Thursday, 28 March 2013

Arroyo gets credit for investment upgrade

Jun Vallecera Business Mirror http://www.businessmirror.com.ph/index.php/news/top-news/11323-phl-wins-first-investment-upgrade FOR the first time, the Philippines has attained investment-grade status, courtesy of the UK-based Fitch Ratings, in the first of an expected series of upgrades seen to result in even more foreign inflows to help accelerate the economy down the line. Fitch Ratings has rated the country’s credit a triple-B minus or “BBB-” from double B plus or “BB +”, indicative of an economy better able to honor its debts whether such were obtained domestically or abroad. Fitch’s analysts credited former President Gloria Macapagal-Arroyo and the role she played in convincing an obstinate legislature that an expanded value-added tax system was key to the country’s fiscal future. Fitch said the much-maligned tax law later resulted in “improvements in fiscal management begun under President Arroyo [which] made general government-debt dynamics more resilient to shocks.” Apart from better fiscal management started under the Arroyo administration, Fitch cited as key drivers to the upgrade the country’s strong external sector, the persistent current-account balance that the watchdog acknowledged as having been fed by overseas worker remittances and the overall resilience of the economy. The agency also cited as additional factors improvements in fiscal management, and the favorable macroeconomic outturns, supported by a strong monetary-policy framework under the Bangko Sentral ng Pilipinas (BSP).

Tuesday, 26 March 2013

What Cyprus means to you and PHL

John Mangun 

OUTSIDE THE BOX
Business Mirror
http://businessmirror.com.ph/index.php/news/opinion/11180-what-cyprus-means-to-you-and-phl

TEN days ago, the International Monetary Fund (IMF) and the European Union decided that as a condition for them loaning money to the government of Cyprus to save its banking system, bank depositors would be forced to give up as much as 10 percent of their deposits in return for stocks in the failing banks. The bailout was only $13 billion, which is about four days of money printing by the US Federal Reserve. However, the IMF and Germany required that bank depositors put up about half of that amount.

One legendary trader, Jim Sinclair, said this: “In truth, the IMF disaster, which has just taken place in Cyprus is comparable to the assassination of Archduke Ferdinand that started World War I. This is a major event in history.”

The requirements set by the IMF is the most fundamental change in the history of modern banking system and is perhaps not coincidental that it comes in the 100th anniversary of the creation of the US Federal Reserve Bank. During the last 100 years, through the US Federal Reserve system, the power of the government over the banking system has increased to the point that the government has absolute control of the banks.

Cyprus is an insignificant financial player on the world stage. The amount of the bailout is really nothing. However, the banking system, both globally and nationally, can only function when depositors are confident of the bank’s ability to pay back depositors’ funds. This fact is even more critical now as the Western banking system is in trouble and depositor confidence is vital as the banks and governments try to work through the massive debt problems.

One important purpose of US banking policy is to protect depositors from any potential bank failure. To achieve this, the Federal Deposit Insurance Corp. was established by the Banking Act of 1933 requiring banks to pay into a fund that would then guarantee all deposits in US banks up to $250,000. Similar deposit guarantees have been established in almost all countries, including Cyprus.

The IMF decision to seize part of depositors’ money destroys the idea that money in a bank is guaranteed safe and protected by law and government action.

Now everything has changed and the IMF decision may unravel all the efforts the central banks have made through Quantitative Easing in the last five years. In the last few days, US Federal Reserve Chairman Ben Bernanke has even said that he may not continue as Fed chairman when his term expires in January 2014.

How the situation in Cyprus eventually plays out is unknown. There is talk that Russia may extend the $13 billion to Cyprus in return for concessions, including oil-exploration rights. But were this to happen, it would fulfill a centuries-old Russian dream to have and control a safe and defensible warm-water seaport. But that is another geopolitical story.

The financial world is holding its breath to see how the citizens of other European nations, primarily Spain and Greece, react to this development. The concern is that depositors in these and other countries, fearful of a forced takeover of their funds, will massively withdraw their money. If that happens, the European banking system may fail.

Can this kind of event happen in the Philippines? Theoretically, yes, and realistically, no.

However, for any bank depositor to rely on the wisdom of government policy and action is a dangerous path to follow.

Depositors have usually suffered only minor losses from a local bank failure as the larger banks have been able to take over the failed banks. But this is now being tested by the Philippine Deposit Insurance Corp. not being able to find a buyer for the recently closed Export and Industry Bank. That story also has yet to play out.

Doing your banking business with a stock-exchange listed company is better because these banks are subject to a slightly higher degree of financial scrutiny. These range in size from Banco de Oro to Citystate Savings Bank. Yes, there have been some failures of listed banks but you need all the protection you can get and this is one way. Another is to spread your deposits among several banks. And if you have an offshore bank account, particularly in the West, you may want to reconsider that idea.

Sensible money is not going to put up with even the threat of confiscation. Western money is going to flow to the East in increasing amounts and the Philippines will be a recipient. The government could prepare itself to take advantage of this by providing better foreign-investment opportunities but is unfortunately probably more concerned with the “Kris/James Affair” than the “Cyprus Affair.”

 

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

Monday, 25 March 2013

Azkals demolish Cambodia to top Group E

http://www.youtube.com/watch?v=_KaCs4AZGTA

Wednesday, 20 March 2013

More nonsense about the Philippines


John Mangun
http://www.mangunonmarkets.com/more-nonsense-about-the-philippines/

BECAUSE of the performance of both the Philippine Stock Exchange (PSE) and the broad economy, the Philippines is being mentioned more and more by the international financial press/media and the experts who share their opinions.

Really, though, it is like listening to the elected US official who said the country needed to be a US colony so that the people could be converted to Christianity. These words were spoken 250 years after Saint Pedro Calungsod had died. But not having a clue about the Philippine economy is not limited to just foreigners. The local “experts” are just as bad.

The call-center business

Contrary to the doomsday pronouncements you hear, the call-center business is not going to leave the Philippines because the peso is appreciating. Yes, profit margins of call-center companies are being squeezed. Those profits are also being squeezed by power rates, rental rates and increasing salaries for employees. But the reality is, it took nearly a decade for these companies to move from former leader India to the Philippines. Further, overseas companies that contract services to the Philippines cannot afford to move these jobs back home. Neither can the call centers afford to move the jobs elsewhere.

A medium-sized, not large, center employing 5,000 agents cannot move like the Ford plant having 250 employees. The services that the call center provides cannot be shut down like a factory. It would take at least one year to hire, train and put into production 5,000 new agents in Vietnam, for example. And that assumes you could even hire 5,000 new agents within a year. The hiring rate here in the Philippines is less than 20 percent of all applicants, applicants who apply knowing that the No.1 requirement is fluent English and then computer skills, not to mention a customer-service attitude.

While building up a center overseas, you would still need to maintain the Philippines operation or lose the clients adding to transition costs. In addition, after more than 10 years of Philippine operation, there is a vast pool of highly experienced local middle- and senior-level management that would not be readily available someplace else. You cannot train experience; you can only hire it.

By the way, the Philippine peso is at nearly the same exchange rate as it was at this time in 2008. Yes, the peso has appreciated 25 percent since 2005. So if the peso is such a problem, then why has business been growing by 20 percent a year since then?

Global companies do not make long-term plans based on short-term obstacles. Tell me what the peso exchange rate will be on January 1, 2018, and I might change my analysis.

The Philippine economy/stock market

Apparently, our local and foreign “experts” cannot remember anything before Y2K. To bring them up to speed, there was a significant event in 1997 called the Asian financial crisis. The Philippines came through that better than the others because: 1) The economy was not export oriented; 2) The banking system was strong; and 3) The Bangko Sentral ng Pilipinas (BSP) did not artificially value the peso pre-crisis.

The peso devalued then, not because of fundamental economic reasons, but to save the exporters and overseas Filipino workers. Unfortunately, bad planning by local dollar borrowers killed those companies. The stock market fell on peso devaluation, not economics, and by June 1999 was back to pre-crisis levels.

All those same factors apply today even with the BSP’s current peso intervention. That is why the Philippine economy will continue to outperform as will the stock market.

Our market may be called expensive by some but expensive is a relative term. The reasons the PSE is going up are twofold and those factors are not going to change.

First, interest rates are so low as to create a negative net return. The Philippines has always been a high-interest rate economy in comparison to our neighbors. With low rates, the only available liquid investment is the stock market. The other markets have always priced low rates into stock prices; not so here. The PSE index will go to 6,900 as investors look for deposit rate alternatives.

Second, none of our neighbors’ stock-market listed companies are making the kind of profits as here. Philippine companies are leaner (low debt) and meaner (sensible but aggressive expansion) and, therefore, have long-term sustainable and growing profitability. The PSE index will go to 6,900 as corporate profits continue.

Forget all the nonsense you hear. 2013 is the year of the Philippine Eagle, not the Snake.

Saturday, 9 March 2013

GDP growth to reach 9 percent?

http://www.bloomberg.com/video/philippine-index-rose-294-since-oct-2008-NthKHK5OQju3yZjIRQRyxw.html

Friday, 8 March 2013

Monday, 18 February 2013

​Love letter to Filipinos



By David H. Harwell
Philippine Daily Inquirer
http://opinion.inquirer.net/47047/love-letter-to-filipinos

​​(David H. Harwell, PhD, is a former professor and assistant dean in the United States who now travels and works abroad designing language training programs. He is a published author and a son of a retired news editor.)​

I am writing to thank Filipinos for the way you have treated me here, and to pass on a lesson I learned from observing the differences between your culture and mine over the years.

Read more....

Thursday, 14 February 2013

An applause for Pope Benedict the Great

http://www.youtube.com/watch?feature=player_embedded&v=l3_J4wQIDEE

Tuesday, 12 February 2013

Where to go diving

http://www.youtube.com/watch?feature=player_embedded&v=5UIiCth5aGQ#!

Thursday, 7 February 2013

‘Die Hard’ and the PSE

John Mangun
OUTSIDE THE BOX
Business Mirror
http://businessmirror.com.ph/index.php/news/opinion/8875-die-hard-and-the-pse


MONEY by definition is first and foremost storage of wealth. Rather than carrying around two Jollibee hamburger meals to have when you get hungry, that P100 in your pocket “stores” the food until you want it. Money is also a medium of wealth transfer as you exchange the P100 note for the food when you go to Jollibee.

But in 2013, money is only a very temporary storage of wealth.

If you were around in 1988 you might have gone to Greenbelt in Makati like I did and watched the first Die Hard movie starring Bruce Willis. The cost of a ticket was P15. In a few weeks A Good Day to Die Hard, starring Bruce Willis, will probably be showing in Greenbelt and you will pay about 1,000 percent more than in 1988.

Is the movie going to be 10 times as good as the first Die Hard? Will the popcorn be 1,000 percent more flavorful than in 1988? Then why is the ticket price now about P150 instead of P15?

You might say that the Greenbelt movie theater of 2013 is 10 times better than in 1988, with reclining seats and stereo sound blasting from a bigger screen. Perhaps that is true. But here is what is interesting.

In 1988, for the price of seeing Die Hard and a bucket of popcorn, you could have instead bought 1 kilo of pork. In 2013, for the price of seeing A Good Day to Die Hard and a bucket of popcorn, you can buy 1 kilo of pork.

In 1988 the P100 you earned in wages could have taken two people to see the movie, with popcorn and still had money left over. In 2013 that same P100 bill will not even get you in the theater door. Had you saved that 1998 P100 note in the bank or under your bed, you would be poorer today.

That P100 you are holding is very bad as a storehouse of wealth and that fact is critical to your financial well-being.

Allow me to be brutally honest. Much of the financial advice you are hearing today is guaranteed to make you poorer in the future.

You are told to save your money. Unless you consider yourself wealthy, you should never have more than three to six months of the amount you need to live on in cash for emergencies. “Saving” for retirement will financially destroy you. Had you started in 1988 and saved P25,000 per year, your money would now total about P1.8 million, enough to buy an average studio condominium. You would have done better to use that P25,000 each year to buy condos throughout the last 25 years. The same is true now. Buy hard assets that you can use 10 years from now or that will increase in value through time.

The Philippine stock market is driving people crazy. It keeps going up and up and this is not supposed to happen by “normal” standards. Well, welcome to the New Normal.

At this time in 2008, Ayala Land shares were trading at P13.50. Now those shares are priced around P30 or up over 120 percent in five years. The PSE Composite Index has more than doubled since February 2008. Do corporate profits justify a more than doubling of share price in five years? The answer is no.

Go back to the Greenbelt theater. While both the peso price of movie tickets and pork is up 1,000 percent over 25 years, the “price” relationship between movies and pork has virtually not changed at all. One kilo of pork still buys one movie ticket…and popcorn and probably will in the future.

The “peso price” of gold is up 86 percent since 2008 and note that the peso-dollar exchange rate is almost the same now as in February 2008. The “peso price” of Ayala Land shares is up 120 percent since 2008. But the price of Ayala Land shares in “gold price” is only about 18 percent higher since 2008, which accurately and adequately reflects the increased value and earnings of the Ayala Land Corp.

We cannot think of cash anymore as the standard to determine value. It is not that Bruce Willis tickets have appreciated 1,000 percent in 25 years; it is that the peso has depreciated against the value of a movie ticket during that time. It is not so much that the Philippine stock exchange is gaining value but that the peso is losing value as measured by the “price” of a PSE listed share.

You must constantly protect yourself against the continuing loss of purchasing power of money by buying hard assets.



E-mail to mangun@gmail.com. My web site is www.mangunonmarkets.com and Twitterme@mangunonmarkets. PSE stock-market information and technical analysis tools provided by COL Financial Group Inc.

Tuesday, 5 February 2013

Science shows that the embryo is human

http://www.youtube.com/watch?v=rh2o7qHb0RY

Friday, 1 February 2013

Consumer Boom Fuels Philippine Economy

http://www.bloomberg.com/video/consumer-boom-fuels-philippine-economy-s~EDLROnSQWPyAThsSI~Fg.html

Saturday, 26 January 2013

The Currency Wars

http://w3.newsmax.com/a/currency-wars/video_uwr.cfm?s=al&promo_code=122C1-1

Wednesday, 23 January 2013

Google formally announces Philippine office and yes, they’re hiring!


J.M. Tuazon
InterAksyon.com
http://www.interaksyon.com/infotech/google-formally-announces-philippine-office-and-yes-theyre-hiring

After years of speculation and rumors, Google officially announced on Wednesday the opening of its Philippine representative office, also naming former Friendster executive Narciso Reyes as its first country manager.

Google Philippines will be the search giant’s fifth representative office in the Southeast Asian region, following consecutive establishment of bases in Malaysia, Thailand, and most recently Indonesia over the past several years, aside from its regional Singapore office. The Philippine office will reportedly be located in Makati.

Tuesday, 22 January 2013

Currency games: Why PHL should not play

John Mangun
OUTSIDE THE BOX
Business Mirror
http://www.businessmirror.com.ph/index.php/news/opinion/8013-currency-games-why-phl-should-not-play

IN September 2010 Guido Mantega, Brazil’s finance minister, made this observation: “We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness.”

From January to September 2010, the US dollar had dropped 25 percent against the Brazilian real. Brazil took many steps to lower the value of the real against the dollar, including a tax on certain inbound foreign-currency flows. The dollar has since 2010 appreciated against the real to where it is now almost 25 percent higher than where it was when Finance Minister Mantega expressed his complaint.

So how is Brazil’s economy doing in the midst of currency devaluation that would improve their export performance? Economic growth in 2011 was 2.7 percent and the most recent forecast for 2012 is 1.03 percent. The Rio Times: “Despite the news, Finance Minister Guido Mantega has insisted on many occasions that he believes 2013 will see growth of 4 percent or more.” Brazilian inflation is also running at 5.6 percent in part due to the weak currency.

Devaluing a nation’s currency to increase exports is not a new concept in the least. It has been going on since the 1980s. All the major economies—the US, Japan and Europe—have made this idea almost a centerpiece of their economic policy. And it has worked perfectly. There has been a big winner: China.

In 1980 China exported 5 percent of the world’s textiles; now it is 32 percent. In 1980 China held 1 percent of office equipment exports; in 2011 it was 30 percent. In 1980 China exported 2 percent of all global manufactured goods; in 2011 the number was 15 percent.

What currency devaluation did not do was stimulate exports. What it did do was stimulate overseas investment. Here are two stories that tell it all. Delphi was formerly General Motors component division. GM sold it off in 1999. Two years later, Delphi fired 11,500 workers. In 2005 it closed 45 plants in the US, production moving to China.

Visteon, formerly Ford’s component division, was spun off in 2000. In 2009 it went bankrupt, closing all but one of its 33 plants in the US and laying off 25,000 employees. It now has 171 plants and facilities in other countries, primarily China.

As the US dollar continued to depreciate, US companies found it necessary to invest abroad to maintain and enhance the value of their assets.

But every time I discuss the Philippine peso and how artificial devaluation is a mistake, someone tells me that I am pushing to keep the Philippines an import-dependent economy.

The reality is something completely different.

From January to October 2012, the Philippines imported $51 billion worth of products. We exported $48 billion. But a closer look at the numbers gives a different and more precise picture of the Philippines trade situation.

We imported $14 billion of electronic products and exported $21 billion. The next single largest import category, costing $11.5 billion, was crude oil and petroleum products. The Philippines does not produce oil.

We imported $1.2 billion of iron and steel. We have limited iron ore supplies and besides, iron ore requires mining to extract. $2.6 billion was spent on plastics and chemicals, again raw materials produced from primarily oil and mining. PHL does not have a broad timber-products industry so we spent nearly $1 billion importing paper and paper products. Another half a billion dollars was spent on metalliferous ores mined in another country.

Do you like your daily pan de sal? A little less than $1 billion was spent on imported wheat and corn. The nation imported over $3 billion worth of food and live animals for food. You might want to ask for camote fries instead of potato fries the next time you go to Jollibee in order to keep the Philippines from being import dependent.

If you think it is all those cheaper Chinese imported products that are making us “import dependent,” note that the bill for consumer goods, including cars and appliances, was only $6.3 billion. We spent more on industrial machinery and transportation equipment.

The Philippines sits on some of the richest mineral deposits in the world. Yet we exported more coconut products and fruit as we did mineral products. Yet according to the government, it’s buko juice that is going to grow the Philippine economy.

The problem is not the value of the peso or the amount we spend on imports. The problem is 30 years of continuing government policies that keep the economy from properly developing.



E-mail to mangun@gmail.com. My web site is www.mangunonmarkets.com and Twitterme@mangunonmarkets. PSE stock-market information and technical analysis tools provided by COL Financial Group Inc.

Sunday, 20 January 2013

101 East - Phoning from the Philippines

http://www.youtube.com/watch?feature=player_embedded&v=hv3lipHyxiw

Thursday, 17 January 2013

More smoke and mirrors?

John Mangun
OUTSIDE THE BOX
Business Mirror
http://businessmirror.com.ph/index.php/news/opinion/7806-more-smoke-and-mirrors


IT is instructive to note some of the global news stories over the past two weeks.

France: “A crowd of more than 300,000 took the fight to the iconic Eiffel Tower in Paris to protest the president’s plan to legalize gay marriage and allow same-sex couples to adopt and conceive children.”

Ireland: “The violent flag riots in Belfast have shown just how delicate relations between sectarian groups in the British province remain. They also reveal the frustrations of a generation that has grown up feeling misunderstood and disadvantaged.”

United States: “A Texas congressman vowed to try to impeach President Obama if he moves ahead with plans to control guns by executive order.”

Japan: “According to the Chinese military’s news source, documents dated January 14  lay out the goals for this year. These include ‘making firm preparations for war.’ Some Japanese media outlets have been interpreting these orders as ‘prepare for war…presumably against Japan.’”

China: “A journalists’ strike and protests by supporters last week against blatant government censorship of a newspaper editorial in southern Guangdong province attracted wide attention in China.”

United Kingdom: “The leaders of three Labor Party-controlled city councils are warning that the scale of the austerity agenda could lead to ‘the break-up of civil society.”’

There are undoubtedly dozens more than these. But perhaps the most important and to which all the others may be related comes from Washington, D.C.

“A frustratingly slow economic recovery in developed nations is holding back the global economy, the World Bank said on Tuesday, as it sharply cut its outlook for world growth in 2013.”

Historically, governments have always tried to divert the public from economic problems by focusing attention on so-called social problems and affairs. The Roman emperors devised a clear plan of giving the people “bread and circuses” as the colonial wealth that was the foundation of Rome’s economy dried up. What better way to keep Roman citizens occupied with something other than their failing economy than free wheat and grand spectacles in the Coliseum.

France is headed into a recession but the government pushes for the legalization of same-sex marriages knowing that this is a contentious, emotional issue that will dominate the front pages of the newspaper and push economic issues to the back pages.

As China censors and cracks down on any dissent in the face of an economy barely keeping inflation and employment growth at acceptable levels, it rallies nationalism and warmongering as a good alternative. But the same territorial dispute works as well for the Japanese that are facing a declining population and zero economic growth.

The United States faces another credit-rating downgrade as the government borrowing limits are raised and the number of underemployed grows every month. But today the critical issue is gun violence, not poverty and the economy.

It is a fact of society that citizens can be easily distracted particularly if the distraction is emotional and easier to think about than genuine longer-term problems that carry with them difficult decisions.

While the Philippines is being spared the economic turmoil of many other nations, are the people being led to divert focus from the economy?

A year ago, the Corona impeachment trial was critically important to the nation. The government said that this trial was a major step forward toward political and economic reform. But what has been the broader national impact other than a single person being removed from office?

The last months have been dominated by the debate leading up to the passing of the reproductive health law. While the people have been told that this, too, will have a beneficial economic impact, nothing was ever mentioned about specific, measurable benefits. And there was really no reason to talk about the law in pragmatic terms since the emotional arguments were all that seemed important to both proponents and opponents.

This week we are returning to the cybercrime law. Here again, the arguments are emotional between those who see a need to shelter the public from potential harm and those who see government curtailing the freedom of speech.

Where is the front page and emotional discussion about the fact that poverty and hunger in the Philippines are still going higher? Where are the street protests about the fact that the Philippines is a total disaster area in terms of foreign investment?

The traditional and new online media in the Philippines pride themselves on being vocal, outspoken, diverse in opinion and uninhibited. But never do they ask who is creating and driving the agenda and topics of discussion.

Is the Philippines that different from the rest of the world? Has anything changed much since before 1987?



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

Wednesday, 16 January 2013

Tuesday, 15 January 2013

The Philippine peso problem


John Mangun
OUTSIDE THE BOX
Business Mirror
http://businessmirror.com.ph/index.php/news/opinion/7674-the-philippine-peso-problem

A NATION’S currency is the most important component of its economy. It is the blood of the economic body. No matter how strong the body is, without healthy “blood,” the organs of business, government spending and investments cannot function effectively.

The average person has little idea about currency because the symptoms of a currency problem can be subtle and take time to develop. But like an untreated cancer, it can one day explode, destroying individual wealth without mercy.

The most extreme symptom of a damaged currency is hyperinflation. During the German Weimar Republic, the German currency was stable at about 60 marks per US dollar in 1921. In June 1922 the mark traded at about 320 marks per dollar. The mark then fell to 8,000 marks per dollar by December 1922. The cost of living index was 41 in June 1922 and 685 in December 1922.

This event occurred because the German central bank printed all the marks possible to buy foreign currency.

The argument for the Bangko Sentral ng Pilipinas (BSP) intervening in the currency markets and for a weaker Philippine peso is to protect the exporters’ profits, give the overseas workers more buying power, and help the outsourcing companies. A very noble endeavor.

Let’s return to the good old days of 2009 when the peso exchange rate was 48 to $1. The exporters, outsourcers and overseas workers would all be happy.

However, in order to make those “winners” happy, gasoline will go up to at least P60 per liter. There are certainly some “progressive” thinkers that would say P60 gasoline is a small sacrifice to pay for the overseas workers, exporters and outsourcing companies’ financial benefit.

But those would not be the only winners. Balikbayan and foreigners would be given an instant 18-percent discount on the condominium they want to buy, as the dollar cost would fall. The property developers would be winners also. The stock market would soar too, as now stocks would be much cheaper in dollar terms. I like that last idea.

The commuting public would see transportation costs go up but they, too, have to sacrifice some of their wealth for exporters, overseas workers, outsourcers and stock-market investors like me. It is only fair.

There might be an end to any discounts for condos. Prices might even go higher, as foreign buyers would increase demand to take advantage of cheap prices. The young couple looking to buy their first residence might have to wait another year or two, but the overseas Filipino workers have families also. But you might say that a P48 is unrealistic. The peso at 42 is generally thought to be a good price. Fine. Let the BSP try to keep the peso around 42; a line in the sand.

Then watch the disaster unfold.

The Bank of England tried to fix a floor price on the British pound in August and September 1992, spending $27 billion and failing; the pound depreciated 30 percent. George Soros made $1.2 billion in one day on that idea. I know. I was there.

Modern currencies have no intrinsic value, such as a fixed exchange rate to a tangible asset like gold or silver. They are only “priced” in relation to other currencies as money flows in and out of economies. In the 1970s the Japanese yen/US dollar exchange rate went from 350 to 175 as money flowed from the US into Japan to buy goods. The US dollar has depreciated 80 percent against the Chinese renminbi since 1981 for the same reason.

Here is an example when central banks have tried to keep a currency artificially low. The Bank of Japan tried in the 1980s, intervening to make the yen “cheaper” to protect the exporters, moving the currency from 175 to 275. Notice that is the period of the Japanese bubble economy when land prices tripled and the subsequent “Lost Decade” of no economic growth after the bubble burst.

During the first Aquino administration, controlling the peso was a government priority with strong capital controls. A 10-percent daily fluctuation of the peso on the black market was normal. It took seven years to get a telephone because dollars were impossible to find as no one knew what silly currency policy would come next. The economy finally took off when President Fidel Ramos ended the currency-control policy.

The peso will move higher as foreign money comes into the country. Yes, it is “hot” money. Before long-term funds, hot money always comes to test the investment risk.

When governments try to pick economic ‘”winners” and “losers,” the winners always lose and the losers lose more.



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

Thursday, 10 January 2013

Philippine companies: leaner and meaner


More nonsense about the Philippines
John Mangun
OUTSIDE THE BOX
Business Mirror
http://businessmirror.com.ph/index.php/news/opinion/7464-more-nonsense-about-the-philippines

BECAUSE of the performance of both the Philippine Stock Exchange (PSE) and the broad economy, the Philippines is being mentioned more and more by the international financial press/media and the experts who share their opinions.

Really, though, it is like listening to the elected US official who said the country needed to be a US colony so that the people could be converted to Christianity. These words were spoken 250 years after Saint Pedro Calungsod had died. But not having a clue about the Philippine economy is not limited to just foreigners. The local “experts” are just as bad.


The call-center business

Contrary to the doomsday pronouncements you hear, the call-center business is not going to leave the Philippines because the peso is appreciating. Yes, profit margins of call-center companies are being squeezed. Those profits are also being squeezed by power rates, rental rates and increasing salaries for employees. But the reality is, it took nearly a decade for these companies to move from former leader India to the Philippines. Further, overseas companies that contract services to the Philippines cannot afford to move these jobs back home. Neither can the call centers afford to move the jobs elsewhere.

A medium-sized, not large, center employing 5,000 agents cannot move like the Ford plant having 250 employees. The services that the call center provides cannot be shut down like a factory. It would take at least one year to hire, train and put into production 5,000 new agents in Vietnam, for example. And that assumes you could even hire 5,000 new agents within a year. The hiring rate here in the Philippines is less than 20 percent of all applicants, applicants who apply knowing that the No.1 requirement is fluent English and then computer skills, not to mention a customer-service attitude.

While building up a center overseas, you would still need to maintain the Philippines operation or lose the clients adding to transition costs. In addition, after more than 10 years of Philippine operation, there is a vast pool of highly experienced local middle- and senior-level management that would not be readily available someplace else. You cannot train experience; you can only hire it.

By the way, the Philippine peso is at nearly the same exchange rate as it was at this time in 2008. Yes, the peso has appreciated 25 percent since 2005. So if the peso is such a problem, then why has business been growing by 20 percent a year since then?

Global companies do not make long-term plans based on short-term obstacles. Tell me what the peso exchange rate will be on January 1, 2018, and I might change my analysis.


The Philippine economy/stock market

Apparently, our local and foreign “experts” cannot remember anything before Y2K. To bring them up to speed, there was a significant event in 1997 called the Asian financial crisis. The Philippines came through that better than the others because: 1) The economy was not export oriented; 2) The banking system was strong; and 3) The Bangko Sentral ng Pilipinas (BSP) did not artificially value the peso pre-crisis.

The peso devalued then, not because of fundamental economic reasons, but to save the exporters and overseas Filipino workers. Unfortunately, bad planning by local dollar borrowers killed those companies. The stock market fell on peso devaluation, not economics, and by June 1999 was back to pre-crisis levels.

All those same factors apply today even with the BSP’s current peso intervention. That is why the Philippine economy will continue to outperform as will the stock market.

Our market may be called expensive by some but expensive is a relative term. The reasons the PSE is going up are twofold and those factors are not going to change.

First, interest rates are so low as to create a negative net return. The Philippines has always been a high-interest rate economy in comparison to our neighbors. With low rates, the only available liquid investment is the stock market. The other markets have always priced low rates into stock prices; not so here. The PSE index will go to 6,900 as investors look for deposit rate alternatives.

Second, none of our neighbors’ stock-market listed companies are making the kind of profits as here. Philippine companies are leaner (low debt) and meaner (sensible but aggressive expansion) and, therefore, have long-term sustainable and growing profitability. The PSE index will go to 6,900 as corporate profits continue.

Forget all the nonsense you hear. 2013 is the year of the Philippine Eagle, not the Snake.



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

Thursday, 3 January 2013

Pope prays with 40,000 Christian youths at St. Peter's Square

http://www.youtube.com/watch?v=juGStOIsYz0

The Philippines: Going into 2013

John Mangun
OUTSIDE THE BOX
Business Mirror
http://businessmirror.com.ph/index.php/news/opinion/7025-the-philippines-going-into-2013


IF you are going to look forward to 2013, you have to look at the United States. Last week I shared some facts about the economic situation that the average American is facing. While some might label this information as a Prophecy of Doom, it is no more a prophecy than when the doctor presents the results of your medical tests.

Detroit, Michigan, is that state’s largest city, has a population of over 700,000 (the 18th largest US city) and is the center of the Detroit Metro area of 5.2 million. Over 50 percent of all children in Detroit live in a home at the poverty level. Fifty percent of all adults are functionally illiterate, which means they cannot read and comprehend a daily newspaper.

As the doctor might tell you that high blood pressure may lead to a life-ending stroke, the Detroit economic condition creates a drain on public resources and its working-age population is unable to be anything more than marginally productive. That makes for a poor economic outlook.

Here is another fact about the US. Corporate profits as a percentage of gross domestic product (GDP) are at an all-time high while wages as a percentage of GDP are near an all-time low.

This means that the US economic “pie” is shrinking. Corporate profits come from people earning wages and those people being able to afford to buy corporate products. If wages were not keeping pace with corporate profits, the analogy would be that the car’s engine is using fuel faster than the gasoline tank is being filled. Eventually the engine and the car would stop.

But let’s step back. Economic statistics are like the medical tests and must be viewed in the context of both the trend and the reasons that create the statistics.

Your doctor says your blood pressure is a little high. But if it has been the same for 10 years, there is no negative trend to necessarily worry about. Further, does slightly high blood pressure run in the family? Are you a light smoker, casual drinker and enjoy lechon on weekends? Then probably there is something about you or your lifestyle that will constantly show up in that slightly higher blood pressure. Live with it.

However, if things are getting consistently worse, then there is a problem.

The prospects for the Philippines going into 2013 are bright. No, the local stock market is not going to move in only one upside direction. No, the economy is not going to grow and grow without some faltering. The Philippine government is still going to be the Philippine government, with its mistakes and successes. But the trend is positive and reasons are clear when you look at the Philippines’s economic “lifestyle.”

The major global economies are in decline. The emerging economies are rising. Here is a critical reason why.

From the BusinessMirror: “Filipino households increased their savings by 6.3 percent in 2011, the Bangko Sentral ng Pilipinas reported on Thursday. Savings in the Philippines grew 6.8 percent to P1.9 trillion, with the household sector accumulating P910 billion, the fourth year in a row that it accounted for the biggest share in the country’s savings.”

But isn’t the Philippines a poor, non-investment grade country?

Take an average salaried Filipino making about P25,000 to P30,000 ($675) per month. His or her counterpart in Australia makes $2,275, in Europe it is $2,060, in the US $1,870; Canada, $1,780; Russia, $1,500; Brazil, $1,450; Singapore, $1,325; India, $750, and China, $690.

Of those 10 countries, the Philippines is growing the fastest. But we are still on the bottom.

Now, take a look at personal spending. In Europe, that employee spends $2,400, followed by the US, $2300; Australia, $1,500; Singapore, $1,325; Russia, $1,300; Canada, $1,225; Brazil, $1,000; India, $700; China, $700; and the Philippines with $600 spent.

The employee in Europe and the US spends more than they earn. Australians, Brazilians, Russians, Canadians, Filipinos and Indians all show positive surpluses each month. Chinese and Singaporeans are essentially at break-even levels. Notice which countries are improving economically and which are not. One commentator, Simon Black, accurately points out the differences: “The West is living far beyond its means and is struggling with pitifully anemic growth.”

The Philippines has an excess of investment capital, meaning that businesses will continue to expand. The government’s finances continue to grow stronger as they have since 2007, which keeps the government from feeding off and cannibalizing the private sector. Individual finances of the middle class are strong.

This all makes for a positive Philippines going into 2013.



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

The Philippines Moves Forward

http://www.youtube.com/watch?v=9JEbqycdstg