Search This Blog

Thursday, April 9, 2020

There Are Now 8.6 Million Missing American Workers

Everyone knows how unemployment surged through the roof. In a span of two weeks, 10 million people claimed filed for unemployment benefits. The scale is unimaginable. Look at the chart.

But what is less publicized is that the Civilian Labor Force Participation Rate (LFPR) dropped by 0.70% in one month, from 63.4% in February 2020 to just 62.7% in March 2020. So, over 1.6 million people dropped off from the labor force and have gone missing.

There are now 8.6 million people missing from the labor force since the Great Recession began in December 2007 because the LFPR dropped from 66.0% pre-recession to a current 62.7% today.

We are now back to August 2018 levels. This figure reflects only the 3.0 million people that became unemployed in the last week of March 2020. In the first week of April 2020, 6.6 million more people became unemployed, which will lead to further and bigger drops in the Civilian Labor Force Participation Rate for April.

Thursday, April 2, 2020

Is Greece Done with Deleveraging?

Is Greece done with deleveraging? It's been deleveraging for over 10 years now. Credit to GDP is down from a peak of almost 140% of GDP to 110% of GDP.

Thursday, March 19, 2020

How Did the US Stock Market Perform During the 1918 Spanish Flu Pandemic?

During the 1918 Spanish Flu Epidemic, the first wave of deaths hit its peak of 5 deaths per 1,000 persons in July of 1918. It subsided in August and remained that way for the rest of the summer. Come Fall of 2018, a second and much more lethal wave hit, peaking just below 25 deaths per 1,000 persons in November of 2018. This wave subsided to more normal levels during winter. Then a third wave of deaths hit in February of 2019, lasting until May of that year. About 28% of the US population were infected during this period, leading to an estimated 500,000 to 675,000 deaths (0.48 to 0.64% of the population).

Surprisingly, the stock market during this time period remained remarkably stable. It did not crash. The Dow Jones Indusrial Average Index (DJIA), which was the only US stock market index to exist at that time, shows that the market remained relatively flat throughout 1918 and then soared by almost 50% by the end of summer of 1919.

The DJIA is a price-weighted index that measures the stock performance of the 30 large companies listed in the US stock market and is therefore not representative of the broader market.

The S&P 500 Index is broader-based stock market index because it includes at least five hundred of the largest publicly listed companies in the United States. The S&P 500 is a capitalization-weighted index and not price-weighted. It is constructed by combining the market capitalizations of all the component companies. However, the S&P 500 Index only came into existence in 1957. It did not exist in 1918. So how do we gauge the broader market performance of that time.

Enter Finance Professor Robert Shiller of Yale University has a data set which presents the "US Stock Markets 1871 - Present and CAPE Ratio," which reconstructs or estimates what the S&P 500 Index would have been during the Spanish Flu Pandemic using data on the stocks being traded in the US stock market at that time.

The reconstructed S&P 500 Index showed that the broader stock market did soar not just in 1919 but starting in 1918, when the first wave of the pandemic hit.

So, what gives? Why did it soar?

Simple. The economy soared too. Real GDP soared by 9.02% in 1918, then dropped to a measly growth rate of 0.80% in 1919, according to economists Reinhart & Rogoff.

Why did GDP by 1918 in the midst of a global pandemic? Because the US entered World War I in April 1917 and spent billions on military preparations.

The data from the White House website tells it all.  Government spending soared by 549% in 1918, from just 3.27% of GDP in 1917 to 16.72% of GDP in 1918.

Year Total US Government Revenues and Outlays
Receipts Outlays Surplus or Deficit (-) Outlays as % of GDP
1914 725 726 -* 1.99%
1915 683 746 -63 1.93%
1916 761 713 48 1.44%
1917 1,101 1,954 -853 3.27%
1918 3,645 12,677 -9,032 16.72%
1919 5,130 18,493 -13,363 23.62%
1920 6,649 6,358 291 7.19%
1921 5,571 5,062 509 6.88%
1922 4,026 3,289 736 4.48%
1923 3,853 3,140 713 3.68%

Source: and Reinhart & Rogoff

The bulk of the increased outlays were for military spending itself. Expenditures soared from just $546 million in 1917 to $7.05 billion in 1918. It drafted 2.8 million men to fight the war in Europe. By the summer of 1918, it was sending 10,000 fresh soldiers to France every day. World War I lasted until November 1918 at the height of the pandemic. When the war ended, so did expanded military spending and GDP growth dropped off considerably.

The economy was kept humming at a brisk pace, unhampered by the lack of quarantines, allowing the pandemic to grow and spread, leading to many more millions of unnecessary deaths. In other words, public health officials did not flatten the curve so as not to cripple the war effort.

Obviously, not flattening the curve today is not possible. It would be political suicide for any government official to let the pandemic run wild.

One obvious lesson we can take away is that massive government intervention, not necessarily in the form of miltary spending, can keep the economy humming, if not soaring, in the midst of a global pandemic. Even Ken Rogoff, known for his hawkish views on government debt, seems to think so.

I mean, there's never been a concern about our government's defaulting. The concern is being able to borrow massively when you need to. That's the whole point of saving for a rainy day. When it rains, you want to really open up the floodgates.

And, here, I just — there's no limit. We're in a war. You have to win the war. I would have no problem with the government debt magically going up $5 trillion in the blink of an eye, if we could get out of this in two or three months healthily.

This is an emergency. You're not worrying about your credit standing right away. I don't think that's going to a problem. And you know what? If we have inflation at the end of this, so what, if that is what we needed to do to win this war. We're trying to protect the American people, protect our interests, protect the future.

This is really — think like World War II, World War I. It's this — tiny little viruses invading us, but you know, make no mistake, this is like a war, an alien invasion.

Maybe we should do the same thing in 2020. Goverment has to step in and pick up the economic slack or we will fall into an economic, financial, and political abyss.

Thursday, March 5, 2020

How Crazy is the Philippine Real Estate Market? Prices have Climbed Over 63% Since Duterte Took Office!

Philippine house prices have gone parabolic. They have climbed 63.33% since President Duterte took office in the second half of 2016. Year-on-year price increase as of the 4th Qtr 2019 is an astounding 26.28%. Prices have outpaced inflation by a wide margin, 169.37 percentage points.

How long can this go on? Not long, considering sales volumes dropped by more than  25% in 2018, indicating that more and more people cannot afford the high price levels.

Wednesday, February 26, 2020

Is ABS-CBN Preparing for a Shutdown? Why Have Regularized Employees Been Reduced By Over 60%?

In 2017, ABS-CBN's worker headcount was 11,068 persons as detailed in its 2017 Annual Report. Around 60% of the worker headcount was composed of regularized employees. The rest consisted of Non-Regular Employees, Talents, and Project-Based Employees.

In 2018, ABS-CBN's worker headcount was roughly 2% smaller - only 10,855 person as detailed in its 2018 Annual Report. However, the number of Regularized Employees grew by 2.5% that year. As a result, they comprised a slightly higher percentage of the total workforce - 62%.

ABS-CBN has said time and again that the non-renewal of its broadcast franchise will threaten the livelehoods of its 11 thousand workers. The government claimed otherwise. It said that ABS-CBN only has 4,401 employees.

"In a letter to SolGen Jose Calida dated 21 February 2020, the BIR said ABS-CBN Corp. and ABS-CBN Convergence Inc. have a total of only 4,401 employees, way below the 11,000 the Kapamilya network has been claiming in its efforts to renew its franchise which expires 30 March.
The Internal Revenue based its findings on the Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes submitted by both ABS-CBN Corp. and ABS-CBN Convergence Inc.
The BIR document showed ABS-CBN Corp. has 4,322 employees while ABS-CBN Convergence Inc. has 79 as of 31 December 2018."
 To counter this confusion, ABS-CBN released this statement detailing that it had 11,071 workers as of December 31, 2019.

It said that 5,918 people worked directly for ABS-CBN. Of this number, only 2,661 people were regular employees. The rest were Project-Based Seasonal Workers, Independent Contractors and On-Camera Talents, and Project Employees. An additional 5,153 unclassified workers brought the total ABS-CBN workforce to 11,071.

Classification 2019
Regular 2,661
Project Based 2,096
Independent Contractors 1,069
Project Employees 92
Subtotal 5,918

Others 5,153
Grand Total 11,071

This reveals that the number of permanent, regularized employees has declined substantially - by over 60%, in fact. The rest are expendable. Non-regularized employees tend to have less rights, less benefits, and can be let go at the discretion of ABS-CBN's management, especially in a country like the Philippines where the wheels of justice tend to turn very slowly.

The reduced regular employee headcount took place at a time when ABS-CBN's revenues have, in fact, increased by a healthy 4.9% over the previous year.

The reduced number of regular employees gives ABS-CBN maximum flexibility to let go of employees in the event of a broadcast shutdown and it switches completely to an internet streaming service.

The question is: Is ABS-CBN fighting for its workers or fighting for the right to exploit its workers?

Thursday, February 20, 2020

The Beginnings of Wage Inflation

Last year, we estimated that pointed out that there were still 7.4 million workers missing from the labor force. The presence of so many missing workers would dampen wage growth for some time to come. Today, the number of missing workers is down slightly to 6.8 million workers as of January 2020.

And, true enough, wage growth has remained rather subdued given the low official unemployment rate of 3.6% as of January 2020.

But certain sectors of the labor market are starting to tighten. For instance, the prime age (25 to 54 years old) working group is now reflecting a shortage of workers of 191 thousand people.

This indicates that wages for this age group could tighten in the not too distant future.

The tightness of the prime working age group is not shared equally among the sexes. The labor market for Prime Age Women Workers is very tight, with an estimated shortage of almost 1 million women as of January 2020.

For men, it is an altogether a different story. There are still around 800K Prime Age men missing from the labor market..

This gap for Prime Age men is being filled very slowly, only a few thousand a month. But once that gap is filled, wages should start rising up.

Related Posts: Why There Is Still No Wage Inflation: There are 8.1 Million Missing American Workers

Sunday, February 9, 2020

In the Last Twelve Years, Philippine Income Inequality Has Declined Substantially

In the last twelve years, Income Inequality in the Philippines has declined substantially, primarily because income growth in the lowest classes have outpaced that of the upper classes. From 2006 to 2018, average per capita incomes for the poorest decile grew by a CAGR of 11.1% a year, while the incomes for the richest decile grew by a CAGR of only 2.81% during the same period. The average Filipino's income also grew by a decent CAGR of 5.1% a year.  As a result, the richest decile, which once towered over the poorest decile by almost 20 times income in 2006, now has a less intimidating ratio of less than 8 times income of the poorest class. For the average Filipino, that ratio has been cut in half, from 5.4 times the poorest decile in 2006 to just 2.8 times in 2018.

Related Links: Why Do Filipinos Love Duterte So Much? Because Income Growth was Fastest Among the Poorer Classes!

Source: Family Income and Expenditure Survey 2018

Sunday, February 2, 2020

Just How Reasonable are the Rates of Return of the Water Concessionaires: Manila Water Company and Maynilad?

President Duterte has gone to war with two of the biggest oligarchs in the country, namely the Ayalas and Manny Pangilinan, who operate the water concessionaires Manila Water and Maynilad. He has threatened to arrest them and have them thrown in jail for plunder and syndicated estafa. Specifically, they have been accused of the following:

  1. Renegotiating and extending their 1997 contracts thirteen years prior to their expiration in 2022 without the benefit of public bidding.
  2. Attaching onerous provisions in the revised contracts that include transferring their income tax burden to the consumers and prohibiting government regulators, the MWSS (Metropolitan Waterworks and Sewerage System), from discharging its mandate to regulate the rate of charges that the companies will collect from the consumers.
  3. Collecting environmental fees intended to build water treatment facilities without actually building such facilities, resulting in the pollution of Manila Bay.

As a result, the MWSS has cancelled the extension of the water contracts to 2037 and the government is drafting revised water concession contracts that exclude the terms the President considers onerous.

Plunging Share Prices

Unsurprisingly, with their futures in limbo, the stocks of the water concessionaires have taken deep dives since the President launched his war late last year but have recovered some ground with the prospect of impending contract renegotiations.

Here is the chart for Manila Water:

And here's the chart for Metro Pacific Investments Corporation, Maynilad Water Services' holding company. Maynilad itself was publicly listed in the Philippine Stock Exchange (PSE) until its voluntary delisting in 2017.

Impressive Financials

Both companies have been among the biggest and most profitable companies listed in the PSE, pulling roughly Php 20.0 billion (US$ 392 million) in revenues and Php 6.0 billion (US$ 118 million) in net income each.

Naturally, both companies have stacked up very decent rates of return for their respective shareholders in the last five years. For instance, Manila Water's Return on Equity (ROE) for the last five years (2014 to 2018 plus the last 12 months) have averaged 14.34%. Maynilad's ROE (2015 to 2017) was an even more impressive 21.41%.

Global Comparisons

Now how do these returns stack up, globally?

After scanning Capital IQ for publicly-listed companies comparable to the Water Concessionaires, I arrived at a list of 74 companies that are primarily in the business of Water Supply. Here's the list:

Company Name Exchange:Ticker Country of Operations Revenue (US$ M) Market Cap (US$ M)
Aguas Andinas S.A. (SNSE:AGUAS-A) SNSE:AGUAS-A Chile 703.00 2,622.70
American States Water Company (NYSE:AWR) NYSE:AWR California 471.90 3,107.00
American Water Works Company, Inc. (NYSE:AWK) NYSE:AWK USA 3,558.00 22,519.30
Aqua Spólka Akcyjna (WSE:AQU) WSE:AQU Poland 40.71 54.47
AquaVenture Holdings Limited (NYSE:WAAS) NYSE:WAAS Americas 192.70 856.00
Artesian Resources Corporation (NasdaqGS:ARTN.A) NasdaqGS:ARTN.A USA 81.90 344.40
AS Tallinna Vesi (TLSE:TVEAT) TLSE:TVEAT Estonia 70.90 259.90
Athens Water Supply and Sewerage Company S.A. (ATSE:EYDAP) ATSE:EYDAP Greece 357.70 895.80
Beijing Capital Co.,Ltd (SHSE:600008) SHSE:600008 China 7,873.40
Beijing Enterprises Water Group Limited (SEHK:371) SEHK:371 Global 3,528.10 5,235.50
Beijing Water Business Doctor Co., Ltd. (SZSE:300055) SZSE:300055 China 130.30 905.30
Ben Thanh Water Supply Joint Stock Company (HNX:BTW) HNX:BTW Vietnam 20.10 9.43
Binh Duong Water - Environment Joint Stock Company (HOSE:BWE) HOSE:BWE Vietnam 109.60 142.10
Bohai Water Industry Co.,Ltd (SZSE:000605) SZSE:000605 China 232.90 368.00
California Water Service Group (NYSE:CWT) NYSE:CWT USA 705.10 2,383.20
Chengdu Xingrong Environment Co., Ltd. (SZSE:000598) SZSE:000598 China 643.90 2,033.50
China Everbright Water Limited (SGX:U9E) SGX:U9E China 673.10 690.70
China International Holdings Limited (SGX:BEH) SGX:BEH China 10.26 16.90
China Water Affairs Group Limited (SEHK:855) SEHK:855 China 1,095.70 1,250.80
China Water Industry Group Limited (SEHK:1129) SEHK:1129 China 124.30 97.60
Chongqing Water Group Co.,Ltd. (SHSE:601158) SHSE:601158 China 818.70 3,956.80
Compagnie des Eaux de Royan (ENXTPA:MLEDR) ENXTPA:MLEDR France 41.93 26.61
Companhia Catarinense de Águas e Saneamento - CASAN (BOVESPA:CASN3) BOVESPA:CASN3 Brazil 264.90
Companhia de Saneamento Básico do Estado de São Paulo - SABESP (BOVESPA:SBSP3) BOVESPA:SBSP3 Brazil 4,351.00 10,007.80
Companhia de Saneamento de Minas Gerais (BOVESPA:CSMG3) BOVESPA:CSMG3 Brazil 1,196.80 2,049.30
Companhia de Saneamento do Paraná - SANEPAR (BOVESPA:SAPR4) BOVESPA:SAPR4 Brazil 1,071.90 2,406.70
Consolidated Water Co. Ltd. (NasdaqGS:CWCO) NasdaqGS:CWCO Global 69.20 251.30
Eastern Water Resources Development and Management Public Company Limited (SET:EASTW) SET:EASTW Thailand 150.80 636.80
Essbio S.A. (SNSE:ESSBIO-C) SNSE:ESSBIO-C Chile 217.30 409.10
Esval S.A. (SNSE:ESVAL-C) SNSE:ESVAL-C Chile 253.70 328.10
Global Water Resources, Inc. (NasdaqGM:GWRS) NasdaqGM:GWRS USA 35.04 276.53
Grandblue Environment Co., Ltd. (SHSE:600323) SHSE:600323 China 802.80 2,219.70
Guangdong Investment Limited (SEHK:270) SEHK:270 China 1,899.70 14,122.20
Guangxi Nanning Waterworks Co., Ltd. (SHSE:601368) SHSE:601368 China 210.20 757.30
Heilongjiang Interchina Water Treatment Co.,Ltd. (SHSE:600187) SHSE:600187 China 66.70 615.70
Hyflux Ltd (OTCPK:HYFX.F) OTCPK:HYFX.F Global 111.60 7.90
Iguá Saneamento S.A. (BOVESPA:IGSN3) BOVESPA:IGSN3 Brazil 214.30
Inversiones Aguas Metropolitanas S.A. (SNSE:IAM) SNSE:IAM Chile 703.00 1,071.90
Jiangsu Jiangnan Water Co., Ltd. (SHSE:601199) SHSE:601199 China 138.30 528.00
Jiangxi Hongcheng Waterworks Co., Ltd. (SHSE:600461) SHSE:600461 China 689.60 835.40
Kunming Dianchi Water Treatment Co., Ltd. (SEHK:3768) SEHK:3768 China 230.00 309.70
Luzhou Xinglu Water (Group) Co., Ltd. (SEHK:2281) SEHK:2281 China 207.80 147.00
Lydec S.A. (CBSE:LYD) CBSE:LYD Morocco 786.20 401.30
Manila Water Company, Inc. (PSE:MWC)
Philippines 417.10 462.80
Middlesex Water Company (NasdaqGS:MSEX) NasdaqGS:MSEX USA 135.10 1,084.40
Muscat City Desalination Company S.A.O.C. (MSM:MCDE) MSM:MCDE Oman 43.67 43.64
New England Service Company, Inc. (OTCPK:NESW) OTCPK:NESW USA 7.52 21.49
Nha Be Water Supply Joint Stock Company (HNX:NBW) HNX:NBW Vietnam 28.29 20.14
PBA Holdings Bhd (KLSE:PBA) KLSE:PBA Malaysia 83.30 88.00
Pennon Group Plc (LSE:PNN) LSE:PNN United Kingdom 1,869.20 5,822.40
Puncak Niaga Holdings Berhad (KLSE:PUNCAK) KLSE:PUNCAK Malaysia 106.00 33.00
Pure Cycle Corporation (NasdaqCM:PCYO) NasdaqCM:PCYO USA 27.75 296.05
Qian Jiang Water Resources Development Co;Ltd (SHSE:600283) SHSE:600283 China 165.30 522.00
Ranhill Holdings Berhad (KLSE:RANHILL) KLSE:RANHILL Global 406.80 280.10
Saigon Water Infrastructure Corporation (HOSE:SII) HOSE:SII Vietnam 7.82 49.73
Salcon Berhad (KLSE:SALCON) KLSE:SALCON Malaysia 43.26 43.05
Severn Trent Plc (LSE:SVT) LSE:SVT United Kingdom 2,344.40 7,997.20
SIIC Environment Holdings Ltd. (SGX:BHK) SGX:BHK China 853.60 512.00
SJW Group (NYSE:SJW) NYSE:SJW USA 393.40 1,976.00
Société de Distribution d'Eau de la Côte d'Ivoire, S.A. (BRVM:SDCC) BRVM:SDCC Ivory Coast 176.60 42.70
Taliworks Corporation Berhad (KLSE:TALIWRK) KLSE:TALIWRK Malaysia 90.70 431.50
The Torrington Water Company (OTCPK:TORW) OTCPK:TORW USA 7.34 35.42
The York Water Company (NasdaqGS:YORW) NasdaqGS:YORW
50.60 622.00
Thessaloniki Water Supply & Sewerage Co S.A. (ATSE:EYAPS) ATSE:EYAPS Greece 76.80 192.70
Thu Duc Water Supply Joint Stock Company (HOSE:TDW) HOSE:TDW Vietnam 21.13 8.80
TTW Public Company Limited (SET:TTW) SET:TTW Thailand 201.40 1,830.10
United Utilities Group PLC (LSE:UU.) LSE:UU. United Kingdom 2,393.80 8,867.70
Universal Technologies Holdings Limited (SEHK:1026) SEHK:1026 China 34.54 148.32
Watlington Waterworks Limited (BER:WWW.BH) BER:WWW.BH Bermuda 11.99 26.66
WHA Utilities and Power Public Company Limited (SET:WHAUP) SET:WHAUP Thailand 59.60 731.60
Wodkan Przedsiebiorstwo Wodociagów i Kanalizacji S.A. (WSE:WOD) WSE:WOD Poland 9.82 8.36
Wuhan Sanzhen Industry Holding Co.,Ltd (SHSE:600168) SHSE:600168 China 225.70 710.50
Yunnan Water Investment Co., Limited (SEHK:6839) SEHK:6839 China 912.90 255.10
Zhongshan Public Utilities Group Co.,Ltd. (SZSE:000685) SZSE:000685 China 300.10 1,821.80

Some are big, some are small. Many are in China or the ASEAN. But in every case, both Manila Water and Maynilad's Rates of Return tended to gravitate to the upper end of the spectrum, be it globally, Asia-wide, or in Southeast Asia and in every category of return. Manila Water's returns are highlighted in orange while Maynilad's are highlighted in yellow.

Global Returns:

Asian Returns:

Southeast Asian Returns:

Statistical Rankings

Both Manila Water's and Maynilad's Rates of Return are far above average on a global, Asian-wide, and Southeast Asian-wide basis.

Manila Water's Rates of Return are above the 75th percentile (meaning only 25% of the companies have higher returns) globally and in Southeast Asia in terms of ROA and ROC. Asia-wide, its returns are at least in the 83rd percentile in all categories of returns.

Maynilad's Rates of Return rank above the 90th percentile in all geographic categories and in all categories of return except one: global Return on Common Equity (ROCE) - where it ranks in the 65th percentile.


The impending contract renegotiations and removal of the provisions deemed "onerous" by the Duterte administration will inevitably result in a much slower growth in water tariffs and higher costs for the water concessionaires. They will no longer be able to pass on their income tax burdens to the consumers, they will have to build expensive water treatment plants, and they will no longer enjoy uncontested and automatic rate increases.

All this will serve to lower their rates of return  and align them with international averages. The returns of Manila Water and Maynilad will closely resemble that of a regular water utility stock: safe but boring.

Source: Capital IQ,

Monday, January 27, 2020

Why Do Filipinos Love Duterte So Much? Because Income Growth was Fastest Among the Poorer Classes!

Incomes grew across the board.

But incomes grew fastest among the lower classes. The lowest decile gained the most, while the highest income decile grew the least.

The ratio of the highest income decile to the lowest income decile has narrowed, reducing income inequality further.

Source: FIES Philippines, 2012, 2015, and 2018, Philippine Statistical Authority