Time to Get Bullish on Greek Equities?

Well, Greece has been making all the headlines for quite some time now, and interestingly, their stock market has already collapsed by a whopping 87% in a matter for 4 years.

This shows what I mean when I say that most financial asset prices will collapse by 80 to 90% during the Greater Depression. I am not joking, yet, people are not taking me as seriously as they should :-)

So we are now in my target zone, and one would (should!) consider whether it's time to buy this bleeding market.

Here are the results of the little research I have done so far. Sorry, these are very basic, but you'll see that you probably don't need to go further and spend more time on Greece — for now at least.

Please note that:

1. As I have discovered that finding public and free information about Greece is not easy if you don't speak the language, I use the Lyxor ETF GRE.PA as a proxy for the ATX Greek stock index.
2. The data dates from 6th of September, when I did this research — I didn't had the time to post about it since then, apologies.

Peak value:  15.16 — oct 2007

Bottom? 1.90 — sept 2011

We are already 87% down. Now what happens if the bottom is at 90% and not 87% from the top? Well, it would mean that we're up for another 20% decline. And with an extra 50% decline, we would be 94% down from the peak.

Here's a table to illustrate it:

peak	15.16
now	1.9	87%	13%
10% lower	1.71	89%	11%
20% lower	1.52	90%	10%
50% lower	0.95	94%	6%

So why did I pick an extra 50% drop? Am I being greedy and crazy? Unfortunately not. Here are some data from the ETFs fact sheet (sorry in French, but still understandable I hope).

As you can see, the financial sector is still weighting about 50% of this index! And 4 of the top 10 weightings are banks, while two are state companies: Public Power and Hellenic Tel.

So if you expect a full blown government default and their financial system to go bankrupt (what's the likelihood of that? Did we say the bond and CDS market price this at 98%?!) then, there's a fair chance that these equities will be completely wiped out.

This means that the index can easily drop another 50% from here and bring the total decline from the top to about 94%. We already facing one of the biggest bear market in history, and it looks like it can easily go further down before becoming a true buying opportunity...