Field of Dreams

That's how my stockbroker described the economy in an investor newsletter, Field of Dreams. My broker's research group found fit to entitle the article which analyzed what's going on out there, "Gloom in the Midst of a Recovery." Actually, these newsletters are supposed to guide investment decisions of clients. We have written as much in the past and it is easy to dismiss journalists as unwitting tools of destabilizers. But when your broker tells you there are problems, you better listen.

"Investors' patience," my broker writes in the newsletter, "is running short as hopes for a meaningful recovery slowly fades. The Philippines has not yet shifted decisively beyond the economic slowdown phase of the business cycle. The lack or absence of a coherent economic policy agenda can continue to make elusive the goal of propelling the economy to higher levels of growth."

And here's more. "So far, the much avowed government pump priming has not delivered the desired results and agricultural production has improved only because of a more hospitable weather. With the government's budget position in peril, its lead role in jump starting the economy will be severely restrained." NEDA Chief Medalla and the President himself can stop reciting what looks like positive economic indicators. Everyone knows these are nothing more than good numbers that came to be for the wrong reasons. My broker puts it this way: "Benign statistics are more reflective of a weak economy than competence in economic management or political leadership."

My broker explains: "Inflation is tame because consumer confidence is still hurting and because government is subsidizing the price of rice. On the other hand, interest rates are low because companies do not see the need to borrow and banks do not have the appetite to lend."

As for Erap's leadership, this is what my broker thinks: "President Estrada's performance has come to within expectations but has gone beyond what most have feared. Foremost among these fears is the clout of his so-called `shadow' cabinet, which raises issues of qualification and transparency in running the affairs of government. Damage control measures to arrest meltdown in popularity ratings of President Estrada are seen as mere cosmetics."

Our problem, my broker thinks, is the absence of a compelling investment story. "We maintain the view that the issue of an effective economic management and governance will continue to be the most critical overhang in the market. Improvements in economic and corporate performance can only ensue provided this government is able to reverse what is seemingly a breakdown in confidence. Otherwise, the economy will continue to glide and the stock market will at best drift. Every stock market's biggest foe is uncertainty and the Philippines has definitely a lot of it."

The bottom line? "Prospect of an immediate re-rating to our fair value estimate of 2,500 is nil. Over the short-term, fundamentals and liquidity will not be supportive. Slowdown in operational earnings will be more extended than previously believed. FY99 profit improvements appear bloated only because of one-time gains from asset divestments, reduced financing charges and lesser write-offs. Peaking NPLs and healthy interest income will provide growth for FY00. With risks still firmly stacked on the downside, caution is the appropriate approach. Go for defensive, event-driven, and market-share dominant plays -- PLDT, Meralco and Filinvest Land."

It is just as well that President Estrada junked the proposal to put up an Oil Exchange as a means to lower petroleum product prices. Simply, it isn't going to work. Worse, it will open up opportunities for bureaucrats and politicians to make plenty of money for themselves without delivering the lower costs promised. If we don't trust the oil companies with their prices, it is easy to benchmark their prices here with what is prevailing in the world market.

An Oil Exchange will not lower oil product prices for so long as the export prices as set by the oil exporting countries are high. The only way we can sell low priced fuel products to our people is if we had sufficient oil reserves as was the case with Indonesia. Unfortunately, we do not have those oil reserves. We have natural gas but even in the case of Malampaya, the consumers may not enjoy lower fuel price because the government is charging so much in terms of taxes and royalties to approximate import cost, maybe higher.

But even the subsidy Indonesia provided domestic oil users was not a good thing to do. Insulating domestic oil users from the reality of world fuel prices tends to make them less efficient. In our case, a subsidy for domestic fuel users (with the oil companies absorbing the costs now) encourages inefficient use and makes us even more dependent on those %^$#@& OPEC suppliers.

The country's total oil consumption, even if its value makes it one of the country's top imports, isn't big enough to rival the regional oil exchange in Singapore to make a real difference in prices. We will end up with the same suppliers anyway and at the same prices they are giving us now.

We have to live with the reality that in the matter of petroleum product prices, there is little we can do. Our only option is maximizing the value we get for every liter we buy. Surely, the traffic jams all over is wasting so much imported oil and foreign exchange with negative contribution to national productivity. Utilization efficiency is the only significant area we can really influence for our benefit. Why haven't I heard anyone talk energy conservation as a reaction to rising oil prices?

I shouldn't try to mentally perform even simple mathematical calculations specially for something that is eventually printed. The portion of my column last Friday that reads: "the President went down 21 points in the Pulse Asia survey;" should have read "...16 points in the Pulse..." Sorry about that.

An artist asked the gallery owner if there had been any interest in his paintings on display at that time.

"I have good news and bad news," the owner replied. "The good news is that a gentleman inquired about your work and wondered if it would appreciate in value after your death. When I told him it would, he bought all 15 of your paintings."

"That's wonderful," the artist exclaimed. "What's the bad news?" "The guy was your doctor."

(Boo Chanco's e-mail address is [email protected])