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In the 18 months to June this year, prices of basic commodities like
oil, rice, wheat, sugar, corn, and even sardines, rose to their
highest in 35 years. Bad news.
In July, basic commodities had their worst
performance in a month in 28 years. Their prices declined 10
percent. Good news.
On July 11, 2008, crude oil price hit a record
$147.27 per barrel in New York. Bad news.
On September 5, 2008, oil crashed below $105 per
barrel, a five-month low. Good news.
In April this year, the Thai export grade B rice
hit a record $1,080 per ton, a record. Bad news.
On August 18, Thai rice shriveled by $380 to
$700, a drop of 35 percent. It has remained at that level ever
since. Good news.
On September 7, US Treasury Secretary Henry
Paulson announced a bailout of America’s two largest mortgage
lenders, Fannie Mae and Freddie Mac with capital infusion of as much
as $200 billion. Bad news, especially for American taxpayers.
The multi-billion-dollar rescue will return
stability and liquidity in the financial system, not only in America
but also in other major global financial capitals. Good news.
In August, Philippine inflation rate spiked to
12.5 percent, the highest in 17 years. Bad news.
In the coming months, inflation should
decelerate as prices of oil and food have declined. Good news.
This series of bad news, good news combinations
augur only one thing. The worst could be over. For consumers, for
the economy, for the Philippines.
Consumer and Oil Price Watch chairman
industrialist Raul Concepcion believes the worst will soon be over.
“The Philippines is over the hump,” he asserts.
It now seems the oil bulls have been wrong all
along.
In March 2008, Goldmach Sachs analyst Arjun
Murti predicted a price surge that will soon drive crude oil to $200
a barrel. A few years ago, he predicted oil would breach $100 a
barrel. He was right then. He is wrong now.
In June, Deutsche Bank chief energy economist
Adam Sieminski predicted oil would reach $250 a barrel before the
end of 2008. Alexei Miller, the CEO of Russian oil company Gazprom
told reporters on June 10, 2008 he expected oil price to rise to
$250 a barrel in 2009. They now appear to be wrong or worst, simply
speculating.
Analysts say oil should be trading between $100
and $110 per barrel if supply and demand were the only issues at
play. Fundamentally, in fact, oil should be priced much lower since
some OPEC countries produce oil as low as $20 a barrel. Others say
the average cost of producing oil is nearer to $50 a barrel. In any
case, apparently, speculation adds up to 30 percent of the oil
price.
On September 7, the US Treasury announced a
takeover of America’s giant quasi-public mortgage finance
companies. The US government would pump up to $100 billion to revive
Fannie Mae and Freddie Mac which together account for $5.4 trillion
or half of outstanding mortgages in the US.
Fannie Mae and Freddie Mac were clearly
mismanaged. They overstated their capital cushion and understated
their losses by recognizing losses only when payments are two years
late instead of 90 days overdue and mixing their capital with
securities that contain bad housing loans.
“Fannie Mae and Freddie Mac are so large and
so interwoven in our financial system that a failure of either of
them would cause great turmoil in our financial markets here at home
and around the globe,” Treasury Secretary Henry Paulson explained
Sunday, September 7.
Paulson added that “this turmoil would
directly and negatively impact household wealth: from family
budgets, to home values, to savings for college and retirement. A
failure would affect the ability of Americans to get home loans,
auto loans and other consumer credit and business finance. And a
failure would be harmful to economic growth and job creation.”
Share prices of Japanese banks jumped more than
9 percent on Monday (September 8) morning. Mitsubishi Bank, Sumitomo
Bank and Mizuho Bank have large exposures in Fannie Mae and Freddie
Mac. Share prices of Korean banks increased 6 percent to 9 percent.
Asian stocks rallied to their highest in eight months.
In the Philippines, a number of banks have taken
significant to sharp reductions in the value of their equity to
reflect mark-to-market declines in their investments in IOUs
overseas.
Better days are ahead, it seems.
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Item: When paying toll at the South Luzon
Expressway, be sure to count your change. You could be the victim of
a swindle. Tellers don’t give the correct change—deliberately.
It happened to me twice in two weeks. The SLEX has become the
Philippines’ most dangerous highway. It has no adequate road and
safety signs.
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