2015: Be concerned

THIS is my “I told you so” moment.

The title of this column on January 2, 2014, was “PSE 2014: Your last chance”. In that column I wrote: “If you are thinking about investing in the Philippine stock market, you have about a week or two to make your final decision to get onboard or not. This will probably be your last chance.” Yes, there are always second chances, but I wrote that to underscore my belief that the stock market was going higher in 2014 after a dismal 2013.

I also wrote that if, in a week or two after the publication of that column, the Philippine Stock Exchange Composite Index (PSEi) broke above 6,000, the market would move back to its previous historic high. Both events occurred. I wrote further that the market would progress higher in 200-point increments; that is pretty much what happened.

I wrote: “The first quarter of 2014 may be the best market action for the year.” It was in terms of percentage increase. But I also wrote: “Buying will become stronger and prices will go higher, up to a point.” See, I told you so, as the market failed to reach above the historic high.

All of what I just wrote are absolutely true, but they’re all a bunch of nonsense.

I do not waste my time predicting stock-market movement. I leave that to the experts and stock-market gurus who spend more time on television talking about the market than actually watching and trading it. My January 2, 2014, column also included this sentence: “However, if the market does not move above and hold the 6,000 level, then all bets are off, and a fall below 5,500 is more than likely.”

The way you make money in the stock market is by adjusting to what the market is actually doing. In other words, what I do is to come up with what I think are accurate and sensible “If A then B or if C then D” scenarios. As a particular scenario unfolds, you employ a strategy to take advantage of what is actually happening and not what you would like to happen.

In 2013 one “expert” said on TV that the stock market was “safe” after the PSEi had gone higher from 5,800 back to 6,750. The PSEi subsequently went down to 5,700. Here is an important secret you might want to remember: The stock market is never “safe”.

After I have completed my 2015 analysis for the subscribers of MangunOnMarkets, I will then publicly share some of my 2015 scenarios. However, I am more concerned and cautious about 2015 than I was at the start of 2014.

At the beginning of the last several years, I have been the person dancing in the green field under a pretty rainbow, talking about a wonderful future filled with sunshine. For 2015 I am thinking more along the lines of Dawn of the Planet of the Apes.

The 50-percent decrease in global crude-oil prices has elicited far too much optimism from the global financial markets and Western consumers. The American public cheered as rising home prices kept artificially building their paper wealth. The same attitude is being seen about oil prices. But as home prices went up, the banks were getting into deeper trouble. The exact situation is occurring with falling oil prices, as the banks are soon going to face potentially massive loan defaults from oil companies.

This is only one of the negative conditions currently developing that give reasons for concern.For the Philippines, however, the new oil price is, perhaps, the most positive economic development in the last three years. But, also here, there are just too many people who are happy, especially about the stock market.

My advice in general is to stay with the partygoers for the time being, but keep a very close eye on what is happening outside, in the real world, and be ready to move quickly if things turn sour.