Greece: Investment road map
Summary
All of us know a little about Greece now. So do you buy Greek bonds? If so, when? We ponder, putting some time lines on to our answer...Topics Covered
- Greek time Lines
- How to save money off this idea
Background
1. Greek time lines
Going through this week's Economist, p. 47-48, we find the following investment-relevant time lines:
- 16th February: EU Finance Ministers probably will approve Greece's "stability and development plan";
- by March: "the state statistics office will be modernized and cut loose from political supervision..."
- by July: in how far has PM, Papandreou, reduced his budget deficit by four percentage points of GDP?
Why is this time line important to the investor? Because it reveals how serious the Greeks will be about truly reducing their budget deficit.
The February and March dates, however, are less immediately relevant. February, because the European Commission already has endorsed the "stability and development" plan, so the Finance Ministers probably will just rubber-stamp the Commission's approval. And March, because the statistical system of Greece will continue being riddled by corruption and incompetence. However, February and March will set the tracks for what happens until July.
July caught my eye because Papandreou will have been given six months (i.e. February - July) to get his country's act together. Do not bet on an EU bail out. "The treaty governing the European Union includes a "no bail-out" clause, forbidding countries from assuming the debts of others..."
Don't hold your breath. To quote said Economist, "In 1985, under the older Mr Papandreou, Greece was bailed out by an emergency loan from Brussels. But the tighter fiscal policies imposed by the commission were soon ignored. Greece got away with its delinquency on that occasion..."
Will things be different this time around? I cannot imagine it. Greece's Economic Time® clearly is characterized by an excess supply of goods, so growth won't exactly rise in the next six months. Besides, Papandreou has to contend with vested political interests, most of which are intent on not working or co-operating with the government's deficit reduction goals.
Summa summarum: let Greek bonds create value until at least July. Currently, yielding around 6%, this is not too different from what, for instance, a Goldman Sachs bond is yielding. So wait.
July will be the first investment-relevant marker as of which - perhaps - to climb in.
2. How to Save Money Off This Idea
- Always consult your financial advisor first.
- Do not climb into Greek bonds yet. Let value emerge, with a possible view to climbing in as of July.
