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Greek Stockmarket at 20 Year Lows


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Not a good situation.  If they reject the EU programs and exit the Euro currency things will get alot worse, before they get better.  They won't be able to import anything with a crashed currency, including food. 

 

Their best course of action is to stay in the Euro, and devalue internally, as Ireland has done.  Canada, and Germany both went through all this in the 1990s.  In Canada, government at all levels cut their expenditures.  Once the markets got the message that things were delay with, things began to slowly improve.  My entire generation suffered through it (genx) which tends to make us more careful with finances than preceding generations. 

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Not a good situation.  If they reject the EU programs and exit the Euro currency things will get alot worse, before they get better.  They won't be able to import anything with a crashed currency, including food. 

 

Their best course of action is to stay in the Euro, and devalue internally, as Ireland has done.  Canada, and Germany both went through all this in the 1990s.  In Canada, government at all levels cut their expenditures.  Once the markets got the message that things were delay with, things began to slowly improve.  My entire generation suffered through it (genx) which tends to make us more careful with finances than preceding generations.

 

Canada did not have a massively overvalued fixed exchange rate and Germany grew out of it exporting to the periphery that was in a boom thanks to cheap credit. If Germany does the same thing in reverse today ...

 

Still surprised that people do not learn from others experience. There is no such thing as an expansionary fiscal contraction. Not even General Augusto Pinochet Ugarte could do it. Here is the recent Chilean Finance Minister talking precisely about this, stealing the show from Richard Koo

 

 

And this guy is not precisely a spender. Another good talk fromhim  last year where he stole the show from Niall Ferguson:

 

 

Greece does not have an option. I am sorry for the Greeks but be prepared for a great investing opportunity.

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Speaking about Greece, I hope someone on this board can give me their thoughts about OTE (Hellenic Telecom Organization S.A.) the Greek telecommunication company. (OTCBB: HLTOY)

 

(This isn´t an investment idea, so I didn´t want to post it in that section.)

 

- The business is clearly suffering and in decline, but the company trades for about 2x FCF.

- 40% of it´s stock is owned by Deutsche Telekom AG

- The company has an substantial amount of debt on their books.

 

The biggest risk would be, if Greece exits the Euro. Then the debt will still be denominated in Euro but the company would take in only "Drachmen" (or whatever they will call the new currency). And this new currency will definitly devalue against the Euro. On the other hand, they have a strong partner in Deutsche Telekom AG. So maybe even in this worst-case situation the company could survive.

 

Any comments are welcome.

 

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The biggest risk would be, if Greece exits the Euro. Then the debt will still be denominated in Euro but the company would take in only "Drachmen" (or whatever they will call the new currency). And this new currency will definitly devalue against the Euro. On the other hand, they have a strong partner in Deutsche Telekom AG. So maybe even in this worst-case situation the company could survive.

 

Any comments are welcome.

 

Debt hit is one big risk. I have not looked at OTE, but I have followed TEF and PT. They have lots of debt euro denominated and in case of a devaluation they would take a big hit. So big, that despite both having very large profitable and growing operations in Latin America I think it is still risky to buy them just yet.

 

There is a second big risk, price controls. As anyone that has lived through a massive devaluation, like Greece will probably have w/o support, the exchange rate will overshoot, inflation will go through the roof, banks will cut credit if not collapse entirely, foreign capital will run, unemployment will go even higher than now, and there will be massive public unrest.

 

Eventually the very undervalued exchange rate will export the country out of unemployment. Most banks will be nationalized and deposits convert into drachmas with people taking a big one time hit, but that will take care of the credit issue eventually, and some type of capital controls might be instituted to stop the massive capital outflows.

 

But inflation will be persistent and difficult to control especially with the large incentives for the government to run a expansionary fiscal program without foreign credit. That is how Brazil and Argentina in the 1980s got into hyperinflation with continuing civil unrest despite the return to democracy.

 

What did Argentina did on the social front the second time they devalued in 2001? Price controls of basic needs. Food prices are very difficult to control, but utilities and gas prices are much easier.

 

 

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There is a second big risk, price controls. As anyone that has lived through a massive devaluation, like Greece will most probably have if not supported in the process, the exchange rate will overshoot, inflation will go through the roof, banks will cut credit if not collapse entirely, foreign capital will be cut, unemployment will go even higher than now, and there will be massive public unrest.

 

 

 

That would be more benign than outright confiscation ala YPF / Repsol.

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Someone at the Economist just posted a very good article on the consequences of a Greek Devaluation

 

http://www.economist.com/blogs/freeexchange/2012/05/euro-crisis-1

 

Yes, a depreciation would boost the competitiveness of Greek exports, but I'm not sure that would matter much in the chaos following on an exit. Both people and capital would make a mad rush for the exits once it became clear that Greece would be leaving. In such circumstances, currencies typically overshoot on the way down. A plunging drachma would create intense inflationary pressure. That would no doubt be exacerbated by Greek funding needs; despite deep austerity it continues to run a large deficit and the temptation to fund it through printing will be strong. Hyperinflation would be a real possibility. The political dynamics of such turmoil are difficult to foresee, but one suspects that fringe parties would only benefit from chaos. As The Economist has warned, Greece might well become a failed state upon leaving the euro zone. It might not, of course, but I'd put more money on disaster than salvation.

 

 

 

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The best bargain I have found in Greece is to make holidays in Greece with my wife. :)

 

At the moment I´m in Leptokaria a small city between the sea and with view at the Olymp. Great weather, beautiful landscapes, great food, great wine and reading about the Berkshire Hathaway annual meeting.

 

It doesn´t get much better than that.  ;)

 

Cheers!

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The best bargain I have found in Greece is to make holidays in Greece with my wife. :)

 

At the moment I´m in Leptokaria a small city between the sea and with view at the Olymp. Great weather, beautiful landscapes, great food, great wine and reading about the Berkshire Hathaway annual meeting.

 

It doesn´t get much better than that.  ;)

 

Cheers!

 

how much is it per day ??

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  • 4 months later...

Speaking about Greece, I hope someone on this board can give me their thoughts about OTE (Hellenic Telecom Organization S.A.) the Greek telecommunication company. (OTCBB: HLTOY)

 

(This isn´t an investment idea, so I didn´t want to post it in that section.)

 

- The business is clearly suffering and in decline, but the company trades for about 2x FCF.

- 40% of it´s stock is owned by Deutsche Telekom AG

- The company has an substantial amount of debt on their books.

 

The biggest risk would be, if Greece exits the Euro. Then the debt will still be denominated in Euro but the company would take in only "Drachmen" (or whatever they will call the new currency). And this new currency will definitly devalue against the Euro. On the other hand, they have a strong partner in Deutsche Telekom AG. So maybe even in this worst-case situation the company could survive.

 

Any comments are welcome.

I picked HLTOY when it went below a buck.  Doubled the money just now - sold a half of my position recently to redeploy funds in other opportunities.  I am holding on to the other half.  I liked it at that price for the cash flow and non-greece portion of the business.  I see the debt over hang and a share dilution can't possibly be that bad, again at my buy price.

 

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