15.0 A False Cure

Calls for increased government spending is rising by the day to stimulate the stagnating, if not an already stagnant economy. The BSP governor has, in fact, called for more government spending in today's headlines. While this inarguably results to increase in the Gross Domestic Product (GDP), this has less multiplier effect it is hoped to achieve. What is worse is that it is not sustainable in the long-term and only crowds out the more significant components of GDP - consumption and investment. Here is why.

Except for the Government Owned and Controlled Corporations and its profit shares from the oil fields of Malampaya, the government is NOT an income generating entity. To finance its spending, it has to raise taxes or borrow money. Taxes are a direct cut from someone else's purchasing income and that someone else is you and me and the businesses that hire you and me. Government borrowing is also a tax that is deferred into the future. That is because the government will someday tax you and me to pay off its debt. In other words, we are being squeezed dry today and will be squeezed dry tomorrow for something they call government spending. The more the government spends, the more the government has to dig deep into the pockets of Mr. and Ms. Someone Else. Now you know, who is the biggest pickpocketeer in our country - it is our government. You have to be wary about this simple truth, because the deeper the government goes into your pockets it will, with utmost certainty, grab not just your coins but your loins as well. This is not funny stuff. 

Increased goverment spending is the reason why the government's hatchet man has been going around creatively taxing or planning to tax anything that smells and spells MONEY - PEACE bonds, REIT income, social security contributions, tiangge and ukay-ukay operators, stock trading gains, among others. What? Oh yes, poor little Jhonny boy, there is nothing now that escapes the taxman's attention.

With lesser purchasing power, individuals spend less. With lower retained earnings, corporations also invest less. Even foreign investors are not enticed to invest in our country because of our taxation system that tries to syphone off the blood of the golden goose. This malady is what is called crowding out effect of government spending on personal consumption and business investments. This is the same effect that results from government borrowing that raises interest rates.

Ok, you may argue that government does increase GDP. Well, it does but surprisingly it does not as well. Here is why it does and at the same time does not. Our government pays salaries to people who could better be more productive working in the private sector. It also builds roads, bridges and other infrastructures that are low on quality but high on "grease". Don't be coy, you know what I mean. It spends on health care, education, agriculture and so on and so forth for as long as it has money to spend it away. But does this spending generate and stimulate other economic activities apart from this? And does this trickle down to those who have less? There is an answer to this from a radio station, "Kailangan pa bang i-memorize yan?"

Sadly, our economy lacks vertical integration. Take construction for example and this suffices the point. When the government spends on schools, roads, and bridges, it does not result into production of metal and metal alloys because we have none. We import them machines, metals, and construction consultants and the money leaks out in circulation of the domestic economy. When the government spends on cash transfers to the poor, it only creates dependency and does not lift people's will to get out of the poverty line and encourages them to remain there instead. Ok, I stop. From here, you should have gotten the drift.

And here is the final argument. I challenge you to go to yahoo.com and google (or equally go to google.com and yahoo) "Corruption in the Philippines" and you will see why I am against increased government spending as a cure to stimulate the economy. Increased government spending is a curse rather than a cure. Period.

P.S. So what will? I will discuss that on my next post. 

14.0 A Fool's Gold

At first sight of an economic or financial collapse, financial investors and traders, or simpy those with money scurry out their funds from the stock market and into investments considered as safe havens such as bonds, swiss francs, or gold, among others. The rush into these safe havens increases the price of bonds, the appreciaton of the swiss francs, and the increase in the value of gold. This, in turn, precipitates the stock market crash. At the outset, the first movers will find themselves justified in making the early exit as panic and gloom trumpeted by mass media induce more of the the resilient stock investors to pull out their funds from the stock market and join the fray into safe havens. As the exodus continues, these safe havens become too overcrowded that late comers then realize that the house of cards that everybody has gone into soon come crashing down. Panic and gloom has created a sucker every minute. Safe havens has become a legalized Ponzi scheme where the last movers are always left holding the bag.

13.0 Happiness, Four in One

I have long ago been praying and waiting for dark clouds to part and let sunshine thru, but a year had past and there was nothing. As the year draws near, it was more of the same. I was trapped in a middle of nowhere faintly remembering what happiness was and vaguely seeing what it is like to be.

But life does have a way of making up for all unpleasantness and when it does, it comes surprisingly in bunches. I heard long before that when it rains, it pours - be it for good or bad. And four happy things poured on me on the week of October 9, 2011.

12.0 Wave Lessons 2

There goes the Ghost of August and hopefully it will not come back as the Spectre in September. The month of August left a psychological scar in my trading skills. There were days I looked at graphs with a blank stare bludgeoned to submission by an unforgiving market. As a neophyte trader who had just completed the Certification for Stocks Specialization Course, I found myself questioning whether I learned anything at all or if indeed such Technical Tools are useful in stock trading. Looking back, I may have misinterpreted certain signals but a deeper soul-searching revealed surprising lessons. These are hard lessons I wish to share to my fellow neophyte traders, classmates, and friends who dabble at being a stock trader especially during these highly volatile, unpredictable, and oppressive times.

11.0 The Year of Trading Dangerously

I was transitioning from sleep to wakefulness when I was fully awakened by an incoming message alarm from my cellphone. I struggled to open my eyes and then reached out for my cellphone to check the message. It was from the free news service subscription. I thought it was just one of those ordinary days. I was wrong! Dead wrong! As I scrolled down, my jaw dropped and my eyes were wide shut as I read, "DJIA dropped by 4.31% highest since December 2008".

10. 0 My First Technical Jabber

Contrary to what I expected, there was no Strategic Trading Game (STG) after our Technical Analysis Module. My dissapointment was shortlived as I realized that our professor was indeed right in saying that the STG will not bring out the best in us in analysing stocks technically. Because it only involves play money, participants risk attitude and analytical
thinking will not be tested realistically. Instead, we were required to submuit a technical jabber which to my pleasant surprise did challenge me more than the STG.

9.0 Day Traders

The PSE-Ateneo Certification for Securities Specialization Course is now on its Core Course Modules. Everybody in the class are relieved that the Introductory Modules have all been completed and we are finally going to learn the very two subjects that we all paid and came here for - the Fundamental and Technical Analyses. I was expecting that the Stock Trading Game (STG) would come after these two subjects had already been discussed. We were surprised however when it was announced that the STG would start right after a subject on the Stock Market and the Stock Exchange. Given my elementary knowledge on Technical Analysis, I almost protested but had to suppress it as I was also curious how I would fare against my equally knowledge-limited batchmates. Well it turned out not everyone is on same level as me and the rest. Few of our batchmates are actually either already working as traders or had already attended seminars on technical analysis somewhere else.

8.0 Back to School

The Certification for Securities Specialist Course officially started on Tuesday, March 1, 2011 and I was officially kind of disoriented. To find myself studying again and leafing thru pages of course materials seemed to me like an unusual dream sequence in "Inception". I felt like pinching myself to wake up but then again this is my new reality, my here and now, for me to become a full-fledge stock trader and investor. This is my choice. There is no escaping it.

7.0 Addicted to the Wave

Each day, I always get excited to look at the PSE stock market OPEN, HIGH, LOW, CLOSE price quotes. It fulfills me that my analysis the previous day is indeed correct. I have been analysing PNB stocks vis-a-vis the three peer banks - MBT, BDO, and BPI since middle of January. At the end of the trading day, I immediately gather the four price quotes of the stocks of each bank and update my candlestick chart. PNB, MBT, and BDO stocks behave in the same manner. BPI is more volatile with its price swinging wildly from high to low along the trend. I am trying to understand why BPI is behaving so and it makes me feel unsafe to trade with BPI because of its high and unpredictable volatility. 

06. Birth of a ChArtist

I purposely capitalized the letter “A” in the word “Chartist” for a reason. Although chart analysis is a science as there is a great deal of math, and psychology behind the charts, I am convinced that for one to see the fine footprints of what is going on in the market and where it is going, one has to draw up from his innate artistry of reading the charts. Thus, the generation of the charts is science but its interpretation is art.

05. Learning to Swim

As a novice trader, I fully understand the importance of learning the tricks of the trade fast. Thankfully, I saw an electronic board advertisement along Ayala Avenue by chance inviting applicants for the 5th PSE - Ateneo Certification for Securities Specialist Course. If I am to become a full-time trader, I need to be certified as one. I did not waste my time. After convingcing my wife, I enrolled in the course. I was number 47 and the cut-off is 50 students for this class. I got lucky and I took it as a sign that this one is really for me. The new direction for my career has now taken an irreversible course. It is evident that securities trading is becoming popular among young professionals and I can sense that a lot of them will be shifting their careers too and soon if they get to be confident in their knowledge and experience in the securities market.

04. Wave Lessons 1

While my first foray into stock trading and investing was successful, I consider it more of a freshman luck. I was simply cost averaging and there was totally no systematic and orderly plan at what price I enter and exit the market. It was all trade and no plan. I could have improved my profit and ROI considerably if I did a little technical and fundamental analysis. Looking back, these are the lessons I learned. These shall serve as my trading and investing philosophy from hereon until such time that these will be debunked by future experiences.

03. The First Ride

I was introduced to stock market investing and trading in April 2007. The Bank I was working for alloted a small portion of new stocks issued to its employees at a price of P64.5 per share. A friend encouraged me to buy and so I did and bought 400 shares. The bank was then raising new capital to satisfy Basel II requirements. The newly issued stock was oversubscribed and there was evident excitement that the price would go up to P100 per share within a few months.

02. Aiming for the Moon

My personal moon is a 60% average annual rate of return on investment over 15 years. This is high by any account and most probably unreachable. That is why it is called aiming for the moon. Is this really unrealistic? Am I setting up myself for failure? Is this a march towards self-destruction?

01. A Leap of Faith into Stock Investing

I used to work in a bank. While I loved my job and the people I was working with, I figured that the compensation would not help achieve my long-term goals in life. I set higher and loftier goals than most. When I was a kid, I was already envisioning of grander things. I came across this saying that have stricken me for many years now that "If you aim for the moon, you might hit an eagle, but if you aim for an eagle, you might hit the rock." I believe in this like a biblical truth.