What current-account problem?

The financial press and media suffer from self-importance and self-delusion. Self-important thinking of “knowing” better than anyone else; self-delusion in believing that the public is dependent on them for enlightenment.

However, that is true for all “topic journalism”, whether it is show business, food or fashion. Of course, “news” about any of these or other subject is different. If you are interested in the latest automobile or gadgets, there is important information found in the press and media. The same is true for “business news”, such as which companies are doing what. Even some objective appraisal and analysis is good, like which skin- care products work best.

But those of us who talk about the financial markets and the pieces that are part of the economy may sit at the top of the “Intellectual Ego Pyramid”.

Yes, the world has a terrible debt problem, and there is going to be a reset in the next years. Yes, the financial markets are important, because everyone living outside the jungle, not wearing a loincloth, has a monetary stake in what happens. Certain economic conditions do need monitoring.

Even so, anyone who shops regularly at a supermarket or the  palengke and goes to a mall a couple of times a month knows almost as much about the economic situation as any “expert”. The numbers may not be as evident, but the results are clear. If all the cashier booths are open on payday weekend, business is good. If not, there may be a problem. You don’t need a PhD in Economics to figure that out.

Recently, there has been much talk about the Philippine “current account” (CA). To start with—although I may have missed one —every article or commentary I have read includes a definition/explanation copied and pasted from Wikipedia. That alone is scary. The key phrase constantly used—from Wikipedia—“The current account is an important indicator about an economy’s health”. Further, “The CA indicates if the Philippines is a ‘net lender’ or ‘net borrower’ to the rest of the world”.

The CA measures two things for both the public and private sectors: capital flows and trade flows. The net lender/net borrower idea is falsely defined. Every time a local company buys a foreign company—like Jollibee buying US Smashburger—that can have a negative CA effect. When profits are returned, that can have a positive affect. The “net lender” thing means that Jollibee took local money to buy a foreign asset. Its current foreign-generated income was not enough to cover the purchase price. So what’s the problem?

The “economic health” issue is a bit twisted, too. What is a more important health indicator: Blood pressure, body mass index, or blood sugar? None of the above. In fact, you can have a fat guy like me who has perfect blood pressure and blood sugar. Japan’s economy is a disaster; the CA (as a percentage of GDP) is +2.9 percent—just like the Philippines. Australia has a negative CA to GDP of 4.9 percent. Vietnam is +1.4 percent, while Thailand comes in a +8.1 percent.

When you detail the specifics of the Philippine CA, you find out that capital flow (that’s real cash money) took a drop in the middle of 2016, and is starting to climb back higher. The real problem for the CA in 2016, was the balance of trade. Oil prices going up 50 percent really killed our trade numbers.

Wikipedia is a great source for finding out when your favorite celebrity was born. Like Wiki, those of us in “financial journalism” may not always be your best source of financial and economic analysis.


     E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.



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