Buyers beware

Oct.9, 2008

Buyers beware

If you are buying a condominium, be sure to measure the size of the unit you are buying. A friend of mine bought a unit at Lancaster Condominium on Shaw Boulevard and found to his dismay the unit is about a square meter less than what the developer stated in the contract to sell. My friend is complaining but so far, the developer, Pacific Concord Properties, has been giving him a runaround.

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I never thought in my lifetime I would see a country going bankrupt. But there it is – Iceland. It is trying to borrow $5.4 billion from Russia because its western neighbors and friends are not willing to lend it money. With a population of about 350,000, Iceland apparently is nothing more than all steam, all glacier, and all volcano. It has no real resources to brag about.
And yet, the western world has consistently rated Iceland the most developed country in the world (meaning the richest), according to the UN Development Index; the fourth most productive country per capita, and one with among the highest levels of economic and civil freedom. In other words, its rankings are nothing more than hot air.
Yet, the same people who have rated Iceland very highly in degree of development and level of economic and civil freedoms rate the Philippines very poorly in degree of development, economic and civil freedoms. The ratings given the Philippines are nothing more than BS.
Another country that should be bankrupt by now is the United States. The US is the No. 1 country in the world in terms of competitiveness, meaning it has the most developed economic and financial system and the highest degree of economic and civil freedoms. Philippines is No. 71. Yet, the US is on the brink of bankruptcy.
TV reports indicate the US government’s liabilities have reached $10 trillion. The size of the US economy is $13 trillion in purchasing power parity. US debts equal the value of its entire economic production in a given year. George Bush is supposed to be the first Harvard MBA president. That guy is the most unpopular president in history and has brought his country to the lowest level of economic despair in 80 years. Should Harvard be blamed? Should his MBA training be blamed? Or the blame is Bush’s and Bush’s alone?
The Philippines has total foreign debts of $54 billion. The size of the Philippine economy is $300 billion. Our economic production can pay for our foreign debts almost six times over. From these figures, you can see who has got more cash and which is the one on a very solid financial footing.
During this 21st century, what is important are people and their intelligence and talent. By this token, Filipinos will conquer the world. The rest of the world is aging and running out of jobs to take care of their young and their elders. The Philippines is getting younger and smarter by the day. And by the way, the Philippines will survive the current financial turmoil. This country has been in a much worse situation and survived mightily.
In the meantime, what do the few banks of Iceland, enjoying among the highest degree of economic freedom in the world do? The banks took the money of the Icelanders and invested n the money abroad in some fancy higher paying derivative investments. When those investments evaporated, Iceland ran out of money.
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Philamlife has been running daily two-page spread ads intended to assure the public that it is a solid financial institution – “the crown jewel of AIG and has built an excellent brand equity”.
The owner of the jewel, AIG, is gone. It went bankrupt because it bet wrongly on so-called credit default swaps (CDS). The CDS market has risen to $62.2 trillion, nearly five times the size of the US economy. AIG is believed to have bet up to $450 billion in CDS. Then the CDS market collapsed because of the collapse in home mortgages.
CDS is a kind of financial derivative. It provides “insurance” on risky mortgage bonds. If the mortgage turns sour, the insurance company pays for the loss.
Philamlife is reported to be claiming a value of P92 billion for buyers to pay. To me, Philamlife is worth no more than P12 billion. It incurred about P1.5 billion in forex losses derivatives last year, resulting in a 63 percent decline in its profits to P887.6 million from P2.37 billion in 2006.
You are better off buying First Holdings which owns majority of Meralco. First Holdings has a market value of less than P8 billion. You buy First Holdings and you control the Philippines’ largest power distributor and the second largest company in sales.
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