Louis and I have regular chats, over coffee or over the keyboard – in our latest chat, he was complaining about how difficult his exams are … stochastic matrices, markov chain, fractals, modern portfolio theory, CAPM, APT… etc. I told Louis a few things I know about his subjects; for instance, I said “modern portfolio theory is a theory of investment which tries to maximize return and minimize risk by carefully choosing different assets; or in other words, the concept of diversification in a mathematical formula.” Nose bleed alert!

After a few more nose bleed discussions, I told Louis… “wanna know a secret?” All those stuff doesn’t really work in today’s environment! Those investment theories will require very high IQs but will not mean squat in the real market. Theories assume that people’s behaviors are rational … the more you study the market’s history, the more you realize that rational behavior is always missing in the market. The more you try to understand what’s going on, the more you see things are fundamental… the more things go back to the basics like supply and demand. The market is a representation of people’s sentiments – and people’s sentiments are either overly optimistic or disastrously pessimistic.

So will I advise Louis to quit school? Never. Louis will need to learn all the nose bleed stuff for him to have a more intelligent view of things that are fundamental in nature. If you’re reading this Louis, go hit the books!

CLICK HERE to read the blog.

Philippine exports break losing streak–rises in November

·       Exports in November hit $3.69 billion, up 5.1% from a year earlier

·       This is also +0.6% higher  from October levels.

·       For the January-November period, exports were down 24.6% to $35 bn.

·       This is the first time exports grew since September 2008

·       Growth was driven by the increase in electronics sales.

·       Electronics exports in November rose 6.9% to $2.14 billion.

·       Exports to the U.S., Japan and the Netherlands showed on-year gains of 7.5%, 2.7% and 56%, respectively.

FDI for Oct 2009 reached $59 M

·       For Oct 2009, the country recorded a net inflow of $59 mln in foreign direct investment.

·       A reversal from an outflow of $62 mln the previous month.

·       Central bank said that a net-equity capital infusion of $41 mln came from Hong Kong, the U.S. and Japan.

·       With the bulk of the investments allocated to the mining, construction and financial intermediation sectors.

·       The positive investor sentiment resulted to an 18% rise in net inflow of FDI in the Jan-Oct period.

· According to the Department of Finance, the Philippines will likely report a budget deficit for 2009 of below PHP300 billion ($6.56 billion).

· One of the reasons for the deficit is that the Bureau of Customs likely collected PHP50 billion less than it targeted last year.

· A smaller shortfall than the PHP57 billion initially estimated.

· The budget deficit data are scheduled to be released later this month.

Inflation jumps to 8-month high in Dec

· For December, The country’s inflation rate went to an 8-month high of 4.4%.

· This is due to higher food and oil prices.

· Bringing the average inflation for 2009 to 3.2%; still with in the Central Bank’s estimate of 2.5% to 4.5%.

· The increase in inflation rate is said to unlikely push the central bank to hike rates soon.

· The Bangko Sentral has set an average inflation target of 3.5% and 5.5% for 2010 and 3% to 5% for 2011.

The Philippine government tried to copy the same cheap money scenario but the local game was played very differently. The government pegged the interest rate very low, yet the bank’s borrowing rates were still stiff and did not really trickle to benefit the economy the way the government wanted it to. As a result, while there was some modest economic growth , it was a laggard by other country’s standards. When global financial institutions came crashing, the local financial companies stood their ground with nary a scratch. I got to give it to our Central Bank and sound local management to some point… but to a large degree, our local financial companies breezed through the storm unscathed because of the huge margins they enjoy. Imagine borrowing money at very cheap rates (thanks to the government) and lending them at high rates – how can you go wrong?

The first world economies and the Philippines applied what John Maynard Keynes advocates with different results. First world experienced unprecedented growth but their economy later succumbed into what appears to be a vacuum. The Philippines were spared from the financial mess but continues to await some economic epiphany that seems to be a dream. In my view, both results are failures.

Now, was John Maynard Keynes right? Should the government continue to craft policies to influence the economy? It seems that now more than ever, the Keynesian theory is alive – dole outs, stimulus packages & low interest rates; and we still claim that we subscribe to a free market? Hmmm, perplexing. Why don’t we just let the economy take its proper course; allow recession so we can learn from it; fix our houses, weed out inefficiencies and review our priorities? Allowing to do so will definitely be a painful and a hugely unpopular move. Or, we can continue applying band aid solutions to a necrotic wound.

There’s only one economy that can experience consistent growth with no recessions: God’s economy. Maybe it’s time we start focusing our time and effort in participating in His economy.

“So if you have not been trustworthy in handling worldly wealth, who will trust you with true riches?” – Luke 16:11, NIV.

A blessed New Year to everyone!

What the heck is Keynesian Economics? Simply put, “it is a macroeconomic theory that argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle” (wikipedia.com). In other words, this is a theory that gives the government a huge say in the economy.

Governments, whether they admit it or not cling to Keyne’s theory like it’s the gospel truth especially now. Governments feel the need to dictate the direction of the economy as they feel that only government intervention can solve the crisis.

Really? Here’s a thought. Isn’t government, to a large degree, responsible for the mess we are in? When you really look at the root cause of many of today’s economic problems, one major thought comes into my mind – cheap money. Cheap money or a very low interest scenario allowed for an unrealistic prosperity that was not only unsustainable, it was bound to crash – and indeed, it crashed big time. Particularly in the US and Europe, the stock market took the cheap money and recklessly gambled with it; while people took it and wantonly spent it like there’s no tomorrow. Yes, cheap money allowed for growth but when you really look at it retrospectively, the growth made many reckless and deleted the word prudence in their vocabulary. In other words, it was a bubble.

… catch part 2

Philippine Central Bank sees inflation accelarating in November
The Philippine central bank expects inflation to accelerate further in November
Inflation for November is  forecast to range between 2.4% to 3.3%
This is due to the  impact of recent typhoons in the main island of Luzon.
Inflation  already accelerated 1.6% on year in October.
The average inflation rate in the first 10 months is at  3.2%.
The central bank sees inflation to hover 2.5% and 4.5% for this year.
2010 inflation is seen between 3.5% and 5.5%.

Disappointing 3Q09 growth

· Philippine economic growth in the 3Q09 fell below expectations.
· COMMENT: 3Q09 GDP grew 0.8% Yoy, dragged by the decline in manufacturing (-4.4%) and a sluggish farm sector (+1.6%).

· Services, which account for over half of GDP, rose 4.0% on year,

· On the demand side, figures were slowed down by the negative growth in Capital Formation (-11%) and Exports (-14%).

· 2Q09 growth was also at +0.8%.

· Average forecast on the street was a +1.9% expansion, making the actual figure pale and worrisome.

· On a seasonally adjusted comparison, GDP rose 1.0% over the 2Q09 output.

· Poor results might impact in the long run especially after the IMF just revised expectations this year from +1% to +1.5%.

· Currently, Philippine growth would be happy enough to reached the lower end of the target growth range of +0.8% to +1.8%

· Consumer spending typically rises in the 4Q and remittances are at its highest levels in November-December. Reconstruction activities due to the typhoon could also prop up economic activity in the last quarter.

· Personal Consumer Expenditure growth remains critical next year as election spending triggers recovery.

· PCE merely grew +0.2% on a seasonally adjusted format, its lowest since revised data in 1995.

Today, people who kept their money in USD are scratching their heads and hoping that the value of the USD against the Peso will go on an upward trend so that they can recover their losses. Will that happen? Maybe. Will it happen soon? Not likely.

A recent report in the Philippine Star even forecasted the exchange rate to further go down P 46.50 : $1. Why? It still goes back to the laws of supply and demand. The price of the once mighty green bucks has been dampened by too much supply. Just in the month of July, remittances rose by 9.3 percent from $1.4 billion in 2008 to $1.5 billion, posting the highest year-on-year growth in 2009. July influx brought remittances in the first seven months to $10 billion, up 3.8 percent from the previous year. The catastrophes of Ondoy and Pepeng are actually increasing the flow of foreign exchange pumping the supply of the USD which results to a weakened USD and a stronger Peso. The CB was so concerned with the Peso becoming too strong that it started to intervene by buying a larger share of the USD in the market.

The coming holidays is expected to put an even harder pressure on the USD as supply will see a seasonal spike. You will notice that the Peso is stronger towards the end of the year with the onslaught of remittances.

However, I will strongly urge the readers to hold off any speculative purchases of the USD. The Philippine Peso might still be challenged by budget deficit concerns and weak trade figures. Further, it can be expected that the country’s inflation numbers will rise because it is expected that food prices will become more expensive due to the agricultural havoc brought about by the storms and the floods.

If you need to buy USD, just buy what you need and don’t speculate … always remember the relationship of risk and return. The higher the potential return is, the higher the risk… always is, always will be.

· Government estimates the damage that tropical storm Ondoy (international codename: Ketsana) and typhoon Pepeng (international codename: Parma) at P12 billion.

· Ondoy’s damage reached P6.8 billion while Pepeng’s was estimated at P5 billion.

· Around 365,884 hectares of farm lands were affected, damaging 559,629 metric tons of palay worth P9.6 billion.
From an initial 60,000 has, damaged plantation is now at 106,189 hectares.

· Agriculture department will not meet the 3.5% farm output growth target for 2009.

· Agriculture output downgraded to 2%-2.5% this year, lower than the 4.68% growth in 2008.

· Finance officials estimate that typhoon damage would trim 0.2% points to Philippine GDP growth.

Foreign investments rise to $347M in July

· Philippine central bank said a net inflow of foreign direct investments (FDI) worth $347 million was recorded in July.

· This is a reversal from net outflow of $133 million recorded in June.

· On a yearly basis, net inflows for the July 2009 were 8.1% more than year ago’s $321 million.

· Year-to-date net inflow of $1.2 billion is 33.8% higher than the same level in comparable period last year.