Guys, I’m good for the loan… really! Investors are confident that new Greek austerity measures will pass the Greek parliament and convince lenders to release the next traunch of bailout funds. And if that wasn’t enough, the world’s major central banks — including the European Central Bank, the U.S. Federal Reserve, the Bank of England, the Swiss National Bank, and the Bank of Japan — jointly pledged two weeks ago to make available virtually unlimited dollar credit to any European bank facing a liquidity crunch.
So that’s it. The crisis is over. The euro zone is saved, and it’s time to pile into Greek stocks.
And if you believe that, to take a line from the country singer George Strait, I’ve got some oceanfront property in Arizona to sell you.
The recent developments do indeed preclude a liquidity crisis like the one that wrecked the U.S. financial system in the wake of the 2008 Lehman failure. They do nothing, however, to address Greece’s solvency issues. The country’s debts are expected to be 166% of GDP next year, and that debt ratio is almost certain to rise even if Greece toes the austerity line and reduces government spending because the denominator — GDP — is shrinking, even while debt continues to rise.
There is no happy ending here. Greece will never pay back its debts, and the only way out of this mess is default.
The Europeans know this, of course. But the longer they postpone the inevitable, the longer their banks have to shore up their capital bases and the better the chances that Greece’s default is “contained” and fails to spread to the other “PIIGS."
A Greek default, when it eventually happens, will almost certainly create some fantastic opportunities for investors with the intestinal fortitude to, as Warren Buffett says, be greedy when others are fearful. It is during these “blood in the street” moments when investors are able to pick up solid assets for pennies on the dollar.
That day is most certainly not today, though. Greek stocks are fairly cheap by world standards (The Financial Times reports that the Greek market sports a P/E ratio of 9.4 and a dividend yield of 4.6%), but this is hardly cheap enough given the macro risks facing the country and given that the “E” in the ratio — earnings — are highly questionable at the moment.
Still, in waiting for that day when Greece eventually does default, I recommend patient investors put a handful of Greek ADRs on their watch list.
I’ll start with the Coca-Cola Hellenic Bottling Company S.A. (CCH). Outside of buying a prime tourist property on one of Greece’s picturesque islands, this is probably the safest and most durable investment you can make in the Eastern Mediterranean. Coca-Cola Hellenic Bottling is a bottler of Coca-Cola products. The company produces, sells and distributes carbonated soft drinks juices, waters, sports and energy drinks, and other ready-to-drink beverages. Drinks makers tend to be recession resistant, though a deep enough recession will bite into Hellenic’s sales, as would a prolonged tourism drought. The company trades for a modest 0.73 times sales, though it will almost certainly get cheaper in the event of a Greek default.
Another stock to consider is Hellenic Telecommunications Organization SA (HLTOY.PK). I was explaining my bullishness on the global telecom sector to a colleague recently, and his reply struck me as profound: “Even if the world ends, people are still going to want to call and talk about it.” While folksy in a Yogi Berra-esque sort of way, it is nonetheless true. Fixed-line telecom has been in decline in the Western world, but mobile telecom and Internet have become essential services for modern life. Hellenic Telecom provides these essential services in Greece, Albania, Bulgaria and Romania. The stock trades at just 0.34 times sales, though again, I have little doubt it will get cheaper.
Finally, investors should keep an eye on National Bank of Greece SA (NBG), the largest and most influential Greek banking group with operations in Turkey, the UK, South Eastern Europe, Cyprus, Malta, Egypt and South Africa. We all know what happened to the American banking sector in the 2008 meltdown, of course. But in 2009, many of the banks that survived the meltdown delivered triple-digit gains for investors brave enough to scoop up shares at the bottom. National Bank of Greece trades for just 0.36 times book value. Of course, in the event of Greek default, that “book value” won’t be worth all that much.
I want to repeat a very important point: Do NOT buy these today. While fine companies, they have the misfortune of operating in a basket-case country and are simply not cheap enough given the probability of and eventual Greek meltdown. This is the time to be patient. After a default, wait a few weeks or even a few months for the dust to settle. You probably won’t time it exactly right, but that’s okay. Like horseshoes and hand grenades, close will likely be good enough.
And while we wait, the circus continues. Just two weeks ago, Gunther Oettinger, the top German representative in the European Union, proposed that the European Union invade Greece and seize its assets as collateral for its loans. This is the same Mr. Oettinger that earlier suggested that Greece and the other PIIGS be forced to fly their flags at half-mast on all EU buildings as a mark of shame for their excessive debts.
It should be emphasized that Mr. Oettinger is not a fringe member of parliament; he is a high-ranking European minister, and his comments make Texas Governor Rick Perry’s recommendation to put Fed Chairman Ben Bernanke on trial for treason seem almost reasonable by comparison.
So again, anyone who believes the euro crisis is over may contact me at any time about that Arizona oceanfront property…
About the author:Charles Lewis Sizemore is the Editor of the Sizemore Investment Letter premium newsletter and Chief Investment Officer of Sizemore Capital Management.
Mr. Sizemore has been a repeat guest on Fox Business News, has been quoted in Barron’s Magazine and the Wall Street Journal, and has been published in many respected financial websites, including MarketWatch, TheStreet.com, InvestorPlace, MSN Money, Seeking Alpha, Stocks, Futures, and Options Magazine and The Daily Reckoning.