The power of one man’s word

This blog, just like many other in the blogosphere, seems to have seen better days. Once in a blue moon I happen to post more than once a week. Writing on the spur of the moment (usual method of running PES) is now the thing of the past; these days over the whole busy week I try to plan what to write, then change my mind, when I get down to writing.

I was going to give a coverage of my last bike trip this year and upload photos of first snow (actually I am told those were snow grains, not the proper snow) in Warsaw this year, but there is no such word as ‘weather’ in the title of the blog, hence politics from the time to time has to come into the foreground…

Friday saw the second inaugural address of prime minister Donald Tusk, who will go down in history as the first head of government to have stayed on for the second term in office. Unlike his speech four years ago, this one was not filled with visions of land of milk and honey. This time the speech, apart from leaving out many realms such as foreign relations, culture, education and health service, focused on painful economic reforms this government is going to press ahead, to at least try to turn around the Poland’s public finances.

The inaugural address went down astonishingly well with my friends, colleagues at work and my family (truth be told with my parents, as the rest of them, both at my mother’s and my father’s side vote for PiS and worship the would-be saviour JarKacz). Short, yet up-to-the point, with quite specific promises and time frame set for achieving the goals, makes it easier for voters and opposition to bring Mr Tusk for going back on his promises. I have no idea how many of them will be brought off, how many will lead to social unrest and for how many resistance of matter will be insurmountable. I do not find myself capable of assessing whether bitter promises of retrenchments and curbing public debt were just hollow words, but the speech of the prime minister did not smack of ‘mercenary PR’, so characteristic for PO and its leader.

This time Mr Tusk made us come back to earth and face the bitter truth. As a nation we have not lived beyond our means to such extent as many other did, but to save the country from falling apart we finally need to swallow a bitter pill. Let’s just face it – there are far too many untouchable privileged groups in this country that live off other taxpayers’ money – policemen entitled to pension off after 15 years in services, farmers who do not have to pay social security contributions, prosecutors and judges with pension privileges, clergy paying very low lump-sum taxes with pension contributions paid by the state. Plus thousands of other people who retire much earlier than in Western Europe, despite being still in good health. Whenever you get more than you deserve, in overall account it is not for free, just if you do not pay for it, someone else has to fork out money for your privilege. This is called redistribution of wealth. The questions remains, to what extent redistribution is fair? I am of the opinion a well-developed society cannot go without redistribution, as there are disadvantaged people who really need help and who are not culpable of their predicament, there is a need to provide equal chances to children from poor families and help those gifted young people break away from poverty, finally there are forms of getting income that have to be taxed, owing to putting no or little effort in earning – therefore I will probably never approve of lifting capital gains tax or will not be fully convinced to advantages of scrapping inheritance and donation tax.

Done with general assessment of the address, let’s drill down into details. Around twenty minutes past midday Mr Tusk said: Chcemy po pierwsze wyraźnie zwiększyć i unowocześnić daninę, którą w tej chwili pobieramy w niewystarczającym stopniu od wydobywanych bogactw naturalnych przede wszystkim miedź i srebro. (Firstly, we want to raise and revamp the tax levied on extraction of natural resources, particularly copper and silver.)

KGHM is a partly state-owned company dealing with extraction and processing of copper. In terms of market capitalisation it is the biggest company listed on Warsaw Stock Exchange. Now get the load of this… The chart shows quotations of KGHM on Friday.



Red circle marks the abrupt reaction to Mr Tusk’s declaration – price of KGHM shares plummeted by roughly 5% within less than five minutes. Number of transactions was twenty times higher than before the words of new tax. Then we saw a double-dip formation (blue circle) that portended a rebound that did not last long. Around half past four market saw the second wave of sell-off (green circle), just after five KGHM stock fell by more than 10% and trading was suspended (violet circle). Friday close price was 13.83% lower than Thursday one… Note also the volume (blue bars at the bottom). Turnover was low until the announcements and than it escalated in moment when price was going down – this shows the strength of the downward trend…

The sell-off soon prompted the questions about beneficiaries and victims of the turmoil. Government members avow that information about the content of prime minister’s speech did not leak out, Polish Financial Watchdog, for sake of good order, should carry out an investigation. In such situation, investors with inside knowledge could have sold their shares in advance, before the price plunged and speculators could have shorted them and rake in profits very quickly. I hope this will all straighten out and politicians will think twice before the say something that would swing the market…