Stay the Heck Away from Greek Stocks
I love investing in distressed opportunities as much as the next person, but the thing that scares me about investing in Greece in general and the National Bank of Greece (NBG) in particular is the possibility of a run on the bank.
Many of the huge U.S. banks that either failed or were bought out at fire-sale prices, like Lehman Brothers, Bear Stearns, etc...didn't begin to run into serious problems until people started to lose confidence in them and began to pull their money out in droves. I realize that this isn't an apples-to-apples comparison because the companies that I mentioned are investment banks rather than regular banks, but the concept remains the same. If I had an account at a Greek bank, you sure as ship can bet that I would switch it to a non-Greek bank ASAP. Why wouldn't you? There's lots of multi-national banks that do business in Greece.
The way I look at Greece is that the country's economy is permanently broken and a default or a major restructuring of its debt is almost inevitable. Its problems run deep in its society. A huge chunk of the Greek population works for the government at the same time that corruption, tax evasion, and bribery run rampant crimping government revenues.
Add to this the fact that half the professions in Greece allow employees to retire and start collecting generous pensions in their 50s and that the people there go absolutely wild and threaten to strike if anyone in the government even hints that the retirement age will be pushed back even by only a year or two.
Pensions are a problem everywhere, even here in the U.S., but Greece’s pension spending as a percentage of gross domestic product is already among the highest in the EU and is projected to experience by far the largest increase between now and 2050 of any developed country.
Further adding to the pension problem, Greece is headed for a demographic disaster. For some reason, Greece has one of the lowest birthrates in the world (someone needs to send them some Barry White CDs and other romantic stuff so that they can get it on more). The country's population is rapidly aging. Currently Greece has four workers for every citizen who is 65 and older (and again many Greeks are allowed to retire well before that). By the year 2050, that figure is on track to drop to only one worker for every sixty-five year-old.
Besides, how can Greece hope to grow its way out of its debt problems when it doesn't have its own currency to devalue and its population will eventually begin to shrink? If I was a member of the European Union, I would seriously consider finding a way to kick Greece the heck out rather than pouring good money after bad to help them kick the can down the road for another year or two.
Greece's problems are structural, not just a result of the recent economic downturn.
Perhaps Greek stocks like NBG will end up being home run investments and I'm just too conservative an investor to see that. I certainly wouldn't risk shorting a loaded spring like this even in CAPS (as if I could even find shares to short anyhow). I have not personally been to Greece and spoken with people there like many of The Motley Fool's official analysts have, but to me this situation is a train-wreck that I plan on avoiding.
No position in NBG (which is up big today)