Monday, June 18, 2012

If You Haven't Already Read Enough About Greece...

Like many financial analysts, I've been scratching my head this morning trying to figure out the meaning of the Greek elections held last weekend.

It appears that the party that most of the financial community wanted to win - the New Democracy party - won a narrow victory over Syriza, whose platform was anathema to the euro zone.  Still, it appears that Syriza won enough seats in Greek's parliament to remain a very influential part of the political scene, which means we will be reading lots more about Greece in the weeks ahead.

Fortunately, one of my favorite columnists Ambrose Evans-Pritchard of the London Telegraph succinctly summed up what just happened in Greece:

Greece’s new leaders have a mandate from Hell. Almost 52pc of the popular vote went to parties that opposed the bail-out Memorandum in one way or another. There is no national acceptance of the Troika’s austerity policies whatsoever....
This is what Professor Vanis Varoufakis from Athens University has to say about the Troika policies (via Naked Capitalism):

"Consider what they are telling the Greek people: They are saying that Greece, to remain in the Eurozone, must,
(a) carry on borrowing from the EFSF at 4% (and thus adding to Greece’s public debt) in order to pay the ECB (which will be making a 20% profit from these payments, courtesy of the fact that it had previously bought Greece’s bonds at a 20% to 30% discount)
(b) reduce public spending by 12 billion euros in order to be ‘allowed’ to borrow for the benefit of bolstering the ECB’s profits from these transactions involving bankrupt Greece.

If the Devil wanted to guarantee that Greece is pushed out of the Eurozone, he and his evil handmaidens could not make up the above, satanic, scenario...

So what should the investor do?

Here's one interesting, very contrarian thought:  Buy Greek Stocks.

I'm not sure I have enough courage to dive into the Greek stock market, but Jacob Walinsky writing in the blog ValueWalk makes some interesting observations.

..It is possible that the {Greek} stock market is trading at 3x, 2x or even 1x 2014 earnings.

On every metric, this is cheaper than the US stock market has ever been going back to 1870... 

The country still remains a popular tourist site, being the 16th most visited in the world. If Greece adapts the Drachma and the currency is cheap, expect a lot of tourism. Greece has a large shipping industry. The country is strategically located in the Mediteran. Despite the country being in a recession for several years, GDP per capita is number 32 in the world, just two places behind South Korea.

Greece was not always known as a ’lazy country (which itself is not accurate). The economy had rapid growth until the past few years. Between 1960 and 1973, the Greek economy grew by an average of 7.7%. Even under the Euro, The Greek economy was growing rapidly. Annual growth from 2001-2007 was over 4%.

The economy clearly can boom again, and this would be a big catalyst for Greek stocks. Greek stocks could repeat performance of post-war German equities.

I'm not sure I totally agree with Mr. Walinsky, but I like the idea of looking for opportunity where others fear to tread.