OPEC is non-existent at this point...

Organization of the petroleum exporting countries OPEC after many years surprisingly agreed on reducing the production. The production of countries should be ranging in the interval of 32.5 to 33.0 million barrels a day. The price of oil immediately skyrocketed. The barrel of oil was 3 dollars pricier within a minute.

The price of oil is checking the situation and waiting what will happen next. In my opinion, it’s all mockery. I think that OPEC is non-existent at this point. It is only a logo and empty shell.

 

Economic theory explains why every cartel is fragile. If I simplify it to one sentence, the thing is that when the conditions on the market get worse, everybody wants to deceive one another. That is a rational, economic behaviour and that will be the OPEC’s case as well. It is not 1985 anymore so the cartel can function. The production outside of OPEC is so high that the amount OPEC reduces will make somebody else start to produce more. Only that they will push the OPEC from its position.

 

Only chance OPEC has is that the competition is producing so much already that it can’t increase the production fast enough. The USA, Canada, and Russia are producing more than ever. That means that OPEC can influence the price only short-term.

On top of that electric motors are being used more and more. Soon they will be everywhere. Oil motors will be so expensive in ten years because of the emission regulations, that they almost won’t get installed in new cars anymore. Gasoline engines will outgrow the oil ones only for a couple of years. We have a solution for oil-free engines for personal cars and trucks already.

 

Global oil consumption in developed countries won’t grow anymore. Developing countries will hop on this train soon as well. That’s why the America will keep producing as much as it can. The importance of oil will be significantly lower in twenty years than it is now. Other countries understand this too. Is it better to produce cheaper and more today or to produce costly and let the oil stay in the soil forever because it won’t be useful anymore?

Houston, we have a problem. It is Deutsche Bank.

Imagine that you are as a bank accused of dishonest selling of mortgage securities and you have to pay USA 14 billion dollars as a settlement on top of that. To add more to it, it was found out that during the financial crisis you’ve been cheating your accounting when you kept 12 billion USD losses secret. Then there was also a manipulation of the interest rate LIBOR. And there are rumors that you’ve been laundering money of Russian oligarchs who are on the sanctions list. The biggest bank of Germany – Deutsche Bank has to deal with all of that now.

The investors have given up on Deutsche Bank already. The value of bank’s stocks lost 52 % this year only. In last 10 years it dropped almost 87 %! The biggest German financial institute made clean loss of 6.8 billion euros, because of writedowns and additional expenses in last year. When at the end of 2014 it was still showing a profit of 1.7 bn. euros. If nothing else then the expensive lawsuits are draining the bank. The costs of lawsuits were only in fourth quarter of last year 1.2 billion euros. There’s nothing else the bank can do but to try to save money. The head of the bank John Cryan agreed to radical lowering of costs, which for example means closing 188 branches, firing 9000 employees or leaving some of the foreign markets. Will it be enough?

What stinks in Deutsche Banks the most are the derivatives. The Deutsche Bank overdid it in pre-crisis era. The bank kept the derivatives on the underlying nominal value 42 trillion euros at the end of last year. That is almost 14-times the German GDP in current prices! That is where a huge potential risk lies. Data about this underlying nominal value is sort of data of fictitious value, it is not the amount of loss which would have to be covered (in this sense important data is of the so-called derivative position market value, either way nobody but Deutsche Bank is able to find out this number). But the data about the foundational nominal value is so extreme that it is out of touch with conventions of other banks. Ruling of the German government could in extreme situation be hypothetically too short to help the Deutsche Bank out of it derivatives problem. But it’s written nowhere that the government would actually want to help.

The biggest problem is that the economic world is tied together with invisible web. The banks usually don’t go bankrupt separately but the fall of one of them is usually problem of several others. The problems of the biggest German bank must be seen in broader context. We observed drop of investments in last quarters of year in middle-European region. The businesses are starting to be more careful and they are sensing the upcoming crisis. The European economy would need to rely on healthy bank sector more than ever. But to put Deutsche Bank’s problems aside we have here Italian bank sector which is in troubles as well. Plus there is one more giant exclamation mark coming from the financial markets. From the beginning of last crisis the central banks started to cure the banks with cheap money. The result is that cheap money settled in prices of overpriced stocks and bonds. Their prices are still holding on level that’s within eyeshot of historic maximum. Except that the support from central banks won’t be growing on forever. The prices of stocks and bonds will go down sooner or later. That will only enhance the current problems of the banks.

The Deutsche Bank is obligated to pay the fine for selling mortgage securities amounting to 14 billion dollars to the USA immediately. Deutsche Bank did expect the fine but much lower. It put aside 6.2 billion dollars designated to settle the lawsuit in advance. If the Deutsche Bank was forced to pay the fine in full amount, it wouldn’t have enough free resources to pay some of their own bonds. That would equal bankruptcy. The German chancellor Angela Merkel categorically rejected any help from the state. It does her credit since the German elections are coming up and Mrs Merkel is not riding the popular wave so far.

Deutsche Bank will ask USA to lower the fine similarly to other banks which meddled in this affair of selling mortgage securities. The result of the appeal is unsure. Even if the Deutsche Bank got out of the problems of huge fine, it is still hiding many skeletons in its closet. For example the derivative pressure cooker is still heating up.

It is questionable if coming of another crisis will enhance the problems of Deutsche Bank or the problems of Deutsche bank will make the crisis come sooner. Neither is a pleasant picture. Our long-term recommendation doesn’t change even when the Deutsche Bank is in problems. We would put hands away from the “overheated” stocks and bonds. Who is considering leaving mutual funds in nearby future, shouldn’t postpone it too much.

Will Trump be Brexit II?

The European financial markets are being relatively calm – with the exception of stock markets which are being pulled down like a weight in water by problems of Deutsche Bank. Extreme silence prevails in our office as my colleague Pikora is almost not talking today and shows off signs of certain indisposition after his imprudent digestion of the “scorpion” chili pepper (which is one of the spiciest peppers in the world) yesterday. (He even went to “healthy walk” instead of lunch.) This is why the speculators and investors – if they are not particularly interested in stocks – have time to pay attention to things that are seemingly unrelated to the finance world. One thing like that would be for example the American presidential election.

According to the latest polls of public opinion done before the upcoming presidential television debate, Trump is probably leading Clinton by 4 percentage points. Saying “probably” is in place. All of us still have in fresh memory how deeply wrong the polls of public opinion were before the Brexit vote. According to some hypothesis, it is even lawful that the polls of public opinion in political matters, especially in referendums and elections, where you have to choose between two answers or two candidates underestimate that opinion which is generally considered “more extreme”, “more revolutionary”, “more innovative” etc. On the one hand, the respondents can be hesitant to publically admit they support the more revolutionary opinion and on the other hand, they are hiding in the “undecided” group until the very last moment, and just when the elections get really close they get more courage to stand up for their opinion. On top of that, one thing can play part in it too and that is that the voters with “more revolutionary” opinion are getting more courage as the polls show that their opinion is not favorable, which gives them impression that they won’t win anyway so they won’t hurt anybody when they vote for their favored more revolutionary option. In the end, there’s one more thing that can influence this poll and that’s the voter’s turnout helping the less favorable opinion because its supporters are going to get worked up to go vote in contrast to those, who are feeling like the win is already theirs.

Voting systems and the psychology of election is not exactly my field of study but there’s something about this hypothesis which seems very rational. If it was really true then it would mean that Trump has bigger chances than it may seem from the polls. How is all of this related to the market and the economy? Absolutely fundamentally.

Strictly from the financial market’s point of view, Trump is labeled as a wild card. While it is certainly clear what are his political views we know significantly less about his possible steps in the economic field. It seems that his individual steps would be rather based on his intuition at the moment then on some definable economic direction or specific philosophy. Sometimes they compare him to Raegan with his Raeganomics – but that is a huge mistake. Raegan claimed specific direction: libertarianism. Trump managed to declare his support to a peculiar mixture of to certain degree economically opposing opinions. We know he would sign up for taxes favoring families, lowering federal corporate income tax rate more than half (from 35 to 15%), better protection of intellectual property or protection in foreign trade. That has no clear philosophic link. And that is precisely the problem for the economic circles. If there is something the financial markets absolutely loathes then it is uncertainty; they hate it even more then unpleasant certainty.

That’s exactly why it’s an open secret that the Fed will hardly raise interest rates sooner than after the American presidential elections because it can’t imagine concurrence of two events potentially more stressful for the market: Higher interest rates and president, we don’t know what to expect from in the economy. Analogically if Trump really did win and the financial markets would be similarly “shocked” as they were after the Brexit vote, the rising of the interest rates could be postponed again. Understandably, all this postponing would have a negative impact on the dollar. The exchange rate of the dollar has completely global connection, starting with the influence of oil prices, influence of the price of gold or the flow of speculative capital among the three peaks of notional triangle: developing countries – Europe – USA. In other words: American presidential elections will influence for example the exchange rate more than it could have been in the previous elections.

Puzzle for a trained monkey, but bankers have hard time with it

Who would have guessed that the American central bank the Fed is “surprisingly” keeping their interest rates without a change after the meeting. Even when it was a puzzle with its difficulty suitable for a trained monkey, many financiers and speculators had pretty difficult time with it past few days.

Proof of this is that after the news – that nothing will actually happen – was announced the stock markets in the USA and in Europe skyrocketed. If this news was obviously expected the stocks wouldn’t do anything because they would be mirroring this expectation in them already. That’s precisely the nitty-gritty of the situation: The financial markets are constantly making mistakes when the future steps of the Americans are concerned. (Just like my colleague Pikora, who always assumes that this time his bees surely won’t sting him so he doesn’t take his beekeepers veil again. Just so he can squint at me with only one eye next day.)

Except that this situation has very significant consequences not only for the American but basically for the entire global market. American interest rates are basically deciding the exchange rate of the dollar against the euro just like they are deciding the prices of stocks, oil or (not) moving giant sums of capital from developing markets to American actives. One rise of the American interest rates – and global finance world needs to look for new balance.

Let’s remind us what are we talking about here: Before the end of 2015 the American Fed more or less “symbolically” raised its interest rates, which it was keeping for a long seven years at basically zero. (Even this zero was in its time something unprecedented. Then the European central bank trumped the Fed by doing something even more unprecedented and came up with negative interest rates. In this light, looking back the zero American interest rates seem fairly conservative.) So at the end of 2015 it was generally believed that the American economy is recovering so quickly that the American interest rates will be during the year 2016 returning to long-term normal, which is somewhere around 3 %, fairly fast. Understood as they will rise several times in a row.

It didn’t seem that way to us. Since early 2016 we have been warning that it won’t be as swift and we were considered pretty extravagant for this opinion. The overwhelming majority of the financial market unshakably believed that the interest rates in the USA will rise at least 3x during the year 2016. Which didn’t happen? As the time passed this expectation was vanishing like a puff of smoke.

Do you know the saying: faith will heal you…On financial market, it’s twice as true. Speculators told themselves over and over again every month: “Oh well, the interest rates didn’t rise this time but next time they surely will!” That’s why the global finance market happens to be for about three-quarters of the year in a state where it believes that “higher interest rates are bound to tumble”. Even though the reality is telling us that the state of the American economy is not getting significantly better, on the other hand, new uncertainties are coming up: First the slowdown of China, then the uncertainty what to exactly expect in the case that Donald Trump wins the elections… In other words: The finance world is basically reacting to its own fiction and not to reality for about nine months now.

The Fed didn’t raise the interest rates this time but suggested that until the end of the year one raise might come. December is generally considered as the most likely date. “Most likely” doesn’t mean “sure”. Such indicating has been here many times before. What do I want to say? What could also happen is that the finance world is terribly wrong. And even thought it would be right about the interest rates rising in the USA at the end of the year, when will we get continuation? In another 12 months? Are they planning on raising the interest rates about a quarter of percentage point every year…? That is most likely not what the speculators are expecting.

All of this that I am describing here has one very, very, practical outcome. If I am not wrong and if the rising of the interest rates in the USA goes slower than the majority of the speculators thinks today (just like it has been in last nine months) then it means that the dollar is overvalued...

Unsexy economics and impotent politics

In these days, the finance world is dealing with Japan. You think it is too far? Well, not really... It is nearer than you might believe.

That is a pretty desperate economy today. The country is desperate from that too and as a matter of fact people are desperate as well. Japanese society is mentally unhealthy and slowly dying out. Attention! That is not just some idle talk. That is simple demography.

According to the demographic study of Japanese government which was published today, almost 45% of Japanese women, who are living alone and fit the range 18 to 34 year, are still virgins. Men in the same age range are not doing much better. Even worse – they don’t even want sex, relationship, and love: More than 30% of men and 26 % of women really stated that they don’t want a relationship at the time. Except this unusual demographic situation is understandably translating to macroeconomic numbers. There is no demand for Japanese goods. It is not … sexy. Chinese or Korean person will make the same goods and cheaper.

Japanese exports have been dropping for 11 months in a row now. The number for August released today is mentioning 9.6 % drop of export year on year. Cars registered a significant drop. (I understand. I used to have a Japanese car once upon a time. It was amazing, safe but boring and without spirit or temper.) Japanese exports to the USA dropped 14.5 % and the exports to China 8.9 %. Japanese trade balance ended up with a deficit. That Japan, which lives decades from the export of technologically difficult consumer’s goods is suddenly not able to export. That is a giant problem. Because it is still a global economy with global influence.

Japan’s central bank understood that its current currency politics is not working. That’s why it announced that it is going stop targeting the amount of money at economy but will target it at the bond’s revenues. To translate it to human speech: Japan’s central bank lowered the bonds’ revenues so much that not even long-term bonds are profitable now. That is a problem for the pension funds – they are not generating profit. The pensioners won’t have anything to live from!

The central bank wants to in other words steepen the profit curve. Short-term bonds will be with low or negative revenues and long-term bonds with high. In that way, funds would have something to invest in and the banks would heal. Next to that the problem of central bank basically not having stuff to buy anymore would solve as well. The buyout of bonds will continue but in a smaller scale. The market is hoping for relief of the financial sector and that’s why the stock markets are growing today. I think it sounds like ‘when it rains it pours’. Nothing will get solved.

The monetary politics is simply impotent. Not only in Japan. Even in the Eurozone. This small change won’t help the growth. The retreat of Japanese and entrance of other Asian goods will be continuing here...

Who has the right to choose what countries to exclude from the EU?

Some nations often think that when they are small they can’t change anything in Europe. This feeling is typical for Czechs because there’s “only” ten million of them. To the contrary, let’s say Luxembourg, for example, doesn’t even have as many citizens as Czech capital city Prague and in spite of that it is dominating Europe in a way that gives us chills.

Luxembourgers are a pretty interesting nation. Germans with Celtic roots. They seem to be competent politicians for years now. For example, Luxembourger Jean-Clause Juncker is the head of the European Commission and seems to be invincible. Even though many European politicians asked him to resign after the BREXIT vote he keeps holding the power like wet sand holds your behind. His last drama is alcoholism. (In the interview for French paper Libération he had to disprove the speculations about him being addicted to alcohol. He claimed, that it often seems to people that he is drunk but it is not true. In “reality” he supposedly has serious problems with balance. Well, at least that. These are clearly very common problems of top politicians…)

A long-time colleague of Juncker from the Luxembourg government is since 2004 the minister of foreign affairs Jean Asselborn. Does he know little something about spirit as well? I wouldn’t even be surprised if it was under the influence when he claimed that “Hungary should be excluded from the EU”. It is supposedly the only possibility how to “protect the cohesion and values of the European Union”. Budapest is according to Asselborn treating war refugees almost worse than animals, breaches press freedom and the independence of the justice system. “Hungary is not far from an order to shoot refugees” Asselborn declared.

Oh, I see. So the Hungary is not keeping the fundamental values of EU, even though it is trying to keep the Dublin Regulation, detain illegal immigrants and protect the outer borders of Schengen by any possible means. And because the EU is in no way helping, they had to build a wall on this outer border on their own so they can protect it. Hungary is guarding the entire Schengen just like it used to be the frontier guarding the Europe against the expansion of the Ottoman Empire. Apparently, that is “massive violation of the EU's fundamental values”.

But the Turkey, where a coup d'état was attempted, where the radical Islamization is more and more prevalent, where the private property of people who are inconvenient to governing regime is being nationalized, where thousands of people are put behind bars, where they are discussing the return of death penalty, is obviously representing the fundamental values of the EU, because they are still holding the accession negotiations! Congratulations to Luxembourg.

How the Luxembourger even figured out that the Hungary is building their walls against war refugees? Isn’t it rather a manipulative statement?  The real war refugee has a right to ask for asylum wherever in the entire Europe. You can most often identify them from the fact that they actually do it and are happy that they avoided the death in the war zone. On the contrary, you easily recognize this weasel because instead of asking for asylum and looking for safety in the first country where it’s not shooting, they forcibly climb over the fence or ignore the laws of the country where they arrived. And when they get the asylum -just like the German authorities found out- they go on holiday to said war-zone and life threatening country from which they run. Isn’t there something wrong? Could it be that our war refugee is not running from the war but running through Hungary to let’s say Germany for their social benefits?

And how can Luxembourger and wannabe diplomat dare to say something about Hungary, that it is not” far from an order to shoot refugees”? Does he have any evidence? Or is it just a gossip? Manipulation of public opinion? Isn’t it on the same level of human (in)decency like for example claim such nonsense like that every Luxembourger is an alcoholic and we don’t want drunks in EU, so we should get rid of them…?

Let’s see what is really interesting about it: When the Britain democratically voted to leave EU, the Brussels could jump in their skin. The rage was flowing out of them. Not only, were many politicians afraid that they will lose their power over the suddenly smaller areas but they felt also almost personally attacked. But when we are talking about the poorer Hunger, all of a sudden its good target for hitting and threatening with exclusion. It’s no wonder that many people in Hungary are reminiscing how they used to feel once upon a time when Nazis talked about Untermensch. It is almost like something is associating this attitude.

Let’s not pretend that other countries in central Europe are being seen differently. For the top representatives of EU, they are just “eastern Europe”. All together in one bag. They are “V4“. And they have together 130x more citizens then Luxembourg. V4 is bothering Luxembourgish minister like a thorn in the side. In May he claimed for a German daily paper Aachener Nachrichten that "he has fits of rage to hear some Visegrad countries' statements". (If I was somewhat more mentally unstable person that would happen to me from hearing Brussels’ statements all the time.)

We can’t wonder that the Europe is facing a migration crisis when people like Asselborn are responsible for the migration politics but similar statements are not coming only from the Luxembourg. The stubbornness of V4 bothers elsewhere too (just like they are bothered by the stubbornness and self-confidence of Britain). It is normal for some western European countries to try to bend, coax, scare or bribe the Central Europe. It is not that long ago when in Germany they wrote that the funds of EU should be taken away from the Central Europeans as a form of pressure so they would accept immigrants. (Well, the question stands: “Economic immigrants or funds?” it is fairly simple deciding. Keep both. Yes, even those funds. That I am saying as a citizen of the Czech Republic)

The referendum about the migration issues is in Hungary slowly approaching. Its outcome will make the government step harshly against the Brussels. The situation will only get more tensed. The East might stop caring about the Brussels and the Brussels about the East. Theoretically the Brussels shouldn’t care, after all, they are only getting rid of the problematic East. In the case of London, they did care… This was not only a matter of money but also a matter of pride. And pride is in the case of Brussels (and Luxembourg) sky reaching.

 

Marketa Sichtarova

Author is Czech economist & writer

"Shabby" banks

Biggest German bank Deutsche Bank is supposed to pay 4 billion dollars to the USA for settling the accusation about selling mortgage securities which feed the scepticism on markets. Stocks of the bank dropped over the 8 % yesterday.

Except that the Deutsche Bank is going to appeal from a judgment and push to lower the fine. After all, before the last crisis, it wasn’t only the Deutsche Bank but many other reputable bank houses, who were sinning by selling packages of shabby mortgages. And many of those managed to get softer punishment.

In any case, the fine from the USA is another skeleton which the biggest German bank has already many of in its closet. Firstly, there are bad deals from the past laying heavy on its shoulders. Moreover, we found out recently that the bank was keeping the loss of 12 billion USD secret during the finance crisis. On top of that, there were manipulations with the LIBOR interest rate. The accusation that the bank was also laundering money of Russian oligarchs who are on the sanction list of the USA didn’t help to improve the bank’s reputation either.

That’s why it is trying to save where it can. But not even the firing of employees and cancelling the braches could be a long-term solution. The investors have already given up on the bank long time ago. The price of its stocks dropped 84 % in last 10 years.

The possible downfall of the biggest German bank could be a detonator for another crisis. When one fish dies usually the entire shoal suffers and it’s similar in the bank world since it is all connected. That is also a reason, why will the German government try to keep the Deutsche Bank on its feet no matter what.

Arrogance or ignorance?

The BREXIT negotiations are getting complicated. London is trying to play smart and get independent migration politics as well as united market with EU.

 

EU is standing against it saying that one is not possible without the other. With that rhetoric Brussels is ignoring the economic theory that everybody profits from the free market for political reasons.

 

In the British point of view, we can understand it in a way that the Brussels will rather hurt itself economically then to step back from its migration politics. And this definitely won’t help the exchange rate of the pound.

 

Nevertheless considering this year nothing changes: We still count with an appreciation of the pound. (Currently, British industry is profiting from the weak pound.)

Beware of the crown

It is not long ago when we were writing that it wouldn’t be surprising if CNB had to push more money to the interventions in the second half of the year than it did during the entire intervention time. Really – the situation is starting to get more dramatic even though it is not visible from the outside. According to the unconfirmed news based on the interviews with bank dealers, it seems that during past two days CNB had to withdraw so many euros from the interbank market as it did in entire August. Or in the other words: The intervention regime is starting to get more expensive. To put it even differently: Pressure on Czech crown to appreciate against the euro is significantly growing. Speculative pressure. It is not the kind of pressure coming from the title of foreign trade or even direct foreign investments (like it was before). It is a pressure that is rooted in the fact that more and more subjects are betting on the upcoming moment when CNB – simply said – “won’t have the strength” to artificially keeping crown’s exchange rate by interventions and it will let it spontaneously appreciate.
The amount of money that was put into interventions was growing for quite a while, with the beginning of summer it started speeding up and now it’s escalating. Technically said if the CNB wants to keep the crown above the 27 CZK/EUR it has to keep buying bigger volumes of euros from commercial banks and paying them with crowns.
That causes two things. Firstly, forex reserves in euros on CNB’s accounts are blowing up gigantically. (When the CNB really lets the crown appreciate these forex reserves will deteriorate sharply which will be basically the cost or “the price” of the interventions.) Secondly, more and more free crowns are getting into the circulation. Commercial banks are having more and more Czech cash that they don’t really care for. That has a similar effect like the politics of European central bank (ECB) which is pushing more euros into the circulation via buyout of bonds. If there is too much cash, which the banks don’t want, the “price” of this cash is dropping or the interest rates are dropping in the entire economy. We do not have to worry that the banks would charge their clients negative or actually vindicatory interests like in Eurozone but we are getting closer and closer to this situation. Just like in the Eurozone there is simply too much money among banks in the background. (This is right place to also mention, just to be accurate, that there are some tools, specifically so-called sterilization that can help to compensate this influence on the interest rates but either way that can never work 100 %.)
Both described effects are a technical problem rather for CNB then for households or businesses at this point. That doesn’t mean that we shouldn’t be interested in it. The joke that if CNB has to face both and the escalating undesired effects of the interventions on top of that it is harder for CNB to apply the interventions. The experience of other central banks from around the world is showing that one day – a much unexpected day – a moment can come when the central bank will not be able to keep the intervention regime anymore. (Or more precisely it would be able to hold the regime but at cost such high that it simply won’t be profitable and it has to resign on the exchange rate.) We can think of similar case from the Switzerland from not long ago or very known case from Britain which happened a while ago when the British central bank had to “quarrel” about the exchange rate with the speculator Soros. Soros won that time and the central bank had to capitulate. I don’t like pointing this out but the British central bank is somewhat bigger than the Czech one…
Inconspicuous signals are pointing out that in the Czech Republic this moment of truth hypothetically doesn’t have to be that far away. Until now the CNB was claiming that the intervention regime should stay valid approximately until the half of 2017. “Suddenly” it is coming with surprising statement: According to the governor Rusnok, the CNB could hypothetically want to hold the crown above the level of 27 CZK/EUR with the help of interventions even in the second half of 2017. What a shocking twist of events that this statement comes exactly in the moment when the pressure on CNB to appreciate the crown is significantly growing! It has an easy explanation. If the speculators believed that the intervention regime will really stay even until 2017, it wouldn’t be worth it to speculate about crown appreciating now. They would end their speculations and the speculative pressure on CNB would cease. So, the CNB could without bigger expenses keep its intervention regime.
In reality, we need to read statements of CNB upside down: The more ambiguously CNB talks about the interventions and the later it’s admitting their end, the risk that the intervention regime will be left much sooner, without a warning and the crown will appreciate sharply, is growing. At this point, it is hard to say if it’s going to happen or not, it depends on the ratio of speculative bets against the crown (on the one side of scales) and the will of CNB to go beyond and “fight” with the market (on the other side of scales). Both is highly subjective matter. Important is that we can’t 100% rule out that CNB could as a last resort be forced by circumstances to leave the intervention regime this year.
Artificially weakened exchange rate was very pleasant for the Czech exporters for three years. Now the risk that the situation will turn around is growing. The rapidity of this turnaround which could crushingly hit the exporters is precisely the reason why we were during those three years very critical of the intervention…Their positive effect could hypothetically be more than annulated. The exporters shouldn’t hesitate to secure themselves against the appreciation. However, might the forward (secured) exchange rate seem to be expensive, it is probably still more convenient than the exchange rate we will get after we leave the intervention regime – especially if this situation intensifies.
Then there is one more risk which seems to not be related to the exchange rate. The interest rates. Another thing that could happen is that the CNB won’t be willing to capitulate under the pressure of speculators but the pressure remains huge. Theoretically, there is one way out of this and that’s implementation of the negative interest rates. There are two hitches in it. First is that known opponents of negative interest rates are sitting in CNB’s bank board. Second is that for negative interest rates to work they would have to be really negative to discourage the speculators, even more then they are in the Eurozone. That means -0.75 %. And that is big shock for the economy, which would surely manifest in negative interest rates for bank clients as well. It is hard to say what the bank board would consider lesser of evils: sharp appreciation of crown or blanket and deeply negative interest rates. Either way, the time of changes in Czech currency politic is coming even when it doesn’t seem that way from the outside.

Someone makes us fools. Well - not someone. It is the ECB.

Various people were expecting that the euro gets punched to its face by the European Central Bank (ECB) last week. But ECB didn’t do anything and kept its base interest rate on the zero. Deposit interest rate (or the fee for putting money into ECB) stays under the zero on the level -0.4 %. This once again proves that the loans in euros that are selling like hot cakes won’t get cheaper anytime soon. ECB is also not rushing into prolonging the duration of quantitative easing (QE). ECB is still intending to keep buying out 80 bn. euro monthly but only until March 2017.

Did ECB perhaps understand that the flow of mega-cheap money is not the cure for every single European sore? Might we reach the time when the prices of bonds, now artificially supported by demand from ECB, drop? That is hard to believe.

The fact is, that not even ECB can keep closing the eyes to the facts. The numbers are clearly saying that the flow of cheap money is not curing the low inflation, which irritates ECB so much. Its rate is staying 2 % under the ECB’s goal despite all the prognosis.

But if the ECB is really thinking about ending the buyout of bonds many states should set the alarm bells ringing. That applies – (not only) – to Spain. The national debt climbed almost to the 100 % of GDP. It is almost as high as what the local economy produces within a year. The country is for 8 months now missing a government that came from the elections. Now hold tight – Spain with this bad reputation gets a loan with 1 % interest on 10-year-old bonds. That is similar if you were having loans at home for everything from the vacations to Christmas presents, you would be almost fired from a job, your wife would be divorcing you but the banks would push money onto you anyway and with symbolic interest. That simply can’t work long-term. In 2012 the profits of the 10-year-old Spanish bond were reaching above 7.5 %. 1 % profit are not sustainable in Spain.

It is similar for other countries from the southern outskirts of the Eurozone. The problem is that these countries didn’t use the previous years to reduce the debt. Except – as I know ECB, it won’t want to keep these countries in it alone. That’s why I do not believe that it will be strict with the markets in the foreseeable future even if it might seem that way now.

 

BREXIT-wishers can smile. For how long?

All those claiming that the BREXIT will “ruin” Britain, have reason to smile. First really bad

statistic from Britain came up last week.

Local manufacturing industry showed the worst numbers in the last year. Meanwhile the market was expecting the drop to be “only” 0.2 % but in reality, it was falling 0.9 %. Either way, the question is if this is really the fault of BREXIT. I do think that many people will understand it that way but the reality is much more complicated!

In my opinion, it is a global phenomenon. The summer was bad for the majority of countries and that probably relates to China’s problems, which is where everybody wants to push themselves. (At least that’s what are the German numbers indicating.) According to the statistic that was also published last week, the German industry dropped the most in last 23 months and wrote off 1.5 %. Not even that was presumably caused by BREXIT. Germany is getting out of its breath for a couple of months now. Its industry was falling even before BREXIT. The German government is expecting 1.7 % growth of the economy this year and 1.5 % following year which is in my opinion naively optimistic.

The global economy is not doing well enough so the second most important exporter can grow that fast. I am still standing behind our prognosis from February that next year we can be expecting a huge slowdown in Germany at best (and maybe even rescission at worst)...

Kdo chrání šmejdy?

Stavba domu je horší než porod ježka. Můj drahý manžílek Pikora proto tuhle protivnou záležitost nechal na mně: „S lidmi, kteří neumí hodiny a kalendář, se bavit nebudu, s těmi se nedá dohodnout!“

Něco na tom je. Při stavbě opravdu snad žádný zedník či řemeslník nedorazil včas. Někteří přišli i úplně jiný den, bez omluvy, jako by se nechumelilo. Když potom zase odešli, řemeslník následující po nich se pravidelně zděsil, jaký že výtvor jeho předchůdce stvořil. Nejprve jsme z toho byli hodně nesví. Jenomže pak jsme si na to zvykli, protože se ukázalo, že nadávat na práci svého předchůdce bylo běžným koloritem, i kdyby jeho dílo snad bylo ze zlata. Stavba domu nakonec sice dopadla hlavně kvůli ostré kontrole a neústupnosti z našich požadavků dobře, ale i tak bylo o nervy ono nekonečné prošení a vyhrožování, aby se někdo uráčil pracovat a splnit, co slíbil.

Ani dostavbou domu ovšem lapálie neskončily. Pikora odmítá na domě cokoli dělat – že prý je ekonom a že jako ekonom bude dělat to, čemu rozumí a co mu jde od ruky a ne to, čemu nerozumí. Že nebude hodinu zkoumat, na co profík jen koukne. Že se mu ekonomicky vyplatí hodinu pracovat ve svém oboru a pak zaplatit pět minut profíka. Prostě ekonom. Celkem se mu nedivím. Neb slovy ekonoma: Kdyby všichni dělali to, co umí nejlépe, a na to, co neumí, si zaplatili nějakého jiného borce, celá ekonomika by se posunula dopředu, protože všichni by dělali jen to, v čem jsou efektivní. V ekonomii to má i svůj složitě se tvářící název: Říká se tomu komparativní výhody a roste díky nim produktivita práce.

Jenomže teorie je věc jedna a realita jiná. Ono to totiž často vůbec nejde, protože řemeslníci jednoduše nejsou k sehnání. A už vůbec nejsou dobří. Sehnat dobrého řemeslníka je jako hledat jehlu v kupce sena.

A bude hůř. Když Pikora dosud něco nechtěl dělat, zavolal hodinového manžela Pepu. A Pepa se začal činit, protože uměl vše. Teď to nepůjde. Pepa prý totiž „kradl řemeslníkům práci“. A tak Asociace malých a středních podnikatelů chystá novelu zákona. Ta hodinovým manželům zakáže dělat to, co umí, ale na co nemají papír. (On jaksi ne každý šikovný chlapík disponuje papírem se štemplem, že umí nabarvit plot a vyměnit žárovku.) Asociace říká, že prý kdo má živnost takzvanou volnou, nemůže dělat činnost, která vyžaduje živnost takzvanou řemeslnou nebo vázanou – tedy třeba práce elektrikářské, instalatérské, natěračské, malířské a další. Hodinový manžel Pepa tedy napříště už nejen že nebude smět nabílit vám plot a vyměnit žárovku, ale ani vymalovat pokoj a utáhnout kapající kohoutek.

Asociace argumentuje na první pohled velmi logicky – ohání se kvalitou, bezpečností a cenou. Amatér bez papíru „přeci“ nemůže vyměnit žárovku dostatečně kvalitně. Jeho práce může být pro zákazníka i nebezpečná, protože až bude zákazník výměně žárovky přihlížet, mohl by dostat i elektrickou šlupku, že? A asi bude i drahý, protože bude mít neprofesionálně vysokou spotřebu materiálu, rozumějme, při výměně jedné žárovky jich deset rozbije.

Tak tomu říkám kvalitní vymývání mozků. Takže když se doma budete v elektrice hrabat sami, je to v cajku; když vás to náhodou zabije, je to pořád v pohodě, protože nikomu práci neberete. Když si ale zlomíte nohu, nebude se vám chtít balancovat s jednou nohou v sádře na štaflích, a tudíž si na výměnu žárovky pozvete souseda, kterému zaplatíte dvacku, je to velký průšvih, protože někomu práci kradete. (A bacha, abyste přitom ještě nezapomněli na účtenku pro elektronickou evidenci tržeb!)

Mimochodem - kde vlastně máte jistotu, že „profík“ se štemplem bude kvalitní? Vždyť říkám, že už dnes se řemeslníci navzájem běžně pomlouvají, jak jsou údajně nekvalitní. A cena? Vy věříte tomu, že když stávajícím „profíkům“ přibude kvůli likvidaci hodinových manželů práce, ale ubyde čas, zlevní svoje služby? Celá tahle prohnilá argumentace je jen dílem lobbistů a dalších jim podobných gangsterů, kteří nás přes různé asociace, profesní komory a odbory manipulují. Kdepak, argumenty asociace nemají chránit zákazníka, oni mu naopak škodí, je to pouhé sprosté ochranářství, které ekonomice škodí.

Když na jejich hru přistoupíme a začneme vše regulovat, bude ještě mnohem hůř než dnes. Objem práce zůstane. Počet lidí schopných ji udělat se zmenší. Logickým a jediným možným výsledkem bude, že řemeslníci budou dražší, budeme na ně čekat ještě déle a kvalita jejich práce se nezvýší (dost možná se i zhorší). Proč? Protože proč by se snažili, když zmizí jejich konkurence? Vy jako zákazníci si pak budete brát z práce dovolenou (protože večer přeci řemeslníci nepracují), budete na ně celý den doma čekat a modlit se, jestli se opravdu dneska uráčí přijít. A když nakonec s půldenním zpožděním opravdu dorazí, s jásotem je uvítáte, místo abyste s nimi vyrazili dveře, protože budu vaší jedinou nadějí.

Moje švagrová před pár dny čekala celý jeden týden na vyvezení jímky. Když se bez omluvy týden po domluveném termínu příslušný vůz dostavil, radostně jej vítala, protože široko daleko za něj nedokázala sehnat náhradu, a tak jej ani nemohla naštvaně poslat pryč. Jóó takový žumpajzník, to je dnes velký pán. Jak přibývá kanalizace, lidí v jeho oboru ubývá, takže on má žně.

Jen se ozvěte se vy, kteří máte s řemeslníky obecně dobrou zkušenost! Kdo z vás má pocit, že jim vždy platíte přiměřeně, že se nemusíte jejich služeb nikdy doprošovat a že na ně nemusíte čekat nehorázně dlouho? Já znám asi dva nebo tři spolehlivé, na které si nemohu stěžovat - a pak desítky těch, kteří neumí hodiny a kalendář. Dámy a pánové zákonodárci, ať vás ani nenapadne dovolit k nám takové sprosté manýry zavést. Nenechme se jako společnost stále vydírat dalšími a dalšími zájmovými skupinami, konec konců už tak jich je dost. Ostatně dobří řemeslníci se hodinových manželů bát nemusí. Nikdo si revizní zprávu na plynový kotel od hodinového manžela napsat nenechá. A šmejdy není třeba chránit.

 Vladimír Pikora a Markéta Šichtařová