Feb

11

GREECE MUST APPLY FOR BAILOUT EXTENSION ON FEB 16 AT THE LATEST TO KEEP EURO ZONE FINANCIAL BACKING -EUROGROUP CHAIRMAN DIJSSELBLOEM

The question is much simpler; do they intend to try yet again to promise that they can repay debts that they cannot possibly repay or do they tell all the creditors — internal and external — that there will have to be an insolvency proceeding. The hotels and taxis and restaurants and tavernas can still take Euros in payment; and the French, German and Greek banks will all be happy to do the credit card processing for them. The Eurozone financial backing — like the Dawes Plan — only works as long as all the money lent is returned immediately to the foreign creditors; the Greeks, like the Germans before them, have begun to wonder what they lose by simply defaulting. There is one great difference, though; the German pension plans had already been blown up by the hyperinflation. No one in Germany in the 1920s was still receiving a check from the government that was worth anything. I don't know (or care enough to learn) how important the constituency of the receivers of transfer is to the newly-elected government. They may think that a Young Plan is better than default for right now; and, for them, it will be. For the creditors it makes no difference; they will end up with much the same result the Germans got at Lausanne in 1932 (unless, of course, the ECB wants to ask NATO to be the debt collector and have its nearest member send troops to enforce an attachment).

Charles Pennington writes: 

The Greece situation could be analogous to Argentina, which defaulted at around year-end 2001.

I don't have a source for the US dollar performance of Argentinian stocks, except there is Telecom Argentina, TEO.

TEO was at $6.52 on 12/31/2001. It got as low as $0.60 mid-year 2002, for a ~90% drop. But it was at $10.96 on 12/31/2004, giving you a 68% gain over 3 years.

Remarkable!

If you want to make that trade, you'd turn off your Bloomberg for a few years so you don't get stopped out!

anonymous writes: 

Another comparable:

Russia defaulted on August 17, 1998.

If you had bought $100 of the open-end Russia mutual fund ticker LETRX, here are some future values of your $100 (with all distributions re-invested):

8/17/1998   $100
10/5/1998   $56  (the low)
8/17/1999   $120
8/17/2000   $235
8/17/2001   $210

So in that case there was only a 44% maximum drawdown, and after 3 years you made 110%.  (S&P total return was around 20% over the same window.)
 


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