Major hiccup at the stock market

I NEVER thought Ayala Corp. would drop to P200 per share this fast. Parang it was only yesterday that it was selling at P250. But the market crashed today, dropping by 10% which triggered the circuit breakers to halt the trading session. Whew! Then after resuming, the market slipped even further closing at 1,713.83 points. This was the single biggest day drop since July 1987.

Banco de Oro was probably the hardest hit, falling by 23% to P22.75. It had just reported its third-quarter loss because of the covers it allocated to its credit exposure in Lehman Brothers. Belated reaction dontcha think? But actually ever since BDO merged with Equitable, the income of the unibank has been unsteady because of expenses owing to the merger and the expansion of some of its units. So if you think about it, the situation isn't really that bad. The situation was just aggravated by the losses from Lehman's. And tapos na 'yan. The losses are booked. Period.

But the first nine months of the year actually was still profitable for the bank. Check out the press statement here. It was just lower than the same period last year. But Christmas looks promising because I know the BDO consumer lending business has been very strong. Loans were up 35%, deposits too at 32%, and from what I know from my sources, the bank is still in a hiring mode. So in short, there is no reason to worry, especially if you are a BDO depositor. In fact, with the extensive holdings of the Sy family in a diverse array of businesses, we are assured of a steady stream of income from any of the Sy companes. I even once told a friend that the Bangko Sentral can very well fold up, but not BDO. These guys have money. Lots of it.

Okay. Now I'm waiting for Ayala Corp. to fall to P120, then I'm buying. If you've got extra cash kids, check out those stocks. Many of them are already trading at a bargain. I am predicting an upswing after the Nov. 4 elections in the U.S. and Barack Obama is proclaimed the winner. So start looking through the stock market page, but choose wisely.

Martial Law in the U.S.?

WITH all that's been happening in the U.S....the sub-prime credit mess, collapse of Fannie Mae and Freddie Mac, the instability of its insurance industry and near collapse of its major investment houses, plus the continuing debate in the U.S. Congress over the bailout package, I am getting more convinced that the presidential election in November may not happen at all.

Far-fetched ya think?

President George W. Bush is sounding the alarm, issuing veiled threats, and predicting a depression that the U.S. economy may not be able to get out of in a while; he is saying you guys better get with the program and approve the bailout package or you're dead. Unfortunately, congressmen are hemming and hawing over the plan because they know their constituents are against it. Why give money to those stinking greedy CEOs with houses in the Hamptons, when the rest of America can hardly make the next mortgage payment?

I mean, stranger things have happened...the U.S. did go to war and invade Iraq on the wrong information that it had weapons of mass destruction. So there is a precedent for irrational behavior. Bush could very well declare martial law on the pretext of "saving" the economy. He can argue that he is only after the welfare of the public and national security, and that bailout package is the only way to get the economy back on its feet again. After all, the chief executives in the other countries were the ones egging him to put such a plan together. So Bush can say he is not only saving the U.S. but the global economy. He needs this bailout plan in place like yesterday.

Bush and a messianic complex? I wouldn't put it past him.

(Ballot box photo from newmediabytes.com.)

Ah Ludwig, you were right

“There is no means of avoiding the final collapse of a boom brought about by credit expansion.”

- Ludwig von Mises
(1881 – 1973)
Austrian Economist, philosopher and a major influence on the modern libertarian movement

I guess that says it all about the U.S. economy, ey? Dontcha worry my fellow Pinoys, the remittances of our parientes abroad will save our economy yet.

Good morning pow.

Stay calm

IN case you guys are still shaking your heads, trying to figure out what all the fuss is about, yes we are now caught up in a global financial flummox because of the interconnectedness of the world today. No doubt, we here in da Pinas will be affected, but we can only cross our fingers that our banks are strong enough to withstand the shocks.

As a depositor, I am staying put. I am keeping my money in our banks and praying that they have not been "irrationally exuberant" in their credit transactions and investments. No sense in withdrawing our monies and stashing 'em in Switzerland (or worse, in your piggy banks at home) because it will just add pressure on the banks, and exacerbate the delicate situation they are in.

I have friends who are already feeling the hit because the value of their investments in mutual funds and UITFs (unit investment trust funds) have dropped dramatically. I have advised them to stay with those funds because right now, all their losses are on paper. Unless they decide to liquidate their investments, of course. Just breathe and hang on to the belief that those investments are gonna stabilize and move up as soon as the financial world settles down. (As I have been saying since last year, stick w/ the safer deposit instruments like time deposits and 5-years tax-free accounts.)

I am pinning my hopes on the pronouncements of Bangko Sentral Gov. Amado Tetangco Jr. that the Philippine financial system is healthy.

And so read on:

Why AIG matters
or why the Fed decided not to let the insurance company fail like Lehman Brothers

WASHINGTON—After World War II, a far-flung insurance company in China run by an American businessman took a risky bet insuring that about 20 boats filled with Americans would make it back to the United States.

From those distant beginnings grew American International Group (AIG), which became one of the biggest insurance companies in the world, under the leadership of Maurice “Hank” Greenberg.

With more than $1 trillion in assets, AIG is bigger than Fannie Mae, Freddie Mac, Merrill Lynch, Lehman Brothers or the former Bear Stearns.

AIG’s subsidiaries sell life, auto, property, workers’ compensation, kidnapping and ransom and many other types of insurance. The company offers retirement plans such as annuities. Its financial markets subsidiary services include investment banks, pension funds, governments and other institutional investors, and AIG manages portfolios of stocks, bonds and real estate. The company is the nation’s largest leaser of aircraft.

Among the activities it ventured into: buying mortgage-related securities and offering other firms an exotic type of insurance to cover losses from investments tied to mortgages.

That proved to be a problem. (Click here for the rest.)

BTW, do you know AIG's corporate slogan? Tic, toc, tic, toc...sirit na? "The strength to be there." (araykow!)
* * * *
Also check out the editorial of BusinessMirror today: (As Michael Douglas' character Gordon Gekko in the 1987 film Wall Street said: "It's all about the bucks, kid. The rest is conversation." Indeed.)

Tale as old as time

BY this time, the breathtakingly simple way—“hubris and greed at work”—by which this week’s disaster on Wall Street has been dismissed is now a tune long worn.

And yet, as simple as it may seem, it forms the thread within each of the key lessons that may be derived, as some form of morbid consolation, from this crisis.

What is one to make of a spectacle where no less than the titans of New York’s financial empire are falling by the wayside, their pedigree notwithstanding: investment bank Lehman Brothers Holdings Inc., Merrill Lynch, and now, the insurance giant AIG or American International Group? The full stories behind their debacles won’t be told yet as details keep unfolding while the markets swoon. But from the broad sketches of what went on, it is clear that the crisis combines the timeless tale of human folly, the failures of regulators and a system that brought so much wealth to millions around the world but is now its own worst enemy. (Click here for the rest.)

And now I leave you with these thoughts from the master of greed himself, Gordon Gekko:



(Note: Photo of AIG building is from the cover of its 2007 annual report available on its web site .)