A note on Greece from Last Friday

Greece Update

So I attended this Greek conference yesterday.  It was interesting in many ways.  Trying to sift through the hype and figure out the reality is a bit tricky, but here is what I take away.

Samaras had a taped message that was very pro business.  His line about switching from Red Tape to becoming the Red Carpet was funny and what many wanted to hear.  The reality is that a taped message with just a picture, it is easy to say what you want.  So nothing particularly revealing here.

Several people associated with various “project” type groups spoke.  It was encouraging as they seem likely to get some infrastructure projects supported.  As a whole I took away that progress is finally being made in that direction.

A lot of time was spent discussing privatizations.  A lawyer gave the best and most honest presentation.  He pointed out that there are now some standard docs floating around to try and address currency risk.  He pointed out that you should not do anything without some arbitration capacity outside of Greece.  Too many others seemed to have their head in the sand and be too optimistic about the prospects.  This seemed real.  Supposedly China is happy with the port they got involved in.  Barrick, I believe is starting a new gold mine. Those are good things. 

I sat with one of the people from the gaming business they are trying to privatize.  He said that interest has picked up in last 2 months.  They are getting requests for and having investor meetings.  They are big, and have business outside of Greece.  He seemed legitimately optimistic and not just talking his book.  What he pointed out is that they have seen an improvement both outside and inside Greece in the past couple of months.  He wasn’t sure it would last, but at least it was stabilized.

Which is a theme we got from several other people.  That Greece isn’t as bad right now as people say.  It’s not good, but things are stabilizing and the outside world has a worse view than what is actually going on, because the press tends to focus on the negative.  I am willing to believe that, at least a little.

In terms of concrete plans, there were none, but they highlighted business like olive oil and cheese, where they often sell in bulk to Spain and Italy which then brand the products and sell them for higher profits.  Businesses like this are meant to be done internally.  Not sure you can save a country with olive oil, but at least that was a real idea.  Mckinsey did a study, and as annoying as it was in many ways, did have some facts, and offered some hope.

One thing I found interesting is they were adamant about staying in the Euro, and in one heated question period they argued quite strongly that a Drachma was bad for Greece.  It was pointed out that Greece doesn’t have a “production” economy so lower Drachma doesn’t help, and they were dependent of foreign oil (and something else) that would make devaluation very dangerous.  I have argued for a long time, devaluation only works well if you natural resources that you are willing to nationalize.  Without energy and other critical components devaluation adds to the problems.

I am not sure how widespread that view is, but if they don’t want devaluation because it would be bad, and they all basically admitted currency risk is hurting privatizations, then that may be more off the table than I had thought.

All in all, I walked away with the idea that Greece may be getting closer to turning the corner than I thought.  By and large I liked what I heard, even if some will be difficult to implement.

But that takes me to the next problem, how to play it?  The PSI bonds are fraught with the difficulties of this buyback being demanded by the IMF.  It isn’t an easy play, but I like those bonds here, and think they have room to run, maybe as high as 40 pretty quickly.  I have written about the debt before, and will think more about the various scenarios and how they play out, but for now I keep coming to the conclusion that these bonds are good for a trade.

I haven’t ever looked closely at the GDP warrants, but that will be a project for soon.

Again, what I heard from the chatter was encouraging, and if places like Calamos (where the CEO was a panelist) put their money where their mouth is, then the situation could improve quickly.

If it wasn’t for this buyback mess and latest Greek plan to plan to have a deal which is being treated as a fait accompli it would be easier to be much more bullish on the situation.