Buy the restructured Greek Bonds. These are the bonds that were restructured after the Greece default and are now English Law rather than that stupidity of Greek law which the greek government used to force a 70pct + haircut on prior holders.

 

New Democracy won the election yesterday and is likely to form a governing coalition with Pasok to get a parlamentary majority. Once the coalition is formed it is likely that the TROIKA will ease some of the bailout terms. It is obvious that this needs to be done becasue 4 years of austerity have really been disastrous and not led to any improvements.

 

The bonds are trading at 19 euro cents. This 19 cents represents 6 cents of the original par value: 100* 0.3 (Original Outstanding * 70 pct haircut) * 0.19 (present price). You are buying these bonds at approximately 25% of the eventual workout of the Argentine debt for example; ecuador 30 cents on the dollar etc. http://www.imf.org/external/pubs/ft/wp/2005/wp05137.pdf (Debt workouts of defaulted paper)

 

In any event the bonds yield 25 pct yearly and while few people believe that these bonds will ever be paid off at par it is unlikely that Europe will stop offering aid to Greece after the electorate clearly voted in favor of remaining in the euro (New Democracy + Pasok + Socialists). Given some time things could improve in greece. Political certainty will get things moving again. The banks are being recapitalized and in Europe a couple of programs could turn up to get things stabilized: deposit insurance, Common bonds for all debt above 60% of GDP, actual use of the ESM to recap banks etc etc etc. 

 

Now the trade is quite complicated as you can imagine. The main concerns are:

 

1) Greece is screwed

    a) Non competitive economy

    b) controlled by Troika

    c) Primary budged deficit

    d) no industry

    e) no confidence

    f) crappy tax collection

    g) corruption (tied to f)

    h) etc

 

2) Publicly traded Greek debt is subordinate to ECB and EC and all supragovernmental aid that has been offered. There are few if ANY instances where this sort of debt (bailout related ) has been written off so what is likely to happen is that this debt will get kicked down the road indefinitely at almost no interest rate because in actuality it is unpayable so if Greece can muddle along for a while you are getting paid a good current yield in a security for which a workout has already been done. It is going to be pretty tough for Greece to renegotiate this debt if it makes no attempt to renegotiate the supranatural debt first and any haircut to the supranatural debt acrrues to the benefit of these bonds. This being greece they could just stop paying these bonds and leave you out to dry but there is some recourse given that these bonds are now English law.  Furthernore the supranatural entities have really painted themselves into a corner politically because very little of the outstanding greek debt remains in private hands so any new default really affects the supragovernmental holders which are going to have a HELL of a time explaining why they lent to a bankrupt country which really sets the incentives (saving government face; one of the most important ones) up for keeping greece outside of another bankruptcy for the least amount possible; and if it can be done for 10 to 20 bn dollars a year it seems to be a lot cheaper than the trillions of dollars it costs the market each time there is a default scare in europe.

 

In a 2.6 pct 30 year world you have to take some risk to make some return.

 

 

 Disclosure:  I own the bonds. I have owned them from 29 (yes I held through the election) I may buy more I may sell them or I may do as I please with them.

 

 

 

 

 

 Sunday's Greek Election (Already Passed)

Formation of a new greek government, at the latest wednesday/thursday