OUTSIDE THE BOX
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 email@example.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