Tuesday, 4 August 2009

Poised for rebound?

For too long I haven’t been writing about economy, so it’s time for a comeback and time to ask about the current crisis and forecasts for the future. To be honest – I don’t get it – what’s happening around is beyond my comprehension. In the autumn of 2008 economists, analysts and lots of politicians were giving warnings of the deepest recession since the Great Depression. Indeed, the scale of the downturn was sometimes shocking – may the falls of Baltic Republics’ GDPs serve as example. We were being prepared for the years of hardship to come, the worst was still ahead – from the infested financial system the crisis was to spill over the real economy causing plants to be closed down, forcing employers to shed jobs, dissuading consumers from buying and as a result sending prices falling. To counteract the destructive impact on the real economy, governments have decided to pump up billions in the economies, through packages, programmes, scrap(ped) bonuses. The first rescued was the perpetrator – politicians in the States injected taxpayers’ money into the bloodstream of the economy – to the banking system, the next ones who queued up for state aid were carmakers and other big corporations. We could observe the unparalleled bout of state’s generosity, rightfully hailed as socialism for the rich (in the real socialism at least the poorest were beneficiaries).

The upshot? Financial system has been somehow resuscitated, credit markets revived, but what about the real economy? People experience continuous lay-offs, level of optimism among the employers is still unenviable, unemployment isn’t on the rise only by dint of summer period when the demand for temporary workforce is every year higher than in other seasons of the year. It is still harder to get a loan (as a person who’s generally against living in the red I might be a bit delighted), banks’ balance sheets are hit by the poor interest income figures, in some cases they’re even negative. The prices of basic commodities went up, unlike in Euro zone Poland still has relatively high inflation and lower real interest rates. As a country we got away with the worst – our economy didn’t contract in the first quarter, the preliminary figures for the second imply a minimum pace of growth was retained and from the third one our economy should speed up.

Now let’s get straight to the point – so what beats me? I can’t understand how is it possible that the biggest recession since decades has ended after around a year! Indeed, the scale of collapse was overwhelming, but I feel misled. The prophets of doom out of the blue turned into prophets of bright future. It’s clear we can’t just break down and complain about the misery we plunged into (or we were plunged into), but I can’t make out the fundamentals for the cheerfulness.

Stock exchanges are said to be one of the most significant economic indicators, moreover, they anticipate a few months before the upturns and downturns in the real economy, but it still doesn’t mean they’re infallible. Today I browsed the web to look through the opinions of analysts and analysed on my own stock exchange commentaries from the past two years. They’re mostly irrational – the first results from 2007 showed investors were like hypnotised – they all awaited the WIG 20 index to hit four thousand points. Then, throughout 2008 everybody would advise to buy shares as they were undervalued – but the drops went on, then all of the sudden stock exchanges all over the world and our currency hit the trough in the mid-February… After that the investors became insensitive – they came to terms with inexorable fact that economies will be going through fire and water so they couldn’t keep on going short. Soon we witnessed spectacular rallies on stock exchanges – in Warsaw indices rose by seventy per cent within six months (nice return, isn’t it?) and here comes the question – is it just the correction or the beginning of a new bull market? I’d incline towards the former. On the Internet forums opinions are also divided. Some, like me point at lack of fundamentals to back up the surges and since await long a correction, some rather plausible, with WIG 20 sliding down to 1700 – 1800 points, some envisage the lower point of rebound than the February’s lows. The other ones try to stimulate demand and foresee the level of 2500 points to be reached yet in August. The most balanced is probably the outlook of slightly downward consolidation and sticking between 1900 and 200 points towards the end of the month. Opponents sling accusations at one another. The bearish investors claim bullish fellows are over-optimistic and will cover their positions with huge losses. The ones who maybe put their money in shares and aim high at 2500 points say the rest envy them cause they didn’t profit from the surge. I also didn’t do so, perhaps it justifies my point of view. But with some free cash to invest I won’t go into shares right now. One reason is that I don’t believe in fundamentals for the sustainable upward trend, secondly I’m trying to analyse, draw conclusions and keep away from bandwagon. We’re still far from run on funds and stock exchange which took place in 2006 and 2007, ordinary people are still afraid and “lick their wounds”, but let’s find out what underlies the current rises – look at the correlation between exchange rate of zloty and indices of Warsaw stock exchange – those are the foreign big investors who drive our market up. In my view their intention is to persuade Polish investors – mostly from TFI and OFE but also individuals, to join the rally, in a few months, they’ll close their positions and take profits and it’s a possible scenario of how this get-over bull run might end. So I’ll hang on with putting my money there. The securities are too expensive these days. But how about waiting for the peak of zloty’s appreciation and buying currencies then?

A miało być krótko… It didn’t work out, not for the first and not for the last time. It occurred to me there are only two scenarios for the real economy – either a rebound, or a second wave of the crisis, probably not as strong as the first one, but still causing turbulences and making scales fall from eyes of many not down-to-earth optimists…

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