Thursday, 29 October 2009

Markets and analysts go insane...

For three consecutive days the indices of stock exchanges were taking on red colour. Analysts finally started arguing whether what we saw was the beginning of the correction and tried to foresee the scale of it. Today the markets around the world turned green and as it’s said in the stockbrokers’ slang, are heading north.

This has something to do with the psychology, to be precise with the phenomenon of self-delusion. Just look at what the investors have just believed in (probably for a short time and to take profits quickly). The US Trade Department trumpeted today the end of the recession in the United States. The growth domestic product of the country rose by 3,5 per cent year-on-year. Taking into account the doom and gloom we had been looking forward to experiencing over a year ago the figure is excellent, no wonder that markets shot up. But wait… Why has the US economy grown by 3,5 per cent? The plan I dubbed a few months ago “resuscitating the corpse” must have worked out. Patient was brought back to life, but at the expense of zillions of dollars and running up huge debts. The subsidies granted under the “Cash for clunkers” scheme and depreciation of dollar also contributed to it. They even seemed to worked a miracle – the inflation rate hasn’t gone up… Yet…!

Dear politicians. If you want to stimulate the economy of your country, print money, blow up the budget deficit, keep the interest rates down. Keynes said: In the long run we are all dead, but why should we die on our knees?

A day earlier the season of announcing the quarterly results began in Poland. The first big company to report its key figures was the TP Group. In general they were worse than expected, to boot some figures topped out for the first time since many quarters. The price of TP shares reacted quickly and plummeted by over five per cent during Wednesday trading session. In an evening commentary analysts put the poor results down to the crisis. How come? The telecommunication industry is not prone to fluctuate during downturns – firstly cause people still need to communicate, secondly many clients are under contracts so they can’t just give up on their phones whenever they wish to. It’s the business model they had adapted and consistently implemented. Lots of trade unions standing up to their privileges, splendid salons, and deplorable infrastructure combined with unreasonable prices (fifty zlotys for the cheapest monthly plan with 60 minutes to landlines included in the charge) only bring people of getting read of the fixed line – the thing of the past in the era of prevalent mobility. Its branch accountable for mobile services – Orange also needs to change its strategy – the rates in post-paid plan are, to put it mildly, unattractive, pre-paid offer doesn’t stand out, but TP managers are presumptively plotting to hammer another nail to its coffin. Prices and transfer limits of mobile internet connections can’t stack up against the ones offered by competitors. Not only by Play, Era and Plus are also much forward. Under such circumstances the outflow of clients is only a matter of time, just like the death of the ailing cash cow. And for this fundamental reason I would never, ever buy the shares of TP…

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