Yevhen Pentsak’s advice: recapitalize - not recapitalize, "but do something"

Yevhen Pentsak (50) 23 April'09

Tags: IMF, Yevhen Pentsak, index, strategy, investment portfolio, currency market, banking system, inflation, fund market, NBU

Information background of the week: Ukrainian bank recapitalization is delayed until June, the IMF is «swallowed» the Ukrainian Government Memorandum with a pleasure, new entrants for the presidential elections are appeared, the United States do not expect a second wave of banking crisis, the Ukrainian stock market goes up again after the "small" correction on Tuesday.

Ricardo Dzhuchi, an expert of German group of advisers under the Government of Ukraine, believes:

«There are many arguments testifying that the IMF loan is a key precondition for the restoration of economic stability in Ukraine».

He argues that it is not just a psychological factor. The Ukrainian companies have to repay foreign debt in 2009, the total amount of the debt is more than $ 40 billion. There is a possibility to lower these payments down to 10 billion, considering the possible debt restructuring. The main source of income – the National Bank reserves, which are constantly decreasing. The Ukrainian officials have already understood it too. But there are elections ahead and nobody wants to take unpopular decisions.

In my opinion, now it is the best chance at the top of the crisis in Ukraine to carry out vital reforms. People say: «If you want to have something that you never had - do something that you have never done».

There is a great necessity in reloading not only the political system, but the judicial system, education and public health systems too. That is why our government is mostly guided by the way as: «If you do not have something that you always had - do not do what you have never done before».

That is why I am not surprised by the text of the Memorandum on Economic and Financial Policy between the Ukrainian government and the International Monetary Fund which was signed in April 17, 2009. The text of Memorandum looks like an explanatory note of a bad pupil towards a teacher; in this note he is trying to justify himself and points out reasons which prevented him from studying well. As far as I understand the Memorandum should be concerned both sides who have signed it. But it turns out that it is just a written guarantee of good intentions concerning Ukrainian government future behaviour. The text looks very authentic, in the best traditions of Ukrainian post socialism.

Look at these “gems”:

«[our general economic strategy] has continued to rely on a strict willingness to restore internal and external confidence in the macroeconomic and financial stability»;

«we are convinced that the measures that had been taken will facilitate the process of rapid readjustment of our economy to shocks »;

«our monetary policy is aimed to maintain the degressive inflation trend and ensure the ordered readjustment of the national currency»;

«taking into consideration the inherented dynamism of our economy, we are confident that consistent implementation of “healthy” economic policy will ensure a positive outcome, especially if the global environment becomes more favorable».

And these are just the first few paragraphs of the memorandum. I recommend everybody to read the «gem» of Ukrainian government economic thoughts - Khazanov, Zhvanetskiy and Zadornov keep still!

Timothy Geitner, the United States Minister of Finance expressed the controversial idea about the impossibility of the second wave of banking crisis. Stock markets reacted to this news by their growth. I do not know on which news (or its absence) the Ukrainian stock market reacted. We observe a huge growth of PFTS index over the past week, but with «small» correction on Tuesday. Perhaps several major players wanted to have fun: sunny weather and the spring energy add the optimism.

Major Ukrainian investors still paying attention to Eurobonds of Ukrainian issuers of both the banking and manufacturing sector: their prices are rising, and profitability is remaining quite high.

The Ukrainian politicians are offering interesting political moves. In particular, Serhiy Tigipko decided to run for president of Ukraine. It is interesting to know which electorate he will take and to whom hand over.

It seems to me that the Head of the National Bank of Ukraine is working hard on numerology. Love for «good» numbers 5 and 7 is felt. How else can we explain this stability of hryvnya, which we can observe in recent years - 5,05 UAH per dollar, and now - 7,70 UAH per dollar?

I keep thinking what will be the next combination of «beautiful» figures: 7.50 or maybe 9.30 may come to his mind? Or maybe the numerologist will be changed?

Recapitalization of Ukrainian banks is postponed to June, and there is not enough «oxygen» for everyone. As soon as they «put in» the capital into the ill banks - it will appear at once in the form of taken deposits and it will flue directly at currency market. Therefore, government and the National Bank will defere recapitalization as long as possible.

I suggest to keep the gold-currency portfolio in the following form:

  • 20% - in hryvnya,
  • 30% - in dollar,
  • 30% - in euros,
  • 20% - in cash or cashless gold.

People say, that it is not important to obtain what you want, but it is more important to want to achieve something!

Let’s define goals and conceive a desire for achieving them!

Have a successful week!

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See also:

Мысли среди недели: индуктивные и дедуктивные методы исследования фондовых рынков

Очень часто мне приходится дискутировать о применимости тех или иных финансовых теорий к текущему анализу рынков, осуществление на его основе прогнозов и инвестиционных решений. Еще чаще мне приходилось наблюдать за спорами теоретиков и практиков на финансовом фундаменте. Меня всегда удивляло, почему они спорят? Ученые и исследователи используют общепринятые модели, описанные во всех классических учебниках, их знает каждый магистр по финансам. Почему выводы этих моделей не нравятся практикам?

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