IT may be inappropriate to talk a bit harshly the day before Good Friday, but a greater worry than “fake news” should be “real news”, and the ignorant comments people make about it.
Eighteenth-century British poet Thomas Gray wrote—translated into modern English—“When people are happy in their ignorance, it is a waste of time to know what you are talking about.” Likewise also, an English poet, Alexander Pope said, “A little learning is a dangerous thing.”
Put together we might then say, “I am happy not knowing anything about the topic and I am comfortable spreading incorrect information.”
The numbers for the foreign direct investments (FDI) in January were released a couple of days ago. The double-digit increase from 2016 was reported as an indication that investors remained optimistic on the growth prospects of the Philippines and the economy. That is correct…sort of. Investors invest in a country because the economy is growing, because the economy might grow and also because the economy is not growing except for the business that is being invested in.
To give a harsh but accurate example, a man I once knew from the Netherlands came from a rich family. After the destruction of World War II, everyone was poor. But his father became wealthy making coffins for the dead in the famine that followed in the winter of 1945. The father “invested”, because he was able to make a great profit given the particular set of circumstances.
Yes, some of that foreign investment in January may be because the Philippine economy shows signs of good growth. But also, perhaps, some is the equivalent of investing in coffins during a famine or the potential of the “Big One” hitting Metro Manila. Although my example is silly, remember, things are not always what they appear to be.
Further, it was reported that the reason for the increase in foreign investment was not that it was “new” investment, but “company borrowings” by local companies and subsidiaries basically owned by foreign companies. That may be “true” also except it is incorrect in terms of the reality of what is being said and what it means.
If a foreign company sets up a call center in the Philippines, for example, the revenues accrue to the mother company in the US or Europe. But the bills—utilities, wages and maintenance—must be paid locally. The local company “borrows” money from the mother company to pay those obligations. That is the foreign inflow that is included in the FDI numbers as debt. Since the local company has no revenue, and therefore, no profit as such, it pays no income taxes. Makes sense, yes?
The Philippine peso is appreciating and the “ignorant” start talking about politics and central bank manipulation. Except, the reality is that the peso moved to 49.78 to a US dollar at 1600 GMT on Saturday, April 8, and then to 49.56 at 1900 GMT on Monday, April 10, when both the local banks and the Bangko Sentral ng Pilipinas were closed.
There is a whole financial world out there of “Spot-Forex”, “Overseas Forward Contracts” and “Contract-For-Difference” Philippine peso trading far beyond the little village of Metro Manila.
Much of what we hear and read is at best, incomplete, and at worst, distorted. And as with “fake news”, it is the individual’s responsibility to be more knowledgeable. No one else is going to do it for you.
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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.