Friday, 29 October 2010

Businessmen urge action, say ‘honeymoon’ over


DECLARING the honeymoon period over, business leaders from seven key sectors yesterday pressed the Aquino administration on reforms to ensure that rosy outlooks for the year will be sustained in the long run.

Most industries are primed to end 2010 with growth due to a global pickup but bottlenecks caused by the strengthening peso, dwindling productivity, a dearth in infrastructure and unclear government policies need to be addressed, speakers told a conference hosted by the American and European chambers of commerce.

The event was held ahead of the Joint Foreign Chambers’ submission to Malacañang next month of a 400-page roadmap hinged on so-called "seven big winners": agribusiness, business process outsourcing (BPO), power, transport infrastructure, manufacturing, mining and tourism.

The speakers were generally upbeat on 2010 prospects for areas ranging from agriculture and mineral exports, tourism arrivals and new BPO jobs.

Roberto C. Amores, the Philippine Chamber of Commerce and Industry’s vice-president for agriculture, noted that food exports picked up in August while Chamber of Mines President Benjamin Philip G. Romualdez remarked on the 36% growth of his industry in the first half.
"And more investments are flowing in. More projects are coming on stream ahead of schedule," Mr. Romualdez claimed.

The tourism sector, meanwhile, expects 10% growth in arrivals this year to 3.7 million despite a botched hostage rescue last August that led to the deaths of eight Hong Kong nationals, former Philippine Travel Agencies Association President Jose C. Clemente III said.

Oscar R. Sañez, Business Process Outsourcing Association of the Philippines chief executive, reiterated that his sector was poised to create some 500,00 jobs this year over the 440,000 generated in 2009.

But these gains will not be sustained unless the government addresses long-standing concerns, the businessmen said.

"We need more than 1,000 kilometers of toll roads just like Thailand," Metro Pacific Tollways Corp. President Ramoncito S. Fernandez said, noting that the Philippines has only 300 kilometers in comparison.

"If we can double this in five years, that’s a noble achievement already," Mr. Fernandez said, adding that the government needs to "fast track the right of way process."

The government must also promote retail competition in the power market and make the environment for long-term power purchase deals more attractive as these two thrusts could lower electricity prices, said Daniel E. Chalmers, GN Power Ltd. Co. chairman.

Some called for increasing pressure on trade partners that undervalue their currencies at the cost of the Philippine economy and also better forecasting to help firms here cope with the strengthening peso.

"I would encourage Filipinos to voice concern over controlled currencies in the region," American Chamber of Commerce of the Philippines Senior Adviser John D. Forbes said.
Speakers went on to call for increased state spending for agriculture infrastructure, a roadmap to develop manufacturing, and a fresh marketing campaign to lure tourists.

Consistency between national and local government policies for mining is likewise needed, Mr. Romualdez said.

Large population may boost economic growth, says BSP

Ronnel Domingo
Philippine Daily Inquirer
First Posted 22:36:00 10/24/2010

MANILA, Philippines—A large population can be a blessing to the Philippines if this is harnessed to drive up domestic demand, especially at a time when emerging economies assume greater role in world economic recovery, according to Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr..

“This can be an advantage if the purchasing power of the population can be improved,” Tetangco said in an interview over the weekend.

The size of a population is also an indicator of potential demand considering that the bigger the population, the higher potential demand there is, the BSP chief explained.

Citing data from the Asian Development Bank’s 2010 Key Indicators report, Tetangco said the middle class – defined as those with consumption expenses of between $2 and $20 daily at the value of money 2005 – has grown from about a fifth of the total Asian population in 1990 to more than half or 56 percent in 2008.

The ADB estimates that in 2008, the middle class had a spending capacity of $3.3 trillion, an increase of almost five times from the $721 billion in 1990.

“This purchasing power potential represents a powerful force for future growth,” Tetangco said.

He said this was a key consideration at a time when the disparate levels of development around the world are poised to normalize, as emerging Asian economies are growing stronger than developed ones.

To harness Asia’s strong growth as well as the rise of the Asian middle class, Tetangco said it is important for governments – particularly monetary authorities – to adopt longer-term policies towards strengthening domestic investment and consumption as well as exports.

He said that the exports sector continues to be a dynamic force in Asian economies given that, for many small economies, the domestic consumption base is limited and growth prospects are moderate.

Even then, Tetangco said domestic demand should be developed as a “second engine for growth” in order to promote broad-based, sustained growth.

“For growth to be sustainable and productive for future generations, consideration should be given to the environment-friendly policies and actions,” he added.

Thursday, 28 October 2010

The worst is yet to come (for the US, that is)

John Mangun
Outside the Box
Business Mirror

It would be funny if it were not so tragic; commentators and pundits saying the US economy is getting better or at least not getting any worse. The worst is yet to come.

For two decades Americans borrowed at the urging of government and Federal Reserve (Fed) Chairman Alan Greenspan. Inflation was not a problem, so Greenspan thought he was doing a great job. As prices for housing doubled and tripled, no one cared. That type of price rise is not counted in the inflation numbers. The US spent trillions of dollars buying Chinese goods that never seemed to go up in price. No reason for China to raise prices because they were selling more and more goods. No inflation.

But when you borrow money, you must have an asset to back that borrowing, and what better asset than real estate. Borrow against property one to buy property two at higher and higher prices. Then the bubble burst, as there was no more money to lend.

The US government then borrowed and printed $3 trillion in 2009 and put that money into the system in the hope that Americans would borrow and buy. But you can fool the people only for so long.

The fear since 2008 was that there would be a period of deflation, falling prices and a stagnant economy. However, prices did not fall, except for houses since all that new money in the economy caused the dollar to fall, increasing the prices of all imports, especially oil. Gasoline has increased by $1 a gallon since Obama’s economic recovery plan started. So now the Americans have higher prices and no economic growth. What comes next?

The Japanese tried government “stimulus” and zero-interest rates for nearly 20 years, and it never worked. Once burned by a flat economy due to corporate overborrowing, the Japanese never went back to their extravagant consumption habits. Japanese individuals were never big borrowers. In fact, through the 1990s they sat on billions in personal savings that they never spent. No reason to. Prices next year would be the same as today with no inflation. Economists theorized that what the Japanese government should have done was raise interest rates sky-high, forcing corporate borrowers to raise prices, which would force consumers to spend to avoid future price increases.

That is what the US government is now going to do and it will be a huge, disastrous failure, causing greater economic trouble.

From Bloomberg: “With interest rates already near zero, the Fed will be aiming to increase the rate of inflation and reduce the cost of borrowing in real terms.” Times of inflation are supposed to encourage borrowing because, in the future, you can pay back the loan with money that is worth less. “The goal is to unlock consumer spending and jump-start an economy that’s growing too slowly to push unemployment lower. Estimates for the ultimate size of the asset-purchase program range from $1 trillion to $2 trillion.”

Except, the American people are not like the Japanese were, sitting on billions just waiting to go back to the department store and spend. What the Fed is hoping is that higher interest rates and higher inflation will force companies, who are sitting on $2 trillion, to start spending. They will not, because why should they invest in new products and new factories. The American consumer does not have any money (or the financial stability to borrow) to become real consumers again.

All that will happen is that inflation of normal goods like food, gasoline and all their imported-from-China clothes will go higher in price. As the Fed prints and borrows a trillion dollars more, the dollar will decrease in value, raising the price of the Americans’ imported goods that the Americans cannot afford, anyway. The hope is that a cheaper dollar will increase American exports enough to offset the cost of imported products further, as imports go higher, American manufacturers will produce toys and shoes cheaper than the chine can and the money will stay at home. Good luck on that. That is why the Chinese keep their currency virtually pegged to the dollar.

Read this. National Review Online: “Uncle Stupid is dumping $109 billion in new debt on the bond market this week.” Part of the $109 billion includes $10 billion of a special Treasury debt called Treasury Inflation-Protected Securities (TIPS). The interest rate that TIPS pay is indexed to inflation in order to protect investors from the negative effects of inflation. In other words, you make more money with TIPS the higher inflation goes. Incredibly on Monday, these bonds sold at a negative yield for the first time in history. The institutions that bought these bonds will lose money unless inflation goes up.

Currently, official inflation in the US is a little over 1 percent. But if you measure inflation as it was computed in 1980, the true inflation rate is 9 percent. What has changed since 1980 is that inflation then was a measure of the cost of living needed to maintain a constant standard of living. Now it is a measure of prices regardless if anyone actually buys those items included in the goods basket. Simplistically put, if the price of bread goes up 10 percent and the price of a car goes down 10 percent, zero inflation. But people must buy bread and not cars, and bread inflation is 10 percent.

Finally, somebody has to pay for all of this stimulus and money printing. From SteynOnline: “Historically, foreign official holdings of US Treasury securities have been less than 5 percent of the rest of the planet’s gross domestic product [GDP]. By 2009, they were up to 7 percent. Obama-sized budgets depend on foreign holdings rising to about 20 percent of the rest of the planet’s GDP.” That will not happen.

What will happen is that the US is headed for the higher inflation that I have talked about for the last year. The dollar is going down. The US economy will not recover any time soon.

The worst is yet to come.

E-mail comments to PSE stock-market information and technical analysis tools provided by Inc.

Tuesday, 26 October 2010

Is the Philippine stock market going to crash?

John Mangun
Out of the Box
Business Mirror

You decide. Here are some of the arguments for “yes” and “no.”

Yes, of course. There is no justification for what has become a virtual 21 months of higher stock prices. The Philippine Stock Exchange (PSE) index has increased over 125 percent since the February 2009 low.

One of the most important indicators of the stock market is called the Relative Strength Index (RSI). By definition, RSI is “the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions.” The theory behind RSI in regard to our current market is that at some point, too much money flows into the market and there must be a period of rebalancing. In other words, what goes up must eventually go down. And after a time of almost nothing but buying, there must come a time of almost nothing but selling. The RSI is now at 80; anything over 70 is considered “overbought.”

Let’s be honest. Money put into the stock market is unproductive. It does not create anything; no jobs, no goods or services, nothing lasting. While some investors will profit from their speculation, the economy gains little benefit. Sure, the argument can be made that investors will eventually take their profits out and build something of value. And that is exactly the point. Soon, investors are going to pull vast sums of money out of the stock market and create something of value for themselves and the economy. In addition, stock-market players who have made good profits will take their newly found wealth and buy something; cars, houses, clothes and that is good for the economy and bad for stock prices.

It is all foreign hot money. Haven’t you been reading what the local economists have been saying? All this hot foreign money that is invested in the local stock market can come out at any time. And it soon will. Why should the foreign money stay here for long? They are always looking for the next fast profit.

The Philippine economy is having a good year in 2010. You could make the argument that good economic numbers justify a strong stock market. But is there anyone who really believes that the country’s economic performance in 2010 is going to continue? If the stock market predicts the future, then it might be logical to say that the stock- price increase from 2009 was reasonable as the 2010 economy is good. But what about the future? The government still cannot balance its budget. Poverty and population growth keeps sustainable economic development a dream. Can stock prices continue to go up when the 2011 economy might be a disaster again?

Stock-market investors had a nice party these last two years. Now the party is over. The market is going to crash.

Of course, the stock market is not going to crash.

We would like to think that our local market is the same as in other countries. Not true at all. You might be interested in the market but that only means that you are part of the less than 2 percent of all Filipinos who are stock investors.

Although a great amount of foreign money has come into the PSE, it is your money that propelled the market from 2009 to the middle of 2010. It really was not until June 2010 that the foreign money started coming in. The rise from 1,850 to 3,000 was mostly all local funds. Why? In 2008 and 2009, while the Philippine economy was still creating wealth (unlike most of the world), there was a reduction in spending. Excess cash built up in the system. Some of that money went into the market. And as prices continued to go up, more excess funds found a home at the PSE.

Stock markets crash when too much money comes in compared with other investments. That is a bubble. Look at the US. Their market crashed in the 1990s when all they invested were tech and dot com stocks. Then investors put all their monetary eggs in the housing market, which was followed by an exploding bubble. This bubble/speculative scenario is not part of the PSE picture, will not be for a long time.

In 2010 the rest of the economy caught up with stock-market investors in that excess cash started going—to create wealth in the overall economy. And some of the excess funds from that wealth creation will continue to be placed in shares. Prices will go up because once an economy starts moving with sound fundamentals, it continues to grow. And this is a sound economy with low corporate debt, low personal credit, sensible pricing of things like housing, and a strong financial sector.

PSE listed companies’ profit grew 23 percent in 2010. Understand it is not economic growth that fuels corporate profits. It is corporate profits that show up in the economic-growth numbers. Stock prices reflect and then anticipate corporate earnings. Who cares about the economy when you are buying a company’s shares? You need to look at the company then the economy. Yes, there are some share prices that may be considered too high in relation to current earnings. But that does not forecast a price crash. What we may see is a cooling-off period where prices stop going up to let corporate profits catch up with the share price. And when that happens, investors can always shift to other companies that are “cheaper.” When that happens, the broad market will still go up.

This is still orderly and stable and does not exhibit the excesses that precede a crash. Prices are sensibly factoring in the overall economy, cash in the system, and the outlook for the future.

E-mail comments to PSE stock-market information and technical analysis tools provided by Inc.