Let's twist again

We sang it at work on Thursday morning. As most analysts anticipated, The Federal Reserve did not decide to launch QE3. We have already had two round of quantitative easing programmes, consisting in buying government bonds by the central bank to boost liquidity in the financial system. This operation boils down to printing money (in civilised countries it is illegal, so maybe the United States no longer deserve being called "civilised"). The first two rounds carried out between late 2008 and early 2011 resulted in nothing more than bull market on stock and commodity markets. The beneficiaries of the programmes were speculators, so again, Wall Street was better off, Main Street had to stay in the doldrums.

Funnily enough, the old adage that you should not play against the Fed proved true again. Okay, buying up lots of government bonds from the banks gave them a lot of free money that had to be utilised somehow, so cash created extra demand on financial markets But hang on. Was it not the mechanism of self-fulfilling prophecy that worked again? If everyone believed stock prices would go up if the Fed began to print money, would eveyone not buy stocks which would be about to go up in prices?

Unfortunately for some of the speculators, the Fed has run out of space for another operation, as inflationary pressures began to heighten and more and more members of the governing committee were against the easing. The alternative plan will now be followed out - the US central bank will be determined to change the shape of yield curve, to be precise to flatten it. To follow out this plan, Mr Bernanke will order to sell short-term bonds and from proceeds he will buy long-term bonds. This should help the economy revive and is mostly aimed at kick-starting the housing market, as interests on mortgage loans are benchmarked to long-term interest rates. Time will tell if the real economy benefits from this operation, probably the action was arranged in collaboration with the government which will find it easier to sell its long-term bonds and thus the Fed will put back the moment when the United States default, which is just a matter of time. Of course they may not default, but only thanks to high inflation which would reduce the real value of US public debt.

Markets' reaction was more or less predictable and more or less apposite. Scatts, sick of hearing about stock swinging up and down ranted about "moronic stock markets". His piece is an excellent observation from a down-to-earth participant, yet not an economist and not someone who has an in-depth insight into the psychology of usually irrational market participants. In a comment I promised to refer to some of his points.

Scatts goes on about higher volatility. It has become the order of the day that one day stocks soar, the other plunge, sometimes there are a few days in a row when prices move in one direction, than the tide turns abruptly. Firstly, it proves we are in a bear market. It is not only the trend that tells you if a market goes up or down, it is also the volatility. The more nervous market participants are, the more likely it is 'bears' prevail.

But in such days volatility can be a friend. If you are a long-term investor, skip this paragraph... My prescription for successful trading when the markets are wobbly is to swim against the tide. If stocks skyrocket, I sell, if they plumment, I buy. The other part of my strategy is not buying and selling in one chunk but splitting orders into tranches and placing them and different prices. The goal is to lower as much as possible the average purchase price. The task is not easy, requires patience and intuition and brings out some adrenaline...

Communication - markets today buy and sell rumours, declarations, reckless pronouncements, unfounded theories. One politician says there is a plan to stave off Greek default - stocks go up. One economist says bankrupcty of Greece is inexorable and the sooner - the better - stocks go down. Someone says a French bank has troubles borrowing money on inter-bank markets - shares of that bank nosedive... On and on... Markets, if they acted more rationally, would respond to facts.

And facts are that nothing is going to save Greece, economies in Europe and across the world are slowing down, banks will need to write down Greek bonds. I cannot see any point in putting this hapless moment back. Let it happen, ride out the tsunami, what is brittle has to fall down before it grows too big (it has already grown, too late), economies need to be healed from all imperfections that cuased the crisis. Putting some countries and instututions out of misery would make the best way. But most people want to avoid chaos, maybe cherishing stability is a commendable strategy, but at all cost?

Just like in late 2008 and early 2009 Polish currency was recently hit by speculators. Short-sellers are throwing more and more PLN on the market and zloty has depreciated notably in September, by roughly 15% against EUR and USD. Last Friday the Polish central bank and state-owned BGK sold some foreign currencies to prop up PLN. They managed to bring down EUR/PLN and USD/PLN by some 0.10 PLN within half and hour. But is any central bank capable of fighting speculators trying to decrease the value of a specific currency? Of course buying PLN in bulk can activate some stop-loss orders and deter some speculators, but only in the short run. I would sooner desist from any actions. After all Polish companies are not hit by toxic currency option as they were in early 2009. Weaker PLN will boost our exports and competitiveness and increase Poland's chance to get off the second wave of the crisis lightly.

The main condition we have to fulfil to avert dire consequences of the second wave of crisis is wise management of our public finances, as private sector appears to be prepared quite well for a slowdown. And here reality fills me with dread for two reasons...
In two weeks the parliament election will be held. I do not dare to predict who wins it, but...
PiS, currently in the opposition wants to bring public finances into order, but at the same time promises the moon. Its declarations are self-contradictory - you cannot have a cake and eat it, you cannot give something to somebody without taking something away from someone else, you cannot increase budget expenditures anc cut budget deficit... It is not said in their agenda how they are going to raise money for all the giveaways...
PO, currently in power rather leans towards realpolitik and holds back from making big promises, but on the other hand the PO-led government has inclination for tweaking with figures, so they will bend over backwards to avoid exceeding the 55% public debt / GDP threshold (possible, if EUR/PLN rises on 31 December 2011 to some 4.70), which would force the government to pass a balance budget for 2012. That would not be possible without painful retrenchment and tax hikes, yet this scenatio is much better than sweeping the problem under the carpet and lifting the threshold and consequent obligations to curb deficit and implement turn-around plans. I hope no matter who wins the election, the people in power will be judicious. I know, Poles deserve more, but more important is what Poles can afford than what Poles deserve. And if we do not want to end up like Greece, we should be guided be the former.

Hot autumn in politics

Looking at recent posts you might have inferred subject matters brought up recently depart more and more from what the blog should be mostly about. Time to get back to the core…

To politics…

The pre-election campaign has been in overdrive for a few weeks but I somehow do not feel that in three weeks I will go to the polls. This campaign in a way looks lacklustre for me, nothing really exciting has been going on. I do not know if it is good or bad, maybe I have too little time to keep track of the events in politics, but this campaign appears to me much different that all the recent ones (those in the run-up to parliamentary elections in 2005 and 2007 and before early presidential election last year).

The first remarkable thing is that two fellow bloggers are running for parliament. Toyah goes in for a seat in the lower house from constituency Katowice from Prawo i Sprawiedliwość (hereinafter PiS) list, while Paulina can be found on Warsaw’s lists of Ruch Poparcia Palikota. I will not have a chance to vote for any of them, I actually do not know personally anyone from the lists in my constituency.

A few months ago it was quite sure that Platforma Obywatelska (hereinafter PO) would be the odds-on favourite of the autumn election. Today, as the most recent polls show the biggest oppositional party, PiS has caught up with the ruling PO and support for the latter is in some polls is less than five percentage points lower than for the former. Actually it is not an astonishing tendency. PO’s victory would be the first ever win of the ruling party in Poland after 1989. Each time before, Poles were sick of previous governments and wanted something other, but that is a negligible factor. Never before have Poles been so divided in terms of political views. There was a strong hatred towards PiS in 2007, now there is a strong hatred, but mostly towards PO, hostility towards PiS is still alive, media still favour PO, but electorate of PiS has built up strong backing and keeps growing in power. It is no longer passé to admit publicly one votes for PiS, in this respect things look much better than in 2007 when voters of stepping down PiS were really despised and it was cool to vote for PO. Today those who back Mr Kaczynski can hold their heads up high.

I see some reasons why support for PiS is on the rise:

- people are sick of success propaganda pursued by the current government and run out of patience,

- the issue of Smolensk has been shelved,

- the new strategy of the party sets out to build a new image of open-minded, moderate party which wants to develop Poland on foundations of traditional values in a modern way,

- plus again it promises the moon in terms of economics, as if they were capable of cracking down on rising costs of living, unemployment, etc.

And there is reason why I do not understand it. All other parties take part in debates, while PiS members only organise press conferences of give interviews, they do not want to discuss with other parties. Supporters of PiS say it is because media are biased, opponents claim in turn PiS members know they are not prepared for a substantial debate. The truth lies… Do not hope to find it out… It lies where it lies…

I sometimes dare to think PiS wants to lose the election and focus on fighting for ultimate power in 2015, taking over the whole power (majority of two-third in the parliament plus their president). It could be even quite convenient to them to let PO run Poland through the end of the impending second wave of economic crisis, repeat hackneyed theses of Poland in a total downfall, chaos, ruled by incompetent people.

The campaign and politics as a whole abounds in inept pronouncements. The most noteworthy examples from the recent months are:

24 August – PiS deputy and ecomomic expert Beata Szydło says in Tok FM radio Polish GDP is shrinking (in the second quarter of 2011 it rose by 4.3% year-on-year).

26 August – PiS deputy Adam Hofman comments on the new clip of Polskie Stronnictwo Ludowe (hereinafter PSL) saying guys from the countryside came to the capital and go bananas.

Early days of September – member of Monetary Policy Council, Zyta Gilowska, former finance minister in PiS-led government publicly backs PiS and declares her readiness to take part in a debate with the incumbent finance minister on public finance. Such activity would have been a blatant violation of central bank independence and derogation of Polish central banking law. This move wound me up as an economist and on 7 September I was going to write a short note to condemn her misdemeanour. Eventually on the same day, during the ending session of the council Zyta Gilowska was probably taken to the task by the president of the central bank, came to her senses and backed out of the idea of engaging in political activity.

14 September – Mr Rostowski, from the ruling PO, during his speech in the European Parliament scaremongers claiming that if the EU fails to overcome the ongoing economic crisis, it will lead not only to social unrest, but may end up with war over the coming decade. Are there things you can think of, but shouldn’t mention?

16 September – Grzegorz Napieralski, leader of Sojusz Lewicy Demokratycznej (hereinafter SLD) calls PO to create a government if PiS wins the election. The perplexing idea is quickly and rightly retorted by the prime minister Donald Tusk who reminds Mr Napieralski that only Poles have a right to decide who will form the government. If PiS gets the biggest percent of votes it should build a new government. Who would dare to enter a coalition with them is a totally different story…

Of course this coverage is biased, but still less biased than posts on other blogs…

Now a quick look at agendas of two parties that have a chance to win the election.

PO wants to press ahead with modernisation of Poland with the method of small steps. No big liberal reforms, no difficult choices. PO underlines what it claims to have done over last 4 years and silently concedes its defeats. Unlike SLD it does not focus on reviving memories of IV RP nor wants to put Jarosław Kaczyński and Zbigniew Ziobro before the Constitutional Tribunal. In a word – realpolitik…

PiS also has an agenda, but it consists mainly of:

a) criticising feckless PO-led government,

b) taking pride in achievements of PiS-led government.

But seriously, as a biased recipient I have to say it is simply incoherent and lacks details. Let’s examine some parts of their economic agenda.

PiS wants to levy an additional tax on banks. At least one candidate of this party says banks are evil and if only possible would love to wipe them out. Coming back to the bank tax, no one says on what (equity, total assets, deposits, net income) the tax would be paid, but in the meantime PiS wants to boost banks’ income by extending the Rodzina na Swoim programme, under which the state pays half of the interest on mortgage loans to families who buy a new flat or house and meet specific criteria. The programme boosts demand on properties and consequently also property prices go up. This means the beneficiaries of the subsidies for the borrowers are (1) developers which can sell flats at higher prices and earn more and (2) banks which can charge clients higher margins (it is proved that loans under Rodzina na Swoim have higher margins, because cost for a client is lower than for a non-subsidised loan anyway). If property prices rise, fewer people can afford to buy a flat without a mortgage, so more people have to go to banks plus they have to borrow more. And so the banks earn more and debt burdens of households increase…

It is easy to say banks enslave people, but how does it impinge on the contribution PiS wants to make? Another thing I like in the agenda of PiS and speeches delivered by Mr Kaczyński is the phrases pieniądze się muszą znaleźć (money has to be found) and są zasoby do których można sięgnąć (there are resources that can be tapped). I have not heard until now where that money is, nor what those resources are. Pooling wool over poor voters’ eyes all the way… Or if somebody could enlighten me…?

Mr Kaczyński is of the opinion that the rich, not the poor should bear higher tax burdens. So why the heck did his party (with support of PO) resolve to cut the income tax marginal rates by 8 percentage points for the richest, by 12 percentage points for well-earning ones and by one, mere one percentage post for most Poles? Why did they cut sickness benefit contribution (składka rentowa) and grant tax deductible amount for each child under such conditions that the poorest could not deduct any amount? Key beneficiaries of all those moves are the well-off, it would be quite natural if those changes were pushed through by libreal PO, but they were passed in times of Polska Solidarna. Jarosław Kaczyński surely solidarised with the better-off.

If PO wins… Someone will surely say the election has been rigged.

If PiS wins… Someone will surely call Poles idiots, morons, etc.

If PiS wins… Life will be much more exciting.

If PiS wins… Maybe I will set up a Polish language blog on politics…

I do not think victory of Mr Kaczyński party would be a disaster, but I do not want it for Poland.  I do not want my country to follow the path of Hungary under Mr Orban’s administration. As much and as little.

Early fall, there's a cloud on the New York skyline

9/11 is one of few events in the history I remember well. Once, in the first anniversary of Smolensk disaster, I brought back memories of that day. Now there is no point in repeating them, there is no use in writing how that terrorist attack changed the world, dwelling on how unbelievable it was would sound like a cliche. As an economist I could address the topic by weighing up pros and cons of suspending trading on Wall Street by the end of the fateful week or going on about the impact of loose monetary policy pursued by Fed to buoy up US economy after 9/11 on formation of US housing bubble.

The economic aspects of 9/11 are apparently compelling, but before I got really interested in economics I had had a period in my life which had had its climax in Janaury 2008 (winter exam period) when I went through a silly fascination with 9/11 conspiracy theories. Over that one month not only did I underperform on my exams which cost me a lower scholarship in the subsequent semester, but I also downloaded several films (Loose change, The greatest lie ever sold, In the plane site, The secret evil of September the 11th, Zeitgeist) about 9/11 alleged conspiracies and watched them. There was a time when I deeply believed in those theories, with time I grew out of them. My sound mind tells me they are hogwash, but I do not have sufficient information and knowledge to verify all facts and allegations... Conspiracy theorists make use of the fact people are unable to substantiate their claims and this lets conspiracy theories thrive...

So when everyone else looks back on shock brought about by the events we witnessed exactly 10 years ago, or commemorates the victims of the attacks, let's look at some stuff everyone passes over today, although it is said one-third of U.S. citizens do not believe in official account of 9/11 attacks...

1. The attack was plotted by U.S government to crack down on middle-east regimes, instill fear in people and cut down on civil liberties...

2. Alternatively, the U.S. administration knew about the plans of attack but did nothing to prevent them, as it was a good pretext for neo-conservative administration to pursue their plans set out in paragraph 1...

3. There was a large number of transactions in shares of airlines and insurance companies before 9/11, with the most recognised trading in put options on shares of United Airlines executed the day before the attacks...

4. The twin towers did not collapse on their own, but were demolished with use of bombs planted inside them...

5. Moreover, WTC 7 was "pulled (down)" in the same way - the building did not collapse naturally...

6. Pentagon building was a hit by missile...

7. Something was attached to planes which hit WTC towers, alternatively those were no passenger planes...

And many, many other... (the list does not enumarate several reported UFO sightings caught on tape)

I dare to claim 9/11 was the same for the United States as Smolensk disaster for Poland. Both tragedies were very traumatic for both nations, both left a mark in political arenas. Despite many dissimilarities, such as number of fatalities and who they were for the countries, causes and circumstances or the events, they have something in common - both have not been and stand no chance to be explained in 100%. In both cases investigations following the tragedies were said to be intransparent. Whenever some obfuscation emerges, there is room for doubt, looking out for inconsistencies. Actually both 9/11 and Smolensk were so hard to believe that it is in a way natural that there are people who will keep scratching beneath the surface to find out what "the real causes" were. Ten years after 9/11 many people believe it was an inside job, and I am sure in ten years there will be people in Poland saying Tusk and Putin contrived it, the plane landed and was shuttered by a bomb, Russian agents killed those passengers who had survived the impact, the birch could not break off the left wing or the fog in Smolensk was artificial... It can't be helped...

Poland under construction

Or, if it rings a bell, Polska w budowie...

Not a political post this time. Beware through, the tetchy issue will have to return sooner or later, as soon as a politician who has no notion about economics will come up with an extraordinarily preposterous idea... The campaign hots up, but it kicked off before an official beginning, when the ruling party presented its brochure titled the same as my posting.

I do travel around Poland and I see the PO's catchphrase is not just a set of hollow words. Big injection of funds from EU has brought about a big progress in infrastructure development. When I travel in business taking photos raises immediately suspicions concerning the purpose of it (as if I acted with the detriment to my company), so I abide by stringent business trip policy guidelines and simply scrutinise construction with my eyes. But last Wednesday I travelled privately to Jelenia Góra and back, as my father and I were dropping off my mother to a sanatory there.

The coverage must begin with an indispensable landmark of Polish disgraceful roads. This traffic signage means you should expect to have the speed at which you are driving controlled by a funny device. Usually a driver who sees such sign slows down by 50 kmph. Abrupt braking may be potentially more hazardous than speeding, as a driver behind may not use the brake pedal as immediately as necessary.

And here comes the culprit. Inconspicuous, grey machine, quite often with its lens covered. This time I didn't see a single speed camera taking a shot of a speeding road hog. Some time ago the Polish parliament was about to pass a decree according to which speed camera dummies were to be removed. I don't know if it has been passed and if it has taken effect, but some of the cameras I spotted along the way looked fake.

To the right - the first photographed example of construction going on. An over 20-kilometre long section of S8 expressway linking Oleśnica and Syców. To be precise, the road should link Wrocław Psie Pole junction and Syców, the part of this road, namely bypass of Oleśnica has been completed a few years ago.

The day we ventured to Jelenia Góra the newly built motorway bypass of Wrocław was opened. The opening was scheduled for early afternoon hours, so around 10:00 a.m., when we reached Wrocław we drove the usual route of national road number 8 that runs (and takes, errr... used to take the whole traffic) through the city centre. Wrocław, no matter how charming it is, does not deserve to called a driver-friendly city. To the right - that's how a national road looked - wasn't it a shame. I like cobblestone, but it's not an appropriate road for transit traffic.

Trip through Wrocław had one benefit - I accidentally noticed the highest skyscraper in Wrocław, Sky Tower, also under construction. And in the foreground - a blue tram, a hint for discrenible eye the photo comes from Wroclove.

The stopover in Jelenia Góra lasted just half an hour. A shame we planned to go there and back within one day, as I'd love to roam around the town. I could only snap a street running towards the market square from the car window. Sightseeing beckons... And lack of true holidays over last two years makes itself more and more felt...

To the right - Jelenia Góra can't afford to lag behind with other regions where infrastructure is building up and it builds a flyover over national road number 3. I don't know for what reason it is erected, but Poland is experiencing an infrastructure construction boom, so not only private-funded construction booms lead to absurdities.

At 13:12, as we were approaching A4 motorway, the police opened the central section of Wrocław bypass motorway. No need to drive through the city again. On big junction before Bielany Wrocławskie we're turning left and just enjoy the ride... Traffic is rather sparse, I wonder if drivers knew about the opening and how many took a day off (Skyscrapercity forum told me later many did so) to celebrate opening of the bypass?

The most breathtaking part of the motorway (soon converted into expressway, to make it a toll-free road for cars) is the cable-stayed bridge - Most Rędziński, pride and joy of Wrocław's residents. I have to say I've never seen such a beautiful road in Poland, I'm looking forward to seeing something similar in Warsaw, part of it, linking Konotopa on the western fringes of Warsaw and ul. Puławska should be completed next year (construction has got behind schedule and pace of works is stunningly erratic).

An observant reader has surely noticed a missing piece in the photo coverage. These are unmade snaps of modernised Katowicka - national road number 8 between Rawa Mazowiecka and Piotrków Trybunalski. The dual carriageway was built in mid 1970s and was long due for reconstruction after which it will meet criteria of expressway. The reason why there are no photos of it is that I drove down and up this road and my father declined to save the horror of driving there for posterity. But if you really need to see what's going on there, get on to relevant page on Skyscrapercity forum.

920 kilometres covered within one day is not an enviable experience, but also one-day business trips look in the same way. We set off at 04:50 in the morning and pitched up home at 20:25, both my father and I were falling flat on our faces. Driving in such conditions is not a big pleasure, but when the big stride we are witnessing is made, driving around Poland will be faster and safer. The only pity is that EU will not be as open-handed as it was in 2007-2013 agenda and Poland itself will also fall short of money for infrastructural programmes. I only hope the pace of constrcution will only fall back rather than grind to a halt...