How to cash in on the global financial turbulence

BULL MARKET, BULL SHEET By Wilson Lee Flores
Monday, September 22, 2008

Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell. — Sir John Templeton

Once the mightiest, the US economy is unfortunately in systemic decline due to tragic economic, moral and political decay. Don’t believe what President George W. Bush is saying about it so-called strength; the long-term crisis has just begun. The once-glorious American Century has ended.

For us here in Asia, the world’s fastest-growing economic region, don’t panic. This 21st century is the Century of Asia — of the Chinese economic miracle, of the resource-rich, dynamic ASEAN region, industrial powerhouse South Korea, high-tech leader Taiwan, of Hong Kong and Singapore and Shanghai — New York City’s rivals as global financial hubs — of dazzling Macau and massive, awakening India.

We Asians should always be prepared for a possible global financial hurricane coming from the turbulent US, and also be prepared for unimaginable opportunities.

In these bewildering times of tumult, whether it’s the whole Philippine economy or the government, whether we are entrepreneurs, corporate executives, professionals or housewives, I urge all people to:
• Increase personal or business productivity,
• Be more flexible, adaptable and resilient,
• Cut unnecessary expenses and minimize luxuries,
• Lessen or totally eliminate debts,
• Be more cost-efficient and resourceful,
• Prepare for possible radical changes,

• Always prepare for the worst but hope for the best, and

• Stay liquid and always look for new opportunities.

Radio stations like DZRH and others recently interviewed this writer regarding the earth-shaking Sept. 15 bankruptcy of 158-year-old Lehman Brothers Holdings, Inc. (the biggest bankruptcy case in US history) and Bank of America’s same-day purchase of the world’s largest brokerage, the troubled Merrill Lynch & Co. Other topics included the biggest US stock market decline since the Sept. 11, 2001 terrorist attack and the Sept. 17 news of the US Federal Reserve Board’s unprecedented emergency loan of $85 billion to the ailing American International Group (AIG).

The US economy is in a deepening crisis; will the Philippine economy suffer? Here are my answers to this question:

• The Philippine economy today is not the same as it was 20 or even 50 years ago, when we used to be economically over-dependent on our former colonizer the US for the bulk of our investments and international trade.

I suggest that my former economics professor, President Gloria Macapagal Arroyo, and her officials remind the public that our economy today is less over-dependent on the US, therefore possible fallout from the US crisis will most likely be less also.

Today, the Philippines and most countries in Asia are no longer as disproportionately over-dependent on US business because of the emergence of other economic dynamos in recent years like China, Russia, South Korea, Singapore, Brazil, India and others. Booming China — with four times the population of the US — has already eclipsed both America and Japan as the Philippines’ and even political foe Taiwan’s biggest trading partner.

• Though it will not be as threatening than if it had occurred decades ago, I nevertheless believe that the Philippine economy will suffer some decline due to the fact that the ailing US economy is still the world’s largest and Americans still comprise the world’s biggest market for Asian exports.

Philippine exporters should resourcefully and dynamically target other markets beyond the USA, such as China, the oil-rich Middle East and Russia, Latin America, Europe and other Asian countries.

• I foresee the continuous softening of the once record-high price of oil in the world market, due to a possible lessening of oil imports from the US economy and also those of other major countries with the slowing or even closing down of their many industries. For the short-term, I foresee oil prices stabilizing or even declining further, which could only be good news for our oil-importing Philippine economy.

• Due to spiraling costs and weakening revenues in many US firms, the Philippines should seize this opportunity to encourage more business-process-outsourcing (BPO) and call-center ventures to open nationwide. This might be similar to an epidemic hitting a city, causing so many deaths, but resulting in a great, unparalleled opportunity for funeral parlor entrepreneurs! As the ancient Chinese proverb says, every crisis brings about both danger and opportunity.

• Buy solid, blue-chip Philippine stocks with consistent profit and dividend track records at bargain prices! Buy BPI, BDO, Metrobank, Ayala Corp., Meralco, PLDT, JG Summit and others. Buy low, keep, or sell high in the future.

• In times of global tumult, there will be a bull market for gold, silver and other precious metals, so what are we doing to redouble our efforts in mining? The Philippines used to be a major gold exporter in the American colonial era up to the postwar decades. Let’s build up our mining industry again! This is the best time on earth to weed out unscrupulous, fly-by-night operators or VIP political squatters sitting on numerous unused provincial mining claims. The government and private sector should push for legitimate mining enterprises to invest here now.

• It is laudable that President GMA is providing cash and other emergency assistance to the poorest of the poor, but why not also push more government initiatives like tax reduction and tax relief, outright incentives and other extra support to business people, whether small and medium enterprises, or the big corporations and foreign investors? This period of extreme exigencies requires boldness, innovation and vision from government. Give all-out support to business people so they will invest more now!

• The rise and fall of the US should give our politicians a rude awakening. Politicians in Washington, D.C. have for decades buried America in debt, transforming the US from the world’s biggest creditor into the world’s largest debtor. I urge the national government not only to lessen unnecessary borrowing but also to wisely allocate our VAT and other taxes into paying off our loans.

I urge government to drastically and decisively lessen corruption, pour massive amounts of our taxpayers’ money into infrastructure projects, better education and basic social services, which will enhance economic growth and national productivity. Shoot excessively corrupt politicos, generals and bureaucrats and charge them for the bullets!