Outlook for 2009

Last week’s article, “A fighter’s attitude”, elicited a number of good comments from people. Manny Pacquiao’s story is like a typical story of a successful microentrepreneur. They start with a positive attitude and carry on to succeed and move up to become small and eventually a medium and large enterprise.

In a way, it is all about our outlook in life. What we intend to do with our lives make a big difference. While I may paint a bleak outlook for America in ’09, this does not mean that the Philippines will suffer the same faith. Since this column has been discussing in layman’s language what has happened and who has been hurt in the financial crisis, it started to develop a very strong following from readers. I am not an economist. But, being an entrepreneur who has witnessed the Asian crisis, I can somehow share some insights that may help others. Bloomberg and CNBC are also my favorite channels.

Interest rate cut was .75 pct. As of now, rates are down to .25 pct. This is something that has never been seen in history. From this very rapid reduction of interest rates with the feds dropping interest rates by another .75pct, by next year we will see this close to zero. This is a sign. It shows that America is desperate to find a solution. They are willing to print money and flood the financial system with dollars to save its economy. America does not have reserves, since the world currency is in dollars. All they need to do is to keep printing. In the long run, this could mean inflation. But, commodities and oil have also gone down considerably. What worries America today is not inflation, but deflation. For me, this is more serious than inflation, because deflation can lead itself to depression. This is what we all don’t want to see. But, how far is America from a depression? Frankly, I do not see a depression scenario, but a deep recession. The clear scenario presents America as a country prepared to do anything to prevent a depression from happening, even with interest cuts and massive pumping of dollars to save industries and financial system. Even if it also means depreciating the value of the dollar, which is good for their exports, since their domestic economy is suffering with very poor retail sales numbers. This is due to a tight credit being imposed on the American consumer.

It is sad to say that in ’09, we could probably see the Dow Jones hit a record low due to the massive business closures and layoffs that leads to low level of purchasing power. A problem like this cannot be solved overnight. It will take time. Asset values will have to drop. Lower profits of American companies will suffer in ‘09.

Basically, look at America Inc. similar to the GM and Chrysler. Whatever remedy these car companies have to do, America Inc. has to do the same. America Inc. has to fix its business model and reduce its costs to remain competitive. Many of the Japanese car companies operating in America pay wages half of what GM pays. They have better cars. They have moved faster in developing hybrid cars. In America inc., the workers who are the citizens are generally with no savings or highly leveraged. Their expectations on salaries are still high. Many of the executives fly in their own jets. There are just too many regulations that increase their cost to operate. A typical example in the US is during an emergency. You just don’t have an ambulance. You also have a police car and fire truck that come with the ambulance. I find this a waste. For America to come out of this stronger, they will have to feel the pain even more so that people will realize that real change is needed.

Let us brace ourselves for ’09. It will surely be a turbulent ride. But, towards 2010, things should look better. People ask me, with interest rates going down, what should they do with their money? I would say keep it in cash, and get ready to buy the Philippines’ assets, equities or other instruments. I believe that the Philippines is the place to invest. Interest rates will have to come down here, since the gap between the peso and the dollar rates will be close to seven to eight percent. Our currency will get stronger, as it has already breached 46 from the high 50s, if they continue to keep interest rates at this level. Our stock market may improve more, with the drop in USA markets next year. Over a long term, there are a lot of good companies here who are not highly leveraged. They will do very well. In three to five years, one can easily double his profits from his investments in the Philippines.

My recommendation is to buy Philippine stocks for the long term. Exchange Traded Funds (ETF) are index funds or trusts that allow investors to buy or sell an entire portfolio of stocks as a single security. Buy these stocks to be protected from a downside in the USA. Buy DXD, which is an exchange traded fund that shorts the Dow Jones. Since you will hold on to Philippine equities on the long term, use the ETF to protect you from the downside. This idea is only for long term investors who will buy good Philippine stocks.

As we see despite the crisis, the remittances are still there. The growth in call centers and BPOs will still be there because the basic business model of the Philippines is service. We provide the best services at the lowest cost. In addition, we expect pump-priming activities from government and with the election fever starting next year, we expect more spending in the system.

Manny Paqcuiao will elevate the Philippines’ awareness level to much higher grounds. People will now realize that we don’t live in trees anymore. A win against Hatton will create great awareness for the Philippines and hopefully create interest in visiting and investing in the country. The Go Negosyo fever will continue to spread the advocacy for a more positive outlook and for a change into an entrepreneurial mindset.

Let me also share with you quite an inspiring feedback.

“I think our country would benefit more from having a YES attitude, and to realize how better insulated we are from this financial contagion that has spread throughout the globe. Unlike others, there’s still much that we can do to protect ourselves for the harsh times that may be coming, and minimize the impact that it might have to our economy.

As a person familiar with the BPO industry, I understand how this might contribute to our countries growth. As someone who works from home, offering consulting and writing services to foreign clients, this has been a very interesting time. More businesses have been opting to outsource more than just back office work, and have been hiring us for such specialized tasks as architectural renderings, grant writing, and project management. All remotely. And often times, they see that the value we bring to their company is on par with our American counterparts, and even exceeds it.

If anything, I think now is the time to invest in the Philippines. I see all these forecasts made by Moody’s and S&P about the country, and I tend to ignore it. Despite their so called expertise, they never foresaw (admitted?) this crisis, despite the now blatant mistakes presented. I think we can all benefit from a little bit of optmism, and self-confidence. After all, who will want to invest in a country who doesn’t even believe in the product they are selling: themselves.

I’m just tired of blaming the government. I think it’s time to look to ourselves, at what we can do to help the government during this tough period. I honestly think the president will step down in 2010. She knows what the people will do should she break her promise and stay in office. I think now is the time to innovate, and think of ways to help ourselves, and each other, and to stop complaining. Because that’s what we’ve been doing so far, complaining. And where has this gotten us?

So thank you for showing a bit of optimism throughout this tough period. If this inspires someone to stop whining and adopt a YES attitude, then things will be better. Who knows, that person might inspire someone else too.

Respectfully,

Kris Vengua”


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