In the fall of 2017, I spent 2 wonderful weeks in Greece (Part 1, Part 2, Part 3). I ate great food, drank a bit too much ouzo and saw some wonderful historic sites. I also had a bunch of Greek bankers lie to me about their loan books. It was the full macro-tourist experience and I would highly recommend it to anyone interested in finance. I bought a few starter positions in some banks before the trip, sold out a few months later for small gains and sort of forgot about Greece. This is because you cannot fix a debt problem with more debt, you cannot out-grow a debt burden if taxes continue to strangle the economy and you cannot fix too much regulation with a socialist government. The Greek economy had bottomed, but it was going nowhere fast.
Oddly, while in Athens, a very senior politician with the New Democracy party asked my broker to bring me over to his office. He wanted to stress the point that New Democracy would likely win the next election and when that happened, I should invest in Greece because there would be an actual recovery. I asked him why he wanted to meet me more than two years before the election and he said something to the effect of, “New Democracy wants investors to be familiar with us so that when we win, investors will be ready to invest in Greece and grow the economy from day 1.” Naturally, that made an impression on me because I travel to lots of countries and I’ve never seen an opposition party have a resting order with brokers to bring investors to see them—particularly two years before an election. If they were already thinking about attracting investors before they won, I certainly wanted to invest after they won.
Since you are likely unfamiliar with New Democracy, think of them as the pro-business party who plans to cut taxes, reduce regulations, re-start stalled infrastructure projects and generally grow the economy. New Democracy has been actively campaigning on a platform that I’d support in any country and after a decade-long economic crisis, the idea of 4% GDP growth and 8% wage growth has resonated with Greek voters—especially if they are going to cut everyone’s taxes along the way.
I bring all of this up because Greece just announced early elections (likely on July 7) which will almost certainly see New Democracy emerge as the leading party in Parliament. Will it work out as well as these guys hope? Probably not. Governing is a whole lot harder than campaigning and there are still a lot of pesky conditions from the prior bailouts. That said, as investors learn more about Kyriakos Mitsotakis, leader of New Democracy, I think that they’ll like what he stands for.
If you bought the Argentine ETF (ARGT – USA) the day after Mauricio Macri won in the primaries and held for 2 years, you basically doubled your money. This was during a time when the Argentine Peso devalued by more than half and the economy was put into chaos as various free market reforms were enacted in rapid succession. Basically, it didn’t matter that inflation roared and the currency collapsed because Macri was doing the right things. Greece has already been through the wringer economically. The banks have already been recapitalized multiple times. They use the Euro—which should be more stable than the Peso. Free market reforms should be easier to enact coming out of the current crisis and there’s a lot of low-hanging fruit in terms of permits to issue for large (yet stalled-out) projects to move forward. With the highest interest rates in the Eurozone, any gains will be magnified as Eurozone capital floods in looking for yield—all the banks in the Eurozone are linked after all. If New Democracy wins the elections, capital will flood back into Greece—which would be great as Greece has been starved of capital for the past decade.
I guarantee you this won’t all be roses (it’s Greece after all) but I suspect that Mitsotakis will at least have a honeymoon with international investors as he tries to fix Greece. Based on the Argentine precedent, I’m long Greece. How to play it? I bought the Greek ETF (GREK – USA). It’s not ideal, but this is a fund flows game and I’m pretty confident that investors will like New Democracy. I was impressed.
Nice Big Base
Disclosure: Funds that I manage are long GREK
Disclosure: I am/we are long GREK.