Long GREKAdventures in Capitalism
Much as I predicted 6 weeks ago, New Democracy won by a landslide. In fact, their majority is larger than expected and they can now form a government without a coalition. Additionally, the Nazi party has lost all seats in Parliament (usually a good thing for fund flows). As I write this, my position in the Greek ETF (GREK – USA) is up 14% (not bad for 6 weeks of ownership) on a rather meaty position. I wish all my positions would work this fast or this well—now we get to the acceleration phase.
As I noted in my original article, it’s easy to talk a big game into the elections. It is much harder to actually govern. That said, unlike Macri in Argentina, I don’t sense that the global macro crowd has paid any attention to Greece thus far. Maybe it’s Greece fatigue, maybe it’s PTSD from calling bottoms in Greece. I don’t know what it is, but no one seems to care—yet. Mitsotakis has a background in private equity. He knows what investors want to hear. He also spent 3 years at McKinsey, so he’s likely well-educated at faking financial data. I suspect that both these skills will come in handy when the time is right. Tax cuts, reduced regulation, fixation on GDP growth—Mitsotakis will impress investors. I’m up a lot but I ain’t selling. This trade is just starting. I want to sell when he does the victory lap with investors—right before he actually has to implement his plan.
As a guy who travels incessantly, one of the easiest trades out there is the bet on a place with a history of socialism, electing someone focused on GDP growth. I called a similar trade when Trump won. I will call this trade over and over. Investors want to believe. Sometimes it works out, sometimes it doesn’t. You always have a honeymoon after the election win.
On a different note, Mitsotakis proposed reduced taxes along with fiscal stimulus. This will almost certainly lead to budget deficits. When Greece tried this roughly a decade ago, the Troika nuked the Greek banking system. I haven’t heard a peep from the Troika leading up to the election. Maybe they prefer Mitsotakis to the Molotov throwing Tsipras regime or maybe the Troika has bigger problems with trying to defuse the whole Deutsche Bank neutron-bomb thing. In any case, it is worth noting that if Greece can fiscally stimulate their economy without repercussions, everyone can—I wonder if that’s why the Euro caught a bid lately…?
Finally, no one can invest in a vacuum. You need friends to point out the faults with your thesis, you need friends to tell you when to press your bets and you need friends to travel with you to Athens and help make sense of rambling meetings. I owe a hat-tip to Sacha Imbert, portfolio manager at RBC, who’s bird-dogged this investment for the past 2 years. I also need to give props to Nikos Katsenos at the brokerage division of Alpha Bank. I’ve met a lot of equity analysts in my global wanderings. It’s rare to meet someone who forgoes commission revenue by pointing out obvious flaws with an investment decision, yet knows when to press the bet when he feels strongly about it.
For a week in the fall of 2017, this was my trading desk on the island of Santorini. I cannot think of a more serene trading desk anywhere on this earth. As the US markets opened, I was already on my 3rd beer of the night…
Disclosure: Funds that I control are long GREK
Article by Adventures In Capitalism