Bears

The bears are out.

Across the globe, stock markets have been declared in “bear territory.” They have lost substantial value and show no indication of a turnaround.

Last Tuesday, the Philippine Stock Exchange Index (PSEI) fell 3.83 percent. The Index briefly fell below 6,000 points, considered the major resistance level. If the retreat continues in the second half of this week, our stock exchange could be touching bottom.

The main factor driving the fall in stock prices are the hefty increases in interest rates. When rates are raised, moving funds to fixed income securities appear to be the better option for investors big and small. When the sky is falling, few are willing to gamble in volatile stock prices.

Unfortunately, the indications are that the central banks will continue raising interest rates in the coming months. This is not encouraging news for investors trying to protect the value of their money in an environment of high inflation.

The PSEI took a double whammy. Not only did the BSP raise interest rates substantially, the peso depreciated significantly against the dollar. The large institutional investors who control large amounts of “hot money” have long fled from the Philippine market.

There is no news forthcoming that might spark a rally in our stocks. Although our economy will expand by 6.5 percent this year, it will be less vigorous next year.

Inflation remains high and will probably clock in at 5.5 percent for the year. Inflationary conditions will persist through the next year. Weak exports, a high oil bill and increased pressure to import necessities will ensure that. The only thing keeping our international currency reserves from evaporating are the remittances of our migrant workers.

Even as our economy will continue growing, it will not be at the pace we prefer. We will be moving forward against very strong headwinds. We have had problems about the competitiveness of our exports. Now we have to worry about receding foreign markets for our products.

What happened to the British economy the last few days could be illustrative for our own policymakers. After the new government of Elizabeth Truss announced a cut in taxes, the British pound collapsed. This happened even as the Bank of England raised interest rates substantially, a policy intended precisely to prop up the currency. With inflation in the double digits, the drop in the pound’s exchange value will worsen inflation even more. With inflation running rampant, Britain seems to be marching towards recession.

Increasing interest rates cuts both ways. By raising the cost of money, it intends to take the wind out of an inflationary surge. But costly money also brings down investment and stalls the economy.

All the world’s central banks now seem to be orchestrating a recession.

Imponderable

Patriarch Kirill declared that Russian soldiers dying in the war in Ukraine will be “cleansed of all sins.”

This might sound like absolute heresy. But Kirill is the head of the Russian Orthodox Church. None of his underlings will contradict his assertion.

Kirill is also among the closest supporters of Putin. He shares the autocrat’s Russia-centric view of the world and has once declared Ukraine to be integral to Russia.

The patriarch’s declaration about Russian soldiers being “cleansed of all sin” was made as thousands of Russians of fighting age are crossing all the borders to escape Putin’s draft. There are demonstrations in all the Russian cities against the military mobilization of reserve forces. That mobilization call unintentionally highlights how badly Russia was losing at the Ukraine front.

In the same speech last week where Putin declared “partial mobilization,” he also ordered the conduct of referendums in four Ukrainian regions adjacent to Russia. Those referendums have been declared illegal by most governments. Even former Soviet republics like Kazakstan bravely declared they would never recognize the results of the sham referendums.

Putin pushed on with the voting anyway, sending soldiers house-to-house to collect the votes. In a few days, he is expected to declare annexation of the four Ukrainian regions. Having, at least in Putin’s mind, become integral to Russia, any effort to push out the Russian army will be used by the Kremlin as pretext to escalate the war. This might include use of “tactical” nuclear weapons.

“Tactical” nuclear weapons are not little toys intended to take out one tank here and another tank there. Each “tactical” weapon is many times more powerful than the atomic bombs dropped on Hiroshima and Nagasaki. Each “tactical” weapon could obliterate a Ukrainian city.

Ukrainian president Zelensky warned everyone that Putin is not bluffing when he said he would use every weapon in the Russian arsenal. The autocrat is losing his war badly. His own troops are unwilling to fight. His people are not amused by the war. His allies would not endorse his invasion.

By every measure, the autocrat is cornered. But he is not willing to accept defeat. He could escalate what started as a “special military operation” into a nuclear war.

By bringing his ultimate weapons into play, Putin is trying to intimidate the western alliance that backs Ukraine. He is trying to break the European consensus to oppose the unjust war he started. But if he carries out his threat, Putin could open a nuclear Pandora’s box.

The world is not prepared for this sort of escalation. It is bad enough that currencies are reeling and recession threatens the global economy.

On top of all our problems, Putin adds the imponderable.