Fire Sale for the Crown Jewels of the Greek Economy

It seemed like suicide…

The odds were heavily stacked against the insurrectionists. They were outnumbered, outgunned, and up against one of the most powerful empires in the world.

If they somehow managed to win, history would remember them as patriots and heroes. If they lost, they’d be remembered as traitors or terrorists… if they were remembered at all.

In the end and against the odds, they overthrew an imperial power that had occupied their country for almost 400 years.

This was the situation in Greece in the early 1800s.

At the time, Greece was part of the Ottoman Empire (of which modern-day Turkey is the surviving stump)… and it had been since the year 1453.

After more than three and a half centuries of submission to heavy-handed Ottoman rule, the Greeks had simply had enough. It’s surprising it took so long. The rivalry between the Greeks and Turks is one of history’s longest-running and most legendary conflicts. (It continues even today… most notably in Cyprus. A brutal war in the 1970s divided the island into Turkish and Greek sides. The division continues to this day.)

So the Ottomans’ success in keeping a lid on a hostile population for so long was remarkable.

Filiki Eteria (or “Friendly Brotherhood”) was a secret organization started in the early 1800s. Its goal was to unite all Greeks in an armed rebellion to overthrow Turkish rule.

It was the Brotherhood that kicked off what would become the Greek War of Independence in 1821.

The revolt quickly spread… but it was a lopsided fight. The Greeks didn’t have much of a military of their own. Their weapons were makeshift, and their fighters were mostly civilian volunteers. The Ottomans, on the other hand, were a disciplined and battle-hardened military force with vastly superior weaponry.

The Greeks had only one source of hope: they were fighting a guerrilla war on their home turf against a foreign occupier.

The Greeks needed to find a way to cut off the Ottoman army’s supplies. If they didn’t, the Ottomans could keep drawing fresh soldiers and war materiel from their vast empire for as long as it might take to crush the rebellion.

Stalemating the Ottoman navy was the key to cutting off the flow of supplies, most of which came by sea. In that task, the Greeks had the advantage of their skills as a maritime nation. The Greeks had been at home on the sea for thousands of years.

They had plenty of merchant ships and experienced sailors - but no military vessels. The Ottomans, on the other hand, sailed a fleet that they had built for war.

At first, it seemed like there was little an unarmed Greek civilian ship could do to block an Ottoman warship. The Ottomans thought they would have easy control of the sea lanes. They thought it inconceivable that the Greeks could challenge their navy… they were wrong.

That’s the thing about war. It’s not always about superior numbers and equipment. There are some things you can’t quantify or measure… like the ingenuity of your opponent.

Drawing on their vast experience at sea, the Greeks devised a plan to use their merchant ships as weapons of war. They would turn those ships into a primitive kind of guided missile known as a fire ship.

A fire ship is simply a vessel filled with anything that will burn uncontrollably… like gunpowder. It is set ablaze and then steered toward an enemy fleet. The goal is to force the enemy to retreat or risk destruction.

Geography helped make it work. The Aegean Sea is full of small islands, reefs, and other natural shipping hazards that limited the maneuverability of large Ottoman warships.

In this environment, the Greek fire ships were deadly. They were enough to slow the flow of Ottoman reinforcements. This bought enough time for Greece’s allies in Britain, France, and Russia to come in and turn the tide of the war against the Ottomans.

The Greek shipping industry proved to be a decisive factor in the war. Had the shippers not thrown in on the side of the rebellion, the Ottomans would likely have crushed the Greek insurrectionists before their allies arrived.

For many Greeks, the shipping industry is a matter of national pride. It has been at the center of the Greek economy for thousands of years… and still is to this day. Greeks are still the biggest shipowners in the world. They control more than 4,000 merchant ships, or about 16% of the world’s fleet.

As explained below, Greece’s shipping industry is largely immune to the Greek debt crisis… but is nonetheless on sale at bargain-basement prices. There are quality Greek shipping stocks paying sustainable double-digit dividend yields. They are our crisis-investing opportunity.

Fire Sale for the Crown Jewels of the Greek Economy

We don’t need to rehash the entire Greek debt crisis here.

You doubtless have read about the government closing the Greek banking system for weeks at a time, the long lines at the emptying ATMs, the capital controls, the street riots, the threatened debt default, and the possibility that Greece will leave the euro currency zone. Greece was the first country MSCI (a world leader in financial data) ever downgraded from “developed” to “emerging” status.

The story has dominated the media for months. When Joe Investor hears “Greece,” he thinks “crisis.” And that kind of attitude is just what we’re looking for.

Investor sentiment about Greece is nearing the point of maximum pessimism… the point at which almost nobody wants to buy.

Prices of Greek stocks have already crashed headfirst into the pavement. The Athens Stock Exchange General Index is down more than 84% from its 2007 peak. We’re close to the best time to buy. As Baron Rothschild advised, the time to buy is when there’s blood in the streets.

Despite all the bad news, Greece is not going to disappear. It’s been around for thousands of years and should be good for at least a couple more centuries. The crisis has dragged down the stocks of quality Greek companies. It’s time to take a look.

The crisis is real. After years of overregulation and mismanagement by the country’s long line of socialist politicians, the Greek economy is a disaster. It’s on the brink of collapse. But some Greek businesses are going to thrive even if the broader economy collapses. Today’s extreme negative sentiment has made their stocks very cheap.

We’re not the only ones who see tremendous value in Greece. Recently, legendary investor Warren Buffett reportedly bought the Greek island of Agios Thomas for €15 million.

For the average investor, though, we believe that the best opportunity is in Greek shipping companies. They are literally able to sail beyond the reach of destructive politicians.

Greece has a competitive advantage in shipping. It comes from the Greeks’ deep experience, knowledge, and relationships with all the key players in the global industry. The Greeks have been in shipping since ancient times… more than 2,500 years. That’s an unparalleled advantage and not something that a competitor can copy.

In an article in Town & Country, one Greek shipper put it this way: “In this one thing, and this one thing only, we are ahead of every other country on earth.”

Greek shipping companies operate in a highly competitive, globalized market. The disciplines of the free market make them stronger. Most other Greek companies laze under protectionist policies that leave them too weak to survive open competition.

I’ve seen the strength of the Greek shipping industry firsthand.

I used to cover the shipping industry for a large financial institution. Inevitably, I got to know a number of Greek shippers. They all struck me as intelligent and professional businesspeople. Unlike their compatriots in Athens, most shippers had a free-market point of view.

My dealings with the Greek shippers contrasted sharply with my experiences in Greece itself. It was apparent to me that the country at large didn’t have the right ingredients for economic success. There’s a deeply ingrained socialist and entitlement mentality that blocks hard work and responsibility. Everything moved at a zombie pace through bureaucratic red tape. The vibe was the exact opposite of what you’d find in a place like Singapore, where economic freedom keeps the door to prosperity wide open.

It would be incorrect to paint the Greek shippers with the same brush as Greece itself. The bad news that applies to Greece doesn’t apply to them.

Even if Greece leaves the euro, most Greek shippers will be untouched. They’ll continue to generate profits in dollars, euros, and other currencies from operations outside Greece. They’ll continue to hold those profits in foreign banks… beyond the reach of the Greek government.

Greek shipping companies are insulated from the Greek government in another important way. By law, they are exempt from taxation on profits generated outside Greece.

This is actually a commonsense notion. Nonetheless there are, of course, Greek politicians who would like the shipping industry to pay its “fair share.”

That is extremely unlikely to happen, for two reasons.

First, the Union of Greek Shipowners is a powerful political force. They aren’t going to accept a higher tax bill.

And more importantly, the Greek shipping industry can simply leave Greece if the politicians get too grabby. The ships can reflag to a different country, and their owners can reincorporate in Dubai or Singapore. According to industry insiders, many Greek companies are preparing for the need to migrate, just in case.

The ease of exit of the most productive members of Greek society serves as a check on the Greek government. It’s a wonderful restraint on an otherwise out-of-control political culture.

Greek politicians understand this. They aren’t about to antagonize a politically powerful industry - one central to the Greek identity and that makes up 7.5% of the Greek economy and employs 200,000 people - by levying taxes that probably would be uncollectible. If they could squeeze the shipping industry, they would have done so already. But they can’t… so they won’t.

When you piece it all together, the country’s debt crisis and the lunacy of Greek politicians are not going to harm Greece’s shipping industry. It’s close enough to these disasters to get a crisis discount… but not close enough to get burned.

Laying the Greek debt disaster on top of the shipping industry’s dismal condition has produced the point of maximum pessimism… the best time to buy.

And there’s one segment of the shipping industry where the facts point toward a recovery. It’s the Greek companies in this segment that are an astounding bargain.

We’ve identified a quality Greek company that you can buy at a bargain basement price… one that has paid a consistent double-digit yield and trades in the US. Greece’s economic and political turmoil do not affect this company. Yet the market still gives it a steep Greek discount. That’s our opportunity. Click here to get the latest issue of Crisis Speculator for all the details.

Nick Giambruno

Nick is Doug Casey’s globetrotting companion and is the Senior Editor of Casey Research’s International Man. He writes about economics, offshore banking, second passports, value investing in crisis markets, geopolitics, and surviving a financial collapse, among other topics. He is a CFA charterholder. In short, Nick’s work helps people make the most of their personal freedom and financial opportunity around the world. To get his free video crash course, click here.

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