The Philippine capital market is playing by the Trump playbook – more stimulus so that the market won’t crash. Imagine this, we are already at 5k coronavirus infections, everyday it goes up, businesses are still shutdown (except for some necessities), no treatments, no vaccines, and we could expect that the bad situation would continue until we have a vaccine, yet the market is up.
It is still down -24% as of this writing but the market has been going up ever since the central bank instructed the pension agencies (SSS and GSIS) to use pension money to buy up falling stocks. This is akin to what happened in the 2008 bailout where pension money is also used to buy up stocks.
The world has come to stimulus and manipulation of asset prices. More lower interest rates please and more free money. Cut the bank reserves too while you are at it. We are not yet clear if the businesses that are shut down today would continue to operate once the virus has passed but people are already optimistic that it would.
Since the market has been going up lately, you might have an inkling that I am pissed. Yes I am. A little bit. Since I couldn’t buy more stocks from its -40% bottom now that its -20%. If only the government just let the things playout without having to manipulate asset prices, I might have been a happy investor, taking advantage of the falling knives.
But we have to take the situation as is and as they come. Low oil prices, low interest rates, lower bank reserves, this are all inflationary. When the normal state of things comes back, we might see a lot of inflation. I’m not trying to predict anything here. I wouldn’t even dare. But if what I think is logical, then there might be a probability that I may be right. One thing could lead to another.
How can we protect ourselves from inflation then? Maybe buy more real estate because interest rates are low? Real estate as a good hedge against inflation? Cash would be bad in a high inflation environment but debt is good if you are the borrower. Stocks? Of course, if you find those gems. But its already going up anticipating good times ahead with the help of SSS and GSIS.
Long story short, I am not really sure of what will happen in the near future. I might stay on the sidelines while the market goes up and buy on days when it goes down, picking undervalued stocks along the way.