Thursday, February 6, 2014

Greece is clearly recovering. Time to sell?

On Friday it was reported that retail sales rose in Greece for the first time in four years.  Today we learn that manufacturing is also expanding.  Safe to say then that Greece has bottomed.  Good time to buy?  Well, not so much.  The Athens Stock Exchange Composite Index is up about 30% over the trailing six months.

And what can we expect from Greece going forward?  Debt levels are clearly and obviously unsustainable (north of 150% of GDP) and rising since nominal GDP will continue to shrink even as real growth rebounds - because of deflation.  Greece has slashed spending but undertaken no significant economic reforms to lighten obscenely heavy-handed government regulation, in particular changing labor laws which make it virtually impossible to fire a worker.  Exports can help but with subdued growth in the rest of the world, not that much.  The easy money was made in the second half of last year - now is not the time to jump into Greece as a 'recovery play'.

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