2015 in retrospect

Last days of the year, a short, idle period between Christmas and New Year’s Day (or even Epiphany). Days, when world nearly comes into a standstill; days when slower pace of life provokes one to look back into the passing year and (maybe more often) to make resolutions for the coming year. Customarily, we wish one another that the coming year is better than the passing and usually we think it would not take that much to make the wish come true. In fact, as a matter of principle, we under-appreciate positive developments from the past and over-estimate importance of those negative. Fair assessment of what we have lived through is generally hindered by our selective memories. Actually, 2015 was a year of ups and downs for me, yet as it comes to an end, positive outlook for 2016 brightens me up ;-)

The ups and downs pertain mostly to private life. I have (and dare to claim) successfully tried to temper the magnitude of both ups and downs, with lifting myself from being closer to the bottom being a far bigger challenge. I have made a tremendous work to get hold of myself from the “post-CFA blues” and break away from the life focused on merely getting by. This took me three summer months, the months, truth be told, I effectively wasted, genuinely doing nothing than carrying on. I functioned yet not lived. Then came the turning point. I signed up for dance classes (and continue trainings, though I sometimes have to bend over backwards not to stay overtime in the office) and want to develop this pastime activity in 2016. I also find no excuses for socialising, whatever opportunity comes up and no matter how tired or reluctant to meet people (both states sometimes inevitable in the daily grind) I am, I grab it. A human becomes a human only among humans, that is why interacting with people (in most situations) brings out positive energy in us. This all has instilled more self-confidence in me. You, as some of my friends, would probably argue, I had not needed my self-confidence to be boosted. This is kind of misleading, since what you see outside does not need to reflect what goes on inside.

In terms of work, I started off into 2015 with serious doubts whether changing a job had been a good move. With hindsight, I wrote that post shortly before settling down in the New Factory. First six months in the new company are about finding your ways around it, the next half-year period is for laying foundations of your position in the company, after one year, you begin to thrive and your credentials get reinforced. This timeline reflects my experiences from both The Employer and The New Factory. As of November I was relocated and assigned more duties and ended up working 60+ hours per week. The workload somewhat eased in early December (meaning I spent weekends without the company computer), but for instance I had to spend the whole evening on 23 December, well into the Christmas Eve, “saving the day” and with swear words flowing from my mouth (how foul-mouthed I have become over 2015). The blend of time pressure, stress and encroaching on private life my job offers me sometimes makes me want to literally yell. More and more often I wonder where this whole craze is leading me and what the benefit and the sense for me in it is. A friend to whom I talked on Wednesday (taking a break from “saving the day”) told me I am at the moment of deciding whether I make do with what I have (and rest on laurels with what I have achieved so far) and should ease up or I want to aim higher and carry on shining bright and patiently waiting to reap what I am sowing. The conclusion is basically wise and up-to-the-point, but the other question is who the reward comes to…

The noteworthy affair in 2015 was passing the third level of the exam and being awarded the Charter (along with other 78 other professionals from Poland who earned the Charter in 2015). To make a sincere confession, self-pride is mixed with regret. The fortnight before the exam was a nightmare. I got up every single day wanting to scream until my throat could not give any voice, wanting to burst into tears which could not flow from my eyes. And then, counting down days until 6 June, I fought battles not only against exam preparations, but also against my frail psyche. I did well on the exam (I consider it a miracle), but the price to pay was high. I am now a Charterholder and realise had I given up along the way, I would be angry with myself, the scenario worse than what I have gone through, since except for track record of roughly 1,000 hours spent on learning, I at least enjoy some kind of self-esteem. Against my own demons, I have carried the day.

The saddest moment of the year was my grandma’s departure in March. At the very beginning of the year we all knew it was unlikely should would celebrate her 90^th birthday in November. The very passing away actually brought relief to us, since grandma was slowly dying for two weeks and her suffering lasted unbearably long.

In the last quarter of the year, I began looking for a flat. One day in January I will try to write more on this, but the search resembles now my effort to find a new job taken in November 2013. This was the moment I knew I was bound to do something unless I wanted to go bonkers or totally burn out with The Employer. I had in mind a hasty and quick job change only to break out of the endurable workplace did not make much sense. Also spending roughly an equivalent of one’s four-year after-tax salary (on a relatively illiquid asset) requires some care. With the job change the outcome was that in the sixth month of fruitless search, the offer from the New Factory came up and both the New Factory and I were committed within seven business days from the first contact. I guess same will happen about the flat, when an opportunity comes up.

And far in the background… We have witnessed a makeover of Polish political arena. We have the new president and the new government, with outright majority of one party in the parliament, making extensive use of unfettered hold of power. Millions of Poles wholeheartedly support the radical agenda (and steps) of the new government, millions of Poles silently or outspokenly object it. I am more and more tempted join people who take to the streets and get involved in the politics (although for the same reasons why I conceal my identity as a blogger, I should hold back). 2016 will be a year full of twists of actions in the politics. I doubt it brings early election. PiS will not repeat the mistake from 2007 when they thought the early termination of parliament term and brought forward election would reinforce their rule. Now, without the burden of any coalitional partner, they are likely to wield power until 2019. Unless the civic discontent, brought about by all-out assault on democratic institutions and going back on pre-election promises, gets so intense that it overthrows the PiS government. But even if so, what then?

Angel's angle

Prompted myself to watch again “Wings of Desire”. Not just to behold Berlin divided by the wall, mere three years before it was crumbled. Not just to encounter the atmosphere crafted by Wim Wenders in his magnificent films. I have revisited the film to explore concept of angels and the whys and wherefores of their “presence” on earth.

An angel is invisible. I presume each of us has at least once dreamt of being invisible to somebody. What in some situations is a blessing, in the long run is a curse. Invisibility which allows you to be an unnoticed bystander who observes course of people’s lives means no human being pays attention to you, nobody talks to you, nobody touches to you, nobody interacts with you. As a result the only creatures you can have relationships with are fellow angels; in the eternal perspective no one but other lonesome companions.

An angel has insight into humans’ feelings. An angel knows what they think about, who they love, who they hate, what problems they cope with, what pleases them and what they fear. An angel knows all but an angel can do nothing about to relieve humans’ pains. An angel does not have power to solve people’s problems, cannot abandon their invisibility for a moment to talk to a human or to hug them. And after all, angels are familiar with human feelings only because they observe them, but not out of their own experience. They witness sadness of a bereaved human but they do not know how it feels like, because nobody they loved has even passed away. They witness sorrow of a lovelorn human, but they do not know how it feels like, since no one has even turned away their love. They witness incurably ill humans, but they have never gone down with any disease. They witness misery of a family who cannot make ends meet, but since they have never had to do with money and have never needed it, they do not know how being short of money feels like. An angel does not even know what the pain is, they have never felt it.

No wonder one of the angels staring at the fate of West Berlin’s residents one day, upon falling in love with a woman, decides to give up on all the traits of angelness he grows uncomfortable of and becomes a mortal human.

Thus I guess the purport of the film is that genuine feelings, including those most bitter, are the essence of humanity. Learning how to cope with the suffering teaches us how to handle love. Without experiencing the former you cannot appreciate the latter. Without feelings and without problems the life is empty. Do not dream of trouble-free, easy life. It is a trap! Trouble-free, easy life is not for humans!

So feelings are what matters the most. Do not suppress them, give vent to them, share them with fellow humans. And feelings drive emotions; both positive and negative. If we are affected by emotions, we are humans. And finally, by depriving themselves of emotions, humans turn themselves into robots, goal-oriented creatures, repeating tasks to survive, without seeking the essence of their humanity. As I grow older, day after day I am more and more appreciative of positive impulses and search for them to draw pleasure. I chase them and grab them whenever they are not out of reach. I hesitate many times, since not infrequently price to pay for the positive vibes might be too high. As I have been growing older, life has been teaching me, it does not need to be wise to reach the top one day and slide to the bottom the other day. Beware of that and do not get high at the expense of other people.

I wish and peaceful Christmas to all my readers!

Market update

Customarily, December on financial markets is hardly ever a season of bloodshed. Either everyone is celebrating, trading volumes are thin and markets are placid or fund managers are make use of shallow market to boost portfolio valuations before year-end. This year Santa Claus rally, if it is witnessed at all, will be at best considered a revival after the recent turbulent weeks.

The most frequently benchmark used for the Polish stock market its is large-cap index, WIG20, composed of twenty biggest, in terms of the market value, publicly traded companies in Poland. The index, with its historical high of more than 3,900 points recorded in October 2007 and this decade’s high of more than 2,900 in April 2011, has seen a few months of dreadful performance. In early May this year WIG20 peaked at 2,558 points, while on F11 December’s market close it dropped to mere 1,757 points, so it declined by 31% over 7 months. Raw numbers in theory should not bear a false testimony, yet what underlies the numbers might be biased enough to prompt market data recipients to jump to conclusions.

So before we do this, three facts:

- as of 11 December 2015’s close, WIG20 components accounted for 27.6% of the whole stock market in Poland, in terms of market capitalisation,

- the index is dominated by two industries: financial sector (Alior Bank, Bank Zachodni WBK, mBank, Pekao S.A., PKO BP, PZU) and energy (Enea, Energa, PGE, Tauron),

- the index is a price index, i.e. takes into account only price movements, but fails to account for return from dividends, while the yield of the index in the long-run is close to risk-free return or slightly higher.

The first arguments persuades you to think of another, more representative benchmark for the Polish stock market, the second should tell you performance of two industries might substantially affect performance of the index.

And indeed, the shares of banks and the insurer have been falling for the recent months, as valuations discounted imposition of financial sector tax, higher bank guarantee fund contributions as well as anticipated, yet for a while put back, conversion of FX-denominated loans unfavourable for banks.

Shares of energy producers plummeted because of their planned involvement in the bail-out of coal mining, extensive CAPEX needs, both factors trimming down their dividend payout capacity.

Shares of banks dropped by 30% since May 2015, shares of utilities declined by 40% since May 2015. Besides, two vital components of the index are KGHM, punched by falling copper and silver prices (not well offset by stronger USD) and Bogdanka, thumped by falling hard coal prices. No wonder then even if other 8 companies perform decently (difficult, if the market is perceived as homogenous by foreign investors), the index could not fare well…

The better representative of the broader market is WIG. While WIG20 retracted to levels last seen in April 2009, during post-crisis rally, WIG, a total-return index (takes into account dividend income), is two times higher than in February 2009, but fell by 23% from its peak in May 2015, meaning the Warsaw Stock Exchange has officially entered the bear market.

A justified question is whether the factors depressing Polish equities are of local or global nature. If you look at performance of S&P 500, no pattern similar to what has observed in Poland can be discerned.

The same if you peek at DAX30. Both Wall Street and Frankfurt contracted at the news of faltering Chinese economy, but both are still in bull market.

If the stock exchange predicts troubles in the future, it begins to do when the troubles emerge on the horizon and they did so in May 2015, when lots of market participants realised PO was bound to lose the parliamentary election and PiS, as they got hold of power, would tamper with the economy. Policies pursued by PO were also to blame, as they also had put forward a draft of FX-denominated mortgages conversion and they set off to exploit energy companies to rescue insolvent coal mines.

With hindsight I am grateful to the New Factory for imposing stringent trading restrictions on me which have put me off trading and prompted to terminate my brokerage account. Had the limitations not been in place, I would have several times attempted to catch the falling knife. With hindsight, I see I would have been worse off.

Moving away from Poland… Prices of Brent Oil (traded in London), after bottoming out early this year, have been falling since early summer, but recently they tumbled, best evidenced by the 9% drop within the last week. Excess of oil supply is likely to persist, extraction is unlikely to be cut down by OPEC members, while macroeconomic environment remains shaky. All these factors combined ward off the scenario of crude oil prices drifting to where they were before November 2014.

And a quick glance at the copper. Quotations of the commodity have been in the downward trend for nearly five years and had a tremendous impact on market price of KGHM shares (in early 2013 it trade above 190 PLN per share, today mere 61 PLN would buy such security). Now the Polish copper behemoth is nearing the verge of breaking even, while the promises of lifting the copper tax, made by PiS ahead of the election, are up in the air.

The Polish currency, at least in comparison with our stock market, is holding up relatively well. EUR/PLN pair, as dull as ditchwater over the last three years, has climbed towards 4.40 and forges ahead to break out from the range within which it stayed for too long.

USD/PLN, far more volatile than EUR/PLN, began its ascent in 3Q2014 and in early December 2015 crossed the level of 4.00. It deserves to be stressed however, that the driver of the incline is on the USD side of the pair. The American currency is sent up by buoyant US economy, dwindling commodity prices (negative correlation) and expected interest rate hike (FED meeting due in the coming week).

Unfortunately, I am not a future-teller and even if I were, I would not dare to advise you how to reap profits from what is happening on the markets. Given high expenditures in the offing, I am keeping all my savings at banks. But even with longer investment horizon, I would not bet on stock market recovery. Fundamentally the Polish economy is holding strong, but the extent to which it can be spoilt by zipperheads behind the wheel is unknown. By analogy, in first half of 2008 everyone thought given good economic situation, the bear market should have drawn to a close and stock valuations were bound for correction. Over the next months they fell by some 50%. What I am rather confident is that if WIG slides into 30,000 points (I doubt this is probable), equity valuations will be attractive in long-term perspective.

Sumienie mam czyste

I am proud on 24 May 2015 I voted for Mr Komorowski. Although my opinion on his (mediocre) presidency in the last months before his electoral defeat was not particularly high, with hindsight I have no doubt casting a vote for him was the best I could do then. Had Mr Komorowski been re-elected, he would have been a precious safety valve, an authentic guard of constitution and stumbling block for reckless economic decisions passed by PiS-dominated parliament. Today, when executive and legislative powers are wielded by nominees of one party, counter-balance can be struck only by judiciary power (attempted to be undermined,)and by private media (public one will soon be brought to a heel by PiS)…

I was not fond of the late president, Mr Kaczyński. We were worlds apart, his views of Poland were usually far cry from mine, yet he had principles he would abide by. Honestly admitting, I did not like him, but respected him as a head of state. When Mr Duda was taking the office, I wished him well. After he reprieved Mr Kamiński (in advance, since the court has not passed a legally binding sentence) and nominated five judges of constitutional tribunal elected by PiS, before it was been ruled three of them had been elected by PO-PSL government in line with constitutional order, I have lost respect for Mr Duda, who is more dependent on Jarosław Kaczyński than Lech Kaczyński was. Servile president is not a good president.

I am proud on 25 October 2015 I voted for Nowoczesna. PO, the most numerous oppositional party is, predictably, falling apart, picking up the pieces after the electoral calamity and struggling to find a new leader, while Nowoczesna stands out in terms of standing up to the mess PiS government and deputies are making. Nowoczesna has emerged as the only firm and substantive critic of the government. Thumbs up guys. No wonder in the recent polls Nowoczesna is the runner-up in terms of support, with 20% of the surveyed declaring to support them. In the meantime support for PiS dropped to 32% and for PO to 19%. For both parties this is a well-deserved outflow of voters…

Within the first weeks of holding the entire power, hollowness of economic agenda of PiS is slowly coming to the light. Out of the blue, PiS passed a new amendment to Personal Income Tax Law, levying 70% tax on sky-high severance package of executives departing from state-owned enterprises. Given the absurdly-high level of golden parachutes, the initiative is commendable and I would support it. But the ignorant authors of the law have forgotten that majority of executive work under managerial contracts, which means they are sole proprietors hired to run companies and hence are payers of Corporate Income (flat) Tax. Thus the new tax rate will beyond all doubt to a tiny minority of executives; those working under managerial contracts will be able leverage on the loophole to dispute the tax charges. On the other hand, if the government decreases the CIT rate for small companies to 15%, all the executive will pay even lower taxes. Here comes a good example how PiS helps the poorest!

The 500+ programme, the flagship project of PiS to give 500 PLN allowance for every second and next (and for poorer families also for the first) child, also lays bare declarations of ready draft laws were lies. Until now it is unclear who will be eligible for the allowance, whether it will be treated as taxable income and how many documents parents will need to submit to file for the allowance. In the meantime, the Labour and Social Policy minister admitted the allowance will make some poor families worse off, since if they receive the allowance, they will not be eligible for welfare aid. In the meantime, one of PiS politicians appealed to well-off people not to apply for the allowance, stating if they did so, it would be ignoble… The chap appeals to the rich not to take money they will be eligible for. Jaw drops open! Is Mr Karczewski just incompetent, or is he discrediting himself?

Financial sector and large-space shop taxes are to be introduced early next year. As for now, I am holding back from assessing the effects, however I still believe ruthless banks and retail chains with foreign capital will get the blow, but will not be hit the worst.

Now I am in a quandary, weighing up whether it is worse when PiS tampers with economy or with democracy. With slightly dismantled democracy Poland can still economically prosper if it not ill-run. With unwise economic agenda Poland might follow the path of Greece, yet civic liberties will be intact. As an economist, facing the choice of lesser of two evils, I would sooner let PiS tamper with the democracy rather than meddle into teh economy.

Having written all those bitter words, I must not forget to remind there are millions of Poles who genuinely support PiS in their pursuit of “reinstating law and order”. If I told the recent events are against the will of the nation, I would depart from the truth. The government has a (weak, yet any) mandate to pursue the changes, millions of Poles were waiting for the change which looms bleak and dangerous for me. We also must remember PiS can boast of the biggest stalwart electorate, estimated at 30%.

Waiting for the course of things to unfold, I witness the growing anger at how the government and the president are making use of power. Plus when it turns out points of economic agenda either are hollow promises, or do more harm that good, people who have voted for PiS with hopes for generous spending, will turn their back on them. The scenario of early elections if most people get fed up with PiS government is not as likely as in 2007, since now PiS hold an outright majority in the parliament, but if things go bad enough, people will topple the government. Nevertheless, because for such scenario to come to a pass, too much would need to be spoilt and I do not wish bad on Poland, I hope it does not materialize.

Each month I will be trying to dedicate one post to PiS in power, times are dreadful, but interesting…

The political mess has not brought me down. Clement weather (+10C and sunshine) and the fact this is the first weekend since the beginning of November I spend without company computer lift my spirit.