Greece, the IMF Trojan Horse and the 67-year-old Worker from Aaschen

Weekend is (generally) the perfect time to disconnect from the markets, to spend some time with family, friends and… to read tons of finance books, articles and magazines (I hope my wife won’t read this, otherwise I will need to make public apologies too…). Last Saturday, this is what I got in my mail box:

- One DVD from lovefilm.com, a DVD rental in the UK that sends you by post movies from your online selection. It reminds me that I was proposed a while ago to put some money in that company when it was seeking for investors, I just didn’t and the then small start-up has now a turn over of hundreds of millions… Ahh there are so many ways to make a small fortune but that's so difficult to just find ONE! No regret: the (sad) truth is I don’t know a thing about Venture Capital, neither about Capital Markets but at least I pretend to.

- The last release of “Bloomberg Markets”, their magazine. The cover says “the Richest Hedge funds – Top-ranked manager David Tepper returned 117% with bank stocks”. Pfff, this magazine is of no interest unless you want to see adverts for the latest Rolls-Royce, Aston Martin, the latest $40,000-watch that provides a better time, how to get the latest technical indicator developed by a Japanese guy with 25 centuries of experience based on 153 signals on your charts or found out whether David Tepper prefers vanilla or strawberries ice cream. Just put it on the pile of the unread “Bloomberg Markets”, all with their plastic wrap: to be recycled… I’ve asked recently to stop the home deliveries but I understood it takes several weeks…

- The latest release of “The Economist”, more interesting (actually maybe I find it more interesting because I ordered it…). One of the leaders this week is about Greece and the Euro-zone and follows last week’s articles that started showing a pretty Bearish view on the situation around. The point they have been raising since the “PIIGS” hits the news headlines is that the best solution would be an IMF intervention. I guess that for a lot of Europeans, the thing with an IMF intervention is not only the humiliation that the Euro-zone would then face (this said as I write, Greece 5Y CDS trades at around 360 bps while the ones on Mexico or Brazil trades around 130 bps showing the markets price less risk in the “Emerging” countries than in the old and “Developed” Europe, so where’s the pride?) but more the consequences of letting the American Trojan horse enters into the Hellenic republic : we all know what happened to Troy once they let it in … What an irony of History it would be : the revenge of Troy!

Other solutions (including the proposed rescue plan) that would keep the IMF Horse out of the European walls, would require the other Euro-zone countries, particularly Germany, to serve as a “deep pocket” for the whole region. As the Economist reports :“Germans wonder why a 67-year-old worker from Aachen must cough up so that an Athenian can retire early at 54”. Well, I’d say the answer is … for the sake of Growth, German Growth... What’s the interest to be in the Euro for Germany? And for Greece? On the one hand, for the latest, before things went bad, the main reason I can see is to get an access to cheap credit, which was used extensively… What about the reasons today? Well, I think the Hellenic Republic is losing progressively all the advantages to be in. On the other hand, the Euro has been providing Germany with a huge advantage: a weak currency (thanks to countries like Greece) that made it very competitive, boosting the exports and at the same time guaranteed that the fellow Euro countries but still competitors were not able to reduce the gap by depreciating their currency… I believe that for Germany, the Euro is worth defending at (almost) all cost and its weakness is a blessing: its strength in 2009 just killed German growth and the country lost its #1 exporter rank. Considering the single currency like a kind of average of the members “currencies”, weak countries in the union are necessary to maintain it weak. I think the 67-year-old worker from Aachen should do an additional effort, come on Man! After all, he, then a 47-year-old worker from Aachen, was already asked for a “sacrifice” in 1990 with the reunification of Germany when East Mark was exchanged for DeutscheMark at parity (for the first 4000 Marks then 2:1 after Chancellor Kohl won his “battle” against the Bundesbank), that’s just a question of habit…

Now let us leave these higher considerations to economists, central bankers, finance ministers and politics and come back to more materialistic thoughts about trading: The Economist is probably right, most of the gloomy articles about Europe are probably right, EVERYBODY is certainly right: things will probably go worse in Europe, Greece and others PIIGS after, there will be probably wave of downgrades, defaults, further stress on the Euro itself and tears … Consequently, we’re probably not so far from to the time to go back LONG. The question is to what extent all the bad news have been discounted in the markets so far? For me, The Economist giving a strong view and taking position may be the start of a contrarian signal. Now, as you know, I’ve been short the European stock index and have profited from most of the fall from end of January on strength and momentum arguments and those are still valid. I know this kind of moves can spend time before they reverse. I know as well that playing the reversal is the most dangerous (and expensive) game of trading. Patience, Fellow Traders, Patience...

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