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Friday, August 12, 2016

Great Depression vs. Great Recession GDP Growth Rates - Updated As of Second Quarter 2016

In March 2015, two illustrious economists, both Former Fed Chairman Ben Bernanke and Former Treasury Secretary Larry Summers have been duking it out on the blogosphere about secular stagnation.  In layman's terms, both are attempting to describe why does the US Recovery from the Great Recession feel so sluggish.

Although the overall collapse in REAL GDP was relatively shallow  (-3.1% from peak to trough in real terms and -0.4% in nominal terms) and took place over two years (2008 to 2009), the recovery in the five years since then has been very anemic.  The economy reached parity with its pre-recession peak GDP in nominal terms in 2010, only three years after the Great Recession started in December 2007.   In real terms, it took an additional year, by 2011, to reach parity with its pre-recession peak.  By the 2nd Qtr of 2016, the US economy is only 27.87% larger, in nominal terms, than the bottom in 2009, averaging only 3.57% growth every year since the Great Recession bottomed out. In real terms, the US economy is only 15.61% larger than the bottom in 2009, averaging only 2.09% growth every year since 2009.

The overall economic contraction during the Great Depression was much more severe (-46% in nominal terms and -27% in real terms from peak to trough) and took much longer (four years from 1930 to 1933).  In real terms, economic parity with its pre-depression peak was only reached in 1936, seven years after the start of the Great Depression. Despite the severity and depth of the economic contraction, it only took three years after the 1933 bottom for the US economy to reach parity (in real terms) with pre-depression peak in 1929.  Recovery, in terms of economic growth rates, was a lot more robust, averaging 10.9% annually during this period.  In the four years since the US economy bottomed out in 1933, the US economy was 43.5% larger than the bottom in 1933, averaging 9.44% growth per year every year. In nominal terms, the US economy only recovered its pre-depression peak only sometime in 1941, when WWII spending began in earnest.

Great Depression vs. Great Recession

Source:,, Reinhart and Rogoff, "This Time is Different"

Friday, July 8, 2016

Singapore, Hong Kong, Malaysia, and Thailand Post Flat to Declining Housing Prices, Can the Philippines and Indonesia be Not Far Behind? - 1st Qtr. 2016

Almost all countries discussed in this blog post, with the exception of Thailand, have been experiencing rapid growth in home prices that have outstripped inflation by a wide margin.  The gap between home prices and their inflation adjusted levels are at the widest ever, particularly in Singapore, Hong Kong, and the Philippines.


Singapore's home prices have now been declining for ten straight quarters, which, according to Bloomberg, is the longest losing streak in five years.  Home prices are still  71.11% above their year-end 2004 levels. Overall prices levels, as measured by inflation have just increased by 29.39% since year end 2004.  In other words, for the past ten years, Singaporean home prices have outpaced inflation by more than 40 percentage points.


Neighboring Malaysia's House Price Index actually topped out at 229.30 in the third  quarter of 2015 and has declined to 227.50 as of the fourth quarter of 2015.  Home prices are 127.5% above their year-end 2000 levels.  General price levels are over 100 percentage points lower, at 25.56% above their year-end 2000 levels.


In Thailand, which has been experiencing political turmoil for some time, home prices have remained essentially flat since the end of 2004. Home Prices ended 2013 with the index at 100.54, just 0.54% higher than the end of 2004, but showing a substantial recovery since the recent low of 74.08 posted in the third quarter of 2009. In the first quarter of 2016, home prices have rebounded to 115.22, or 15.22% higher than its year-end 2004 levels, way below its expected inflation adjusted levels. General Price levels are 33.67% above their year-end 2004 levels. In other words, Thailand Home Prices have lagged inflation by as much as 18.45% since their year-end 2004 levels.


Meanwhile in Indonesia, home prices have showed no signs of slowing down their upward trajectory.  In fact, prices seem to have gone parabolic, climbing 4.63% in the last quarter of 2013, from a base of 121.49 as of the third quarter of 2013 to 127.11 as of year end 2013.  In the first quarter of 2016, home prices have climbed an additional 15.43% to reach 142.54.  Since the first quarter of 2007, home prices have risen 42.54%, while inflation has raised general prices by 71.68% during the same period. Indonesian Home Prices, like Thailand, have lagged inflation since 2007.

Hong Kong

Hong Kong real estate prices have leaped by 214.84% in a little over 10 years to reach a staggering 314.84 as of the first quarter of 2016 from a base of 100 since year-end 2004. General inflation levels have just climbed 40.49% during this same period.  In other words, Hong Kong home prices have outpaced inflation by an astounding 174.35% during this period, the highest rate of appreciation in the countries covered in this post.

However, it is important to note that Hong Kong Home Prices have also entered into a correction phase, declining by 10.12% from its recent peak of 350.31 as of the third quarter of 2015 to just 314.84 as of the first quarter of 2016.  There is a distinct possibility that Hong Kong Home Prices may have entered a bear market just as it did in the aftermath of the 1997 Asian Financial Crisis. See previous post: How low can Hong Kong Property Prices Go? Some Clues from the Not Too Distant Past


Philippine house price index stands at 220.99 at the end of the first quarter 2016 or over 120.99% above their year-end 2004 levels.  Philippine home prices, with the exception of Hong Kong, have posted the largest 10-year gains among all the countries considered in this blog post.  Like Singapore and Malaysia, Philippine home prices have outstripped inflation by around sixty percentage points.  Like Indonesia and Hong Kong, Philippine home prices have so far no signs of slowing down their upward trajectory for the foreseeable future.   The question is, is this momentum sustainable?  Or will the Philippines and Indonesia follow its ASEAN neighbors, Singapore, Malaysia, and Thailand, in exhibiting plateauing or declining house prices?  That remains to be seen.

Source: Global Property Guide, Trading Economics, World Bank, Colliers International Philippines

Tuesday, June 28, 2016

8990 Holdings Inc.'s Impaired Installment Contracts Receivable (ICRs): The Pig Has Finally Broken Out of the Python!

For the past two years, we have noted the sharp uptick in delinquencies in installment contracts receivables (ICRs) in 8990 Holdings Inc. (otherwise known by its ticker: HOUSE).

In 2014, in a post entitled "Has the Philippine Real Estate Bubble Already Burst?", we noted a very sharp uptick in HOUSE's ICRs that were over 90 days past due.  The marked change was very evident during the period from December 31, 2012 to September 30, 2013.

Impairments of these past due receivables were minimal, climbing from an absolute zero in 2012 to just Php 7.2 million in 2013 or a negligible 0.07% of 8990's total ICR portfolio.

Shortly after that post was published, those past due ICRs mysteriously disappeared in the company's audited 2013 Annual Report (See  8990 Holdings, Inc.: The Case of the Disappearing Past Due Installment Contract Receivables).  ICRs that were over 90 days past due dropped from a reported Php 236.0 million as of the September 30, 2013 (Unaudited Interim Report) to just Php 16.0 million as of December 31, 2013 (Audited Annual Report).

Those disappearing past due ICRs miraculously reappeared in the 2014 Annual Report, when HOUSE report that Php 177.4 million or 1.26% of its ICRs were over 90 days past due (See: "The Philippine Real Estate Bubble Has Already Burst for HOUSE (8990 Holdings, Inc.)".

These are the money shots:

Impairments showed "hockey stick"-like exponential growth, jumping from just Php 7.2 million or 0.07% of Total ICRs in 2013 to Php 1.4 billion or a staggering 9.84% of Total ICRs as of year-end 2014.

Today, the pig is out of the python.  The "pig" of Impaired ICRs has almost doubled to more than 18.14% of the total ICR portfolio (the python).

But ICRs that are over 90 days past due has dropped considerably from Php 177.4 million or 1.26% of total ICRs in 2014 to just Php 100.6 million in 2015 or 0.53% of total ICRs in 2015.  This could mean that the pipeline of incoming impairments (meaning 90-day past due ICRs) may have stalled or even dropped.

This could mean that 8990 now has a better handle on screening its customers for credit worthiness.  It could also mean that the Philippine real estate market has stabilized.  Volumes for the overall market have remained stable and home prices have continued their upward trend.

Socialized housing, the market space where 8990 predominantly operates has also done well in 2015.  So this could be a factor as well.

8990 remains heavily exposed to areas outside Metro Manila.  Over 50% of its ICRs are in Davao and Cebu.  Exposure to the Metro Manila market is minimal, only 2.11% of ICRs are originated in Metro Manila.

And that could be a good thing.

Source: 8990 Annual Reports, 2012 to 2015; HLURB,

Friday, June 17, 2016

Construction Gross Value as a Percentage of GDP Is Near a 25 Year High! - Updated as of 1st Qtr. 2016

Last May 4, 2015, we noted that Construction Gross Value (Construction GV) at 11.21% as of the year-end 2014 was already well above its historical average of 9.59% of GDP since 1990.  This ratio has run at an above average rate since 2009 and has already eaten away at the "cumulative underhang" or underinvestment in construction that has taken place since 2004, when the excessive investment in construction that took place in the mid to late 1990's was being absorbed.

As of the 1st Qtr of 2016, Construction GV as a percentage of GDP now stands higher at 11.27% of GDP - near an all-time high for the past 25 years.  But the real story is that Cumulative Construction GV has gone well above equilibrium and now stands at 2.5% above equilibrium, a rise of 1.6% in just a little over one year.  Given all the planned new projects that are already at the execution stage, the momentum in Construction Investment will continue.

Friday, June 10, 2016

How low can Hong Kong Property Prices Go? Some Clues from the Not Too Distant Past.

Last January 8, 2016, in a post titled "Singapore, Malaysia, and Thailand Post Flat to Declining Housing Prices, Can the Philippines and Indonesia be Not Far Behind? - 2nd Qtr 2015", we showed the remarkable run-up in housing prices in Asia, often outpacing inflation by a wide margin.  One of the countries featured was Hong Kong, whose real estate prices have jumped by 234.46% in a little over ten years, outpacing inflation by a staggering 207.16% as of the second quarter of 2015.

Little did we know that property prices peaked a quarter later, in the third quarter of 2015.  Since then, Hong Kong property prices have entered a correction phase, dropping by 10.12% in the two quarters since then.

When we go back to charts with historical data dating back to 1980, we find that such corrections can sometimes presage a bear market in properties. The last major bear market started in October 1997, several months after Hong Kong was handed over back to China from the U.K., lasting an arduously long 69 months or almost six years.  During this phase, prices dropped a gut-wrenching 66.22% in all classes, dipping below their inflation-adjusted levels for two quarters in 2003.  The bear market took place during the financial contagion that occurred during the Asian Financial Crisis.

Unsurprisingly, the last correction took place amid the Global Financial Crisis of 2008.  The correction was short, lasting a mere seven months, from June 2008 to December 2008. Property prices for all classes dropped 17.22% - or almost a bear market (20% decline).

Hong Kong Property Price Indices are broken down by property class.  Property classes are defined by the property's area.
  • Property Class "A": Area below 40 sq. m.
  • Property Class "B": Area between 40 sq. m. and 69.9 sq. m.
  • Property Class "C": Area between 70 sq. m. and 99.99 sq. m.
  • Property Class "D": Area between 100 sq. m. and 159.9 sq. m.
  • Property Class "E": Area above 160 sq. m.

Here's an annual chart of the various Hong Kong Property Price Indices by property class:

Here's the same chart on a monthly basis:

    As evidenced by the chart below, the largest price run-up and decline in the last decade have taken place in the smaller property classes - the A,B, and C Property Classes.  Class A properties have risen the most, rising by a staggering 225.19%.  In the three bull markets prior to that, it was the largest property class, Class E - with areas above 160 sq. m., that have risen the most.  The smaller property classes lagged behind,

    A similar dynamic has taken place in the recent market decline.  It was the Class A properties that declined the most, followed by the bigger property classes. With the exception of the period from October 1997 to July 2003, the smaller property classes were more stable.

    This is born out by the historical price volatility of each property class, as demonstrated by the chart below: 

    The recent large price swings for the smaller property classes have been outside recent historical norms.  

    As seen in the chart above, there were quite a few times when the annual change in the property price indices was more than two standard deviations beyond the mean, the most recent being in 2010 when the A Class posted an annual gain of 26.77%. Under a normal probability distribution, this does not happen 95% of the time.

    These smaller properties are generally held by small retail investors who tend to purchase properties for their own use.  As a result, volatility is usually lower among the smaller property classes. The large run-up and decline in these smaller property classes in recent times indicates that the buying was driven by rampant speculation rather than real consumption.  And that always ends badly.

    So, how low can Hong Kong property price indices go? Your guess is as good as ours.  But given the spectacular price increases from December 2008 to September 2015, it wouldn't be beyond us to think that the prices could revert back to their inflation adjusted levels as they did in the aftermath of the Asian Financial Crisis (October 1997 to September 2003), declining by more than 60% across all property classes.

    Tuesday, May 24, 2016

    The Philippine Real Estate Bubble Has Also Burst For... Ayala Land!

    It seems like that the real estate bubble has also burst for one of the biggest and most prestigious real estate developers in the country: Ayala Land or ALI for short.

    Although Installment Contract Receivables (ICRs) in absolute terms looks fine and dandy, there is a very discernable quadrupling of its Past Due but Not Impaired Installment Contract Receivables in 2015.

    A closer look shows that a big jump in past due ICRs took place in the past due ICRs that are less than 30 days old and over 120 days old.

    The jump in past due ICRs becomes clearer when viewed in relative terms.

    So past due ICRs and Impaired ICRs now comprise a striking 13.4% of the entire ICR portfolio.

    If all the past due ICRs go bad, it will take away a nice chunk (5.88%) of ALI's Stockholder's Equity.

     Although Past Due ICRs have been rapidly going up, Impaired ICRs have remained static at Php 9.55 billion and have represented a declining share of Total ICRs.  As the Past Due ICRs age further and become even more unrecoverable, Impaired ICRs have only one place to go: up!

    Source: Ayala Land 2015 Annual Report

    Friday, May 6, 2016

    One Major Reason for the Rise of the Vulgarian Rodrigo Duterte: Wealth Inequality

    Let's face it.  The Philippines always has been and it seems like it will always be a plutonomy wherein a huge chunk of the economy is controlled by a very wealthy elite.  Most of the time, the masses were placated by trickle down economics, wherein the great unwashed could feed off the crumbs left by their masters at the dinner table.  As the wealthy grew wealthier, the crumbs seemed to get better.  And, very often, that was enough for the poor.

    Not this time.

    The people have had enough of crumbs.  They want a greater share of the wealth of the country and are increasingly vocal about it.  They have that found their voice in one man, an outsider, who by circumstances of his birth, rough speech, and mannerisms, is an outsider to national politics, even though he has been a long-time Mayor of Davao, the Philippines third largest city.  That man is Rodrigo Roa Duterte.  He has captured the imagination of the poor and lower middle classes with very little money and very little by way of political machinery.  Mar Roxas, the establishment candidate and grandson of a former president, remains a laggard in the polls despite all the inherent advantages of being the anointed one.  The sudden political ascendancy of Duterte has whipped the upper classes as well as the Roman Catholic Church into a state of frenzy.  Why?  Although they castigate him for his loose morals, politically incorrect jokes, and vigilante approach to justice, the real reason is that Duterte seems to be a man they cannot control the usual means, meaning money and power but mostly money.  The previous populist, Erap, was a man who loved fine wines and lots of women and lived accordingly and that was his downfall.  Duterte does not seem the same way.

    Yet why are the people acting this way?  Hasn't the heady economic growth of the past two administrations satisfied the masses?

    The answer, of course, is no.

    The wealth has not trickled down as fast as the people would have wanted and the gap in wealth and income inequality has only increased.

    The facts do bear this out.  TFhe Credit Suisse 2015 Global Wealth Report places the total wealth of the country at US$111 billion dollars as of 2015.  And Swiss bankers, who primarily serve Ultra High Net Worth Clients (UHNW Clients = Wealth > US$ 10 million), do make it their business to know how much wealth there is in each country they want to do business in.  Of this, the top decile or the top 10% have captured 76% of it.  What about the top 1%, the economic class that sparked the Occupy movement in the USA? They hold 51% of the total wealth in the country.  In 2010, when PNoy was elected, that figure stood at 43% for the top percentile.  That's an almost 20% increase during the PNoy administration alone.

    Meanwhile, the median wealth - the point at which half the population are either below or above it, has barely budged during the same time period.

    As of 2015, median wealth stood at US $1,856, just a little over 10% above where it was in 2010: US$1,814.  Eighty-eight percent of Philippine adults have wealth under US$10K.  The top decile is estimated to have wealth ranging from over US$10K.  The top 1%? They hold wealth over US $100K.  And the top 0.10% hold wealth greater than US $1 million.

    But even the very top, the creme de la creme of the Philippine economic elite - defined as having wealth greater than US$1 million - is still very unequal.  Around 84% hold wealth between US$1 million to US$5 million.  Just 9% hold wealth between US$5 million to US$10 million.  And only 7% have wealth greater than US$10 million.  In other words, only 2,503 adults in the entire country merit the services of a Credit Suisse private banker.

    Now that is a recipe for a pitchfork revolution.