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We’re the last to know

Maybe I’m just sour-graping but the big, and painful lesson for me after I invested some of my small savings in the stock market in the 1990s is that small investors are really the last to know what’s really happening in listed companies.

There is in fact a mounting literature in the US that the blah-blahs of publicity-seeking analysts claiming their forecasts are based on their fundamental or technical analysis—after you really track down what they’ve been saying—are as scientific as voodoo incantations. There’s even one famous study that a random choice of stocks in the New York Stock Exchange yielded better yields than those a group of professional stockbrokers recommended.

Here, analysts come and go, and most seem to be straight from college, yet you see the same heads of stock brokerage firms—or their sons. Why? Not because they’ve developed a nose for valuing stocks. Rather they’ve become members of inner circles that have access to privileged information that determines the rise and fall of stocks. The elite have their own language, and a nod or a smile to some question over dinner would be confirmation that this or that stock will be moving soon. Don’t you ever wonder that there has been no stockbroker or businessman ever convicted of insider trading in the Philippines?

One example to illustrate what I mean. If you know that there would be a huge inflow of foreign funds in the stock market in the next three months, it doesn’t take rocket science for you to decide to invest in blue chips as much as you can. I mean not just an analysis that foreign funds are coming attracted by the Philippines economic fundamental but knowledge of a particular fund coming in.

PSE index drifting downwards: Do the big boys know what we don’t?

PSE index drifting downwards: Do the big boys know what we don’t?

This isn’t hypothetical. In 2011 the Government Service Insurance System decided to pull out all its $600 million portfolio funds from abroad to invest here in the country. Are you naïve to believe that the plan was kept super-secret and the ‘big boys’ in the stock market didn’t get wind of it?

What we have here is the opposite of the efficient market in developed countries posited by the “Efficient Markets Hypothesis, that prices reflect all public information available. Here, prices reflect information that aren’t available to the market as a whole but only to a few.

There’s another type of stockbrokerage firms, which are parts of huge local or international conglomerates. Like nations, these have their own vast intelligence networks and sharing arrangements for information among themselves. International fund managers not only have an army of economists but also mathematicians and academics from other fields of social sciences poring over each and every detail and nuance of listed companies.

Check out the following two accounts, the first from the US, which was published in June. The second was published by Victor Agustin in his Cocktales column:

From Newsmax Wires, entitled “Billionaires Dumping Stocks, Economist Knows Why”:

Despite the 6.5% stock market rally over the last three months, a handful of billionaires are quietly dumping their American stocks . . .and fast.

Warren Buffett, who has been a cheerleader for U.S. stocks for quite some time, is dumping shares at an alarming rate. He recently complained of “disappointing performance” in dyed-in-the-wool American companies like Johnson & Johnson, Procter & Gamble, and Kraft Foods.

In the latest filing for Buffett’s holding company Berkshire Hathaway, Buffett has been drastically reducing his exposure to stocks that depend on consumer purchasing habits. Berkshire sold roughly 19 million shares of Johnson & Johnson, and reduced his overall stake in “consumer product stocks” by 21%. Berkshire Hathaway also sold its entire stake in California-based computer parts supplier Intel.

With 70% of the U.S. economy dependent on consumer spending, Buffett’s apparent lack of faith in these companies’ future prospects is worrisome.

Unfortunately Buffett isn’t alone.

Fellow billionaire John Paulson, who made a fortune betting on the subprime mortgage meltdown, is clearing out of U.S. stocks too. During the second quarter of the year, Paulson’s hedge fund, Paulson & Co., dumped 14 million shares of JPMorgan Chase. The fund also dumped its entire position in discount retailer Family Dollar and consumer-goods maker Sara Lee.

Finally, billionaire George Soros recently sold nearly all of his bank stocks, including shares of JPMorgan Chase, Citigroup, and Goldman Sachs. Between the three banks, Soros sold more than a million shares.

So why are these billionaires dumping their shares of U.S. companies?

After all, the stock market is still in the midst of its historic rally. Real estate prices have finally leveled off, and for the first time in five years are actually rising in many locations. And the unemployment rate seems to have stabilized.

It’s very likely that these professional investors are aware of specific research that points toward a massive market correction, as much as 90%.

One such person publishing this research is Robert Wiedemer, an esteemed economist and author of the New York Times best-selling book Aftershock.

Before you dismiss the possibility of a 90% drop in the stock market as unrealistic, consider Wiedemer’s credentials.

In 2006, Wiedemer and a team of economists accurately predicted the collapse of the U.S. housing market, equity markets, and consumer spending that almost sank the United States. They published their research in the book America’s Bubble Economy.

“Once you hit 10% inflation, 10-year Treasury bonds lose about half their value. And by 20%, any value is all but gone. Interest rates will increase dramatically at this point, and that will cause real estate values to collapse. And the stock market will collapse as a consequence of these other problems.”

From Vic Agustin’s Cocktales column, June 26:

The Zobel brothers, an Aboitiz, and a Concepcion heir were among the handful of company owners and directors who read the warning signs right and had taken profit ahead of the still ongoing market rout, according to stock exchange records.

Amid all the self-congratulatory chatter about how the Philippine Stock Exchange had outperformed more developed neighbors, Ayala Corp. chairman Jaime Augusto Zobel and president Fernando Zobel in April sold about P160 million worth of Ayala shares at P601 to P636 each.

On Tuesday, a good two months later, Ayala Corp. ended another volatile trading day at P519.

Over in Cebu, Aboitiz Equity Ventures director Enrique Aboitiz Jr. exhibited great market timing when he disposed of nearly P225 million worth of AEV shares between March and April, even ahead of the Zobels, selling the company stock anywhere between P53.80 to P56.

AEV closed Tuesday at P40.

His fellow AEV director, Carlos Moraza, followed suit, dumping in just one week in April over 1.748 million shares at P54.20 to P55 a piece.

In addition, Moraza shorted another Aboitiz stock, Aboitiz Power, disposing a total of 650,000 shares in just one day, on May 14, at P36.24. Despite the still critical power situation in Mindanao and some parts of the Visayas, the stock continued heading south Tuesday, closing at P31.

Go Negosyo cheerleader Jose Concepcion 3rd, meanwhile, has over 33 million reasons to celebrate. The president and chief executive of the RFM Corp. sold over six million shares in April and May, when RFM was trading anywhere between P5.37 and P6.04.

RFM was one of the few stocks to buck the market meltdown Tuesday, closing at P4.58, up 1.55 percent amid thin trading.

Even the president and chief executive of Jollibee Foods, Tony Tancaktiong, showed he was not immune from the market jitters despite the fast-food conglomerate supposed to be resilient from any economic downturn.

After availing of his stock options earlier this month at P27.50 a share, Tancaktiong immediately turned around and sold nearly 350,000 shares at an average of P140 each, clearing nearly P50 million as market losses piled up.

In the newspaper trade, business reporters could take a lesson from Philstar.com news website president Juan Kevin Belmonte for market intelligence.

Belmonte preceded the market stampede way ahead of many fund managers when he took about P15 million off the table in late January shorting EEI, the Yuchengco construction company where Belmonte happens to be a board director.