Thursday, 28 June 2012

"Dear experts, I'm confused"


John Mangun
MANGUN ON MARKETS
http://www.mangunonmarkets.com/dear-experts-im-confused/

SOMEONE asked me the other day which newspapers I read. The answer is all…except, for the most part, the foreign press. The Wall Street Journal, New York Times, Reuters News Service and the Associated Press makes our two major newspapers seem like perfect examples of neutral reporting, which of course, they are not.
The unemployment numbers in the US have been bad for 40-straight months, and the financial pages of those foreign papers still call it “unexpected” every time data is released.

Nevertheless, yesterday was a strange news day for me. While we expect different opinions, the stories in yesterday’s local press bordered on the bizarre.

From the Philippine Star: “DBS revised its forecast for the peso, which it said would average at 45:$1 in the fourth quarter this year from the previous 42.50:$1. The financial service provider based in Singapore also said that the local currency would further weaken in the third quarter when it would average at 45.50 against the dollar.”

Next, First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P), said they “expect the local currency to weaken to an average of P43.27 in June, P43.453 in July and P43.34 in August, from the current P43 to $1.” No offense, but a “weakening” of 45 centavos is nothing. That can happen in a couple of weeks under normal peso trade fluctuations. I wonder how much these people are getting paid for that analysis.

But what makes the analysis bizarre is that “Last week, FMIC President Roberto Juanchito Dispo was quoted as saying that the peso could hit an average of 42 against the dollar this year.”

42, 43, 43.50, and 45.50: I am sure glad we can depend on all these highly trained experts to help us plan our financial decisions regarding the peso. Perhaps our companies that import and export would do better to consult a local manghuhula about the future of the peso.

To be fair, FMIC and UA&P did give their rational as that the US dollar would always be the safe haven in these uncertain times. However, they ignore the real reason why the peso moves. The peso goes higher when people sell dollars and buy pesos. The peso goes lower when people buy dollars and sell pesos.

One reason we buy dollars is to pay for oil imports. Except, the demand for dollars to buy oil is dropping like a rock as are local gasoline prices. Shell announced yesterday a P1.80 drop in the price of unleaded gas. Good. More money for me to put into the stock market.

DBS said the reason the peso would go down is that the peso is up because of better economic growth that they do not believe can be sustained. Didn’t some experts in government forecast 7-percent growth for the year? And the experts at the World Bank figured first-quarter growth at 4.2 percent and not the 6.4-percent actual growth.

But then the PhilStar has an article quoting another expert, a UA&P economist. He is worried about the peso going to 30 or 40 to the dollar and that all the overseas Filipinos will then default on their local home loan purchases, thereby destroying the property sector and killing the banks. He should talk to the people at DBS and decide where the peso is headed.

Even though, I think the banks can handle it. Nonperforming loans fell 11 percent from 2011 and are only 2.3 percent of total loan portfolios. If it keeps going like this, the only problem loan they will have to worry about will be my EastWest Bank MasterCard. (I will pay next week. Promise.)

I don’t expect the foreign experts to understand the Philippines. They still can’t figure out why after 350 years of Spanish colonization, no one speaks Spanish.

But the local experts should be a little more reliable unless they have never been to an SM Mall or a palengke.

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