Winter is coming
Amonth ago, I wrote a column, “The Chairman of The Bored.” The local stock market has progressed far beyond boring to “Comatose; a state of deep unconsciousness for an indefinite period, especially as a result of severe illness or injury.”
Ignore the “severe illness” part as there is no current illness to the Philippine economy in general or listed corporations in particular regardless of what your political fanaticism may be telling you. We are recovering from the global Covid lockdown illness.
Factual examples. “PSE listed firm XYZ tripled net income and grew revenue by 56 percent in First Quarter 2023 versus the same period in 2022, generating revenues higher 22% than in the first quarter of prepandemic 2019.”
Nominal annual Philippine GDP per capita adjusted by Purchasing Power Parity is up 11 percent from the 2020 low but 3 percent below 2019 high. The Philippines’ “Full Year GDP Growth” at 7.6 percent in 2022 was the highest post-edsa.
You can pound your fist on the table and complain about inflation, government debt, the budget deficit/surplus, interest rates, the global economy, and a variety of other government fiscal issues. But the fact is that the macroeconomics indicators are moving in the right direction. All of these are long-term situations that are slow to reverse direction, but they are turning positive.
Let’s move to the issues that the analysts and “experts” are telling you in the newspaper and TV “sound bites” that are affecting the trading on the Philippine Stock Exchange.
The US debt ceiling increase will be resolved. Keep in mind that it is as much a political issue as a financial one. You do not need to worry about it until Joe Biden stumbles and mumbles trying to say “The US will never pay interest on its $31.4 trillion debt. Bite me.”
Take this to the bank. Russia’s war in the Ukraine will continue for weeks, months, or years until the citizens of the US and Europe get fed up with paying for it. And Russia will never “surrender.” Live with it.
Climate Change/global Warming will not destroy planet Earth until 2030 or 2050 or 2099. Take your pick. In the meantime, it is probably not sensible to stop taking a bath, watching Netflix, or refrain from investing in whatever vehicle you choose.
China and the US have been at “war” over Formosa/taiwan/the Republic of China since the “1955 Taiwan Strait Crisis.” This too is a long-term matter that is a political issue in both Beijing and Washington D.C. It too will eventually be resolved peacefully. Maybe.
What the PSE is experiencing is a “liquidity freeze” and that is evident from the low trading volume.
Liquidity is a term used in the financial world to refer to how easily an asset can be bought or sold. A “liquidity freeze” occurs when the market for whatever reason “freezes up,” making it difficult to trade stocks. This is the perfect example of a “liquidity freeze.”
I went to Festival Mall last Saturday particularly to shop at Landmark department store. The aisles were filled with consumer goods of every imaginable type. The mall was crowded with waiting lines outside nearly every restaurant and people were buying at the coffee shops to sit outside on the concrete at the “River Park.”
Landmark was effectively empty. The “sellers” were there ready to go. The buyers were not. That is what our stock market is facing. We think that the stock market like the department store is always liquid at a price. But just as on the PSE, Landmark did not have all its goods at “Buy 1, Take 1” or “Take 3” or whatever. As on the PSE, there was no desperate selling even with only a few buyers.
That is a liquidity freeze. How deep it will go and for how long the freeze will last is unanswerable. Until stock buyers are comfortable that there will be buyers in the future— and they won’t be left holding the bag—more Winter Is Coming.
For now, it is a “Catch-22” or “Ouroboros” dilemma. Eventually, more buying will lead to more buying, which will lead to more buying thawing the freeze. What will be the trigger for that to occur? I have no idea.