Are there any good buys emerging in Greece?

It may be interesting to look at some of the public companies in the hardest-hit European countries, since the stock indices here are lower than anytime in at least a decade. Here are the results of a search for Greek shares, with an eye towards companies in defensive industries that will not be hurt, or could even benefit from a weaker currency.

All of these businesses are likely to survive a very bad economy, even if they go bankrupt – the question is how the equity holders will fare.

Athex index chart (Athex is now 60% lower than at the 2009 bottom): http://www.bloomberg.com/quote/FTASE:IND/chart

List of top 20 Greek companies by market cap as of May 2010: http://topforeignstocks.com/2010/05/09/the-top-20-greek-companies-by-market-capitalization/

Here are a few names – these first 2 look strongest to me (bottler and utility):

Coca Cola Hellenic Bottling Co:

Biggest foriegn Coke bottler

http://www.bloomberg.com/quote/EEEK:GA/chart

http://en.wikipedia.org/wiki/Coca-Cola_Hellenic

EUR 13.00, EPS 0.93 – not really cheap yet by earnings, 1.62x book. Keep an eye on this one.

Public Power Corp SA , ticker PPC

Biggest utility in Greece. To raise cash, the gov sold 17% of its until then 51% stake.

Plants are mostly coal-fired.

http://www.bloomberg.com/quote/PPC:GA

http://en.wikipedia.org/wiki/Public_Power_Corporation_of_Greece

EUR 5.30, EPS 1.10 – very cheap by earnings, 15% dividend yield.

Hellenic Telecommunications Organization S.A., ticker HTO

http://www.bloomberg.com/quote/HTO:GA

http://en.wikipedia.org/wiki/OTE

3.6% div yield, 15 PE. 1.14x book – not cheap at all, though stock is way down

Boutaris J & Sons Holdings SA , ticker MPK (preferred shares also traded)

6 Greek wineries, one in France, most recognised Greek wine brand

Company website: http://www.boutari.gr/?TEFORz1FTg==

http://www.bloomberg.com/quote/MPK:GA

No earnings data available, but trading at 0.3x book and 0.27x sales.

Attica Group

Largest ferry operator

http://www.bloomberg.com/apps/quote?ticker=ATTICA:GA

http://en.wikipedia.org/wiki/Attica_Group

No earnings data, but 0.12x book

ANEK Lines SA

Ferries

http://www.bloomberg.com/quote/ANEK:GA

http://en.wikipedia.org/wiki/ANEK_Lines

Europe’s dead stock markets

There is a huge range of performance among European bourses since the 2008-2009 crash. In the previous boom, all markets went up together, but these charts show that investors are now much more discriminating, and that there is a huge range of optimism among these countries.  Here is a series of 5-year charts from Bloomberg (you can browse lots more charts here):

Greece:

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Iceland (I’ve never seen a stock index that looks like this – it’s more like the aftermath of a penny stock pump-and-dump):

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Ireland:

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Italy:

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Portugal:

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France:

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Luxembourg:

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Switzerland :( I’m surprised that this is not higher, since the economy here is strong, but the Swiss are very conservative and becoming more so, preferring cash and gold to stocks):

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Denmark:

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Germany (DAX):

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United Kingdom (FTSE 100):

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The FTSE and DAX typically trade like the S&P500, shown below for reference:

These higher-quality markets are now very expensive and technically weak, and if they enter into another bear market the lower-quality markets should follow, quickly breaking their 2009 lows. Bottom feeding value investors may then be able to find a few odds and ends in the rubble.

Rumors of dollar’s death greatly exaggerated

Sentiment is still very anti-dollar (though not as extreme as last February-April), but the index is no lower than a few months ago, nor even a few years ago. Despite all of the dollar-crash and hyperinflation hysteria in recent years, early 2008 still marks the bottom.

MACD and RSI also seem to back up the case that the next big move is more likely up than down:

3 year daily chart:

stockcharts.com

5-year weekly chart:

bigcharts.com

10-year monthly:

futures.tradingcharts.com

The 10-year chart says it all: the dollar has already crashed, and as is typical in the financial markets, few noticed or attempted to take action until the move was already over.

This is why silver margins were hiked

Since the futures opened on Sunday, silver has fallen $13. For a standard 5,000 ounce contract this is $65,000, more than three times the COMEX margin. Today alone silver is off $15,000 per contract. It is just plain silly to claim a conspiracy against silver, and even sillier to claim that margins were hiked for nefarious reasons. Margin had to be hiked to keep up with the price of silver and its volatility, to protect the exchanges and winning traders (and to protect losers from themselves).

Like I said a two weeks ago at $45 when I discussed buying near-term puts on silver in anticipation of the bubble popping, I think the metal’s run is over. I suspect that it may establish a new normal in the $10-20 range for the coming decade or so, until the next secular inflation cycle is upon us.

One year later, a real head and shoulders?

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Solid deflation trade on today: bonds, yen, dollar up and everything else down. This is hard selling, so it looks like we’re completing the top of the great dead cat bounce of ’09-’10. Once stocks and commodities break May’s lows, they could fall very quickly towards the levels of winter ’09.

Here’s crude oil, continuous contract futures. This is a beautiful short right now. How quickly the phrase “demand destruction” disappeared from discourse, along with all the other reasons why $35 was a perfectly reasonable price for oil.

Commodities crash underway: straight down or choppy?

Commodities did spectacularly well from winter 08-09 to winter 09-10. Many tripled in price, such as oil, copper and palladium. The world seemed convinced that another great phase of inflation was underway or would start real soon now.

The reality is that demand is anemic and that there has been little or no economic growth. The only exceptions are property bubbles in China, Australia and Canada that are just running on fumes, where America’s was circa 2006. The commodity bounce was purely a technical reaction from an extremely oversold condition, exacerbated by mistaken faith in Keynesian policies deployed worldwide. The rally began to stall out from mid-autumn to this March, and is now starting to roll over in force.

Here’s a 3-year chart of copper, a very liquid and widely followed market. Many believe it is an economic guage, but this is nonsense IMO, since it was trading well under a dollar as the economy was booming a decade ago, and like a lot of other commodities was very expensive in the stagnant 1970s (and right now of course). Prices are driven first and foremost by fads. Why else would you expect it to trade at $3.50 in the middle of a deflantionary depression when stockpiles are huge?

Stockcharts.com

I don’t like to brag, since I get plenty of timing wrong, but back in April I noted the divergence in RSI and MACD right as copper made its top around $3.60.

Another favorite guage of risk appetite is the silver:gold ratio, which has remained stalled for the better part of a year now, and looks set to decline again:

Stockcharts.com

Also check out the palladium:gold ratio, since palladium experienced a major speculative bubble lately which has started to crash very hard:

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Here’s oil, West Texas Intermediate… in all of these commodity charts, note the severity and unrelenting nature of the last drop in 2008. There were few rallies where one could safely get on board for a short sale — you were either short from the top for the ride of your life or just had to watch.

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I’m not expecting a lot of chop in these markets. I’d love a nice rally here to increase short positions, but it’s not the nature of commodities to take their time on the way down. Traders had months to see this trade coming and set up shorts, but for those who don’t over-leverage themselves it is by no means too late to get on board.

By the way, the commodity currencies (Australian, New Zealand, Canadian dollars, Brazilian Real and South African Rand) have also started to fall hard but have a long way to go to correct their rallies from last winter.

Want to see one commodity market that we’re definitely not too late to short? Gold and silver mining stocks (GDX ETF below). The gold bugs have been extremely confident and their ranks have swelled lately, so a deep set-back is much needed in this sector. After all, mining stocks often have a greater correlation with the S&P 500 than with the gold price (which I expect to fall, though not as much as stocks).

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Ironically, I’m part of a group that’s building a huge database and stock screener in this space, called the Mining Almanac. Launching our beta site right at the top of a commodities bubble couldn’t be worse timing, so I’m trying to make lemonade and using it to search not for value stocks (what I designed it for) but the opposite so that I can short them!

For safety, don’t buy gold stocks, which are a financial asset with value contingent upon stock market conditions, tax laws (seen in Australia lately as their leftist government has slapped an extra tax on the mining industry) and myriad operational concerns. Along with plenty of cash and treasury notes, buy gold itself, either stored in your name in a vault oversees or in your personal posession. Gold is money, and in a deflationary depression with undertones of currency crisis, you want the very best.

Taleb video: credit crunch not black swan, moral hazard now worse

From Bloomberg:

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Some great comments on the OMB (“lying on their forecasts”), Geithner (“who has a mortage on a house not far from mine… who didn’t understand risk and real estate prices”), Summers (“uses wrong mathematics in his papers” and has “systemic arrogance”), and Bernanke (“the one who crashed the plane”).

He has praise for David Cameron, whom he thinks understands how to solve the crisis.

Plenty of fodder for inflationists and bond bears here: Hard assets like metals and agricultural land would be a good way to protect value. Forget the stock market and most real estate.

Does anybody, such as professors, now understand the issues he raises? No. Don’t go to business school, but if you go, don’t take any business class that has equations in it: “it’s all bogus.”

John Hussman agrees May 6 decline no glitch, but normal and even predictable

Summary: Crashes are a normal consequence of extremely overbought and overpriced markets, and huge rallies like Monday’s are almost the exclusive providence of bear markets. Crashes and giant rallies are both characteristic of times of credit stress.

First, let John Stewart explain (if like me you’re not in the US, try this trick to watch restricted videos) :

The Daily Show With Jon Stewart Mon – Thurs 11p / 10c
A Nightmare on Wall Street
www.thedailyshow.com
http://media.mtvnservices.com/mgid:cms:item:comedycentral.com:309127
Daily Show Full Episodes Political Humor Tea Party

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Now on to Hussman. The below is taken from his latest market comment. You could also say that Hussman “called” this decline, since starting several weeks prior to the peak (see archive) he characterized the market as “overvalued, overbought, and overbullish” and hedged up his stock mutual fund with put options and short call positions. I have followed him for some time, and he is as good a market timer as I know*; you don’t want to be long stocks when he’s fully hedged!

Of all the mysteries of the stock exchange there is none so impenetrable as why there should be a buyer for everyone who seeks to sell. October 24, 1929 showed that what is mysterious is not inevitable. Often there were no buyers, and only after wide vertical declines could anyone be induced to bid … Repeatedly and in many issues there was a plethora of selling orders and no buyers at all. The stock of White Sewing Machine Company, which had reached a high of 48 in the months preceding, had closed at 11 on the night before. During the day someone had the happy idea of entering a bid for a block of stock at a dollar a share. In the absence of any other bid he got it.”

John Kenneth Galbraith, 1955, The Great Crash

“I started accumulating stocks in December of ’74 and January of ’75. One stock that I wanted to buy was General Cinema, which was selling at a low of 10. On a whim I told my broker to put in an order for 500 GCN at 5. My broker said, ‘Look, Dick, the price is 10, you’re putting in a crazy bid.’ I said ‘Try it.’ Evidently, some frightened investor put in an order to ‘sell GCN at the market’ and my bid was the only bid. I got the stock at 5.”

Richard Russell, 1999, Dow Theory Letters

…If the decline we’ve seen to date is the entire resolution of the recent overvalued, overbought, overbullish, rising-yields syndrome, investors will be fortunate. Given that last week’s decline was just enough to clear the “overbought” component of this condition at least on short-term basis, we lowered our S&P 500 put strikes closer to current market levels and “re-set” our staggered strike hedge in the Strategic Growth Fund enough to put us in a more constructive position if the market advances more than a few percent, while maintaining a strong defense against a further market loss. Our overall position is much like a fully hedged stance with a couple of percent of assets in out-of-the-money index calls. We’re in no hurry to “buy the dip.” We don’t rule out much larger, and possibly profoundly larger market losses, but again, last week gave us a nice opportunity to re-set our strikes in a way that allows us to be comfortable in the event that the market recovers.

Thursday was a fascinating day in the market, featuring a 20-minute span in which the Dow moved from a loss of about 300 points to a loss of nearly 1000 points and then back again within a span of about 15-20 minutes. While the decline and recovery was interesting, the fascinating part was the eagerness of investors to view the decline as a “glitch” in trading. My hope is that the opening quotations in this weekly comment are sufficient reminders that illiquidity is not a “glitch,” but a typical feature of panicked markets. In a market where active market makers have increasingly been replaced by “high frequency” trading algorithms that can be switched off at will, it is important for investors to avoid the assumption that there will be a willing buyer close at hand if risk concerns begin to escalate.

If you spend a good portion of your time studying price-volume behavior, “air pockets” of the type we observed last week become familiar parts of the landscape (though they are typically not so distilled into a single intra-day move). Robust demand is the only thing that holds prices from falling vertically in the face of eager selling. Overvalued, overbought, overbullish markets are often already spent of that demand. As investors suddenly became aware of that reality on Thursday, all I could think was “welcome to my world.”

…I think the best way to characterize the market here is to view the area between 1080 and about 1130 on the S&P 500 as something of an “inflection point.” A clear decline below about 1080 on the S&P 500 would most likely put market internals in a clearly negative position, leaving the market with a coupling of overvaluation and negative market internals that has historically been very hostile. We’re not yet to that point, however, so it’s reasonable to allow for the potential for a recovery from these levels while still maintaining a tight hedge against further weakness.

I made many of the same points prior to the mini-crash (, noting the likely record extreme in bullish complacency in the equity put:call ratio, as well as extreme overvaluation and mutual fund cash levels matching the 2007 peak.

After the crash last Thursday I noted that these things just happen. They are one of the risks of the stock market, and are as old as floor trading:

The fact is, markets just fall out of bed sometimes. It’s normal, and they don’t need the kind of reasons you can read about in the paper. Greece had nothing to do with it.

A move like this off a top does not mark the end. If we had plunged hard and reversed like this after we were already reading oversold on sentiment and momentum gauges, it could mark a bottom, but not right off the top — that is what should scare people today. This was not like Black Monday ‘87 — it’s more like the Black Thursdays of ‘29 and ‘08 (huge intraday crashes with recoveries, followed the next week by the real crashes), or the Friday before the ‘87 crash (down 5%). It’s likely a kickoff to more downside. New highs are possible, but looking less and less likely, and we doomsayers might be right after all these months…

You can’t predict a crash, but you can tell probabilities, and the probability of a decline was high as of last week. We had an extremely, extremely depressed put:call ratiomomentum was rolling over, mutual funds were all-in, and just about every measure of sentiment showed that complacency and bullishness were off the charts.

Also the day after the crash I said not to blame the computers and not to reverse those trades:

I didn’t mention anything about computers here, which any discussion of yesterday should have. So yes, computer stop-loss orders kicked in and buy orders were pulled, but this is just what would happen with humans. Every market in the world has experienced some kind of crash this week. It’s not the machines – they basically just do what people do, but faster.

However, you can probably blame computers if you got screwed out of something during a split-second 50-99% drop — that would probably be less likely to happen in a market with human specialists to absorb order flow with their brokerage’s books.  But that’s not the cause of the crash, just something that happens during a crash — buyers pull out and stop-losses kick in. In ‘29 you also had solid companies selling for a buck for a few trades. That’s just the way the cookie crumbles, and one of the myriad risks of the equity market.

(BTW, breaking those trades was likely a bad decision on the part of the exchanges. If they had let them sit, those kinds of ridiculous plunges to a penny would be less likely to happen again, as everyone today would be coding away to program their bots to snap up “bargains” during the next swoon. If they could just turn around and cancel the trades, who’s going to take that risk, since you might end up short a stock trading at $20 the next day that you’d bought for $10 and sold for $15?  Doesn’t anyone believe in markets anymore? Not even people who run the stock markets? Just let them be, and participants will naturally seize opportunities and add efficiency to the market.)

The cause of this crash is just an overbought, overbullish, overvalued market during a depression (9.9% headline unemployment again, 17% real).

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Mish provided these charts (visit his post to see more data) which help to put the drop into perspective (“largest point drop in history” is meaningless — what counts is the percentage). The data here also shows that huge single-day rallies like Monday’s seem to only happen in bear markets, (as I pointed out on Day 2 of this blog back in August 2008 before the crash):

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*By the way, here’s the 10-year record of Hussman’s equity mutual fund (top blue line), which, as I understand it, is contractually obligated to be near fully invested in stocks at all times, though it may hedge 100% of its long exposure but not go net short:

What is it about Thursdays? In ’29, ’08 & ’10: giant intraday plunges w/ recoveries.

Here’s a close-up of the Dow in October ’29. Black Thursday, the start of the heaviest phase of the crash, saw an 11% intraday loss, then a close down just 2%:

TD Ameritrade

In 2008, October 10th saw the same type of action: an 8% intraday loss, then a barely negative close. In this case, the day marked an interim exhaustive bottom, since unlike in ’29 and this week, we’d had very heavy declines already:

TD Ameritrade

Here is yesterday in the Dow:

TD Ameritrade

I’m not making any calls here, other than to say that the market remains treacherous. Few have been converted to the bear camp, with the general consensus being that yesterday was a technical aberation. It should serve as a warning about how ephemeral equity prices can be, and how buyers can just disappear in a panic when there is no fundamental support for thousands of Dow points under the market.

The crash of ’87 happened from much lower valuations than today, and also coming off a top, though not from nearly as close to the top as yesterday. The market was overbought and overvalued on high bullishness, then buyers just disappeared. It also had a nasty Thursday from which stocks never looked back:

TD Ameritrade

What is particularly worrisome about yesterday’s crash is that it happened right off a top that registered some of the most extreme bullish complacency readings in history, and that few are truly worried about further declines. It has happened during a depression, at extreme overvaluation (1.7% dividend yield), with waning market momentum after a giant bounce off a bottom (March ’09) that had none of the classic signs of a lasting low (yields were just 3.5% at best, and the low was not tested).

Keep out of this market. Hedge any long exposure you can’t get rid of.

ADDENDUM:

I didn’t mention anything about computers here, which any discussion of yesterday should have. So yes, computer stop-loss orders kicked in and buy orders were pulled, but this is just what would happen with humans. Every market in the world has experienced some kind of crash this week. It’s not the machines – they basically just do what people do, but faster.

However, you can probably blame computers if you got screwed out of something during a split-second 50-99% drop — that would probably be less likely to happen in a market with human specialists to absorb order flow with their brokerage’s books.  But that’s not the cause of the crash, just something that happens during a crash — buyers pull out and stop-losses kick in. In ’29 you also had solid companies selling for a buck for a few trades. That’s just the way the cookie crumbles, and one of the myriad risks of the equity market.

(BTW, breaking those trades was likely a bad decision on the part of the exchanges. If they had let them sit, those kinds of ridiculous plunges to a penny would be less likely to happen again, as everyone today would be coding away to program their bots to snap up “bargains” during the next swoon. If they could just turn around and cancel the trades, who’s going to take that risk, since you might end up short a stock trading at $20 the next day that you’d bought for $10 and sold for $15?  Doesn’t anyone believe in markets anymore? Not even people who run the stock markets? Just let them be, and participants will naturally seize opportunities and add efficiency to the market.)

The cause of this crash is just an overbought, overbullish, overvalued market during a depression (9.9% headline unemployment again, 17% real).