Greece is the Word

Last week, we mentioned that there may be a possible downside risk to the market, who would've known that it would be this bad? We projected a support of somewhere at 3,200, unfortunately, the market settled at 3,142 last Friday. When I was talking to my broker, he told me that the index support was actually at 3,150 and not 3,200. Maybe it's due to the chart I'm using that's why I can't see clearly, or, it's just that my TA is rusty already.

Whatever the support is, Friday's close broke through 3,200 and 3,150.

While Friday was another depressing day, there were many trading opportunities - RLC, SMPH, AP and EDC - to name a few. Yes, while the market was dreary, these stocks offered (brave) traders opportunities to make money. In fact, AP closed higher than Thursday's closing price. EDC and AP's performance just shows that this year, power generation companies have much upside. Last year, the darling stock (which I missed #@$#) was Philex mining as it generated about 50-100% in return based on stock price. AP is this year's stock, which I also missed.

Perhaps I was too much concentrated on looking for stocks to trade that I forgot about investing for the long term, i.e. investing in quality stocks even if their price actions are not exciting. That's assuming I had the money to invest hehe. Sometimes it gets frustrating so just putting money in a mutual fund would be a better option. You don't have to spot the stocks and just rely on your investment fund manager. Anyway...

What caused the wild volatility this week? One word: Greece. There is a risk of a crisis contagion in the European Union.

Personally, I don't understand what's going on/wrong in Greece, just that I know they have a problem with their economy. I scoured the net for some information and stumbled upon BBC. They have a very lucid explanation. I think this part of their explanation sums it all up -

"For years, Greece has been spending money it doesn't have.

The government there took advantage of the economic good-times to borrow money and spend it on pay-rises for public workers and projects such as the 2004 Olympics.

It began to run-up a bigger and bigger deficit (the gap between how much a country brings-in from tax, and what it spends).

After the world economy went bad, Greece suffererd.

Banks started to view it as a country that might not be able to manage its money.

They worried Greece might eventually fail to pay its loans, and even go bankrupt.

To cover the risk, banks started charging Greece more to borrow cash - making the problem even worse.

Eventually the government there went looking for help."

But if this is a Greek problem, why are other countries affected? In the same BBC link, this explanation should tell you why -

"As well as Greece, banks and credit rating agencies are going through their books looking for other bad risks.

That means countries that have a big budget deficit, compared with how much money their economy generates.

Portugal and Spain are reckoned to be two that could face problems next.

The EU hopes that its bailout will reassure the money markets that their cash is safe.

However, that depends on Greece getting control of the situation and proving it can make the cuts needed.

The UK does not use the Euro currency, but could still be affected.

Its budget deficit is also large, and we could start to appear unattractive to lenders.

UK banks also hold some of the debt of countries such as Greece, Spain, and Portugal.

If they were to go bankrupt, it would mean more problems for Britain's banks."

How can one country hold debt of another country? It's quite similar to the Philippines selling bonds (bonds are a debt issuance) offshore. Did you know that the Philippines is Asia's biggest offshore bond issuer? Same article from ABSCBN states - "The debt-laden economy, which relies heavily on foreign and local borrowings to fund its budget shortfall, faces a budget deficit of P293 billion, or 3.5% of GDP, this year after a record shortfall of P298.5 billion, or 3.9% of GDP, in 2009."

Debt laden huh? I wonder if the Philippines will one day go down the Greek road to economic oblivion. Due to some minor research online, I found out that other European countries with big deficits are - France, Spain, Ireland, and the UK.

This entire drama is quite amusing when you look at it from the point of view of Personal Finance. Why? In personal finance, you are always advised that you should spend within your means. If some governments in the world cannot even practice this basic tenet, then it's no wonder their citizens also run up debt like there's no tomorrow. A lot of countries in the West have this affliction - using credit cards, mortgaging their houses, borrowing money to fund their yearning for affluence.

So what to expect for the Philippine market next week? A lot of it will now depend on domestic issues - obviously it is the elections. It will also depend on the actions that will be taken by EU prior to world markets opening for trading tomorrow.

Since the market has been sold down to 3,142, I'm sure we're almost nearing a selling climax. Unfortunately, since I don't have any data, we don't know if foreign brokers are dumping our stocks. For me, it's not about the charts anymore, but about market sentiment. The DOW fell by almost 1000 points supposedly due to a trader error and so that was a major major drag for this week. The good news? Our market was down by as much as 90 points but closed just down by 25. So perhaps, the market has support in 3,142, thereabouts.

I'm not a fan of economics and I don't think I ever will. Few really do since this isn't the most interesting of topics.

I hope that whoever becomes the next Philippine president has a well equipped brain that understands economics. Everybody is promising us the moon and the stars with no clear platform or agenda. Choose wisely. The country, and the stock market (as it is considered the barometer of the economy), depends on it.