Inflation, Up! Investments, Down!

I've confessed that I'm no economist, but I'm someone who tries to keep an eye on the economic numbers out there. It's a new practice for me actually. I only started to care about them when I began looking at investments.

GDP, GNP, inflation, etc. etc. These were terms and acronyms that drove me to sleep during my college days (hehe). I've never encountered an economics professor that made any sense to me, or at least taught me the relevance of knowing economic numbers. Further to that, there are only a handful of professors who can really teach beyond what is in the textbooks. But that's a subject for a future blog entry.

According to the news, Philippine inflation rose to 9.6 in May. This was a mark higher than the one registered in April, which was 8.3. Based on past history, this was the highest inflation rate in 9 years. The main culprit was food, which together with tobacco and beverages, comprise a big chunk of the inflation formula. Commodities, primarily oil also helped to increase the inflation rate.

Le Stuck Market

The news about the 9 year high inflation was headlined everywhere, and our stock market, already posting double digit declines from year ago, bled even further. Most of the stocks are at their 52 week lows already. Based from that alone, stocks should be zero risk right? It depends.

Megaworld is a good example. Prior to this month its 52 week low was somewhere in the 2.00 range. Look at its price now, 1.82. If you were of the school of thought that believed that 2.00 was a nice entry point, I think you'd be crying and cursing by now.

Benpres is another example. 2.30 was probably the 52 week low. it's now down to 1.80. Almost the same price as Megaworld, but with a far worse bearish performance.

Of the two, Megaworld is about to finish its double top plunge. Next week should be an interesting week for this battered stock. Further decline will bring it to 1.50, and then there should be consolidation. There'll likely be some rally en route to 1.50, and investors are advised to be on the short term holding mindset or stay away entirely from Megaworld. I'm not buying nor recommending this stock as fundamentally speaking, the BSP might still raise interest rates, ensuring Megaworld's continued spiral.

Well, my college professor should've told us, "Learn your economics now. It will help you understand and anticipate the direction of the stock market." Anyway, back to my topic.

I can imagine the dilemma investors have right now. I checked on this site, and almost 99% of the mutual funds are down for the year. Bond funds will be in deep trouble next since most Asian banks seem to be inflation-averse. This means that interest rates will resume their upward trend. Time to get that loan you've been trying to postpone. (I don't mean get a loan now, but if you have a business or a personal need that warrants a loan, get one now while you still can).

Dissecting Inflation

My broker told me that inflation in the Philippines is reported as YEAR ON YEAR. That certainly piqued my curiosity so I ventured to this website. Upon further investigation, national inflation actually DECELERATED in May from April by 0.5 percentage point. Look at this for some boring but important information.

Well now, is that a ray of hope for us?

As that hackneyed phrase goes, don't believe everything you read in the papers. Actually, what's better is to read between the lines. Obviously a headline of "9-year high inflation" is more news worthy and sensational than say "Inflation slows month on month in May".

I attribute it to the government's efforts to cushion the price of rice during April. As you have seen, news on the rice crisis died down during that month up until the end of May. The news shifted to Meralco, and Free Texting. There should be a study on the effects of news on investments and the economy. There's probably a correlation.

Apart from the government's efforts, I figure that maybe harvest time is near? Or maybe rice has been harvested, thereby decreasing the price for rice. I searched over the internet, albeit minimally, and couldn't find the exact time of harvest. What I have uncovered is that in general there are 2-3 times of harvest per year for rice.

What's interesting to note though, based from this article, is that we were actually a rice EXPORTER during the much maligned administration of Ferdinand Marcos. Thanks to my history professor, I didn't know that.

We may have a reprieve for rice... for now. But what worries me will be the price of oil. Rumors are rife that it would reach 60 to 65/liter this year. So for those who have multiple cars in the garage, maybe you can sell it to me for a dime eh? Haha.

Until my next entry.