THE Philippine Stock Exchange (PSE) is turning down and is bearish. The only question at this point is, how far will the market fall and how long will it take to reach a bottom?
In the industry, there is a running joke that the peak in the Philippine Stock Exchange Composite index (PSEi) came at the same time that President Aquino was ringing the opening bell at the stock exchange. Is this a coincidence? In the short term, yes, absolutely. Presidents and governments in general have nothing to do with the short-term movement of stock prices. President Aquino was simply in the wrong place at the wrong time, as has happened to all of us one time or another.
However, in the longer term, it is not a coincidence in that confidence in the government is turning down, as I have said before. While Philippine government policies always have latitude for improvement, the situation that is turning the local stock market lower is not a local phenomenon.
A move in the coming weeks—or sooner—with the market falling 3 percent is almost a given. A decrease of 7 percent is possible. Seeing the PSEi go down even 10 percent would not surprise me at all.
Confidence in the government regarding its place in the affairs of economies is peaking and will begin a downturn at the end of September 2015 and will last a year until this lack of confidence bottoms out. It is all part of the cycles that rule the world whether we see it, accept it, or like it
Most intelligent people believe that, for the most part, the world basically operates under some sort of random throw of the dice. As with the dice, there are certain odds, like with the likelihood of getting struck by lightning. We know also that the statistics of death by automobile accident depend on how we drive the car.
Most societies throughout history have attempted either to bring some order to the chaos of a random world or to somehow influence the cycles of “good” and “bad” that they did see.
Every agricultural society had a god(s) they prayed to for a bountiful harvest. When the natural cycles of weather brought a poor crop, they prayed even harder or, perhaps, made a few human sacrifices to challenge and change the cycle.
The most pitiful and helpless societies are those that refuse to see the way the world turns. Supertyphoon Yolanda came almost exactly 100 years after a similar typhoon, killing an estimated 12,000, hit the Tacloban area. But because we are unwilling to acknowledge and accept that some things in the cycles are totally out of our control, we say that Yolanda was caused by a one-off event, or “climate change,” or some other man-made cause.
Economic boom-and-bust cycles are as much a part of the human experience as the wet and dry seasons. But in the same last 100 years, the “economic experts” have decide that even in the very remote chance that there is such a condition as the “business cycle,” it can be harnessed and controlled. And every time they try, countries, and even the world, go into economic chaos.
Money is moving away from the government and into the private sector. This trend will accelerate after the end of September. While all eyes are focused on the US Federal Reserve raising interest rates, the gods of central banking are not in control. Interest rates will increase anyway as money flows out of government debt. Stock markets, after a period of confusion, will go higher.
The central banks will then be forced to raise the official rates to keep up with the free-market rates and to avoid the actual bubble that the doomsayers have been incorrectly calling for over the last five years. That will dampen the stock- market rally.
The negative effects of raising official interest rates may cause several governments to default on their debt. In order to avoid this happening, we could see another round of quantitative easing to bail out the banks that loaned money to these countries. Now, that’s a rock and a hard place.
The central banks should have raised rates at the bottom of the previous government confidence cycle in September 2014 to avoid the negative effects. Note this well: that is exactly when the Bangko Sentral ng Pilipinas raised its rates without the economy-killing results that all the “experts” said would happen.
The local stock-market picture is not pretty. The road will continue to be bumpy but we will have a positive end-game. Trust me; I’m not an expert. I’m just a guy that keeps an umbrella in the car every year from June to December.
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E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter
@mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.