Sunday, 6 December 2009

My last economic forecast this year

Initially I was going to write a letter to Mr Santa Claus, as his day falls today, but later on I came to a conclusion that I had been a bit nasty this year and he would not fulfil my requests, so at least I will share with some of my thoughts on the turmoil on financial markets.

Last Friday was expected to be a typically boring day on Warsaw trading floor. Out of my habit during my spreadsheet class I opened intra-day WIG20 chart in a sidebar and I was taking a glance at regular intervals. The index lingered slightly below the Thursday close until the data from US labour market were published. Just a second after the news of better than expected figures arrived at Warsaw, the stock prices shot up by almost two per cent within just a few minutes. American stock exchanges opened over two per cent above the Thursday close, the speculators (I deliberately do not call those who seek quick gains investors) snapped up on the shares, at half past four Warsaw Stock Exchange rose by two and half per cent day-on-day. Before nine in the evening I took a peek at the charts of American indices and S&P was 0,1 per cent negative. Finally main US indices closed about 0,5 per cent higher than the day before. Meanwhile we had a very quaint situation on the currency market – dollar strongly appreciated against euro, zloty appreciated against euro but weakened against dollar, returns on American government bonds and treasury bills dropped drastically, gold prices fell from historic highs by four per cent. The data showed the unemployment in the United States fell by 0,2 percentage points to round ten per cent. It has not been so bad for years, but financial markets do not navigate the absolute figures, but confront expectations with reality, consequently they are very prone to manipulations. Everything has its limits, but what if someone issued a forecast of unemployment rate of twenty per cent in October? How would the markets rally, if it turned out that the aforementioned rate? Would the indices rise so much that the trading would have to be suspended?

The one-off spurt of demand is the best evidence that the bulls are very weak these days, because they have run out of any back-ups for upsurges. Markets have already discounted all the positive signals coming in from the economy, now the market is driven by the loonies, as we witnessed last Friday. Who is to lose then? Probably the ones who do not learn from their own or someone else’s mistakes and invested in stock or equity funds in the last weeks of the bull market. As I read the Polish forum of and comments to the analyses published on the portal I see a steadily growing pessimism, uncertainty and fear of the imminent bear run. Is it the presage of self-fulfilling prophecy?

BTW: reading the discussions between the forum users means also learning their slang. For example, who knows, what “pakować eSki pod korek” means?

I planned to refer in my letter to Santa Claus to so called Santa Claus Rally (PL: Rajd Świętego Mikołaja). I have read about this idiotic superstition almost every working day since the beginning of November. According to its definition, the rally takes place the last week of a year, between Christmas and New Year’s Day, but our journalists want to see it lasting all December long as if they held out hopes for self-fulfilling prophecy. In my humble opinion this year we will have a Santa Claus tug-of-war (PL: przeciąganie liny) between bulls and bears. The former will be defending what they have earned this year to pay themselves huge bonuses (many of them are the top dogs in investment banks and hedge funds), the latter will be trying to spoil their fun, so until the end of the year I foresee a stabilisation.

What is going to happen later? I expect a correction, but it is hard to estimate its scale – some will take profits, some will sell their assets to buy them back cheaply some time later. Gold price will level off for a while, then it is going to appreciate (read it: the bubble will be rising). Crude oil prices will probably remain stable for a few months. And in Poland – złoty will be in a long-term upward trend, but will be subject to fluctuations of investors’ sentiments, so there will be rather strong positive correlation between stock indices and złoty.

In the very long term… My inner oracle tells me about a big reshuffle, but I will skip it now…

I wanted to ask Mr Santa Claus to bring two guys to their senses.

Barack Obama, who loves to throw away money someone else has earned! US president has not however spent the money of his current voters. The fiscal policy has been loosened and Obama’s administration is giving away money, but the occupant of White House splurges the money the next generation of Americans will have to earn, in the long term sending US economy into decay.

And Mr Ben Bernanke, whose next term as FED Governor is almost in the bug – this guy and his mates have bailed out the almost bankrupt financial institutions and eased the pains of financial markets by slashing the interest rates to the ultimate limits and then through, to put it bluntly, printing money. This unprecedented action will take a heavy toll on the US economy in the future. But at the present he has the support of influential financial industry and of the government. The US economy has officially revived (grew by 2,8 per cent year-on-year in the third quarter), in the author’s brazenly expressed opinion was resuscitated by the drip from the public purse. It is untrue that market players do not realise it, they play the game, where the rules have been set by themselves and they are ready to play dirty to win it.

But don’t you care too much about it, let’s have fun in the Christmas run-up period!

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