Wednesday, November 23, 2011

What not to say...

Friendly neighbourhood visit from coal miners - Warsaw, 2003
Prime Minister Donald Tusk's reform plan presented this past Friday sure ruffled a few feathers. We are not surprised at all that miners, judges and prosecutors are threatening all hell will break loose if their privileges get cut. Legal lobbies already claim the move to drop preferential pensions for judges and prosecutors will "threaten judges freedom from bias" while judges and prosecutors themselves are thinking about striking.

Given that, according to the World Bank's Doing Business in 2012 report, it takes 830 (!!!) days on average in Poland to enforce a contract in court, I would say a strike in judicial system is a rather empty threat. It would take three years for people to notice any difference...

Miners have outright threatened the prime minister, saying, through their labour union representatives, that either the government stops dabbling in their retirement affairs or they will storm. How that usually ends one can see in the picture above left.

Such complaints were to be expected, but surprisingly the most controversy, especially in parliament and on the financial market, was related to the announcement of a new copper and silver mining tax, aka the "KGHM tax." 

Since the PM spoke Friday at noon, the markets were told "the good news" live, and quite surprisingly, not every investor listened to the speech and not all of them had enough time to short the stock before it collapsed. Either that, or they have a longer investment horizon like say, pension funds, and were not happy about the news. At all.

Clearly lots of MPs were also long KGHM that Friday because it took them a surprisingly short time to connect the new tax proposal with KGHM's performance before, clearly, the most market savvy Janusz Palikot came out and asked the prime minister who exactly knew about the new tax beforehand and were they involved in insider trading?

Donald Tusk of course quickly rejected any such accusations, but already people are going through transaction records looking at large short bets against KGHM made before the speech.

So let this be a lesson. If you are a "pro-market" prime minister and want to make an impression on the market, do so after the session's end or the impression will be quite different from that expected.

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