It might sound crazy when I say that Greek stocks could become a good long term investment soon.
However, from a real contrarian point of view, it might not be that crazy. Here’s why.
The Greek stock market has lost 93.3% from its top in late 2007 to its recent low. Yes that’s correct: 93.3%.
Chart: Prorealtime.com
When we look at the Dow Jones in 1929, we can see a similar move: From the top in 1929 to the bottom in 1932, the Dow Jones lost 89.48%. So Greece has declined even more than the Dow Jones in the Great Depression!
Chart: Prorealtime.com
When we overlay both charts, we see striking similarities between the two indices:
Chart: Prorealtime.com
So if this pattern holds, we could expect the Greek market to drop another 30% before a major turn takes place (perhaps a “Grexit” – referring to a Greek exit of the euro zone – combined with a huge devaluation of the new “Drachma”). This would boost Greek exports and could be the beginning of the end of the Greek mess.
Greece’s unemployment shot up to 21.9% in March, rising sharply from the 15.7% rate in March 2011 and up from 21.4% in February. So yes, it looks like “Hellas” is going to “Hell”
However, when we have a look at the unemployment in the US during the Great Depression, we can – again – see striking similarities:
Let’s think positive: How much worse can it get than during the Great Depression?
Greece is missing €60 billion in taxes. Is that good news? No. Maybe not the fact that it is missing it, but imagine if Greece could suddenly collect all (or part of) these taxes and invest it in the economy.
Now how “badly” did Greek stocks actually perform?
Let’s have a look at some ratios:
“Greece” measured in gold shows us that in 1999, people were willing to give 25 ounces of gold for one “Greece” stock. Now they are only willing to give 0.31 ounces for that same stock. Clearly times have changed…
Chart: stockcharts.com
Greece vs. the S&P 500: only 0.37 shares of the S&P 500 needed to buy one “Greece” stock, versus an historical average of around 1.5-2 shares.
Chart: stockcharts.com
Greece vs. the MSCI World Index (excluding USA): showing a dramatic underperformance:
Chart: stockcharts.com
Now let’s have a look at Greece vs. the other “PIIGS”:
Greece vs. Spain: 0.075 “Spain” shares needed to buy 1 “Greece” stock vs. an historical average of 0.3 shares.
Chart: stockcharts.com
Greece vs. Italy: 50% below the historical average:
Chart: stockcharts.com
Now let’s have a look at Greece’s neighboring country Turkey:
This looks like a “Pennystock” doesn’t it?
Chart: stockcharts.com
Speaking about neighboring countries, please have a look at this stunning chart of Spain vs. Portugal:
Looks like a lot of money has been made going long Spain, short Portugal:
Chart: stockcharts.com
One thing is sure, Greece won’t “disappear”. There will always be people living in Greece. This means that there will always be a Greek economy. Sure it can change dramatically, and will unlikely be the same as it was 10 years ago, but one day or another Greece will start to grow again.
When that day comes, the Greek market will have rallied by several percent. It’s always hard to catch a falling knife as you never know where the bottom will be, but one thing is sure: compared to the rest of the world, Greece looks like a nice opportunity to me for contrarians.
There’s only one catch here: If you buy stocks now and Greece devalues its currency (after exiting the euro zone), you could loose loads of money due to the currency devaluation. Therefore, I will wait until the moment that happens. That day, I will buy the hell out of Hellas stocks…
I wonder if there will be other “contrarians” (the John Templeton-likes) who will follow me…
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Willem Weytjens, originally from Belgium, is currently living in Oslo, Norway. He has been an active investor for over 12 years, forecasting the latest financial crisis, rise in gold & silver prices etc. He recently founded his own company, Profitimes, enabling him to spend all of his time dealing with financial markets.