Tuesday, 3 July 2012

The ‘hyena’ economy

Business Mirror

EVEN if you are not religious, the story in the Bible of Noah and the flood is great and illustrative of our current situation.

God tells Noah there is going to be a huge flood and Noah builds a boat to save his family. And you know exactly what his neighbor’s response was. “I’ve never seen a flood like that. My father never saw a big flood and neither did his father. In fact, there has never been a flood like you are talking about. Floods come and go. No big deal, Noah.”

Noah: “There’s going to be a big flood.”

Remember this fact well. There has never in the history of the world been a financial situation such as we now face. The ancient Roman Empire began its collapse because of currency debasement. But all of the other contemporary civilizations had no major problems.

There have been countless economic booms and busts but these were always temporary. But this time it is different.

Governments have always been able to help economies during down times. If it was a trade imbalance such as the US has with the world, a currency devaluation would be temporarily painful but effective to bring back the balance.

If you own or manage a business, you know exactly how to “stimulate” your business economy. Spend on advertising to increase market share. Do promos to increase customer spending. Cut expenses to save money and raise profit margins. Even if you have to borrow the money to do those things, you know they will pay off in the future.

But you do not borrow to pay the bills if revenues and profits are not going up. You will soon be out of business.

On June 7 I wrote that by June 30 a decision would be made to save the European financial system. No matter all the hard talk, on Friday Spain and Italy told Europe to either give them all the money they wanted or they would default on their debts and collapse the Western banking system. Case closed. The money printing has started.

I also wrote “That June 30 date will also mark the beginning of major price inflation.” And when the European Summit decision was announced, the US dollar fell nearly 2 percent, a huge one-day move. Crude oil had its fourth biggest daily gain on record, up 7 percent. Gold gained 3.5 percent.

Stock markets in Europe rose 5 percent with the New York stock market following with a 2.5-percent increase.

“Stock markets will rally and emerging-market currencies will go to levels not seen since 1997” is what I also said.

Yesterday the PSE traded at an historic high. Yesterday the peso traded below 42 to the US dollar.

The foreign press just called the Philippines a potential “Tiger” economy. That may sound impressive, but if we are going to talk about animal economies, maybe it would be better to describe PHL as a “Hyena” economy.

Tigers hunt down and kill for food. Hyenas feed off the remains of dead animals and the Western economies are dying. There is nothing wrong with that. Hyenas can be healthy and fat without chasing down their food.

There is much confusion why the PSE is going up. Simple. Filipino companies are making a lot of money. Listed firms’ first-quarter profits were up 24 percent over 2011. Outsourcing is booming as Western firms struggle to cut costs to stay alive.

Last week the West decided to take the path of continuing and unstoppable money printing that will only increase the debt problem. The “hyenas” of Southeast Asia will thrive and PHL is the leader of the pack.

Stock markets will continue to boom every time more Western money is released. Non-major currencies will continue to appreciate. Perhaps next year the IMF will ask PHL for $2 billion.

Noah’s neighbors never saw a big flood and the hyenas never ruled the jungle before...until now.

E-mail to mangun@gmail.com, website is www.mangunonmarkets.com and Twitter @mangunonmarkets. PSE stock market information and technical analysis tools provided by COL Financial Group Inc.

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