Are there any good buys emerging in Greece?

It may be interesting to look at some of the public companies in the hardest-hit European countries, since the stock indices here are lower than anytime in at least a decade. Here are the results of a search for Greek shares, with an eye towards companies in defensive industries that will not be hurt, or could even benefit from a weaker currency.

All of these businesses are likely to survive a very bad economy, even if they go bankrupt – the question is how the equity holders will fare.

Athex index chart (Athex is now 60% lower than at the 2009 bottom): http://www.bloomberg.com/quote/FTASE:IND/chart

List of top 20 Greek companies by market cap as of May 2010: http://topforeignstocks.com/2010/05/09/the-top-20-greek-companies-by-market-capitalization/

Here are a few names – these first 2 look strongest to me (bottler and utility):

Coca Cola Hellenic Bottling Co:

Biggest foriegn Coke bottler

http://www.bloomberg.com/quote/EEEK:GA/chart

http://en.wikipedia.org/wiki/Coca-Cola_Hellenic

EUR 13.00, EPS 0.93 – not really cheap yet by earnings, 1.62x book. Keep an eye on this one.

Public Power Corp SA , ticker PPC

Biggest utility in Greece. To raise cash, the gov sold 17% of its until then 51% stake.

Plants are mostly coal-fired.

http://www.bloomberg.com/quote/PPC:GA

http://en.wikipedia.org/wiki/Public_Power_Corporation_of_Greece

EUR 5.30, EPS 1.10 – very cheap by earnings, 15% dividend yield.

Hellenic Telecommunications Organization S.A., ticker HTO

http://www.bloomberg.com/quote/HTO:GA

http://en.wikipedia.org/wiki/OTE

3.6% div yield, 15 PE. 1.14x book – not cheap at all, though stock is way down

Boutaris J & Sons Holdings SA , ticker MPK (preferred shares also traded)

6 Greek wineries, one in France, most recognised Greek wine brand

Company website: http://www.boutari.gr/?TEFORz1FTg==

http://www.bloomberg.com/quote/MPK:GA

No earnings data available, but trading at 0.3x book and 0.27x sales.

Attica Group

Largest ferry operator

http://www.bloomberg.com/apps/quote?ticker=ATTICA:GA

http://en.wikipedia.org/wiki/Attica_Group

No earnings data, but 0.12x book

ANEK Lines SA

Ferries

http://www.bloomberg.com/quote/ANEK:GA

http://en.wikipedia.org/wiki/ANEK_Lines

Europe’s dead stock markets

There is a huge range of performance among European bourses since the 2008-2009 crash. In the previous boom, all markets went up together, but these charts show that investors are now much more discriminating, and that there is a huge range of optimism among these countries.  Here is a series of 5-year charts from Bloomberg (you can browse lots more charts here):

Greece:

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Iceland (I’ve never seen a stock index that looks like this – it’s more like the aftermath of a penny stock pump-and-dump):

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Ireland:

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Italy:

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Portugal:

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France:

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Luxembourg:

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Switzerland:(I’m surprised that this is not higher, since the economy here is strong, but the Swiss are very conservative and becoming more so, preferring cash and gold to stocks):

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Denmark:

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Germany (DAX):

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United Kingdom (FTSE 100):

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The FTSE and DAX typically trade like the S&P500, shown below for reference:

These higher-quality markets are now very expensive and technically weak, and if they enter into another bear market the lower-quality markets should follow, quickly breaking their 2009 lows. Bottom feeding value investors may then be able to find a few odds and ends in the rubble.

Iranian central bank dumps euros for gold and dollars.

Remember when Iran started pricing its oil in euros instead of dollars? It was April 2008, a few months after supermodel Gisele Bunchen refused payment in dollars. The euro touched $1.60 that month and had nowhere to go but down:

Yahoo! Finance

Having missed out on the dollar’s spectacular comeback, the expert timers in Iran are switching again:

The Central Bank of Iran (CBI) intends on converting about €45 million of its reserves into dollars and gold, Tehran’s media reported.

According to reports, the new monetary policy will be carried out in three phases, with the first phase – converting euro reserves into dollars – already underway.

CBI Chief Mohammad Bahmani hinted of the move in April, saying the Islamic Republic will turn to dollars in view of the euro’s poor performance.

Iran has been converting its currency reserve into euros since 2006 – a move meant to meet both Iranian President Mahmoud Ahmadinejad’s anti-US policies, and the American currency’s weakness.

The recent change stems from the financial crisis which hit the eurozone bloc following Greece’s financial struggles.

The euro-dollar rates have devalued by 20% since the beginning of 2010. Iran’s foreign currency reserves, which are estimated at $100 billion – half of which are in euros – had to sustain the loss.

I’m bullish on the euro, CHF and pound in the short term, but long-term bullish on the dollar. Here’s a nearly 30-year historical chart of the dollar index, showing that it has miles of room to run:

bigcharts.com

How long until Greece’s Athex index makes new lows?

wsj.com

The myth of the evil short-seller lives on

Bloomberg’s Jonathan Weil writes a good column. Here he digs into the falacy often cited by executives of failing companies and politicians that short-sellers are responsible for drops in price:

Still Believing

So I asked a Morgan Stanley spokesman, Mark Lake, this week if the company’s executives still believed what Mack said in September 2008 about short sellers to be true. And if so, based on what evidence? No comment, he said. Mack wouldn’t talk either.

I got the same response at a conference in Phoenix last weekend when I posed similar questions to the SEC’s enforcement- division director, Robert Khuzami, who joined the agency about a year ago from Deutsche Bank AG. How are his staff’s short-seller investigations going? Found anything significant yet? No comment, he said. Cuomo’s office didn’t comment either.

My guess for why they have nothing to say is that the whole thing was a farce to begin with. Yet this same urban legend — that mysterious, unnamed short sellers and speculators somehow are to blame whenever markets plunge — still lives on.

In Greece, Prime Minister George Papandreou has tried to blame his country’s budget crisis on speculators who profited by buying credit-default swaps on Greece’s sovereign debt. Actually, it turns out Greece was shorting itself.

Paulson’s Evidence

One of the largest buyers of such swaps was the state- controlled Hellenic Postbank SA, which made a $47 million profit last year after it sold its $1.2 billion position, the Athens newspaper Kathimerini reported a few days ago. The bank’s former chairman later said Hellenic was just protecting Greek bonds it owns against a possible default, not speculating, though that doesn’t change the economics of the trade.

In his memoir, “On the Brink,” Paulson writes like a true believer. “Short sellers were laying the bank low,” he said, describing Mack’s plight a year and a half ago. “But John and his team weren’t about to go down without a fight.” What facts did Paulson cite in support of the notion that short sellers were harming Morgan Stanley, or that they had the capability to do so? None, of course.

Paulson mentioned only one short seller by name in his book, David Einhorn of Greenlight Capital, who shorted Lehman’s stock and warned other investors that the bank’s books were probably cooked. In that instance, however, Paulson said Einhorn was proven right, a point echoed in the findings of this month’s report by Lehman bankruptcy examiner Anton Valukas. (Paulson’s book didn’t name anyone who had shorted Morgan Stanley.)

Wrong Target

Einhorn also was right when he tried to warn the SEC in 2002 about the accounting practices of a business-development company called Allied Capital Corp. The SEC responded by turning around and investigating him, at Allied’s urging, without any basis for believing he’d done anything improper, as SEC Inspector General David Kotz’s office chronicled in a report released this week. Eventually, the SEC let the company off without any penalty, in spite of what the report called “specific, detailed allegations and evidence of wrongdoing by Allied.”

Here’s another idea for Kotz. How about investigating whether the SEC had any reasonable basis for believing Mack’s short-seller story in September 2008 when it acted on his pleas, and whether Mack had any plausible grounds to believe the story himself? Now there’s a probe that might turn up something.

Read the whole article here.

More here on how CDS traders are being used as a scapegoat for a well-deserved decline in Greek debt.

Manuel Asensio’s Sold Short tells the story of a small hedge fund that sought out frauds to short and was eventually pushed out of the business by high-priced lawyers paid for with cash from pump-and-dumps.

AJC says, “buy, buy, buy.”

If you can stand it, here is the Bloomberg Radio interview with everyone’s favorite Goldman “strategist.”

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Reuters

Some sector winners and losers so far

The winners are those groups that have fallen the least since mid-January, somewhat adjusted for their potential to decline. I view these as the least prone to violent snap-back rally right now, so this is where I am adding, conservatively, to my short portfolio:

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Losers

Materials are among the big losers so far. Commodities have a tendency to fall hard right from the peak and keep crashing for months. I’d like to short here, but will wait for a better entry (which may never come).

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It is also worth noting that among the world’s stock markets, the US has held up pretty well so far, along with Japan, and believe it or not, Russia. The worst markets, besides Greece (which has already given up the majority of its 2009 gains) are the “emerging markets.”

Key to chart below:

Green: Japan; Purple: Russia; Dark blue: S&P500; Orange: India; Light Green: various emerging markets; Light blue: Europe; Brown: Brazil; Red: China (Shanghai-listed stocks)

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I suspect I’m going to be shorting Russia soon. It was among the very worst in 2008.

5th Avenue blues

Hat tip Evilspeculator

They counted 48 vacant properties (I presume mostly street-front) from 59th to 14th Streets on 5th Avenue in Manhattan. I don’t have any stats to compare this to, but it is clear that times are not so good for landlords (and their banks) in NYC. I used to live on the same block as one very large storefront shown here, and I happen to know that that particular property has been vacant for over 18 months, ever since its former tenant, a nationwide retail chain, went bankrupt.

I have noticed that many of the “for rent” signs you see in Manhattan bear the name of Vornado or other such REITs. That sector is still doomed, though traders seem to have forgotten to ask, “where’s the equity?” I suspect that in most cases, an honest accounting would reveal that net of debt and marked to market, there is none at all.

Mish takes Peter Schiff to the cleaners

Mish has composed a detailed post on the many ways in which the vociferous Peter Schiff has been dead wrong on just about everything in this crash (the two actually had a little debate in December 2007). Mish’s post is essential reading for anyone who is considering following Schiff’s investment advice. In his own way, the man is usually just as wrong as the Pollyannas that he challenges on bubblevision.

Here is an excerpt:

Schiff’s Investment Thesis

• US Dollar Will Go To Zero (Hyperinflation).
• Decoupling (The rest of the world would be immune to a US slowdown.
• Buy foreign equities and commodities and hold them with no exit strategy.

12 Ways Schiff Was Wrong in 2008

• Wrong about hyperinflation
• Wrong about the dollar
• Wrong about commodities except for gold
• Wrong about foreign currencies except for the Yen
• Wrong about foreign equities
• Wrong in timing
• Wrong in risk management
• Wrong in buy and hold thesis
• Wrong on decoupling
• Wrong on China
• Wrong on US treasuries
• Wrong on interest rates, both foreign and domestic

That’s a lot of things to be wrong about, especially given all the “Peter Schiff Was Right” videos floating around everywhere. The one thing he was right about was the collapse of US equities and no part of his investment strategy sought to make a gain from that prediction.

I will admit that I was nearly taken in by Schiff’s thesis back in 2006 when I first became bearish on the economy and stock market. I even opened an account for someone with his firm, but the only thing I did with it was short the US market — I took none of his brokers’ advice on favored mining juniors.

I owe Mish and Robert Prechter a huge debt of gratitude for beating some sense into me with solid logic. Readers can easily check my archives to see my pre-crash stances on commodities, gold stocks, Treasuries, the dollar, the Swiss Franc and the Euro and the inflation/deflation debate. I can report that things have turned out very well for those who went against the crowd of contrarians, swallowed their fear of the dollar, and shorted not just US stocks but almost everything else in sight. All the world was a bubble.

On the need to stay nimble

Yes, the deflationists were right and hopefully all made some money or at least avoided terrible losses, but nobody can afford to get cocky. The markets do not trade on fundamentals on anything but the longest time-frames, so the ability to read the prevailing mood and adjust accordingly is a critical part of asset management. So is the willingness to contradict yourself and change your mind.

I see now that this deflation can last even longer than I had suspected, and that there may be even ways to avoid hyperinflation, such as negotiated Treasury debt forgiveness, but there is no need to try to guess about outcomes that are years away when you know how to read the signs as they come and remain humble and liquid enough to change your stance as needed.

By the way, Mish manages client accounts

Mish is an investment advisor representative with Sitka Pacific (not Euro Pacific!), a firm that manages private accounts on a percent of assets fee basis. I am not a client, but I would not hesitate to suggest giving them a call. I am working on setting up my own firm of this type, which offers many advantages over hedge or mutual funds, especially when set up with the protections that Sitka Pacific has included. My own style of trading is somewhat different from any of the strategies Mish uses (for example, I am willing to go net short or to a majority cash position), and of course I am not always in agreement with Mish on every aspect of the markets.

Fear recedes, so how will it return?

The markets are experiencing a bit of a thaw today, with the memory of panic several weeks behind us now. The VIX has just broken decisively below 40 for the first time since September. Treasury yields have broken out just a tad from their extreme lows. Oil has jumped back to the mid-40s, copper has relieved its oversold condition, the GDX gold stock ETF has more than doubled, and the Dow has crept back to near 9000 again.

The question now remains, how will fear return? In several more weeks or months after the mood turns from relief to greed (and fear of missing out), or in the very near future?

My mind is not made up, but any breakaway rally is way overdue. With every week since the November 21 lows, we have been relieving the oversold condition as a function of time rather than price. That is not to say that the Dow couldn’t creep all the way to 10,000 by March, but the longer we hover here, the less necessary such a rally becomes.

What would be interesting in a January plunge is for the bond market to sell off with the stock market for the first time in recent events. But if the inverse correlation still holds, the overbought condition in Treasuries could find relief in a “happy days are not quite here again but will be soon” rally in stocks. Today’s action is what such an environment would look like, but with a great deal more animal spirits — $65 oil might even materialize (before new lows of course).

At any event, with the VIX below 38 I picked up a few more cheap puts on GDX today. Gold stocks have had a great run, and the same people are buying them today as were holding them in the crash, and for the same reasons. That is a bad sign.

My favorite short though is still the death-defying Home Depot. Also keep an eye on WalMart. People need cheap stuff, but they don’t need as much of it as they have been buying in recent years. At 16.5, the PE on that behemoth is still out of line, as is Costco’s at 18.5.

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PS — Note that in this kind of analysis, I don’t pay much attention to news pieces or economic releases. That is not the way to trade. For instance, we have horrible manufacturing data out today, and all data is worse than 6 weeks ago, but the mood is hopeful and stocks are up, so how can you make money trading on the news?

I look at the mood of the market itself and try to figure out what it is feeling and what themes it is trading on: greed, panic, relief, inflation, deflation, dollar bad, dollar good, etc. I try to figure out the mood by what different asset prices are doing, and wait for entry and exit points when trends look exhaused. To know the larger trend is key, in this case deflation and depression, but the market’s take on the situation is always changing. You wait for Mr. Market to be very wrong about a situation or just too enthusiastic, as in the case of the overextended bond rally this month — in deflation, bonds are good, but overbought is overbought.