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Armodios Papagianakis
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Armodios serves as Managing Director for Dynamis Capital Management LLC and lead portfolio manager for Dynamis Partners Fund LP. He has nearly 20 years of both retail and institutional investment, trading and management experience with some of Wall Street’s leading financial institutions.
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Dynamis Capital Management LLC
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  • Greece Should Default, Decouple, Devalue, And Develop (Orig. 05/2011)

    Now over one year since the Greek economic crisis first erupted and nearly six months after receiving its second bailout installment from the "Troika", Greece remains mired in a morass of strikes, violence and record high unemployment as government revenues fall short of expectations and GDP (Gross Domestic Product) stagnates

    This economic malaise has cast its pall on the global capital markets as Greece finds itself unable to tap long term capital (Greek 10 Year bonds trade at prohibitively high 12% while a comparable German bonds trade at 3.25%) and is compelled to borrow short term by rolling over treasury bills every 13 and 26 weeks at a nearly 5% annualized rate.

    Meanwhile, after a fresh downgrades from Moody's , Standard & Poor's, and Fitch, the cost of insuring Greek bonds against default has risen to over a record 1,200 basis points. Thus it now costs over $1.2 million dollars to buy default protection for every $10 million of Greek bonds. Insurance against default on comparable Turkish bonds costs about $200,000.

    Despite the Finance Ministry's indignation and Prime Minister Papandreou's hollow cries of a "New" Greece, the capital markets have declared that it's still the same "Old" Greece - ethically broken, politically bankrupt and fiscally insolvent.

    A genuinely "New" Greece can evolve by officially defaulting and restructuring its' onerous debts, leaving the euro zone and reverting to a "Neo" Drachma.

    Although "Troika" packages and higher taxes may address Greece's short term liquidity needs, restructuring its debt would address its long term solvency needs and allow taxes to be lowered, not raised, as did the shortsighted Papandreou government. Papandreou's tax plan does not create wealth or jobs; it redistributes it - in this case to Greece's creditors. In addition, it further inflates an already bloated bureaucracy requiring a cadre of financial police to implement and enforce. Meanwhile, the unemployed lower and middle class having felt the brunt of austerity measures are further alienated from their government and prone to violence. The wealthy simply move out of the country with very little impact to them.

    On the other hand, lowering corporate taxes, slashing bureaucratic red tape and abolishing excessively pro-labor laws will draw capital investment from both smaller entrepreneurs and larger industries attracted to Greece's abundant agricultural and industrial natural resources (shuttered mines in Northern Greece), mild climate/tourism (still Europe's "Florida") and educated workforce, ultimately providing jobs and profits for both Greek workers and businesses that will lay the foundation for long term prosperity. For example, Swiss cantons (states/counties in Switzerland) have been recently competing among themselves by aggressively lowering taxes to lure British financial firms. This free-market (common sense) tax policy has already incented long admired and growing companies such as Kraft, Google and IBM to establish their respective European headquarters in Switzerland. Would modern cosmopolitan cities like Thessaloniki or picturesque Corfu be such a bad place to work and live?

    Investment capital flows to where its rate of return can be maximized.

    Unfortunately, after ten years of European Union membership promising "free movement of people, goods, services and capital", investment capital, other than short term infrastructure spending for the 2004 Olympics, has been leaving Greece; now Greece must leave the union - and the Euro. Greece's entrance from the very beginning was based on economic smoke and mirrors and doomed to failure. The bureaucrats in Brussels, Greece's creditors and even most of Astoria, Queens knew that Greece's inflation rate and debt to GDP ratio were much higher than EU limits.

    Like modern day welfare, Greece's EU membership has acted like an economic narcotic. Its dependence on European support has numbed Greece's competitive spirit and stifled domestic growth.

    Greece's divorce from the EU would not be without pain or without precedence. A sovereign bond default would likely lead to a wave of bankruptcies among Greece's creditors, including some banks. Greece's subsequent departure from the EU would compel Greece to revert to a "Neo" Drachma, triggering a sharp rise in the Euro and a de facto devaluation in Greece's new currency making imports, and the cost of living, more expensive. However, the devalued "Neo" Drachma would quickly prove beneficial. When Iceland, a small nation with limited natural resources, defaulted in 2008, it allowed weak banks to fail (rather than bailout) and devalued its currency. Less than three years later, Iceland's exports and manufacturing are growing by 20%, tourism is back near all-time highs, real wages are rising, unemployment is declining sharply, interest rates have fallen and the stock market has rebounded 50% from its lows, as it now prepares to tap capital markets.

    Instead of unrealistic visions of a socialist Pan-European utopia, Greece requires aggressive market-oriented economic reforms combined with a significantly less debt load to provide a clean monetary and fiscal slate; Greece will then be able to control its economic sovereignty while growing to prosperity.

    Tags: Economy
    Jan 20 10:41 AM | Link | Comment!
  • Golden Opportunity For Greece

    Gold; the word itself has always evoked grand images of splendor, money and power. Throughout the ancient world, gold was the ideal medium of exchange because it encompassed the four characteristics of "good money", as defined by Aristotle himself.

    Gold was, and still is; durable, portable, divisible, and most importantly widely recognized by society as having intrinsic value due to its relative scarcity and physical appeal.

    In ancient Greece, gold financed the Peloponnesian Wars, and adorned the heads of Greek monarchs King Philip of Macedon and Alexander the Great. Much of that gold was extracted from the Olympias and Skouries mines in Chalkidiki, and the Perama Hills mines in Thrace. Today, those same centuries-old mines, either mothballed and/or under-exploited for decades, due political pressure from left leaning unions, politicians and environmentalists have become a hotbed of controversy, violence and strikes that now includes residents from the surrounding villages and Canadian mining company Eldorado Gold (NYSE:EGO) as it attempts to expand its existing mining operation.

    Most of the controversy of course, revolves around the potentially detrimental impact on the surrounding water, soil and trees. However, modern mining techniques have improved dramatically and now include extensive environmental and agricultural protection and rehabilitation (i.e. recycling, drilling new water wells, replacing trees, etc.) Eldorado Gold in particular, has been safely developing, operating and decommissioning mines for over 20 years and presently mining ore in China, Brazil, Romania and Turkey. In addition, the company has provided a €50 million letter of guarantee to the Greek Government to further ensure future environmental rehabilitation of its projects, along with approximately €3 million (annually) currently provided to the Municipality of Aristotle for community programs of its choice.

    Certainly, EGO's sizable commitment is not motivated by altruism, but by potential future profit. Nevertheless, it seems that almost no amount of proprietary/private capital investment, along with environmental and social good-will, will appease the car burning, road blocking, apoplectic radical leftists. Perversely, these same critics feel no similar qualms over taxpayer subsidized, woefully (energy) inefficient and chemically toxic solar panels to light their dim socialist utopia. Fortunately, after numerous meetings and consultations held by local municipalities, communities, company and government officials in Chalkidiki, a large majority of the villages decided that the economic benefits far outweigh the risks, and voted for expansion. Prime Minister Samaras must demonstrate similar foresight.

    Since Greece's last elections in 2011, scores of private companies domiciled in Greece for decades, including Fage Yogurt, Coke Hellenic and others have moved their headquarters and/or operations to Luxembourg, Switzerland, and Russia respectively, due to stifling economic and political uncertainty. Meanwhile, a dispirited Greek nation, wallowing in a morass of un-payable sovereign debt, continues to wait for her next quarterly tranche payment (interest bearing, Euro taxpayer subsidized loans euphemistically coined as "bail-outs") from unelected bureaucrats in Brussels, much like welfare recipients in urban projects.

    Conversely, Eldorado has invested more than €78 million of proprietary shareholder capital (as opposed to taxpayer monies) in Greece since February 2012. Over the next five years, EGO is prepared to invest, and RISK, nearly €1 BILLION to expand its operations. Perhaps most importantly, and in stark contrast to the Troika's feudalistic and stagnant economic paradigm, this refreshingly capitalistic endeavor will create thousands of jobs (both direct & indirect) to spur the moribund Greek economy strapped with near 30% unemployment. Also, expanding her natural resource industry will diversify the Greek economy by reducing her economic dependence on seasonal tourism

    Furthermore, the Olympias, Skouries and Perama Hill deposits have the potential to make Greece, Europe's leading gold producer by 2016; and although the Greek state will not receive royalty payments (Note: the Greek state assumes little, if any, commensurate start-up capital costs or risks), the aforementioned projects will generate an estimated €1.6 billion in direct revenue taxes for the Greek state over the next 20 years.

    It is imperative for Prime Minister Samaras to keep true to his market oriented rhetoric, and quickly roll out the "red carpet" and reel in the "red tape" as promised during his countless tours and speeches in his quest to attract foreign investment. The recent sales of Greek "trophy" islands to Russian oligarchs, or Kuwaiti princes, provide politically correct public relations, but only negligible economic impact for the nation. This long term wealth producing venture (mine expansion) will help rebuild both the waning Greek economy, and possibly PM Samaras' rapidly waning political legacy.

    The precious metals of Olympias, Skouries and Perama Hill may not restore Greece's ancient glory, but they will provide sought after private sector jobs and real economic growth; a Herculean step in regaining a semblance of national pride, dignity and wealth. Indeed, a golden redux for the Greek nation that will leave both socialists and environmentalists, green with envy.

    Tags: GLD, EGO
    Sep 18 4:33 PM | Link | Comment!
  • Euro Delusion, Theatre Of The Absurd

    "Leaving the Euro and returning to the Drachma will be catastrophic". Incredibly, this tiresome Orwellian mantra has been repeated ad nauseam, from EU "Big Brother" leaders, from the Samaras' "coalition" and from legions of naïve utopian Europhiles; effectively numbing the sense of sight and sound of all too many, to the overwhelming real-time economic catastrophe that has been unfolding in Greece; not under the Drachma, but during Greece's 10-year Euro denominated tenure.

    From inception, Greece's dubious entrance to the Eurozone was both a political shot-gun marriage, and a mirage, officiated by the European Central Bank's (ECB) President Mario Draghi's former employer, Goldman Sachs (NYSE:GS). This misbegotten union between Greece and the EU was willingly consummated by both sides on a bed of statistical smoke and mirrors; and like nearly all relationships based on lies, doomed to failure. Since her independence, and prior to joining the EU, Greece defaulted 5 times or about once every 36 years. Ironically, with the Euro, and under the paternal guidance of the EU's underlying irresponsible banking and monetary policy, Greece has for all practical purposes, defaulted, and subsequently, "bailed out" twice, in ten years. Furthermore, the two euphemistically termed "bailouts" are not charity or economic stimulus; they are additional loans, albeit at reduced interest rates, largely subsidized by Eurozone taxpayers who rightfully resent being punished to reward an irresponsible profligate Greek nation that lived beyond its means to pay. No nation can borrow its way to prosperity. While this may be stating the obvious to mere mortals, it is seems to be an alien concept to an army of PhDs trolling the hallowed halls of the ECB.

    Over two years and more than 300 billion euros in wasted socialist "bailout" redistribution, the Greek economy continues to implode. Coupled with the Troika's ill-conceived and ill-timed austerity, Greece's debt-to-GDP ratio has exploded to nose bleed proportions, matching her prohibitively high near 25% interest rates. Perhaps, the most disingenuous facet of these so-called bailouts is that 80% of these funds do not directly aid the Greek economy, but are instead disbursed directly to Greece's creditors who are perversely rewarded for foolishly lending to Greece. Many of these same lenders were blinded and encouraged by the astonishingly lax, zero reserve requirements, and implied, risk-free Eurozone sovereign debt. With their balance sheets now in tatters, Greece's creditors beg for recapitalization.

    Meanwhile, not to be outdone by Federal Reserve Chairman Ben Bernanke, chief ECB priest, and Goldman Sachs alumnus, Mario Draghi, has been ritualistically debasing the Euro in his attempt to "inflate away" much of the Eurozone's sovereign debt, as evidenced by the Euro's continuous fall against most major currencies, including the Swiss Franc (NYSEARCA:FXF), prompting Swiss Central Bank intervention several weeks ago, and gold hitting a fresh 52 week high (priced in Euros) several days ago; providing fresh fodder for global gold bulls.

    In lieu of perpetual peace promised within the Eurozone; Germany, Finland and the various PIIGS (Portugal, Ireland, Italy, Greece, Spain) nations have been beset with near interminable economic and political resentment, riots, and social strife; including calls for intra-state cessation in Catalonia, Spain, and Venice, Italy.

    Adopting the Euro, we were told, would usher Greece's transformation from relatively poor Balkan nation to a modern cosmopolitan Euro state. The newly esteemed Euro would potentially attract capital and spur business activity in Greece. Instead, Coca Cola Hellenic (CCH), Fage Yogurt and others, that were headquartered in Greece for decades, and managed survive and thrive under the humble Drachma, are leaving; moving to Switzerland, Luxembourg, Russia, and incredibly - to some of the very same Balkan nations that Greece once hoped to attract investment from. Not surprisingly, these corporate mainstays, in not so many words, cited the Troika's prescribed solution Greece's economic woes for their respective departures; "uncertainty" (read high Greek debt) and "taxes" (read austerity). Needless to say, this anti-climactic exodus will only make it even more difficult to attract investment capital, adding to Greece's painful unemployment rate, and further exacerbating a tenuous economy.

    As the tear gas wafting from the most recent anti-austerity demonstrations in Syntagma Square finally dissipates, the results are clear: the Euro and its EU membership are no panacea. Other than a shiny new stadium that sits mostly idle and an impressive bridge with ever decreasing traffic; the economic and political results speak for themselves. While Greece still may have the Euro, a nation can only pay its bills by drawing on its savings or economic output; Greece for has neither. Greece is insolvent.

    The same Greek nation that spilled blood for her independence; survived 400 years of Ottoman rule, two World wars, a Balkan war, a civil war, a military coup and its eventual overthrow; has essentially relinquished her economic sovereignty, and is now a compliant serf to Brussels; saddled with more debt and an impotent memorandum bereft of any substantive wealth producing ideas. In a cruel historic twist of fate, those once detested Ottoman pashas are laughing in their graves as they enjoy a tragic Greek comedy replete with lies, ironies and obfuscation; a modern day dystopian masterpiece that would make George Orwell laugh, and Aristophanes cry.

    Disclosure: I am long GLD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: BY, GS, FXF, forex
    Oct 29 6:57 PM | Link | Comment!
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