Nathan Andrada’s Blog

Pump prices drastically dropped yesterday pushing renewed calls for reduced transport fare prices in buses and jeepneys. Fortunately for commuters, they will get their wish after the All Souls weekend when transport groups and the government agreed by principle to implement it. After all, diesel, which fuels most of our public transport, dropped by five to six bucks per liter.

Despite declining pump prices in the past few weeks, yesterday’s reduction is the biggest. Petroleum products continue to slope downwards since the financial crisis, that has now engulfed the world, broke out. This trend points to falling demand in the United States but consumers there are not complaining. At least driving their SUVs would not mean they have to cut their basic cable subscriptions.

However, some feel this is merely a token effort on the part of the oil companies. In addition, the left in the House of Representatives are pushing for the Oil Deregulation Law, which was intended to promote completion in the oil industry, to be repealed and even the conservatives in the Senate are calling for added taxation to the likes of Shell, Petron, and Chevron in an attempt to unlock their books to the public.

But what does it really mean to Juan the retail store employee? For a hundred bucks per day, perhaps he will get to save at least P6 when commuting to work and back to his home. That is enough to buy coffee during his break. Something he deserves for working his ass off for the last 10 years yet not able to pay  his bills on a regular basis.

The cat is out and the Federal Reserve did lower short-term interest rates by 50 basis points. It also provided a bleak view of the economy that pulled down the major stock indexes in the US. After yesterday’s record surge that saw the Dow, the NASDAQ, and the S&P 500 all rise, the news became a bit of a reality check which dampened the mood of the investment community leading to the sell-off.

The Fed is certainly very much concerned with the plunging consumer confidence that has hit its lowest level since the mid 1970s during the oil crisis. In other words, people are cutting back on spending especially on high ticket items like cars and appliances. Fears over job security because of the credit crisis make people take a second look on the items they purchase and that hurts the profit expectations of companies. Companies on the other hand, continue to slash jobs in order to keep afloat. Huge layoffs by companies, like the one by auto giant General Motors, is one of the more vivid demonstration of how the Wall Street crisis has affected Main Street.

Meanwhile, many of those jobs are fast migrating abroad like here in the Philippines. Just as China are taking over US manufacturing jobs, the Philippines have been getting many of the services jobs of American companies as we have seen the explosion of the call center industry here in the last decade. This has boosted consumer spending here especially in the urban centers where these call centers are operating. But it is interesting to see whether the slowdown in the US will have any effect to the flow of services jobs here. Many of the client pool of these call centers incidentally belong to the financial sector, which has been badly hit by the crisis like the now-bankrupt Washington Mutual.

The Dow fell sharply in last night’s trading shedding off another 203 points to kick off this week on a bearish mood. Despite pulling modest gains halfway into the session, another late rally southward, which has been eminent for weeks now, proved to be another pivotal setback for equities.

Earlier, Asian and European shares got hammered with even Japan’s Nikkei falling to its 26-year low. There is even talk that the US might follow the Japanese experience when it suffered a long recession after their real estate bubble burst in the late 80s. Almost the same premise now hounds the US with the housing collapse blamed as the culprit for their current woes.

The Phisix fell over 12 percent in yesterday’s session and trading was even stopped momentarily for 15 minutes due to the massive sell-off shades of what happened in Moscow weeks ago when their stock exchange went on a free fall. A lot of wealth has already been lost in the PSE in this past few weeks. Consumer demand in this country is expected to slow down and not even the holidays could make people spend in the level they used to.

Despite the peso’s fall against the dollar, it is not yet ‘all bets are off’ in terms of positive effect to the economy especially for the beneficiaries of remittances. Families of OFWs are likely to hoard their dollars anyway and this continued slow consumer spending would just keep the real economy dampened. This is a ripe scenario for a properties bubble especially here in Manila. Banks that are highly exposed to the property sector would feel the pinch which would lead to a possible credit crunch in the financial system. On the surface, the crisis has barely affected our everyday lives, but the signs are coming and their coming fast.

The weekend saw the conclusion of the biggest global summit that convened yet so far supposedly aimed to address the rapid spread of the financial crisis that originally broke out during the US housing meltdown just a few week ago. The summit brought nations from Europe and Asia and the event was held in the Chinese capital of Beijing. Many believe that the venue was just fitting since China is seen as the country with the best ability to shrug off the contagion that has already taken a number of countries as victims.

If there was something that came out of the summit, it was the adoption by the 45 participating heads of state of the Beijing Declaration which called for sustainable development by strengthening collaboration on environmental issues and the achievement of the Millennium Development Goals. As expected, a summit as huge as this did nothing to provide specific solutions to the pressing effects of the financial tsunami that could well likely turn into a worldwide recession.

Last week, Pakistan and Argentina became the latest countries that sought for either international assistance or employed drastic internal policies. Pakistan has already sent signals that it would be needing financial bailout from the International Monetary Fund and Argentina’s national government has nationalized their pension system in order to salvage their declining to ability to pay their financial obligations abroad.

Here at home, the Phisix continues to get battered and has fallen below the psychological 2,000-points mark. The peso is steadily weakening against the greenback which now stands at around 48.90 per dollar. A likely BSP intervention in the foreign exchange market could be in the offing once it slides further to 50 a dollar.

The quest for the bottom in the markets continues after the Dow lost big again. Yesterday, stocks got pummeled by over 400 points despite recovering a quarter of that value at the end of today’s trading. Despite seeing credit markets beginning to thaw with constant government infusion to improve liquidity, this time it is the real economy that is doing the beating on equities.

Negative earnings from various companies dampened investor confidence and reinforced the belief that America is indeed headed for the inevitable – recession. What is interesting is that the gloomy earnings outlook goes across the board; from transports, pharmaceuticals, and technology, in addition to the already battered financials and energy sectors.

Here at home, workers at expected to brace a holiday season possibly without their traditional Christmas bonuses. Fears that many Filipino overseas workers might get laid off in their jobs abroad is getting more real. This puts pressure to our foreign reserves as remittances are expected to drop. Government also needs to tackle a new set of safety net measures in order to provide livelihood opportunities to the workers who will be going back home.

The White House announced that  it will sponsor a worldwide economic forum wherein the main agenda will be the current financial crisis. It will be held in November this year and by that time America has already elected either Barack Obama or John McCain. President George W. Bush, who is serving his last few weeks in office, is expected to preside the forum that will be participated by other 19 nations.

What is not certain, though, is whether the president-elect will join the forum. The new chief executive, who will officially assume office by January next year is faced with the gargantuan task of turning the economy around. Should he make it to the forum, representatives from other attending nations will surely be interested to work with the new president-elect because it is widely believed that America’s ability of respond to the crisis is the key to avert what seemingly now a global economic meltdown.

Thailand is reviving the idea of creating a pan-ASEAN fund that aims to help member nations should a systemic financial crisis hit again. After the 1997 crisis, there was a plan to create a fund among ASEAN economies which would pool a significant amount of foreign reserves. However, this never materialized as the situation eventually improved.

There has been a lack of urgency among ASEAN economies, the Philippines included, in making a concerted effort in tackling this crisis, unlike what the Europeans are currently doing. We are expected to know better because of our bitter experience 11 years ago but, ironically, what we are seeing are isolated calls for cooperation and individual action by the region’s central banks.

Wall Street roared in the opening day of this week’s trading gaining over 400 points. Positive news from Asian and European markets earlier in the day boosted investor confidence. This should be a nice follow-up to last week’s 4.8 percent overall gain.

Bargain hunting  seems to be the buzzword of the day as investors continue to scramble for undervalued shares. Reaction from investment guru Warren Buffett about ‘be fearful when others are greedy and be greedy when others are fearful’ certainly made others take another look at equities. After all, the Oracle from Omaha made millions from making the same unorthodox decisions especially during a bear market.

The weekend also saw Dutch and South Korean governments infuse public money to salvage their respective flagging financial sector. Here at home, investment bank Merrill Lynch predicts the Monetary Board of the Bangko Sentral ng Pilipinas will cut overnight lending rates by 25 basis points when it meets at the end of the month. The BSP has tightened borrowing rates since June when inflation numbers hit staggering levels this year.