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There’s no official statement yet from Philamlife, but AIG issued a late advisory that it will no longer sell its crown jewels including the local office. Read the story here. I am almost disappointed. Consolidation is always good for any industry. A sale to BPI, BDO or some other big player could only push the others to offer the public with better products. The flipside is that the sale might put pressure on the buying entity to recover its investments, and this could mean dividends originally meant for policyholders could be lessened. Would a need to repatriate earnings to AIG have the same effect? I guess we will soon see. What I know for sure, though, is that Philam’s huge sales force, are probably doing a dance of joy. For the last few months, I heard that the company has been pushing everyone to up the ante despite the impending sale. Reactions?

Last Saturday, the moment of truth arrived for my eldest daughter: it was time to get her school card for the third quarter. As my eyes skimmed over her grades, I fought the urge to be the perfectionist, the slave-driver mom, the one who pushes and pushes “to do your best.” Can a single figure summarize all the effort that go into learning or doing something? I’m sure the answer is different for various things, but inevitably, we rely on measurements for performance, whether at school, at work, in life and most especially when it comes to investing. People often interchange yield and return when talking about how investments perform. They are not the same, and if you look at resources around the web, not everybody defines them the same way, too. So, I turned to my trusted “The Wall Street Journal Guide to Planning Your Financial Future” for an easy introduction to the main difference between yield and return:

LOOKING FOR YIELD You find yield by dividing what you receive in interest or dividends on an investment by the amount you spend on it. For example: $200 – annual interest ÷$2000 – invested ------------------------ 10% YIELD Yield is sometimes confused with the interest rate an investment pays because the rate is also stated as a percentage of investment. But while yield depends on the rate, it is often a different number. That’s because the yield represents what someone paying the current price of the bond, rather than its stated, or par, value, receives on the investment. When the price is more than par, the yield is lower than the interest rate, and when the price is less, the rate is higher.

Let’s decode that. For example, the Aboitiz bond sells this March for P100,000 (that’s the original price or par value) with a coupon of 8% this year. I found out from this website that the interest stated when the bond is originally issued is called coupon because bonds used to have actual coupons attached to them and you clip them off to redeem them for each interest payment. Cool, huh? That should make this easier to remember ;-) You aren’t able to buy the bond, but decided that you would buy in June. By then interest rates start falling a bit, and in the secondary market, you finally buy the Aboitiz bond for P102,000 or P2,000 above par. Using the WSJ guide, this means the bond will be yielding only 7.84% (P8,000 annual interest ÷ P102,000 current price). Notice that your yield has now fallen below the original 8%. The guide further explains that there are different ways to calculate yield on fixed-income investments: there is the yield based on the earliest date a bond may be redeemed by the issuer and there is the yield to maturity, or what your total return would be in today’s dollars if you hold the bond until it matured. Lesson? Ask for details when buying fixed-income instruments and especially about yield. Return, on the other hand, especially total return, is more often used on equity investments and is a more comprehensive measurement of performance. Total return is simply everything you gained on an investment, from interest or dividends to capital appreciation. For example, you bought 100 PLDT (TEL) shares at P1,000 per share a few years ago. It closed today at P2,175, giving you a P1,175 per share gain. You received P10,000 in dividends. Your total return would be: P117,500 + P10,000 = P127,500 How do you compare this return with other investments? Find the percent return this way: Total return ÷ Price of investment = Percent return P127,500 ÷ P1,000,000 P100,000 = 12.75% 127.5% If you bought and sold TEL within one year, you enjoyed a 12.75% 127.5% return. But if it took you two years to get that, your annual return would be 6.375% 63.75%. (Oops, sorry for the P900,000 error! One zero can make so much damage! Thanks for the correction!) The search for the best yield/return I haven’t yet met a person who wouldn’t like to get the highest yield or return for each and every peso he saves and invests. Unless you’re into rigging government contracts, earning money is not that easy, you know? But chasing after the highest returns and yields possible can sometimes land us in trouble. Remember Legacy? Remember Multitel? Remember Francswiss and Deutchfrancs? PIPC? Personally, I believe we need to look into yields and returns on a holistic level. In a carefully diversified portfolio, for example, there’s space for lower yields that give more stability, and a little bit of space to riskier, and higher yielding ones. When the portfolio doesn’t give the returns we expect, like in a drab year such as what we have now, remember that that little figure does not summarize who we are and what’s most important in our lives. Gotta think about that when I discuss with my daughter her performance for the third quarter. :-D

Here’s my roundup, which should have been uploaded last Saturday. Sorry for the delay. By now, you probably know that job losses and news of more firms shutting down intensified last week, and we might not like it, but you’ll see more of the same in the coming months. There’s no use cursing the gods. Better use your time wisely by thinking of ways to keep your jobs, and if that’s not possible, prepare using the mantra we have been repeating over and over again. Save more; spend less. Build up your emergency fund. Postpone major expenses if possible. One more thing: financial tension is most often the cause for marital troubles. So keep your job, but if not, remember to keep your spouse! The sum of all our marriages is more than the paychecks . Personal Finance There was a slew of great personal finance tips on INQUIRER.net last week, geared to help us during these trying times. In When banks, pre-need firms fold, Alvin Tabañag, author of “12 Steps To Build Wealth On Any Income,” says there’s real fear out there now among Filipinos because of the closure of rural banks and preneed companies. This article has a practical guide for those who were affected by the closures. In Protect education funds from crisis, BDO chief investment officer and senior vice-president Marvin Fausto points out that one of the most common investing mistakes people made last year is forgetting to take out your money from UITFs and mutual funds if you needed the money in three to five years. He says that in 2006, people doubled their money in these investment vehicles and got dazzled by the returns and thought they would last forever. In BSP: don’t keep money under the mattress, deputy governor Nesting Espenilla says one of the warning signs your deposits are not safe in a bank is when “agents” solicit your deposits and they are offering “too good to be true” interest on your money. Greed factor, huh? We know what bank he is talking about. In fact, the House of Representatives will be asking the owner of Rural Bank of Paranaque, the mayor of Sto. Domingo town in the Albay province, to face lawmakers and explain what happened to his bank. Enrile is now saying Congress needs to do something about the problem of preneed companies because regulation is not very tight. I think, however, that tighter central bank regulation will be more effective. It’s a good sign that banking practices guidelines are now being tightened, but it’s kinda reactive, I know.

Under BSP Circular 640, banks offering deposit interest rates 50 percent higher than the comparable market rate will be considered as engaging in unsafe and unsound banking practice. Unauthorized acceptance and solicitation of deposits outside bank premises and branches will also be considered as cause for alarm.”

In Money mistakes seniors make, those who are nearing retirement are advised to take advantage of retirement funds and how a better strategy can preserve their money as the day of reckoning approaches. We’re all feeling the squeeze. Most of us who have kasam-bahays at home are probably feeling it more. In Johnny Noe Ravalo’s article “Saving program for kasam-bahays” he draws out an interesting strategy to help people who help us, and I’m personally putting this to practice this year in our home. Instead of giving them their pay increases this year every month, I am putting everything in lump sum in a deposit account that they control. That way, they become part of the formal banking system and familiarize themselves with how it works. They can increase their saving every month, and even use it to remit back home to the province. LBC rates for money transfer are much, much steeper than banks’. With all these issues in investing, this news came as a pleasant surprise: Public high schools to teach investing, assuming of course that the material used is of good quality. Economy As we said earlier, job losses are escalating, but the figures and estimates need a closer look. In Export drops affects 34,000 jobs, Labor Secretary Marianito Roque says the export sector’s slowdown will affect 34,000 jobs nationwide.

Based on the survey done by [the labor department], we have a total of 15,000 displaced workers nationwide and another 19,000 who were subjected to reduced working hours,” Roque said. He said 13,000 workers lost jobs in the provinces of Cavite, Laguna, Batangas, Quezon and Rizal, with Laguna accounting for 5,000 of the total.

He adds that Hundreds are losing jobs daily

Just for today, it was reported to us that 458 people nationwide could lose their jobs," Roque said.

...and other experts like Benjamin Diokno warn of more layoffs. We know that the biggest news last week was that of Intel closing shop. Sad, sad story there. However, industry estimates show that there are around 160,000 jobs to be created in BPOs in 09. Don’t forget the KPOs (knowledge process outsourcing). Citibank has said it would expand KPO operations in RP significantly this year. All in all, there will be losses, yes. But some companies will also be hiring, and there’s the silver lining. Investing Do you believe in feng shui? Honestly, I don’t, but for those who do, they are saying calmer markets are in store for 2009, but don’t expect a bull run yet. The Gotianuns have formally signed the deal to acquire Philam finance units, as a strategy to turn East West Bank into a major player in the industry.

East West Bank signed an agreement to buy AIG Philam Savings Bank, Philam Auto Finance (formerly Primus Finance and Leasing Inc.) and PFL Holdings Inc. The value of the deal was not disclosed. Industry sources earlier said it was “a little over P2 billion.” The transaction will create an entity with combined assets of P63 billion and make East West Bank, erstwhile a niche player, the sixth-biggest credit card issuer in the country. It will also double East West Bank’s auto loan receivables to about P8 billion and make it the sixth-largest in the auto loans market.

Another management change that will affect preneed planholders is that of Pacific Plans. Investment banker Noel Oñate has stepped in as a white knight and is promising that the company’s obligations to its 300,000 planholders amounting to $47 million or P2.3 billion will all be met. Good news? We will see. Have a great week ahead.

Sometimes, I wonder when the global financial crunch will no longer be in the headlines…or when a day will pass when we won’t talk about it…or when it won’t be a constant worry anymore. Just yesterday, I heard that Accenture met with its employees and told 1,000 of them they don’t have to come to work anymore. Just like that. At least two people I personally know were also laid off last week by their company. You know this would be happening this year. But it doesn’t get more real than when the ax falls on people you know. Heaven forbid one of you gets laid off. During these times, I can’t overemphasize the need for an emergency fund at least three to six months of monthly expenses. That’s the buffer fund you only touch when your source of income has dried up. Ideally, you should have a separate way of paying for health emergencies, whether a medical insurance or health card from an HMO. While you keep pouring your juice into an emergency fund regularly, you hope that you would never need to use it! Here’s a roundup of our personal finance offerings this week: Investment guide for 2009 lays down guideposts that experts say no one can afford to ignore this year. If you’re tired figuring out the difference between VULS, UITFs and mutual funds, check out this article. Yes, there’s good debt and bad debt and it’s important that you know the difference. From around the web: Frugal Pinoy started this year with a soul searching on her biggest money mistakes. That’s a good exercise for all of us—so we don’t repeat bloopers! I just discovered Condo Ko’s blog, and his article “Saving for dummies written by stupid” rings true for me. It is SO easy to buy a house you can’t afford because buying that parcel of land or a condominium is mostly an emotional exercise. Economy: So far, there’s good news and bad news about the economy coming out every week. One of the best good news is that at least as of October, expat Filipinos’ remittances continued to grow 10.5%. This is one of the things that will truly determine whether the Philippines can remain strong when all around it, economies are already wobbly. Hold on to your seats. Socioeconomic Planning Secretary Ralph Recto expects the economy to grow 4.7% this year, not as good as 2006, but that figure indicates g-r-o-w-t-h nonetheless. I found it interesting that a government survey showed that one in 10 Filipinos work in the informal sector. These are your multi-level marketers and other forms of “raketers” with income that slip through the cracks of number crunchers in the government. If this is true, and everybody knows it is, then economic growth reported as gross domestic product is really understated, isn’t it? Money supply is also still up 14.6% in November. That means there is no credit crunch in the Philippines. That’s supported by the reported growth in bank lending, at 21.3 percent to P1.93 trillion in November from P1.6 trillion a year earlier. No less than Standard & Poors, one of the world’s top credit rating agencies, says the Philippine is in good shape to weather the crisis. Oh and watch this closely: Finance Secretary Gary Teves wants an increase in sin taxes, which he thinks will bring in at least P30 billion. That’s an area only the brave dare to go. You know which tycoon you’ll be up against when you try raising taxes on products such as cigarettes and liqour. I have always believed Gary is made of strong stuff. In this issue, he will really prove his mettle. But all is not well. Farm growth slowed to 3.9% in 08, and as all of you know, the farming sector still employs majority of the Philippine’s labor force. Based on Bangko Sentral ng Pilipinas figures, funds pulled out $1.4B in 2008. Those who were in the market last year all felt that jar their bones deeply. The World Bank has barred seven firms from bidding for its projects and three are Philippine firms. No surprise there, really, but just a major embarrassment lang naman. Investing: One news item is particularly disturbing fo those who follow personal finance topics: Pre-need firms turn to SEC for help. They are saying the global financial crisis is causing many pre-need companies to lose their footing. For the sake of planholders, I hope they don’t. I hate ending on a sour note, but there you go, friends. Happy weekend.

My apologies for not posting my news roundup last Saturday. Here it is, finally, including some developments today that point to trends in the economy. Personal Finance My sincerest thanks to you guys for making the Personal Finance section a hit among INQUIRER.net readers. I heard that some readers who would normally not read the Business Section at all do so because they find personal finance to be practical and useful. My editor-in-chief once asked me why I chose to write about personal finance and I replied with a laugh that I had been merely typecast. I realize though that it’s the chance to change lives that makes personal finance for me very fulfilling. Enough of the speech. Sniff. Hope you like my article “Top personal finance lessons for 2008” as a yearender sort of thing. There are also tips on how to “Buy a house amidst a crisis” and how those with cash should consider next year a good time to buy one. Our Take Charge of Your Money article has a timely “On shopping wisely” article for those still doing their Christmas shopping. There’s an 11-day holiday in the offing but if you need to work on some of those days, make sure your company pays you well. Here’s our guide: Pay rules for long holidays. Here’s an interesting crisis-related development. Divorce rates in the United States have gone down because couples realize its cheaper to stay together. Heh. Interesting? Read more here: Hitched to the economy. Macroeconomy Economic data that came in last week about the economy showed we weren’t pummeled (yet) by the crisis. The peso last week touched P46.90 to a dollar because of the Fed’s historic decision to cut rates to zero, and we know that there will always be winners and losers regarding peso fluctuations. The central bank responded by cutting rates by 50 basis points and that means you’ll see money getting cheaper and interest rates on loans going down even more. Next year, there might even be more rate cuts as the outlook for inflation gets rosier. The Bangko Sentral ng Pilipinas now expects price increases to be even tamer at 9.4 percent for the entire year or the lower end of its target range. If you are curious whether making money cheap will soften the economic landing for all of us, read Cielito F. Habito’s “Will easy money work.” It’s not clear whether NEDA director general Ralph Recto already inputted the central bank rate cuts in his 4.6 percent prediction for gross domestic product growth in the fourth quarter. He is also talking about a P300-billion sustainability plan to help the economy move along. He didn’t say if this is new money and how the government will raise the amount, or just a re-packaging of the budget. Other macroeconomic signs still point to a clear sky despite more gloomy talk about a total global economic meltdown, this time by Spain’s central bank governor Miguel Angel Fernandez Ordonez. Remittances as of October still grew 15 percent at P14 billion and while the month of October alone showed a sharp slowdown, the Bangko Sentral ng Pilipinas believes the growth will stay at 15 percent for the whole year given that Filipino expats send more during the Christmas holidays. Remember that last year, analysts said remittances will slow down because of the crisis and it didn’t? It appears that the Filipino culture surprised most of these foreign economists. Come what may, we find ways to send what our families need. We will see this time what happens with the possibilities of layoffs across the globe. Locally, however, the jobless rate was still at 6.8 percent in October and the balance of payments swung into a surplus in November of $19 million. No wonder one of the most respected businessmen in the Philippine economy, Jaime Augusto Zobel de Ayala remains bullish on Philippine prospects. Banking and Investing The saga of rural bank failures continued last week. BSP is investigating 9 rural banks for “unsafe and unsound” banking practices and now politicians, as always eager to get in on any chest-beating discussion, would like to investigate as well. Here is the list of the rural banks to be investigated: Dynamic Bank, Rural Bank of San Jose, San Pablo City Development Bank, Rural Bank of Paranaque, Rural Bank of Bais, First Interstate Bank, Pilipino Rural Bank, Bank of East Asia, and Philippine Countryside Rural Bank. Another corporate drama last week came to a head when PSE suspended trading of Meralco shares. Dig deeper through the legal brouhaha and you’ll find that this put a monkey wrench on government financial institutions’ plan to sell its Meralco shares to San Miguel Corp. Meanwhile, we have Gotianun’s East West Bank winning the bid for Philam Savings Bank. The bigger question, however, is who will bag the insurance business deal? The answer will all depend on the valuation of the company. I heard that Philamlife is too expensive for many of its suitors. Investing-wise, San Miguel Corp., the country's biggest food and beverage conglomerate, is preparing for a $1-billion preferred stock offer for next year for its acquisitions. Corporate news: For those who are constantly looking for air travel options, you might be interested to know that Dragonair has launched Manila-HK flights, but that the Texas Instruments plant has retired 400 people, listed firms’ third-quarter profits are down 20% and bank lending growth has slowed down in October. These storm clouds mar what appears to be a clear economic sky and give some signs of the difficult road ahead for everyone as the crisis takes a bigger toll on the economy. From the blogosphere: I found an interesting piece from Soul who is ranting about bad customer service here. I find that while we don’t have to be shrews when complaining (customer service representatives are people too!), too many Filipinos are too shy to complain even when we deserve to be heard.

It’s fun to see people in holiday mode. We all should have fun, despite the gloom-talk. We all should have a little bit of a break. We all should enjoy the Christmas parties and the delightful sounds and smells of Christmas. I love the festive spirit! However, we will enjoy them more when we don’t have a Christmas-party-and-forget-the-financial-responsibilities-of-next-year kind of thinking. So, do shop and enjoy, but know your limits! Here are the biggest stories of the week: Personal Finance Financial planning for the masses. Yes, a few banks are hunkering down and talking to those who are still on their way up. It only makes sense both business-wise and passion-wise, and this is exactly what the country needs. I still have many issues about how banks do business, but generally you come across some that actually help people. Stolen holiday joy. As you jostle and shop within a crowd, make sure you secure your credit cards, ATM or debit cards, and other valuables. Losing them at this time of the year is no picnic in the park! And if you do, make sure you report the loss immediately to the bank. A great tip after I read this article is to memorize the numbers of banks’ hotlines so that you can immediately notify them if there is any problem. There are more tips, so check out the article. How do you talk to your kids about financial difficulties? Do you feel comfortable telling them you’re broke? In this article, Parents talk money in recession-hit US, the author says kids have this sixth sense when something is wrong, thus there is no use hiding stuff from them. I agree. But I also suggest that you think carefully about how you are going to say things. Your children are NOT your therapists! In this crisis, cash isn’t just king, it’s god, says Ralph Liew of the International Association of Registered Financial Consultants. These 300 cash-rich Chinese visit US to buy houses seem to be showing just that. While the West is depressed, they went shopping! Some finds from the web that I found interesting this week. Tasha Gets Money Smart promised herself to move to a different company if she doesn’t get the raise she deserves. But she balances this off by making sure that she really deserves that raise. A huge part of personal finance for most of the world’s population is career planning. A lot of us will be making most of our wealth through our jobs, and it doesn’t make sense to get stuck in a dead-end one. But great pay and great jobs will not just happen to us, we have to plan them. Frugal Pinoy asks what are you going to do with your extra cash this Christmas, a fitting question during this season. This is a highly personal decision, but one that needs careful thought. Too many of us just go through that windfall even before we receive them! Right now, I have been moving towards increasing my emergency fund. Ready To Be Rich talks about how to survive a no spending day. Hey, I like this idea! How I wish I can do this, this holiday season. I would dare forecast, however, that a lot of us will be remembering Ready To Be Rich’s blog post come January when the bills come rushing in, heh. Macroeconomy No surprises again this week; we have all seen this in the headlines before. 2009 growth seen lowest in 8 years, say a couple of economists polled by Reuters.

“All economists revised down their 2009 forecasts to account for the impact of the worst global financial crisis in decades on the export-driven country of 90 million people. Forecasts ranged from 0.7 percent to 4.1 percent in 2009.”

Financial crisis to deepen in 2009, says the IMF and the Asian Development Bank is saying that emerging Asia’s growth will slacken to 4.5 percent this year and 3.5 percent next year.

For the 10 countries in the Association of Southeast Asian Nations (ASEAN), it forecast growth averaging 3.5 percent. It said growth in emerging East Asia—comprising the ASEAN countries, China, Hong Kong, Taipei, and South—would slow down to 5.7 percent in 2009 from an estimated 6.9 percent this year. With the global economy facing a major downturn, the region’s economic resilience will be tested by weakening exports and a sharp slowdown in capital flows, the report said.”

Businessmen join Ayala rally but lie low. I’ve been wondering about whether we can really move forward just ignoring politics. Sigh. The peso fluctuated a little bit this week, the stock market was still erratic, gold and other commodities the same, and oil is still going down. At one point, the peso retreated to P48:$1, and then it gained on the back of strong remittances by the end of the week, going back to the P47 level. Italy in recession is an important story because we have a lot of overseas Filipinos living and working in Italy. I hope that they are coping well, despite the difficulties a recession might impose on them. BSP sets 2010 inflation target at 3.5%-5.5%. The average inflation target is now at 3.5 to 5.5 percent for 2010, lower than the forecast range of 6.0-8.0 percent average inflation for 2009 because of lower commodity prices. Banking Any depositor’s nightmare: to find that your bank is closed and you have no access to your deposits. This week, many depositors across the country are hurting this way. 4 rural banks closed; 4 declare bank holiday. These are: Rural Bank of Parañaque; Rural Bank of Bais (Negros Oriental); Pilipino Rural Bank (Cebu) and Rural Bank of San Jose (Batangas). The four banks that have declared a bank holiday were Philippine Countryside Bank (Cebu); Dynamic Bank (Rural Bank of Calatagan); San Pablo City Development Bank and Nation Bank (Bacolod City). RBS Bank suspends business. This bank is part of the Legacy group that is currently in a legal tussle with the BSP. The PDIC is proposing a “bridge banking solution for troubled banks”. PDIC president Jose Nograles said in a statement:

“This will protect depositors of a failed bank by ensuring that there will be no disruption in banking services,” PDIC president Jose Nograles said in a statement. “Hence, [it will] maintain depositor confidence in the Philippines.” He added that a bridge bank would “provide allowance in terms of time for a better and well-planned final resolution of a failed bank.”

HSBC’s Mark Watkinson was most likely eager to share some good news, and I don’t blame him. The gloom talk is not helping, although of course we need to be realistic about the economy. So this article was in our top 10 most-read: HSBC to hire 1,000 more in BPO. Unfortunately, head office doesn’t think it was a good story to tell the media, maybe because they are retrenching in other parts of the globe, so they sent out a denial about Watkinson’s statement (read this article: HSBC says no plans yet to expand BPO). INQUIRER.net, of course, stands by its story and that Doris Dumlao, the reporter, was not in error as proven by a voice file and transcript of the interview uploaded on the site. Lehman investors in HK urge refund is an interesting story, especially if the government will allow it. BDO sees lending slowdown in 2009, not surprisingly of course, what with the economy bound to slow down. In fact, Moodys has downgraded bank credit rating outlook to negative from “stable” saying the challenging global environment could dampen bank earnings and trigger a rise in loan delinquency. Corporate News Still, cash-rich SM group is not slowing down its spending. It has opened the 3rd biggest mall in the world and is planning a P5-billion borrowing to fund mall construction in the next three years. Cash really is king. That’s it for this week. Over and out.

Inflation used to be a simple word to understand even for non-economists. After the initial fumble with “consumer price index”, anyone with one year in high school will immediately see why its one of those economic indicators you can’t afford to ignore. It affects your personal bank account. It’s what Johnny Noe Ravalo so colorfully described as your nest egg’s silent assassin. It makes you think twice about how you spend, how you save and how you invest your money. Since 2004, in the Philippines, the National Statistics Office decided our lives will be simpler with two kinds of inflation reported in the news: headline inflation (the one we have been used to: the price changes of a basket of goods consumed by most Filipino families) and core inflation.

Core inflation, the NSO and the Bangko Sentral ng Pilipinas explains, strips away some volatile food and energy items. The BSP said in this article that core inflation in November showed that its losing steam.

The idea behind the figure is that there are often temporary shocks in prices of food and energy prices that cannot be controlled. Think typhoons for Philippine food prices and Hurricane Katrina for oil prices.

These temporary shocks cause headline inflation to jump erratically, but it eventually goes back to its trend. That’s why monetary and economic policymakers say core inflation rate is more effective in figuring out where inflation will go in the long-term. (For those who want a more technical definition, you may want to read the NSO’s primer on core inflation and Mark Thoma’s explanation for RGE Monitor). Now, what if you want to figure out how much you need to set aside for retirement? Retirement costs include food and energy. You’ll need to eat and by retirement you’ll want to eat well after having slaved all those years. You’ll want to travel, most likely to the houses of your children scattered all over the globe. Is it wise to strip out food and energy prices just because they are volatile? For now, the figures show it is better to stick with core inflation because they are more accurate in determining long-term trends in prices. But I would suggest that our treatment of inflation should go beyond the headlines, and the kind of measure that you want still depend on the kind of question you are going to ask. As for me, I’ll keep watching both. Noe also suggests that they may be used as starting point for planning, but the whole long-term plan needs to be anchored on the kind of lifestyle you want to live upon retirement (if there is a choice). That suggests that for those who find themselves in a bind, scaling back may be a good idea. Here are some tips to make sure inflation becomes your friend:

1. Your annual increase in salary should be higher than headline inflation.
2. Returns on savings and investments should also be much higher than inflation.
3. Diversify your investments and add well-known hedges against inflation like real estate.

IS THE PHILIPPINES truly a sea of economic calm amid so much pain from the global recession? It’s either that or we are experiencing the calm before the storm. Here are my selected readings for this week for those who want to be in the know, but had little time to read the business pages. Personal Finance If there is one thing that we all must truly undersand by now is that economic storms will come and they will go, as I have always said. They are a fact of life, so make sure your personal finances are protected against these storms. Making sure your online financial details are protected from fraudsters were a major theme in INQUIRER.net this week. Stolen credit cards sold online—I didn’t realize just how pervasive this crime is until this article came out. Beware and guard your credit card details! Guide to safe online shopping—Find out how to shop online safely. Food and immune boosters—I love the suggestions here. Losing your health is a sure way to have a personal financial shake-up, so stock up on common local vegetables like ampalaya and malunggay, which are immune boosters. I cook malunggay like I cook laing and my kids love it! Let me know if you want a recipe. 10 most common money mistakes—This has been in INQUIRER.net’s most-read and most-emailed list for one whole week, which tells me just how interested people are in what they might be doing wrong with their personal financial management. Economic News This week’s economic news indicate the possible storm clouds in the horizon, but several news still point to a softer landing for the Philippines compared with the rest of the world. Crisis dampens interest in home loans—BPI and PSBank have reported 15% to 20% drop in mortgage lending especially to Filipinos working or living overseas. That means people are either already losing their jobs and are postponing major purchases or are afraid they will do so. The interest rate scenario looks promising, though, for those who believe they have secure cash flows in the coming years. Look at the next article why. Inflation eases, rate cut eyed—Inflation is now at 9.9%, already at single-digit levels and better than the overall forecast, as food and oil prices continue to slide. Really good news for the depressed times. Central bank hints at rate cut—The central bank did indeed say there’s “greater monetary policy space” for the Monetary Board (econo-speak for “yeah, we might lower overnight rates in the next meeting”). Since the government is in “economic expansion” mode and inflation is no longer a problem, every economist in town is expecting rates to get cut. I suspect that banks will only be too eager to reduce their lending rates for mortgages and business loans as they run after those who have the financial capability to make good on their loans. Oil falls $3 to lowest in nearly 4 years—I don’t care much for the oil cartels so as far as I’m concerned, oil prices can go down all the way to $30 per barrel so that consumers will be happy. I do hope, however, that people will not go back to bad driving habits or companies will lose the urgency to develop better alternatives to oil as a source of power just because the commodity is getting cheap again. Oil is dirty. It pollutes the environment and it is not sustainable. PCCI: P100-B infra fund ready soon—interesting pieces of news, these two articles. PCCI talking about a P100-billion infrastructure fund? Last I checked, it wasn’t a government agency! But PCCI businessmen do see a weakening in the economy next year to 3% and possible job losses or corporate failures. BPOs plan to hire more agents—fast and furious are the only two words I use to describe how the business process outsourcing industry has grown in the last decade, and they have become another major source of foreign currency for the country, not to mention jobs. With the global financial upheaval, there has been a lot of talk on whether or not it can weather this storm. Big industry players last week have repeated they will hire more agents, and some are even expanding operations. Cross your fingers! Construction still a big growth driver—if the government will pump-prime the economy, then construction will push growth up. The only problem with construction is the poor quality of jobs in the industry. How long, how deep is the US recession?—a question on everyone’s minds—and nobody knows the answer. Investing News 10-month pre-need plan sales down 21%--no surprise here. First, corporate failures in the industry have turned off customers big-time, and second, the cleaning up you would expect in the industry just isn’t happening! Peso rallies versus the dollar—great news for expat Filipinos out there, especially with Christmas season coming! Who would have thought it would be at P49.08 against the dollar by now? Sige nga 20-year T-bond rate hits 9.5%--long-term yields of government securities, which you can use as benchmark for loans or debt with the same maturity, slide when the economic outlook is good and rise when the economy appears to be shaky. These rates are set when the government auctions government securities (the schedule is found in the Bureau of Treasury website). 20-year Treasury bond rates used to be at 13.88% back in the 2002 but has gone down through the years. Inflation projection for long-term retirement planning is normally at 8%, so a 9.5% rate offers only 1.5 percentage point difference. Not much, if you ask me, but they also offer a stability of return. Corporate News Corporate news also dished out more Meralco boardroom drama as if as a parallel story for the De la hoya and Pacquiao fight. This one, however, is no “dream match”, but as you can see, it has become a highly charged topic for corporate watchers and some shareholders are already trying to take advantage of it by snapping up Meralco shares in anticipation of trading gains. Some good reads below: Battle for control of Meralco looms Lopezes strengthen hold on power unit BPI expects bigger profit in ‘09 Century Properties to invest P15B in ‘09 From the web: Three new articles from my readings around the web: How to salvage your retirement from CNNMoney shows Walter Updegrave at his best. Making you realize that the news is bad but somehow turning everything into a doable strategy. One is to scale back the retirement lifestyle which is only logical but hard to do for many folks. Maybe it’s time to buy that first house illustrates why people who have great credit scores can sail through crises and more. We’re going to party like it’s 1929 is an article I wish I could have written. It’s fun to read.

…gross domestic product grew 4.6% in the third quarter despite all the pessimism, talks of gloom and doom and actual recession in more advanced economies of the US, Japan and European countries. The figure is in the upper end of the government projection of 4.0% to 4.6%. Still, this is quite a drop from the 31-year peak of 7.2% in 2007. The fourth quarter, although seasonally a good quarter for the economy because of Christmas spending and stuff, might be gloomier if people keep postponing their spending to wait for prices to go lower (like that LCD television that was at P120,000 early this year but is now at P100,000, zero percent interest for 24 months. So, maybe I should change my tune a little bit and say: hey guys, if you have the money, go shopping to save the economy! Hehe.

***

…some analysts actually believe the bear market is over, stock prices have bottomed out, but that this does not mean the bull is ready to charge. So, as my editor-in-chief JV Rufino asked when I told him about the news, what do you call a market that is neither a bull nor a bear?

***

…if you have investments in the stock market, you belong to less than half of one percent of the total population of the Philippines that are into equities! Citiseconline.com only had 6,000 customers in 2007 and only 15% of them traded at least eight times in a month.

***

…I am starting to believe I am jinxed! Well, the good news is that a few minutes (yes, minutes) after I blogged about BPI’s online banking service, someone from the bank called me up at home (should I be scared or impressed? honestly, I'm more impressed than worried) and tried to help me with my problems. A few days after, he called me again as promised and told me the account linked to my online banking facility was inactive, hence the error messages. (the phone banker sounded as puzzled as I was by the explanation of their IT guys).  I took note of the instructions he gave and resolved to follow them religiously. Finally, yesterday, I was ready to look at my account. Lo and behold, I forgot my password and got locked out! (that was totally my fault). So, I called up the 89-100 hotline today and what message did I get? “Ma’am, we are having a problem with our system so can you please call us again in an hour?” Strangely, I am not really upset. But I think I am so totally jinxed. *** …when you call an OFW abroad through their phone with roaming capabilities, he pays through the nose just to receive your call and you pay IDD rates on your phone. Ouch! If you have Globe’s family sim pack, the best way to maximize the entire package is for the OFW to buy another sim with Globe’s telco partner in that country. You can send him a text message for P1, he can reply using text. The two sims used by relatives here can benefit from “unli text plans” but to call home, he should use his co-branded sim. OneAyala privilege card, by the way, was relaunched today with more benefits! It's a discount card that's also an ATM through which Filipino expats abroad (I like the sound of that more than OFW) can use to remit money to the Philippines. Check out some of the noteworthy discounts below (others I did not include were blah):

• "preferential rates" on international and domestic tickets and packages from Fiesta Tours and Travel and discounted rates on passporting and documentation,
• deluxe room at P6,200++ and the Club Room at P8,500++ at Hotel Intercontinental and complimentary one-way transfer from airport to hotel for a minimum of 3 nights stay and 20% discount on all food and beverage outlets
• 10% off on existing rates on Deluxe and Suite rooms at Marriott in Cebu City and 10% discount in all food and beverage outlets
• 5% discount on purchases at Fiesta Mall Duty Free
• Free Hanabishi Rice Cooker for every single-receipt purchase of P15,000 at Abenson
• P200 worth of load for only P160 in Timezone
• one free donut for every dozen bought at Mister Donut
• Free one-year personal accident insurance worth P100,000 for every Ayala Life policy purchased, and
• One free money transfer to the Philippines from anywhere in the world from Xoom.

We received this email yesterday from a reader based in Purono Park, Queensland, Australia:

These people better be smiling when they say things like that. They must be joking. As if we don't have enough clowns in government. Our relatives in the Philippines are losing their jobs, so we have to send money to help them. Can't they offer solutions instead of false reassurances? Will they please stop treating us like idiots?

He was reacting to the Philippine Daily Inquirer article “Slowdown, not recession” where cabinet officials explained that the Philippines is likely to show a slowdown in economic growth next year, and not a recession as most top businessmen who took the Makati Business Club survey believe. Are we, or aren’t we going to have a recession? Is the government merely trying to manage expectations? Or is there reason to believe that we won’t be hit as hard as we all think we would be? What do you think? Perception plays a big part in business and the economy, but sometimes economic-speak can be confusing. Should we spend more to avoid a recession (and therefore spur business activity), or should we save more to prepare for tough times? Forecasts as provided by economists, government crunchers and banks are taken from their economic models and gut feel. To a certain extent, their predictions also fuel perception, right? I have collated here all the predictions and forecasts worth studying (and salient excerpts), to help you make sense of what is being said in the news: “Slowdown, not recession” “What you mean by economic slowdown is when your neighbor loses his job. By recession, it’s you who lose your job,” Finance Secretary Margarito Teves said, explaining the difference between a recession and a slowdown. Also… The DBCC now expects the economy to grow at a slower pace of 4.1-4.8 percent this year after a slowdown in exports and farm output in the first nine months. The economy is expected to grow 3.7-4.7 percent next year. It was earlier projected that domestic growth would be within 5.5-6.4 percent this year and 6.1-7.1 percent next year. The new targets, the government’s second revision, were aligned with external developments “that may generate a knock-on impact on our overall economic activity,” Budget Secretary Rolando Andaya said in a statement. Top businessmen see recession in 2009 Eighty-seven percent of the businessmen polled by MBC said they believed the Philippine economy would fall into recession next year, while 60 percent said their company’s workforce “will contract.” The MBC groups the country’s biggest conglomerates and companies, and the survey was conducted among its members’ top management. Seventy-six percent of those surveyed agreed that obtaining bank loans would be more difficult, while 75 percent said “access to trade credits will be more difficult.” The “most alarming concern” is an expected spike in layoffs projected toward the end of the first quarter of the year, according to the survey. Deutsche Bank sees no recession for RP The Philippines is not in danger of falling into a recession. In fact, it is the only country in Southeast Asia that has so far escaped the harsh impact of the global financial turmoil, European banking giant Deutsche Bank said Wednesday. In an equity research note, the German bank said the Association of Southeast Asian Nations as a bloc was far more resilient today than during the Asian crisis of the late 1990s, when the sharp economic slowdown and unprecedented currency devaluation triggered a wave of corporate defaults that in turn soured banks' assets. “While the collapse in commodity prices and the anticipation of weaker exports should hurt economic growth, DB is not expecting a recession in Indonesia, Malaysia, Thailand or the Philippines,” the report said. The article also stated: “Financial prudence, deposit guarantees by central banks and the general lack of exuberance in the mass residential property market has left the Asean bloc in far better shape today than before the Asian crisis,” DB said. HSBC sees Asia staying resilient BRITISH banking giant HSBC sees developing countries in Asia in a much better position to withstand the current global financial turmoil than during the 1997-98 regional currency crisis. While emerging Asia would slow down alongside the global downturn triggered by the US credit crunch, the region--the world's fastest growing in the last few years--would likely remain resilient, HSBC group chief operations officer Michael Geoghegan said in an international teleconference late Monday. He said Asia outside Japan would still sustain a respectable growth of 7 percent this year. "If the world economy slows, Asia will be impacted, but unlike the Asian crisis, the Asian economies are strong. They have strong reserves, current account reserves and each country is capable of stimulating domestic demand," Geoghegan said. RP economy to grow amid recession MANILA, Philippines -- The Philippine economy will slow down due to the worldwide recession but it will still grow, with some sectors even showing surprising strength, an economist forecast Tuesday. Victor Abola, program director of the School of Economics of the University of Asia and the Pacific, projected gross domestic product growth in 2008 at 4.5 percent with 4.0-percent growth next year. This will be a sharp slowdown from the 7.2-percent growth posted last year but will be far better than the minimal or even negative growth projected for developed countries, Abola said. The likely effects of the world financial crisis on the Philippines will be a decline or even withdrawal of foreign investments in the stock market. Philippine financial institutions are not too exposed to the financial turmoil and those that have been affected have already made this public, Abola added. "We won't have a credit crunch as banks have plenty of money," he forecast. Philippine recession seen as unlikely The Philippines may be headed for a slowdown next year, a spillover effect of the ongoing US financial crisis, but the domestic economy is far from plunging into a recession, two experts said. University of the Philippines economist Raul Fabella and former secretary of finance Ernest Leung spoke at a forum organized by the nongovernmental organization Action for Economic Reforms. “The Philippines will definitely feel the impact of the US crisis—lots of jobs may be lost and the country’s capacity to borrow will suffer—but I don’t think we will go into a recession,” Fabella said, noting that recession is technically defined as two consecutive quarters of year-on-year contraction of a country’s gross domestic product. Fabella has projected that growth of the Philippine economy would slow down further to 3.5 percent next year from a projected 4.4-4.9 percent this year as the local business environment feels the adverse effects of the financial turmoil in the United States. His growth forecast for 2009 is less optimistic than the official projection of between 4.1 and 5.1 percent set by the Arroyo administration’s economic team. Global recession, local crisis Broadly speaking, recession refers to the fall in economic activity. It is a phase often technically measured as two or more consecutive quarters when the growth rate of the gross domestic product (GDP)—the total production of goods and services of an economy—is negative. Recession is the contraction phase or the “downtime” in the business cycle. Thus, it is often reflected not only in declines in industrial production and sales but also in employment and real income (or the income relative to the increase in the prices of basic commodities). Will we import a US recession? No Free Lunch/Cielito Habito Before going any further, what does it mean for the US economy to go into recession? Recession has come to be commonly defined as a contraction—that is, negative growth—in a country’s economic activity for two consecutive quarters or more. “Economic activity” here is measured as gross domestic product (GDP), which also reflects incomes received in the economy. In short, then, recession implies a prolonged drop in aggregate income. This is not to be confused with an economic slowdown, which implies a lower rate of growth, but continuing (positive) growth nonetheless. He also said: Will the Philippine economy go into recession if the US economy does? I could most confidently say no. A slowdown is almost certain—but by saying “almost,” I would still not rule out the possibility of sustained or even accelerated growth, as I will explain later. But a downturn for us is most unlikely, and can happen only if the entire global economy is somehow led into a downturn. A lively debate is ongoing worldwide, both politically and technically motivated, about the expected repercussions of a US recession, but there appears to be no disagreement that the world economy will slow down. It is the magnitude of the impact that is widely debated, with some arguing that the contagion will be severe, while others contend that the world economies have undergone a “decoupling” (translation: cut the link or dependence) from the US economy. I will set aside the question on the global impact, and focus here on the particular impact on the Philippine economy, and the lives of Filipinos. On this, our best basis for analysis is to look at the hard numbers. Export prominence How prominent is the US in our overall economic linkages, especially trade? If we count China and Hong Kong as one country (even though the trade statistics still separate the two), the US has already been dislodged as our largest export market, whose 17-percent share of our exports is now just second to China-Hong Kong’s 23 percent. Contrast this to only 10 years ago, when the US took more than one-third (35 percent), while China-Hong Kong took less than one-twentieth (5 percent). Our vulnerability to a US recession via an export slowdown is therefore far less than what it would have been 10 years ago. But let’s look more deeply into the details, particularly the destinations of our top exports. Electronic products, which account for two-thirds of all our export earnings, are now well distributed among our top four buyers for these products, with the US taking only 14 percent. China-Hong Kong takes 23 percent, Japan takes 15 percent, Western Europe takes 14 percent, and even Singapore and Malaysia take sizable shares of about 8 percent each. On the other hand, the US takes up the bulk (79 percent) of our garments exports, our second (but a far second) largest export. Mineral exports to the US hardly matter, with most going to our neighbors. Woodcraft and furniture, another top export earner, mostly go to Japan, with only 20 percent going to the US. JP Morgan expects RP to weather the crisis THE PHILIPPINES HAS “SIGNIFICANT” exposure to an emerging global recession but has built up internal buffers to cushion against external shocks, American banking giant JP Morgan said. In its latest emerging market research dated Oct. 16, JP Morgan held the view that local monetary and fiscal policymakers were well-positioned to act, if needed, to help perk up domestic output given the uncertainties in the global economy. JP Morgan estimated that every percentage point drop in US growth would shave 0.4-0.5 percentage point from the growth in the Philippines’ gross domestic product (GDP), or the sum of all goods and services produced by the local economy in a given period. Remittances are also directly exposed since more than 30 percent of overseas Filipino workers (OFWs) are based in the United States, the research said. But JP Morgan noted that there had been minimal bond financing by Philippine corporations. It added that real estate and stock market prices have previously moved up but still lagged many of their regional peers, thus dismissing concerns that they were nearing “bubble” type levels. “Bank foreign funding both as a percent of GDP and as a share of total bank liabilities is manageable and derivatives licenses had been given out prudently, so there has been no excessive activity there,” it said. From MoneySmarts: Prepare for the worst but hope for the best. ☺ What about you? Is it going to be a recession or a slowdown in 09?