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:

10% lower
20% lower
50% lower

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...


Tiho said...

This is actually a good post. Very good post. I learned some new on this post and it's always nice to learn things instead of listening to same old perma bear talk where you call everyone complacent.

Don't get me wrong either, I don't think the post is great because you are bullish. There is nothing wrong with being bearish. But it would be good to see some research like this, instead of just re-posting articles of the day from Bloomberg and than commenting on them! :)

my tale is that Greek equities could fall more when we have a default, but that will be the bottom, just like Mexico in 95, Taiwan, HK, Thailand 97, Russia 98, Argentina 01. As you can see I've studied previous defaults in history :)

It's great to see research! Next time your bullish or bearish, do some more research and present your case. I'd be very interest to read it - that is for sure.


pej said...

Cheers mate. You might be interested in the post I just wrote as well: http://realitylenses.blogspot.com/2011/09/potential-fatal-flow-in-bill-ackmans.html

And please don't hesitate to share your opinion. Not sure why I asked that, as you're not the kind of person who hesitates making bold statements :-p