JULY INFLATION HITS 12.2%

 

It’s two months in a row we’ve been hitting double digit inflation rate. And with the rate things are going, we can expect double digit inflation until the end of this year. Though the price of crude oil in the world market has significantly gone down from $147 to $118 in past 3 weeks, we’ve yet to feel the impact. By far, it was just Php1.50 rollback for local gasoline prices — hopefully, more rollbacks to follow soon. (paging Shell, Chevron, and Petron!)

I think more and more filipinos are feeling the pinch, and have changed their spending habits. If you haven’t, then you’re headed for a big trouble. One big change is that most people are now utilizing the public transport system, and driving less. Most major routes have lesser traffic even during the rush hours.

As common people, inflation is something we can’t avoid. We just have to cope with the situation smartly.

Expect more interest rate hikes from the Central Bank — hopefully commercial banks can now offer better rates. Just yesterday, PS Bank is offering 7% p.a. for 5-year placement Time Deposit, with monthly out interest, for a minimum of 50K. Not bad, probably the highest rate among commercial banks. Though, i still prefer Rural Banks for TDs

OFF TOPIC: I have shifted my interest back to the Stock Market. Some stocks have very compelling prices, especially for long term goals. My stock picks, MEG (Megaworld) and MBT (Metrobank). I’m not overly aggressive, but started bargain hunting for quality stocks. PLTL (Piltel) is declaring dividends this August — good news to their shareholders. To know more about online stock trading, visit www.citiseconline.com

HIGH INFLATION CAN INCREASE YOUR WAIST SIZE

I must have heard or read it somewhere, but I think it’s true — high inflation can increase your waist size. Funny, but it’s true. Let me count the ways:

1. High gasoline price will discourage you to go out, and be some place else. Instead, you’ll get stuck in the house – eating, lying like a couch potato and watching tv/dvd all the time. It saves gas, it saves money from eating out and watching movies — ergo you have avoided spending. The contrary will argue that saving gas will allow people just to walk or take a bicycle. I don’t know what you’ll do, but with the hot and humid weather outside, I’d rather stay inside the house and watch Spiderman 3 in HBO for the nth time.

2. People will eat less often, but with big meals so that they dont have to eat snacks. Mostly high carbo food, to justify that they would have enough strength for the day. Yeah right.. you need 3 cups of rice, and all you need to do is sit in front of your PC and file papers all day. When you starve your body, the more it will store fat for the rainy days.

3. Now you decided to stay home, and just order out or have food delivered. Since you worry about spending too much, you opt for cheaper take outs like Jollibee or mcdo (wow, free plugging!). Have you tried eating mcdo everyday? — who would forget the “Super Size Me” documentary. I rest my case.

4. You’ll start trimming your monthly expenses — and the first things to go are those you dont usually need… gym membership and recreational activities. There goes all the fat-burning moments.

5. To lessen your trips to the grocery, you’ll buy more items in one trip to justify the cost. Trust me, the more food you store in your fridge and pantry, the more you’ll get tempted to eat. And as you spend more time inside your house, the more you’ll be tempted to eat.

Call me pessimistic, but reality bites.

INFLATION HITS 11.4%

Inflation finally hits double digit in June with 11.4%, brought about by relentless oil price increase in the world market hitting a market high of $145 per barrel.

When inflation is high, what does it mean for the common people?

- Inflation eats up the purchasing power of your money. As prices of basic commodity increase, you’ll find yourself spending more for the same basket of goods you’re buying.

- Spending more would mean increasing the money supply in the market. As most people will continue to eat, drive to work, and spend everyday- more money will float in the market.

- When inflation is high, central bank tends to increase Interest Rates to control the money supply in the market. With high interest rates, people will think twice before buying goods which they have to pay with interest rates. With this, central bank hopes to reduce the money supply in the market, and hopefully curb inflation.

- If inflation is high; Interest Rate is high. Then interest rates for auto loan, housing loan, personal loan, etc will also increase — So, is it best to buy a new car, a new home, and get a loan during high inflationary period? — if your paying cash, go right on.. but, if you’ll pay the mortgage or monthly amortization — may not be a wise move.

- Inflation is not all negative — again, there will always be two sides of a coin. As a consumer, high inflation will definitely beat you down. But as an investor (if you have existing investments in the money market), high interest rates will work to your favor. As central bank increases interest rates, banks should follow suit by increasing their Time Deposit Rates, Bills and Bonds Rates, etc. What is the logic? With banks now offering attractive interest rates, people will save more and put more of their money in the banks than spend it — again, solving the problem of too much money supply in the market.

So, how do we cope with Inflation? Spend Less… Save More.

THE DOLLAR EFFECT

Too many big words lately — Recession, Inflation, Stagflation, Devaluation, and all the other “-ion” words you can think of (let’s ask Sen. Miriam.. hehehe). But one thing is definite, people are hurting in this global downturn.

 

In the US, they have to contend with rising mortgages, oil price hike, rising cost of basic commodities, credit crunch, unemployment — it’s a picture of a perfect storm. Over-all the Dollar is weaker compared to most major currencies.

 

Here in the Philippines, though we have our share of those economic turmoil, Inflation being the biggest of them all, makes you wonder why the greenback keeps on edging over our local currency, the Peso. It’s simple –  if the Dollar is weak, our Peso is even weaker. India and Philippines have the worst performing currencies for the first half of this year. As a third-world country very dependent on OIL, we can only squirm as the world’s oil market keeps on increasing its prices almost everyday. And when oil prices rise – everything else follows. Are you feeling the crunch?

 

To date, Dollar-Peso Exchange Rate is now at  $1=Php45.50. Will it continue to rise? In my opinion – YES. So long as the OIL Prices continue to increase, then it’s inevitable for our currency to further retreat. Though, the Central Bank has expressed their concern, and will do everything to control the exchange rate at a Php45 level, even if it takes flooding the market with dollars (since the government made their fiscal budget pegging the dollar at Php42-45), but in a free market, anything can happen. As people are desperate to find tools where they can earn – we can even anticipate a bubble coming up. My fearless bet — $1=Php52.00, only then I’ll start unloading some of my Dollar deposits. For now, I’ll watch and observe.

 

Also, we have to consider the power our OFWs. The moment they start sending their hard-earned dollars to the Philippines – by virtue of supply and demand, the Peso can gain some ground (every Enrolment Season and Christmas Season).

 

But, there will always be two sides of a coin. If some people despair, others rejoice. And who are these people? — Those people who earn Dollars for a living — OFWs, Expats, Exporters, and BPO Companies. Since the start of the year, the Peso lost almost 8% to the Greenback. That’s added 8% to their Profits and Purchasing Power.

INVESTING

After saving for your Emergency Fund, any other excess funds should be invested. Most Filipinos, being conservative in nature, keep their excess funds in the Bank (normally in a savings or time deposit accounts). But by doing so, you lose the value of your money and gets gobbled up by Inflation, which is currently at 9%.

 

To ensure you keep the value of your money, and potentially increase its future value, one needs to explore all investing options.

 

As discussed in my previous post, you can either be an ACTIVE Investor or PASSIVE Investor. The former requires you to devote much of your time managing it – such as engaging in business or active trading. On the other hand, the latter requires you very minimal time to monitor your investment, and allows other people (experts) to manage your money. This is very typical for people with a regular job, and has excess funds to invest.

 

PASSIVE INVESTMENTS

 

1.                    Mutual Funds  – this is a managed pool of fund invested mostly in equities/stocks, treasury bills, bonds, commercial securities, etc. Depending on the type of fund, you would expect variations in terms of potential returns.

a.  Stocks Funds – high risk, high returns

b.  Balanced Funds – mid risk, mid returns

c.  Bond or Money Market Funds – low risk, low returns

 

To know more about Mutual Funds, I suggest you check these websites:

                http://www.icap.com.ph/index.asp

                http://www.philequity.net/

 

You will find many funds available in the market, but my personal preference is Philequity.

 

2.                    Stocks – you buy stocks of publicly traded companies (http://www.pse.org.ph). Either you seek the assistance of a personal broker, or open an online account. The former may require you to maintain a portfolio with high amount, and at the same time pay very expensive commission to your broker. The latter on the other hand allows you to manage your own portfolio, pay cheaper commission, and open an account with just Php25K.

 

You can check this website for more details,

 

Citiseconline

I personally trade using citiseconline’s platform.

 

I suggest, to gain more confidence, as you will be managing your own account, start playing with virtual trading accounts first –

 

Virtual Tycoon (by Citiseconline)

 

My personal view, pick companies which will stay in the market for a long time and realize big profits. For a passive investor, the attitude should be BUY cheap and HOLD for a long time (at least 3 to 4 years).  Don’t be affected with market’s daily volatility.

 

3.                    ETFs – or Exchange Traded Funds are like index funds of a certain Group (i.e. Financial, Agriculture, Technology, etc.) or Country (Emerging Markets, Europe, US, etc.).  You buy these funds just like stoks, hoping it will realize profits in the future. This type of fund is currently not available in the Philippines, but the PSE might soon introduce some (just waiting for SEC’s approval). If you’re interested with ETFs, you may want to open an offshore account – or open premier accounts with reputable banks like HSBC (HSBC Premier) and Citibank (Citigold).

 

4.                    Rural Bank Time Deposit – rural banks offer higher interest rates than commercial banks. Others can even offer as high as 20%p.a. for a 5-year placement. Though I admit, there are inherent risks involved, as rural banks are perceived as less stable than commercial banks. As these rural banks are also insured by PDIC (max of Php250K), then to completely protect your money, open TD accounts with Php250K as ceiling – or if you have more funds, then break up the deposits to multiple accounts (others put it under the names of their family members, or you can talk to the bank on how you can chop your funds to ensure every centavo is protected within the PDIC limit. So what happens to the interest earned? Other rural banks offer PDC payment or automatic deposit to your commercial bank account.  You can check my previous post for more details about investing in Rural Banks.

 

5.                    Open Offshore Account – opening an offshore account allows you to invest in foreign funds and stock markets. But, if you reside in the Philippines, your best shot to invest in foreign markets is to open a premier account such as HSBC Premier or CITIGOLD Wealth Management. This type of investment requires you to maintain a total relationship amount with the bank of at least Php4M (inclusive of all deposits, checking, and investments), but to invest in funds will only require you at least $10,000. To know more about it, visit these websites:

 

http://www.offshore.hsbc.com/1/2/home

http://www.hsbc.com.ph/ph/

http://www.citibank.com.ph/