bloodied and broken. So fasten your seat belt and hang on.

Let me start by saying that the dominant emotions of the stock market—greed and fear—are what drain the life out of most beginning “traders.” Greed keeps them in the stock after it has reached the daily high and starts the trip down. Fear is what takes them out at the bottom just before the stock price shoots up.

The way to overcome the greed and fear syndrome is to write yourself a note and put it in front of your face: “Prices do not go in one direction forever.”

We are fortunate on the Philippine Stock Exchange to have a proportionally large number of issues that offer very large trading opportunities. It is not that the market is manipulated. It is not a conspiracy by the “Old Boys Club.” It is because there are thousands of active traders in the market going after stocks that have a relatively small public float or number of shares outstanding.

If you want to trade the market this way, you need to devote time, which means setting up an online stockbrokerage account and sitting in front of your computer from 9 to 12 noon. Otherwise, you are going to spend all your time on the cell phone with your stockbroker. Besides, day trading is a profession, not a hobby.

Usually these issues have a three- or four-day run of excitement and you need to see how the issue trades for one day to learn its rhythm before you get into the action. If it turns out that the issue you watched flying yesterday and bought today suddenly goes back to sleep, get out of it quickly. Otherwise you might be sitting on, not a high flyer, but a dead duck. I know. I am famous for finding the ducks.

During the pre-open phase of the market from 9 to 9:30, buyers and sellers begin posting their orders but the real action takes place around 20 minutes after 9. You will suddenly see that 50-centavo priced stock ready to open at P0.60. Note this about the opening price.

If the price rises 5 percent or more during early trading and it will generally fall off or stabilize after about 30 minutes or so. Usually though, the price falls back a little after the initial run higher and that is when to get in. You want to buy during the “quiet” times.

Each issue has its own rhythm. Remember that. You need to identify how the stock moves up and down during the three hours of trading. At some point the price will rise high enough to bring in sellers that might take the price significantly lower than the day’s high.

After the major profit-taking period, there will be a time when things slow to a crawl. Another buying opportunity.

The last hour of trading is when things get tricky. Two scenarios will unfold. First is another run to a daily high, then a sell-off followed by a strong close that you can sell into. The second is a move to a new high followed by a sell-off that does not recover to a last push higher. That second event is why you do not get greedy.

Do you hold for day two? Probably not. You want to sleep tonight don’t you?

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