Wednesday, December 13, 2017

Greece Outperforming The World: Cassandras Beware

If you own a basket of global government bonds during 2017 you have a ho-hum total return so far: a mere +1.60%.  

But if you ignored the Cassandras and bought Greek Government Bonds (GGBs).... oh boy... what a spectacular year: you are now up well over +30%. And if you were even more of a risk taker and bought them back in 2015, you have more than doubled your money.

Yields on the benchmark 10-year GGB are now at 4.35%, the lowest since March of 2008, having plunged from a high of 8% just this last spring and 20% in the troubled summer of 2015. 

Conversely, if you were a Cassandra (alas, I know quite a few of you) and bought uncovered Greek CDS  betting on a collapse, you are now nursing 60% losses - just this year alone.

Now, there is yet another species of Cassandras out there, very much alive and kicking: those who are stubbornly still shorting Greek bank stocks, plus selected other shares like the Public Power Company.

Guys, a word of advice from one who has been through the boom-bust-boom cycle a few times.  You are shorting ... NOW? 

I mean, Greek banks are already down 99+% from their bubble highs and have been through three successive, massively dilutive re-capitalizations... and you are shorting.. now? Where were you when the party was going full swing and everyone was so drunk they couldn't see a shack without thinking it a mansion? Ain't you a bit LATE to the party?

But hey, that's what makes a market...

OK, OK, one last teeny bit of advice for you Cassandras, boys AND girls: the 2-year note is now at 2.09%.  What does this mean, you say? If you are active in the Greek market and you don't understand, good luck to you AND your jobs.  

For all the rest, it means that Greece is now very close to being able to fund itself from the market at a level very near that of the official sector loans (around 2.0%). And, much more importantly, it is rapidly becoming possible to expunge the IMF from the Greek program by repaying its 14 billion loans early - they carry a high 3.5% interest rate.

FYI, Greek government bonds are now at:

2-years: 2.04%
5-years: 3.45%
10-years: 4.25% 

The IMF has been the biggest "thorn" on the banks' side, agitating for more asset quality reviews and - possibly - yet another recapitalization.  Now... what if... well, you get my drift...

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