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  National Bank of Greece

BENJ GALLANDER and BEN STADELMANN

Wednesday July 22, 2015

This beautiful country, where Benj spent two months many moons ago, has so much going for it. Unfortunately, acting in a logical way is not one of them. Over the past number of months, we have followed the negotiations quite closely and it appeared to us that Prime Minister Alexis Tsipras and former finance minister Yanis Varoufakis were not going to play ball with the creditors. The latter is known for his books, one being Game Theory: A Critical Text. Negotiations with someone who specializes in this arena could prove difficult to win.

The Syriza government was elected on an anti-austerity platform. Fine thus far, but when they found that their goals were not working when negotiating with the European troika, Mr. Tsipras decided to call a referendum on a very convoluted question of whether the people wanted to move in an anti-austerity vein. This was happening at the same time as people were being restricted to taking out 60 (about $85) per day, a type of forced austerity, indeed, but deemed necessary to preserve the banks. Imagine for a moment how you would feel if our government deemed that you could take out only $85 on a daily basis from your friendly financial institution.

When the people voted a strong 61 percent against austerity, the government then did a complete about-face and effectively negotiated terms that the populace was railing against. What's that all about? Why call a vote in the first place if the results were going to be ignored? Bizarre. It also makes it extremely difficult for the populace to trust the leaders, and lenders to this country should have extreme doubts that money will ever be paid back.

As investors, what might one do to make money from this situation? Back in the heart of the recession, Benj invested in both Bank of Ireland and National Bank of Greece (NBG-NYSE). The former turned into a 10-bagger in seven months, a gain of 10 times the initial investment. Extraordinary! The latter morphed into a loss of 68 percent. Not so good.

What about investing in NBG now? On a simplistic level, the possibility looks fantastic. The current price of the stock is around a buck, while in 2007, all other things being equal, it touched above $700 (U.S.). Lots of upside potential, it appears. After losing bags of money from 2010 through 2012, there were a couple of profitable years. Now the bank is again running red ink, but nothing major. If one chooses to study the latest quarterly, it looks like despite the problems in Greece, things at the bank are hunky dory. The report's subhead reads, “Solid liquidity position and strengthened balance sheet.” However, one must remain cynical, as the current situation attests, with withdrawals being limited. A scenario where the stock is wiped out or transformed by a government mandate that makes it is virtually worthless is not out of the question.

A huge change at NBG is share growth. In 2010, there were only about 88 million shares outstanding. Now there are more than 3.5 billion. Holykakkavi! When we buy any stock, an initial sell target or range is set in place. That is virtually impossible to do when the share count has increased so dramatically because the historical share price loses much of its relevance.

How then to play an investment in NBG? Probably the best way — albeit exceedingly difficult, and not our game — is to buy and sell it in a very nimble manner, working with events and against human psychology. Yes, indeed, a form of game theory.

Unfortunately, most Greeks do not have a choice but to remain prisoners of their government and its policies. That leads to another Keller saying: “Life is either a daring adventure or nothing at all.” This is where Greece is living today.


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