Why I would buy a 2018 Greek Bond

The thing about financial journalists is that we've always been here before. No matter what it is, how mad it is or how bad it is, we've got an analogous situation secreted somewhere in our memory that presents itself just at the time the world seems to be going to pot.

This has been the predominant thought in my mind, like a tiny migraine fairy kicking my frontal lobe, every time I read about Greece.

We have been here before. We had the Russian default and the collapse of the Asian Tigers in the 1990s. We had the Latin American crisis. We have had a generation of Japanese children born without knowing what a rate rise is. We had the dot-com crash and the 'Sick Man of Europe' to contend with in the Noughties (that was Germany, by the way). Further back we had Black Monday in the 80s, and the India crisis in the 1970s. Throughout the decades and centuries, we have had Germany, Argentina, France, Russia, the former Yugoslavia, Cyprus and a host of others defaulting on debt repayments and/or in a sovereign default situation.

Today the yield on a two-year Greek government bond rose to more than 50 per cent, up from 10 per cent in January. Back then, the world was trying to digest the news that Greece was en-route to achieving a primary budget surplus - excluding debt repayments - of €3.3bn. This was roughly equal to 3 per cent of GDP, with a minor budget deficit of €338m; equating to 0.2 per cent of GDP.

However the failure to repay the first installment of the IMF's loan - which demanded 1.6bn Euros, then its people issuing a resolute NO to the tough measures imposed by other creditors - of whom Germany is the largest - has resulted in another 'crisis' situation.

Will there be a Grexit? What will happen if Greece goes back to the Drachma? I cannot get a consensus from any expert. It will be the first time any country has left the Euro, so nobody really knows what will happen. I've seen release after release from every sort of company from foreign exchange to travel insurance to investment companies. None of them seem to know what effect this will have, but all speak of immediate woes - caps on bank withdrawals, haircuts on pensions, further pin-pricks in the proverbial bond bubble, investors possibly ditching Greece for Japan (yes, James Mackintosh highlighted in the FT on 30th July that this could be a consideration. Curious, non?).

According to Bloomberg, although the ECB has raised the pressure on Greek banks to tighten access to emergency credit - in other words, preventing the Greeks from getting their money out before the government imposes blanket and deep haircuts to individual accounts - there has already been an injection of £69bn into the economy over the recent months.

The only way that the banks in Greece can tap into this emergency aid is through collateral - such as government bonds - but while one jokes about the "free money" on a 50%-plus government bond, there is far too little cushion to protect investors. The return, they believe, is not worth the risk. And 2017 is an awfully long way away.

Two years in fact.

Two years.

A lot can happen in that time. Two years ago today, I was single, swimming around the internet to my heart's content, wagging my own tail where I wanted. Today I am a respectable mermaid.

Two years ago, we were in a similar crisis situation. Cyprus had to be bailed out. Cyprus was on the brink of collapse. Pensioners could not get their money out. Cypriots faced haircuts on their bank accounts. It had to appeal to the ESM for funding, as well as the IMF, which has so far disbursed about €742.4m to shore up Cyprus.

The fear then was that this tiny nation might cause a ripple effect among Eurozone nations who were just about recovering. The UK prime minister made several strident comments about bailouts, and called on Europe to protect the several hundred British pensioners who bought a home in the sun.

According to Bloomberg, Cyprus just about dodged the bullet of a "disorderly sovereign default and unprecedented exit from the euro" by agreeing to shrink its banking system in exchange for €10bn of aid. The Cyprus Popular Bank, 84 per cent owned by the government, was forced to shut down. Elderly Cypriots told of poverty as their pensions were cut. Food flew off the shelves on the island. Young people told of rising unemployment.

Cyprus Popular Bank. Image: Simon Dawson/Bloomberg

Then in June 2013, Cyprus's debt ratings were downgraded to "default" after it announced it would delay paying back E1bn ($1.3bn; £860m) of bonds. There were serious worries going into the summer about whether it could pay.

Two years later, I am sitting here reading a report from the IMF about the organised repayment structure of Cyprus.

The acting chairman of the IMF, David Lipton, has this to say: "Cyprus's Fund-supported reform programme continues to produce positive results. Economic and fiscal outcomes have been better than expected, with growth turning positive in the first quarter of 2015 and public finances exceeding targets.

"Liquidity and solvency in the banking system have improved, allowing the elimination of external payment restrictions."

While there is still low employment and the need to ensure ongoing financial stability, two years have proved well for Cyprus. Yes, Cyprus still has problems, Yes it is far smaller than Greece, its bailout fund was far smaller and yes it still needs work on effecting its economic recovery.

Of course, the parallels with Greece do not extend to the depth of the distress in Greece, the protracted poverty of its citizens and its bizzare tax system that has allowed the wealthiest to shelter their tax dues, while the modest earners have been wound up in so much red tape they are scarred for life.

Greece has a stridently socialist government; Cyprus was more moderate. Greece has a history of independence; Cyprus has been a little bit of a geographical whore, welcoming anyone from Crusaders to the Turks to the Brits. Greece has never given us 10 points in Eurovision; Cyprus always gives us 10 points.

Ok that last bit doesn't bear any relation to economic stability.

But in the grand scheme of things, although the world has a great love for the Hellenic Republic, its people, its culture and its history - heck I even married one - the effect of a Greek departure will, like Cyprus, be no more than a short-term shock.

According to Bank of America/ML research, the entire MSCI market cap weighting of Greece in the global index is lower than that of one company - the US furniture store Bed, Bath and Beyond.

Greece does not export cars, petroleum, gold or financial services. It exports ideas, intelligence, talent - sadly so for Greece and wonderfully so for the rest of us - and many parts thrive mostly on tourism.

OPEC will not have to hike oil prices if Greece leaves the Eurozone. The oil we get from the Hellenic Republic cannot go in our cars. Well, it should not go in our cars. I've never tried to be honest. Perhaps it does work.

Markets will get all nervous in July and then, like they always do in August, settle down into a mumbling state while bankers, their wives and their mistresses jet off to some foreign clime, while the rest of us mug it down here with gelato and baring our pasty white feet in the park. In public.

By the time September comes around the fear that the markets had already anticipated will have become a reality. This is good news. Why? Because fear is unknown. Markets do not like the unknown. At least when you know something you can price it in properly. So by then any effect of another, restructured, more fairly implemented debt package for a Eurozone Greece, or a loan restructuring plan underpinned by the EEF for a Euro-free Greece, will have already been priced in. Greece, says Morningstar, is a Black Sheep, not a Black Swan. It will not cause contagion.

Economists will be on a clearer footing to make even more wild predictions or sage warnings. Analysts will be able to see the wood for the terrible puns on 'Drama/Drachma' and start looking at the longer-term. Fund managers will pick through the debris to find the golden nugget companies that are going to be long-term winners. Investor sentiment will improve. Politicians will stop calling each other terrorists. The Germans will shut up (well maybe that won't happen) and perhaps stop being Europe's Money Police.

In two years' time, the current speculation and hyperbole over Greece will have diminished into 'how we are dealing with this situation'. Pensioners will get their money. People will start seeing more investment into improving the business workforce and reduce unemployment. There will be more food on people's plates.

It will be a long while off before Greece and her wonderful people recover from this traumatic time. I think it will take longer than two years before the IMF produces a paper such as the one it has written on Cyprus. In my estimation we can expect to see this sort of positive structural and financial reforms by the end of 2018.

Do not underestimate the emotional and physical effect this large-scale Monopoly played by Germany and its Eurozone allies have had on Greece. Old people have been pushed to suicide, families left wrenched apart by stress. Young graduates cannot afford to eat every day. Parents go to the food bank to feed their children. Little businesses have closed; shops have shut their doors for the last time. The elderly are left sitting, waiting for a pitiful amount of money to see them through the month. The hopes of Generation Y have been burned at the stake of Eurozone aggression.

This Instagram picture sums it all up, taken by someone in a bank in Athens over the past week.

But from the embers of this turbulence, a new order will rise. Greece has been here before. It will survive. Europe has been here before. It will be restored. The world has been here before. And each time it comes back a little wiser, a little stronger.

Will I buy a 2017 Greek bond? No. I couldn't anyway - I'm not an institution with the wealth needed to pick up some sovereign debt. But I would buy a 2018 Greek Bond. If my NS&I comes in next month, that is exactly what I will do. Because I will be turning to everyone and saying 'I told you so'.

Muddlin' through

This seems to be the mot du jour as the US continues to debate the finer points of cutting taxes and expenditure, the Tea Party continues its lunacy, Spanish people take to the streets without there being any young bulls to kill and the spectre of debt knocks at the door of M Sarkozy et Co.

Germany - the former 'sick man of Europe' seems to have shaken off his cold and emerged triumphant, standing tall through the sun roof of his VW as he zooms along the autobahns regardless of rising oil prices. What cares he? He has cash in the bank and the bank has cash in its own banks, and well, so on and so forth.

The UK too seems to have found its feet again, slipping and sliding but struggling ahead nevertheless, free from the encumbersome burden of the Euro and thankful for a nice stretch of water between the island and the continent, or else there would be more political force exerted upon it from Brussels to cough up for the Piigs and the next dominoes in the line should these all collapse.

FTSE100 keeps fluctuating between 5800 and 6000, bound in a range but buoyed by corporates putting out relatively good interims, while gold - ah, gold - shines like a star in the firmament for those canny investors who paid attention to my postings in 2006/2007 and bought it back then.

Too late now for the rest, perhaps, unless you can melt down your gran's old rings in a frying pan.

China is in for a soft landing and on the Eastern front, Japan's equity markets have not been as dire as one would expect, although exo-shocks to the region are still very much on the cards as we head into typhoon season.

As for me, well the money under my bed is now showing signs of strain as the bed itself looks like it is breaking. Depreciation of Norwegian wood stock after six years of wear and tear is having an effect on the resale value of my sofa bed in the secondary market. Home improvements and renovations may need to be a wise expenditure in this market, without being able to get off the first rung of the housing ladder and onto the second.

However, owner of the freehold might not like me adding decking onto the outside of the property and erecting a barbeque/half-covered seating area on the first floor of the flats in which I live. Therefore perhaps I should invest in shoring up the bed until the cash beneath it is safe enough.

Note: of course I've not put £ under my bed. I fear the eroding effect of inflation. Instead, I keep the ex-boyfriend's body under there. It is eroding by itself, but at least it keeps the bed frame from collapsing. The smell might be one of the reasons the resale of my flat is becoming more difficult.

Still - gotta keep muddling through.

Note: of course the ex-boyfriend is not under my bed. I'm not that cruel. I let him live in a cage in the garden.

Greece, Greece, Greece - and Harry Potter

And the Walls Came Tumbling Down

Every single fund manager in the world is talking about Greek debt, whether or not he or she actually manages Greek debt.

UK equity investment managers are putting out statements about the situation in the Hellenic Republic; US academics are stitching together 19th Century political and economic history and the current situation in the Aegean.

This week we received about 30 press releases about Greece: manager comments on Greece, Forex traders' comments on Greece, Equity fund managers on the impact of Greece's debt on the Eurozone, Bond fund managers' concern about sentiment towards fixed income, Consumer groups lamenting the knock-on effect, SAY NO campaigners heralding this as yet another reason to stay well out of the Euro, Australian Farmers simply taking the proverbial out of the UK because they couldn't care less..

All week we have had missives of doom and gloom, such as this one, which interpolated normal text with BIG BOLD LETTERS ABOUT UNANSWERED QUESTIONS: "Despite politicians expressing their strong commitment to keep the Euro together through this new package, we continue to worry about the peripheral countries' capacity to deliver on their adjustment programme."

But when it becomes ridiculous is when fund management groups strive too hard to attract the attention of media pundits and financial journalists with their own take on Greece.

For example, one press release we received this week said: "This weekend’s family activity centred on the final film in the Harry Potter series, Harry Potter and the Deathly Hallows, 10 years on from when we saw the first instalment of the magical film series in 2001. Meanwhile in the Monday to Friday muggle world, the markets are focusing on the modern classical tale of Greece, that also began 10 years ago in 2001 when they entered the European Monetary Union. How will that blockbuster story end?

"In the final instalment of Harry Potter, the story centres on the deathly hallows. Spookily, the three elements of the deathly hallows are comparable to some of the magical instruments Greece has at its disposal."

I mean, really, mashing together the last of the great Potter blockbuster films with the situation in Greece is going three Quidditch pitches too far in an effort to get our attention.

Expelliarmus Hellenicus Debticus!

Harry Potter and the Debtly Hallows