About the Romanian banking system

About 1 year ago, I was complaining that the romanian banking system is too simple. Far too simple: time deposits, credits, some FX trading for the clients and that's it. No, there is something more: commisions for everything. Except entering for free in the bank building, for all the rest you have to pay.

Romanian banks are not market makers in the equity markets, they sell no corporate bonds or even romanian bonds. And they do not sell any structured product: for example, a product saying that you earn 25% in the next year, if bet-fi touches 100k or you get 20% if bet-fi goes down to 5k. They just sell a couple of mutual funds, but without being too noisy about. There is no banker calling you to propose an ultimative investment. I do not even know if forward credit exists (I speak about retail, of course). For sure, there is no kind of investment banking. They just earn from almost dummy and 100 years old products.

Last weeks, I heard a comment that this situation exists because Isarescu didnt allow the banks to extend to these areas. It was a brilliant decision, maybe not his, maybe without strong reasoning behind, but it is damn good that our banks are so simple. No bank has to do write offs because they have depreciating assets on their sheets, no panic among the clients because their structure products have a 0 value or just because the romanian bond looses value.

S&P downgraded BCR because they are full of romanian bonds (not corporate bonds, just bonds issued by Romania). Sounds strange, but it is something behind: romanian bonds lost dramatically value in the last weeks on the international markets, they are sold depending on the maturity at 65% to 85% nominal value!! How would the retail market react if they would see this decrease in their accounts?? Their time deposits are not safer than the bonds issued by the state, but everybody feels safer because they do not see the depreciation (even if the risk exists and even raised significantly, they are not priced in because there is no market price for your time deposit). So nobody gets a panic attack and that makes the banking system much stronger!

Maybe this is the reason why countries like Hungary, considered years ahead of Romania regarding development, did not succeed to remain stable. Complexity brings hard to manage risks. I am so glad that we are so simple and basic! :)

Technical up in DAX?

Because of some kids playing short, VW went yesterday till almost 1000 euro per share (from 200+). They did not realize that they are short selling while Porsche is buying and is not intending to sell them back EVER. Free float got smaller, so there was very little room left for the shorters to close their position, even with huge losses. Rumours are saying GS, MS and SocGen were among the shorters.

Consequently, VW represented yesterday evening 27% of the DAX index. Practically, DAX is not reflecting anymore the german companies, but VW.

Deutsche Börse made a statement that this situation must be immediatly changed and decided to limit VW to maximum 10% starting from Monday! This means: in the next 3-4 days, we are going to see sells on VW (if the banks still have VW in their portfolios), and for sure, they will have to buy immediatly some of the other 29 DAX components according to their new share in the DAX index. Stay tuned, show is coming :)

edit: According to Spiegel, Porsche hold shares and derivate products for about 75% of VW, the land of Niedersachsen had about 20%, so the free float was about 5%. The naked shorts were amounting about 15%. I am curious how this is going to end up :) I will prepare some popcorns for the final show.

Would you?

Would you play poker with your grandma'? Would you force her to go "all in"?

For most of the shares, the fundamentals are not influenced by the share price. Google doesnt care if the share price is 10 dollars or 1.000 dollars. They do not need financing, they do not care about Moody ratings. If you wait long enough, because they are a monopol de facto, you cannot loose. From my point of view, I do not mind if speculators try to push it down or up. It is up to them. On the long term, they are just noise.

But I cannot accept speculators to push up or down, in just 6 months, the oil price from 75 to 150 and back to 60. I consider it imoral. They are free to do it on Google shares, but it is not ok to do it on oil or corn for example, because they affect the freedom of millions. No vacations, maybe no jobs anymore, just because some nuts have nothing to do and generate a hard to support volatility on basic goods prices.

I also dislike the idiots that made trouble in financial markets, almost went bankrupt, were saved by governments pumping billions of euro to support them and what are they doing now? They did not find any other thing to entertain themselfs then trying to speculate on emerging market currencies. They have no business in the emerging markets, they do not own any local bank, they just come, borrow and speculate. The risk is that they can send an emerging country (I was about to say an innocent country, but I will refrain :) ) directly into a deep recession. They can provoke inflation if the local currency loose its value as a result of the attack or they provoke an economic collaps because of sky rocketing interest rates. It might sound like bullshit, but this is close to economical terrorism. For a couple of dollars (maybe some billions), you break a fragile economical equilibrium and maybe it will take a decade till it will be restored.

That reminds me an american movie - Wag the dog. It is happening just before ellections. A US president wants to be elected again despite of low odds and he brings a guy from Hollywood it to make it possible. They decide to manipulate the public oppinion and make the president a hero, by triggering a war somewhere. where? let's do it in albania. Why? What did albania bad to us to make a war there? And the answer was: they did not do anything good either. Let's make some shit there.

This is my view on the attack against the hungarian and romanian currencies.For other conclusions, it is too early. Anyway, I think it would be better if the romanian central bank would not comment live every sec what they are doing.

Banking language

This week Frau Merkel suceeded to amuse me. She gave all her support to the banks and her offer sounded just like an offer the banks are making to their clients.

Normally, a bank offer sounds like this:

5% Interest Rate! (*)

(*) only for amounts smaller than 10.000, only for 3 months and only for new customers

The support for the banks was written in the same manner:

500 billions for the banks! (*)

(*) only for banks that accept to limit the manager salary to 500k, only for banks that cut dividend; for the loaned amounts from the Bundesbank, the banks will give a 5% dividend in the next 5 years and 10% afterwards

It is funny and I find it the right way to answer to the desperate cry for help coming from the banking system. The even funnier answer came immediatly: Joe Ackerman, the boss of Deutsche Bank, the one making huge lobby for the bundesbank intervention, changed his mind and said that he would shame himself to accept such an offer :) Of course, Joe, it would be a shame for you, the big banker, to get a salary comparable with a CEO in a middle size german company, but you and your colleagues have hidden so much garbage. Sorry, but you deserve to get now back in touch with the real life :)

ZF or Romania buying SNP?

Several months ago, Ziarul Financiar and some romanian politicians were complaining that Romania sold Petrom for almost nothing to OMV! They threatened to renegociate the contract, to raise taxes on oil profits and so on. You know, typical populist stuff - the austrians cheated, bribed us and took our precious for peanuts :)

Dear Basescu, Dear ZF! You have now the biggest opportunity in your life! You can buy Petrom now at the same price as OMV did. That horrible small price payed by OMV! You can buy now shares at that price. Just do it. Of course, you will not do it, but what I wanted to say is - probably OMV will do it!

Few weeks ago, I said that BRD is so cheap now, that maybe SocGen will find some funds and try to consolidate their position. And look, they do it. There are many guys selling BRD, but there is one buying - SocGen.

!?!

There are several things these days that makes me wonder:

- why the analysts that very few months ago were predicting an oil price of 200 dolars or even more, changed now the direction and predict an implosion of global economy? Is it by chance because analysts keep on watching movies like Armageddon and No country for old men? Can they for just one month switch to cartoons?

- why insiders buy stocks in Germany and Romania as they never did before? Didnt they hear from analysts that collaps is coming?

- why the romanian prime minister and president cannot stop the 50% salary raises voted by parliament? Does the prime minister finally understand that he was just a puppet all these years when he thought he is clever because he governs without 50% majority in parliament? I cannot believe that the prime minister and president are so so powerless.

- what will happen with the 8% salary raises requested by Ver.di in Germany? And then is Trichet finally going to give up with his bullshit about inflation worries, while everybody else is having collaps worries?

- why all the analysts put the baltic states, romania and bulgaria on the lists of countries with huge economical risk, but the actual countries going bankrupt seem to be island and hungary? What about USA?

Regarding the stocks, I think we will test again the last week bottoms. And as I know the finance guys, the support lines are going to be broken. We will have again one weekend to remember :)

Back to fundamentals (part 1)

We sell, we panic, but it comes also a point where the fundamentals will play again a role. Of course, since recession is coming, we will not evaluate again based on profit growth estimations, because growth is hard to predict now. But the old fashioned dividend yield would give us a good picture.

Considering the current prices, the romanian blue chips look again attractive:

BRD dividend yield 7%
SNP dividend yield 8%
SIF5 dividend yield 9%

The only question is: are they going to keep their current dividend policy? Will they give away again as much as in the past? Well, at least for 2008, I am sure the answer is yes.

Love is in the air!

Sorry, not love, I wanted to say - PANIC! I see it everywhere. We have 1-2 very important weeks ahead. The global economy will suffer dramatically on the long term, if the trend started in september will continue, even if it will go on some more weeks. I am concerned that we already see panic in the bond markets. The traders are pricing already corporate defaults! If in the equity markets, you are pricing the profits, in the bond markets, you price the default risk. And if you see no bid for 2 year bond from daimler, you start to wonder - are they crazy? do they real mean it that daimler will default?

On another hand, for many, this panic is the signal that we are going soon to reach the bottoms.

from US (Soros) : This is the crisis of my lifetime. I haven't seen anything like it and I won't see anything like it again

from Germany (Spiegel): Wer stoppt den freien Fall des freien Marktes? (Who will stop the free fall of the markets)

from Romania (Razvan Pasol): Insa indiferent de strategia abordata, trebuie sa fim permanent
constienti ca astazi riscurile, perceptiile si conditiile din piata s-au schimbat fundamental fata de cele din trecut. Investitorii care nu realizeaza acest lucru vor face greseli mari in continuare...
Pentru investitorii pe termen lung si foarte lung (cel putin 3 ani), preturile actuale pot fi atragatoare pentru acumulari treptate si esalonate in urmatoarele 12-24 de luni.

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Traian Basescu: Referitor la evolutiile din ultima vreme ale Bursei de la Bucuresti, presedintele Romaniei a mai spus ca evolutia bursei nu afecteaza economia, restul economiei romanesti nefiind afecat de criza.Referitor la evolutiile din ultima vreme ale Bursei de la Bucuresti, presedintele Romaniei a mai spus ca evolutia bursei nu afecteaza economia, restul economiei romanesti nefiind afecat de criza.

wow

What a hands-on experience we get! DAX 5300, DJIA 9900, BRD under 10 ron and even SIF5 preparing itself to go under 1 ron.

What I noticed today, it is a total credit crunch. The corporate bonds (like E.ON or Daimler) and romanian bonds maturing in 2 years went over 6,5% yield. There is a desperate need to get liquidity in the markets. I think all the central banks must immediatly cut rates and pump funds in the money markets. Please notice, my comment has nothing to do with stocks, I speak about money markets. The bond yields jumped far too much today. It is not anymore about failed speculations, it is the whole global economy getting damaged.