Wasting free money

The length of term for a board member at Czech national bank is six years and I think the last vice-governers were replaced two years ago. The next election will therefore take place when I’ll be graduating from Gettysburg with a degree in economics (with a focus on macroeconomics) and the seat at the board will be a strong candidate to my other dream job as investment banker. I’m fairly confident in my capabilities of economic analysis and policy design. At least I am not worse than the current board.

A few weeks ago, a prominent Czech business newspaper, Hospodarske noviny, published a first page analysis of the impact of irrationally strengthening Czech Crown to exporters. It was estimated the exporters alone have lost over 100bn Crowns (~$7bn), although I think this estimate is way too conservative. I also picked up this paper when I was coming back from Prague last week and read the Prague’s small stores owners (the ones that sell crystal and other admittedly overpriced and lavish memorabilia and junk) suffer as shopping is getting more expensive for the visiting foreigners. One owner was quoted he had never seen an American counting money and contemplating whether he can afford to buy the glass or not. The consensus is the revenues will be done 50-65%. And today, the same newspaper featured a main page story of Czech towns that suffer from the quick devaluation of Euro, which is down 22% year-to-date, and face a threat of a possibility of cancelling larger public real estate development projects in a total value of circa 150bn Crowns ($10.1bn). Oblivious to all of this, the board of governors from a beautiful majestic building near the Republic Square does nothing.

What’s worse, some of its members even publish articles lauding the current policy, arguing the relative stability of our stock market has been achieved by the strong Crown that has been offsetting the shakings mainly from overseas.

There’s something to note though. Firstly, our stock market is very small, it’s a dwarf and ant. Only 13 companies are traded in the main market, with one representing a significant majority of all trades (I’m in a train, will back this up with numbers eventually). Furthermore, It’s composed of firms representing industries that have not been severely hit elsewhere in the world (energy and natural resources being the most active segments on our market). Secondly, our stock market might not be volatile (although that isn’t a definite truth either) but it’s following the direction of all world indicies — it’s going down. And thirdly, the reason why we have not seen any financial to collapse, as it happened in case of Bear Stearns or recently IndyMac, is that the Czech Republic doesn’t have any investment banks, and its banks, insurance and mortgage companies do not use the malicious financial vehicles (SIV, CDO…) that are responsible for the turmoil in America or Britain, because our market is too small and we don’t have enough healthy and dodgy mortgages we could bind together and sell them as a package with a randomly set time-detonator. Our stock market is infinitesimal compared to NYSE and NASDAQ and FTSE, thus offering less space for the financial anarchy seen at the exchanges above. There isn’t a right answer to a question whether a small market is better than a market, however attributing the peace in our waters to either option is a pure lunacy.

It’s even worse that a vice-governer decides to share such diluted fantasies with educated audience, because Hospodarske noviny is mainly read by professionals and even if it wasn’t, a financial topic of commentary always successfully discourages the readers not unfamiliar with the matter. If this guy is eligible to run for a reelection, he might count me as a contender.

Dow up 207.31 (1.85%)

After a long slide we’re finally seeing the Dow rebounding. I hope it will keep its course.

Research in Motion’s profit doubles, shares fall nearly 9%

This is what I find strange about the stock market. I acknowledge the fact that with the shear exception of the moments when the quarterly results are posted, the whole trading is based on speculations and expectations created by analysts who look “thoroughly” at the company, industry, and overall market conditions and then keep issuing ever-changing verdicts about the future of the firm.

So if their made-up calculations end up expecting the results to be greater than they actually are, the shares can tumble regardless the fact this year’s profit exceeds the last year’s by 100%. This is what happened with one of my favorite companies.

Research in Motion is the manufacturer of my beloved BlackBerry. Although every single feature of the over-hyped iPhone is always covered by virtually every newspaper, the BlackBerries have been finding their new users despite the much tougher competition. I, too, have become an avid BlackBerry user (or does my morning routine, when I navigate myself through the menu to my email account before I even fully wake up, classify me as an addict?) and upon my arrival to the U.S. will probably decide to exacerbate my thumbs’ sufferings by subscribing to unlimited data plan. In total, Research in Motion added 2.3 million new subscribers over the past three months, its per-share earnings hit $0.39, missing analysts’ expectations by only a penny, this being a reason for the steep slide down.

Last summer and fall I enjoyed trading virtual stocks via Facebook. It’s a pity I didn’t have enough money to trade real stocks, because during those four months I spent glued to the monitor, alt-tabbing between The Wall Street Journal and Virtual Stock Exchange, my account indicated a 40% appreciation on assets. It’s of course questionable how I achieved such a breathtaking result. For example, some 20% of my profits came from a trade where I shorted stocks of a Chinese battery producer I had never heard of before. It’s unlikely I’d ever enter such a position with my own money. One time I bought stocks of Amazon.com. They made a fortune, but missed the expectations; I lost 12% of the investment. One other time, I bought a bunch of shares of Citibank. It was at the beginning of the credit crisis and although the “night was still young”, the pessimistic and catastrophic views already prevailed at Wall Street. Citibank had to write down some $15 billion dollars on assets tied to mortgage-backed securities. Despite the loss, my shares jumped some 15%, only because the analysts thought the disaster will be even more apocalyptic. A question arises: can anyone actually predict them? Or does the market really work like The Economist put it on its famous cover back in 1987?