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TMFAleph1 (95.99)

The Bull 'n Bear: Short in May and Go Away?

Recs

12

May 10, 2011 – Comments (17) | RELATED TICKERS: GLD , NBG , BRK-B

Is is just me, or is this market starting to look like that of 2010? Last year, the S&P 500 (and investor complacency) peaked in April above 1,200. Then Europe's sovereign debt woes took center stage; combined with fears of a double-dip recession in the U.S. economy, these factors were the catalysts for a significant correction that lasted until July, with the market falling below 1,050. Sound familiar?

Standard & Poor's just downgraded Greece by two notches. Even European politicians are now beginning to recognize that the initial $110 billion European bailout is insufficient and will need to be augmented. There is even some talk of debt "re-profiling" (i.e. extending maturities), but Standard & Poor's isn't letting the technocrats get away with that euphemism and has pre-emptively announced that they will consider that a voluntary restructuring is, in fact, a selective default. Given the yields on Greek debt and the cost of Greek CDSs, the market is clearly anticipating that outcome.

I have been saying that Greece is highly likely default on its debt for quite a while now. Let me emphasize that this required no particular foresight -- all I do is follow the right commentators and analysts (in this case, Wolfgang Munchau of the FT has been particularly insightful).

I don't think we can conclude from all of this that the U.S. market will necessarily correct, but given overall valuations, that risk is always present.

Enjoy your day!

Alex Dumortier

17 Comments – Post Your Own

#1) On May 10, 2011 at 3:17 PM, TheDumbMoney (47.43) wrote:

And who knows, maybe Bernanke will then announce QE3 in August.  Just imagine the charts about the increase in base money supply that David in Quatar will be able to post then!  More seriously, agree Greece will likely default in some form within the next year; for anyone who thinks "re-profiling" isn't default, I have a pre-owned car to sell.

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#2) On May 10, 2011 at 3:29 PM, TMFAleph1 (95.99) wrote:

@dumberthanafool

Be careful, you are conflating two different items: There's no such thing as the "base money supply"; there is the monetary base and the money supply (or money stock). The distinction is absolutely critical and it's one that many gold enthusiasts appear not to understand (Dave in Qatar is not among these).The monetary base has increased dramatically over the last several years due to the actions of the Fed; the money supply, on the other hand has experienced no such commensurate increase (so far).

Alex Dumortier

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#3) On May 10, 2011 at 3:53 PM, TheDumbMoney (47.43) wrote:

Fair enough, thanks, I meant monetary base.

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#4) On May 10, 2011 at 4:46 PM, Momentum21 (96.83) wrote:

There is no doubt that risk is always present and people get into trouble when they become very confident about lower probability events. Timing a significant correction falls into that category.

I know from reading that you also follow Robert Shiller who was calling the market pricey (although much cheaper than it had been) back in 2009 according to his CAPE metric. Many would argue that risk was actually much higher back in Feb of 2009 even though it was more likely that we were below fair value.

Shiller himself feared "overshooting" that valuation which is probably why he was still posturing very cautiously at the time. We knew the price but had no clarity on the earnings at all. 

That said, for all of the reasons contained within this post, I am calling bottom in NBG. You can call me Doug Kass if my prediction is right and if I am wrong I will keep making predictions until I am right! : )

 

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#5) On May 10, 2011 at 5:00 PM, TMFAleph1 (95.99) wrote:

That said, for all of the reasons contained within this post, I am calling bottom in NBG. You can call me Doug Kass if my prediction is right and if I am wrong I will keep making predictions until I am right! : )

I'm nearly 100% certain that we haven't seen the bottom in National Bank of Greece (NYSE: NBG) shares. I think there are still some fantasists holding the stock who don't think that Greece will default. Greek banks are the largest holders of Greek government debt, with more than one fifth of outstanding debt. Just take a look at what happens to NBG's equity if you apply a 50% haircut to its sovereign bond book.

Alex Dumortier 

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#6) On May 10, 2011 at 5:35 PM, Momentum21 (96.83) wrote:

I'm nearly 100% certain -

you must have some action on this then?? 

I think there are still some fantasists holding the stock who don't think that Greece will default

There are huge political ramifications at play here but Wolfgang is giving one side of the story. It seems to me that the French, Swiss and Germans have much more to lose than NBG if the writedown happens sooner than later.

Fanatasist seems like a strong word for shareholders but I will wear it in this case. 

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#7) On May 10, 2011 at 5:57 PM, TMFAleph1 (95.99) wrote:

Fanatasist seems like a strong word for shareholders but I will wear it in this case.

I'm not saying you need to be a fantasist to own the stock, but you are one if you don't think a default will occur.

I haven't taken a look at the valuation. There may be some scenarios under which it makes sense to pay the current price. However, there will be plenty of negative news flow regarding this situation in the months and years to come. The probability that the stock has already bottomed is very small -- whether that is justified or not.

Alex Dumortier

 

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#8) On May 13, 2011 at 5:28 PM, Momentum21 (96.83) wrote:

I am still alive on NBG.

We might find out as early as Monday...for a short-term prediction at least. 

Printed lows for NBG: 

1.35 on May 6

1.37 on May 9

1.39 today

 

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#9) On May 13, 2011 at 5:52 PM, TMFAleph1 (95.99) wrote:

I have today's low in National Bank of Greece (NYSE: NBG) shares at 1.38, according to Yahoo! Finance, but, yes, you're still alive for now ;-)

Alex Dumortier

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#10) On May 20, 2011 at 6:00 AM, TMFAleph1 (95.99) wrote:

Yahoo! Finance shows an intrady low of $1.34 for May 18 & May 19.

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#11) On May 20, 2011 at 12:30 PM, Momentum21 (96.83) wrote:

Yes and 1.33 today. You buying? ; )

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#12) On May 20, 2011 at 2:45 PM, TMFAleph1 (95.99) wrote:

Yes and 1.33 today. You buying? ; )

I don't usually invest in individual stocks; I'm more of an asset allocation investor. Even if I did, I'm not sure this is really my type of situation, except as a punt. I can imagine a Citibank-type situation in which the government/ private investors need to re-capitalize NBG and virtually wipe out existing shareholders -- I think there is still downside to this stock.

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#13) On May 26, 2011 at 1:57 PM, TMFAleph1 (95.99) wrote:

New low of $1.27 achieved on May 23.

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#14) On May 26, 2011 at 2:43 PM, Momentum21 (96.83) wrote:

Yes, thanks for checking in Alex. I am still invested with a cost basis of $2.18. My last purchase was $1.42...

NBG is about a 2.5% position at the moment. Second only to MRNA as my worst current holding to date...  

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#15) On August 31, 2011 at 9:49 PM, TMFAleph1 (95.99) wrote:

Still falling. Current low $0.81 achieved on August 26th.

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#16) On September 01, 2011 at 10:49 AM, Momentum21 (96.83) wrote:

OK Alex you were correct. : )

I am still a shareholder but did not have the guts to add in the .80s

Hope has now become my strategy for NBG ; ) 

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#17) On June 15, 2012 at 7:16 PM, TMFAleph1 (95.99) wrote:

As far as I can tell, the low in the shares was $0.224 (expressed in pre-reverse split terms, $1.12 split-adjusted) --a decline of roughly five-sixths since I wrote the initial blog post.

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