The Greece bull market journal

[Specterx]

About waiting for a decline - this assumes that a decline will occur. Whether or not it is rational to enter at the current price, or wait for a decline, is a classic recurring trading dilemma and can easily be solved with a bit of logical thinking.

The assumption here is that we've already seen the capitulative final move down, and the ultimate lows are in. In my view there's a real risk this isn't so - at least a 10-20% chance. In Argentina 2001 there was a clear climax - a currency devaluation, sovereign default, and forcible confiscation of bank deposits (via conversion to depreciated Pesos). We never really saw this in Greece. You can plausibly argue that the Greek debt is going to be indefinitely funded, extended, and if necessary simply written off by the Troika, and therefore there's no real difference - but the debt is still there and unexpected political developments could easily make it become relevant again.

Additionally, Greece currently lacks the economic tailwinds enjoyed by countries in many historical examples, such as spare 'runway' for credit expansion to once again take hold and boost economic activity, and a strong regional/world economy to boost FDI, exports and growth. This doesn't mean that share prices won't or can't increase, but it seems to me that the upside is less which demands a more conservative strategy.

Lastly, at this point the likely payoff is 2-4:1 - not bad but not the numbers we were looking at 18 months ago.

On the other hand, if a decline does occur (which presumably will be accompanied by market stress/turmoil more generally) we will have a chance to gain far more clarity on these risks, as well as a potentially much more favorable entry than at present.

 

[Ghost of Cutten]

The assumption here is that we've already seen the capitulative final move down, and the ultimate lows are in. In my view there's a real risk this isn't so - at least a 10-20% chance. In Argentina 2001 there was a clear climax - a currency devaluation, sovereign default, and forcible confiscation of bank deposits (via conversion to depreciated Pesos). We never really saw this in Greece. You can plausibly argue that the Greek debt is going to be indefinitely funded, extended, and if necessary simply written off by the Troika, and therefore there's no real difference - but the debt is still there and unexpected political developments could easily make it become relevant again.

Additionally, Greece currently lacks the economic tailwinds enjoyed by countries in many historical examples, such as spare 'runway' for credit expansion to once again take hold and boost economic activity, and a strong regional/world economy to boost FDI, exports and growth. This doesn't mean that share prices won't or can't increase, but it seems to me that the upside is less which demands a more conservative strategy.

Lastly, at this point the likely payoff is 2-4:1 - not bad but not the numbers we were looking at 18 months ago.

On the other hand, if a decline does occur (which presumably will be accompanied by market stress/turmoil more generally) we will have a chance to gain far more clarity on these risks, as well as a potentially much more favorable entry than at present.

But there is always risk, and there are always bullish and bearish possibilities. If you wait flat any time there is a bit of risk or lack of clarity, you will never do any trade ever.

What you are effectively saying is "some things could go bad - therefore I am staying out, or waiting for a big fall before investing". But that applies to all market situations. Some of the biggest bull markets in history occurred with exactly those kinds of negative possibilities lingering around for years. Therefore it cannot be something to legitimately base trading or investment decisions on. A strategy of "stay bearish if there is a single possible bear scenario" is clearly flawed.

Rather than identifying a factor that is present in all bull and bear markets, what I am trying to do is identify factors which are present solely, or mainly, in bull markets. IMO factors which occur mainly or only in bull markets, are far more likely to be predictive of further price gains, than factors which are present in all market environments. For example: valuations (amongst the cheapest of any world market), market action (confirmed bull market), sentiment (sceptical/bearish), change in economic data (2013 GDP contracted less than expected, and is forecast to be positive in 2014), position in the long-term economic cycle (6 straight years of recession, which looks to be coming to an end). All of those factors are supportive of a long-term bull market, and not something that you generally see in a bear market. The divergence between sceptical sentiment, and bullish price action, and cheap valuations, is a classic bull market phenomenon - climbing the wall of worry.

Consider also the bullish scenarios rather than just the bearish ones. What if GDP comes in at say +3% or 4% in 2014? What will happen to Greek stocks then? Even a bear will have to admit they will probably skyrocket. Whereas if GDP comes in flat or a bit negative, stocks probably won't sell off because expectations are already low. There is little foreign investment capital in Greece right now - will that last forever? Unemployment is very high and people and resources are being underutilised - what will happen to the economy when they finally get deployed to economically productive purposes? History shows that after huge crashes and depressions, risk assets usually performed very well for many years. A typical bull market usually lasts about 5 years - the bottom was in mid 2012. If the bull market ends now in early 2014, it will be one of the shortest post-depression bull markets on record.

Anyway, those are some things to think about.

 

[Daal]

If Syriza wins and Greece walks out of the EUR, I'd be a buyer of greek stocks in any kinda of constructive price action the index puts out. Maybe bet even as high as 15-20%

 

[Tsing Tao]

If Syriza wins and Greece walks out of the EUR, I'd be a buyer of greek stocks in any kinda of constructive price action the index puts out. Maybe bet even as high as 15-20%

I agree, but both Syriza winning and Greece leaving the EMU would have to occur. We're halfway there.

 

[Daal]

I agree, but both Syriza winning and Greece leaving the EMU would have to occur. We're halfway there.

True. At this point the most likely scenario is that they will default the shit out of their bonds. They will demand all kinds of haircuts etc. What happens after that is what is a mystery, they could get kicked out by the EU or not

 

[Tsing Tao]

True. At this point the most likely scenario is that they will default the shit out of their bonds. They will demand all kinds of haircuts etc. What happens after that is what is a mystery, they could get kicked out by the EU or not

I hope they do get out of the EU. The Greeks existed forever on inflating away the Drachma. They were used to high inflation with a tremendous underground economy. They were a major tourist destination for the world (Europe in particular) because of favorable exchange rates. That's what they do - provide tourism. It's not like the Greeks have a massive export economy.

They default, there will be some turmoil for them. Bring back their currency and they'll have a tough time in the immediate future. But relatively quick they'll be back up to speed and responsible for their own destiny - just like they were for the past 1000s of years.

Just curious- what would your long Greece play be?

 

[Butterball]

Interesting thread. CAPE10 is a solid approach IMO, but don't put all eggs in one basket. I prefer buying the 10 cheapest markets worldwide instead of just one. At current prices, Greece will soon drop out out the top 10 cheapest markets because corporate earnings have cratered post 2008 and the phony, inflated pre-2008 earnings are slowly dropping out of the equation.

Right now Russia, Hungary, Brazil, Poland, Czech Republic are all cheaper than Greece on CAPE10 -- while enjoying the benefits of being able to print their own currency.

 

[Daal]

I hope they do get out of the EU. The Greeks existed forever on inflating away the Drachma. They were used to high inflation with a tremendous underground economy. They were a major tourist destination for the world (Europe in particular) because of favorable exchange rates. That's what they do - provide tourism. It's not like the Greeks have a massive export economy.

They default, there will be some turmoil for them. Bring back their currency and they'll have a tough time in the immediate future. But relatively quick they'll be back up to speed and responsible for their own destiny - just like they were for the past 1000s of years.

Just curious- what would your long Greece play be?

I'm thinking of opening a bank/brokerage account in Greece (but of course, I won't fund it in any meanigful way). GREK just ain't diversified enough, only 2% real estate. Just 20 stocks. But I'm only a buyer of Greek assets if they are denominated in drachmas and people are panicking

 

[Visaria]

how do u open a bank account in greece if all the banks are closed?

 

[Daal]

how do u open a bank account in greece if all the banks are closed?

Well, you would have to wait for them to open but it looks like I don't need it anyone. I used to have an old dormant checking account with Laiki Bank (Cyprus), they went bust and became Bank of Cyprus. The account is still there and works. I asked them if I could buy the Greek stock market and they told me I could so if/when I decide to get involved I might buy through that bank