My good friend Chris, over at Capitalist Exploits has a new service named Insider Trade Alert. Needless to say, I’m a big fan. The strategy is a focus on “asymmetric risk/return scenarios” in un-followed and un-loved securities. When was the last time you even thought of Korean ship builders? When was the last time you thought that long-dated call premiums on European insurance stocks that will be leveraged to an increase in interest rates—or at least a return from negative interest rates, were too cheap? When was the last time you thought of Greek equities as anything but a bad joke?
Well, Greek equities may still be a joke and the management teams running them may still be scam artists, but that doesn’t mean there isn’t money to be made.
With that in mind, I’m attaching an article on Greek equities from Insider Trade Alert. It is the sort of independent thinking that I really enjoy.
Under-The-Radar Bull Market In One Of The World’s Most Hated Markets
In this this Insider trade alert, we take a look at one of the most hated markets in the world. While completely shunned by the investment community, it’s in a stealth bull market and today’s 5 investment ideas could deliver outsized returns over the coming 5 to 10 years.
This time, we’re going against conventional wisdom and getting long Greece.
To say Greek stocks are unloved would be kind. Hated is more like it. Certainly forgotten by the investment community, but, if you look carefully, in a stealth bull market. If you’re thinking to yourself, Chris, you are absolutely mad, then let me remind you that it is typical that the most uncomfortable positions almost always are coincidentally those where asymmetry exists.
We’ve been diligencing Greece for a long time now, talking with various fellow colleagues, sharing notes and so on, and I’m cognisant of trying to provide you with just what matters since if you let me fly, I’ll write a book on the topic and/or talk all day. Neither of which are necessary or useful for you.
So what is my underlying thesis for being bullish Greek equities? Well, instead of putting together a high flying reasoned discussion on how economic production is about to pick up and valuations still reflecting Greece being in a depression for the rest of time… let me approach this from a different angle.
Below is the Athens Mid Cap Index. There are about 20 stocks that comprise this index. Picture this: let’s say that just prior to the US Credit Rating Downgrade on the 2nd of August 2011 you knew exactly what all of the news flow was going to be for the next 6 years (until now). The only thing you didn’t know was how financial markets were going react to the news flow.
Wouldn’t you think that this would be a textbook bearish setup? Looking back now, I ask myself the question what more could possibly have been thrown at Greek equity markets over the last 6 years? Perhaps Greece leaving the Eurozone, though there is no guarantee that that would have been a bad thing.
Well, guess what? The average stock on the Athens exchange is trading more or less where it was just prior to the US Credit Rating Downgrade in early August 2011.
So if you had gone short a basket of Greek shares in early August 2011, you would have virtually nothing to show for your efforts some 6 years later in the face of what can only be described as absolutely toxic fundamental newsflow and sentiment. So if you haven’t made money now by being short, it’s useful to ask the question: what is going to help you make money in the future by continuing to be short?
We’re bullish on Greek equities for two important reasons.
One is because I cannot think of anything that could push them materially lower on a 5-10-year view, and the other is the impact that Chinese investment dollars via OBOR (One Belt One Road) will have on the economy. Right now there are precious few sellers left. Everyone who wanted to sell has done so while at the same time nobody, and I mean nobody, is looking at Greece, even though the market is telling us to pay attention. One of these days we’re going to wake up to find Greek equity markets ranking in the top performing markets globally. Wait for it!
Is my “reverse” way of thinking a “cop-out” for not doing hard core fundamental analysis on the Greek economy and drivers of economic growth, earnings growth, etc.? Certainly not. I’m no stranger to hard work and spending hours researching, and I’ll provide you with some of the valuation metrics further on where you can see for yourself the value sitting in front of us.
Also, I have been around long enough to know the future is a dynamic thing as there are so many random variables that can come into play. Furthermore, at the bottom of a market or near to it, you will never find any positive commentary/analysis.
Equity markets have this unique ability to anticipate changes in fundamentals. To be ahead of the market you have to have the ability to discard popular narratives and search for clues to allow us to anticipate what the market is going to anticipate.
I have also lived through many crisis before and studied bull markets that result. Bull markets happen for reasons which you would never have thought of at the time.
One of the best measures we use is watching how any given market reacts to “bad” news. If a market refuses to go down against a barrage of negative news, then there is a reasonable certainty that a market bottom is already in or near to forming. This doesn’t mean that it will turn around and vault higher the next day (or even within the next few months) because base forming is often part of the process too. What it does help us do is provide a probability setup where we can find extraordinary asymmetry well ahead of the pack. Thereafter the upside is a function of news coming in less worse than expected. Eventually, as market start to rise, investors/commentators start looking for reasons to justify why markets are moving higher. It’s a situation of the narrative following the market and acts as a self reinforcing mechanism. Soros, who is a pseudo intellectual parasite but phenomenal trader, refers to this as “reflexivity”.
Let’s take a long term look at the Greek stock market and then go back over some of the crisis that have shaped the way I think about the beginnings of a bull market.
For the full article, please click here.