Greece: Will The Real Contrarian Please Stand Up?
It might sound CRAZY when I say that Greek stocks could become a good LONG TERM investment soon.
However, from a real contrarian point of view, it might not be that crazy.
The Greek stock market has lost 93.3% from its top in late 2007 to its recent low. Yes that’s correct: 93.3%!
When we look at the Dow Jones in 1929, we can see a similar move: From the top in 1929 to the bottom in 1932, the Dow Jones lost 89.48%… So Greece has declined even more than the Dow Jones in the GREAT DEPRESSION!
When we overlay both charts, we see striking similarities between the two indices:
So if this pattern holds, we could expect the Greek market to drop another 30% before a MAJOR turn takes place (perhaps a “GREXIT” (referring to a Greek Exit of the Eurozone) combined with a huge devaluation of the new “Drachma”? This would boost Greek exports and could be the beginning of the end of the Greek mess…
Greece’s unemployment shot up to 21.9 per cent in March, rising sharply from the 15.7 per cent rate in March 2011 and up from 21.4 per cent in February.
So yes, it looks like “Hellas” is going to “Hell”
However, when we have a look at the Unemployment in the US during the Great Depression, we can – again – see striking similarities:
Let’s think positive: How much worse can it get than during the Great Depression?!?
Greece is missing €60 Billion in taxes. Is that good news No, Maybe not the fact that it is MISSING it, but imagine if Greece could suddenly collect all (or part of) these taxes and invest it in the Economy!
Now how “badly” did Greek stocks perform actually?
Let’s have a look at some ratios:
“Greece” measured in Gold shows us that in 1999, people were willing to give 25 ounces of Gold for 1 “Greece” stock. Now they are only willing to give 0.31 ounces for that same stock. Clearly times have changed…
Greece vs the SP500: only 0.37 shares of the SP500 needed to buy 1 “Greece” stock, versus an historical average of around 1.5-2 stocks…
Greece vs the MSCI World index (excl. USA): showing a dramatic underperformance:
Now let’s have a look at Greece vs the other “PIIGS”:
Greece vs Spain: 0.075 “Spain” shares needed to buy 1 “Greece” stock vs an historical average of 0.3 shares…
Greece vs Italy: 50% below the historical average:
Now let’s have a look at Greece’s neighboring country Turkey:
This looks like a “Pennystock” doesn’t it?
Speaking about neighboring countries, please have a look at this stunning chart of Spain vs Portugal:
Looks like a lot of money has been made going Long Spain, Short Portugal:
One thing is sure, Greece won’t “disappear”. There will always be people living in Greece. This means that there will always be a Greek Economy. Sure it can change dramatically, and will unlikely be the same as it was 10 years ago, but one day or another Greece will start to grow again.
When that day comes, the Greek market will have rallied by several %. It’s always hard to catch a falling knife as you never know where the bottom will be, but one thing is sure: compared to the rest of the world, Greece looks like a nice opportunity to me for contrarians.
There’s only one catch here: If you buy stocks now and Greece devaluates its currency (after exiting the Eurozone), you could lose a lot of money due to the currency devaluation.
I wonder if there will be other “contrarians” (the John Templeton-likes) who will follow me…
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- Greece May Need More Help: Austrian Chancellor
- Greece Default Declaration Stabilizes CDS Markets
- Krugman: Greece Running Out of Alternatives to Euro Exit
- IMF Warns of Hit to Creditors on Greece Deal
- Roubini: Portugal Will Be Next to Default, Greece to Leave Euro
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