After an eventful summer spent on business development in Greece, Cyprus, Lithuania and Bulgaria, we are now focussed on closing the last quarter of 2021 successfully. I'd like to share a few items on our radar screen with you.
Tourism Rebound in Greece and Cyprus
Greek tourism arrivals were up strongly in July and August of this year. Although some larger islands like Crete and Rhodes faced problems, smaller islands like Paros, Naxos, Mykonos and Santorini were effectively booked to over 90% available occupancy. Room prices have also rebounded.
Greece and Cyprus were first movers in terms of allowing Russian tourists to arrive with evidence of vaccination (Sputnik) or PCR test. This has contributed to a strong rebound. I stand by my original estimate that if all goes well, Greece and Cyprus will achieve approximately 50% of 2019 arrivals this year. Greece will probably make that target more easily than Cyprus based on current performance and easier transport access.
COVID Delta Variant Spreads
The Delta variant of coronavirus has been rapidly rising world-wide, and a new strain, discovered in Cape Town, is now under close observation. Further research is now available on vaccine effectiveness: a major UK trial of some 3,000,000 vaccinated people showed that after 90 days, the effectiveness of Pfizer fell to 78% while Astra Zeneca fell to 61%. There have also been numerous cases of vaccinated people catching COVID.
The COVID situation will probably evolve as follows:
Governments are increasingly going to “crack down” on people without the vaccine. This is a decision made in the public interest, since even partial vaccine effectiveness appears to mitigate symptoms and partially avoid hospitalization.
We are almost certainly going to be required or strongly urged to take a COVID booster shot this fall.
I strongly believe that delta and other variants will increase as the weather turns cooler.
There is a strong chance we will see limited or even full lockdowns in some countries as we approach winter. Although no one wants this, the resurgence in COVID cases is probably going to be stronger than we expect.
As always, please be patient with the situation. There are many unknowns and no public health system is perfect. Maintain all steps possible to safeguard your health.
Rising Public Debt Load
In August, Bloomberg reported that $ 16 trillion worth of fiscal support measures had been deployed to fight the COVID pandemic. I have reported before on the shaky nature of the Greek and Cypriot fiscal situations. Much of the short-term capital for this is new debt, some provided by the EU’s Next Generation funding package.
Let's look at Greece in more detail:
Greece’s current GDP in 2020 was € 165.8 billion, according to Elstat.
Greek debt-to-GDP is now over 230%.
On the bright side, Greek GDP is forecast for a 5-8% increase this year with strong growth in the following 3 years. But the fundamental problem of high and growing public sector debt remains, and is one faced by many other countries, including the United States.
As mentioned in previous letters:
We are heading into a period of prolonged political instability with elections in Germany (September 2021); France (April 2022) and the United States (November 2022) creating uncertainty.
Rising inflation signals the end of central bank quantitative easing in the United States and the Eurozone. Central bank spending is just about the only thing keeping public sector debt issue and debt rollovers operating right now.
Rather than address real structural and competitiveness issues, we are substituting real growth with public debt-driven, statist growth. The record of economic returns on such growth models in Europe and the United States, especially in the 30 years since China joined the WTO, is not good.
Asset prices in Greece, Cyprus, France, Germany, the UK, Italy and many other countries are now once more at historic highs. Most of these are overvalued in terms of traditional measures. This applies to physical assets (property) as it does to equities and crypto. Investing in the current environment requires a strong thesis and strong nerves.
The Chinese Government is dealing with the potential default of Evergrande Group, a property developer with $ 300 billion of debt. While many analysts are wondering if this is China's Lehman moment, I think it's more appropriate to look at this as China's Bear Stearns moment. The process of private sector debt work-out in China--which has been guaranteed by local governments and local government debt--will be a painful one.
For all those that have been expecting a period of stability after COVID: I can only hope you are right. I myself am preparing for an eventual repeat of 2008-2010, with a synchronized debt workout in private sector debt and overheated equities and crypto correction as well as a public sector debt reckoning.
Please maintain your vigilance and a healthy skepticism in everything you do. We are heading for some extremely volatile activity, and this is without taking into account Afghanistan and other situations.
My best regards,
Leo Charitos partners with Navigator Consulting
We are pleased to announce that Leo Charitos is partnering with Navigator Consulting. His arrival strengthens our ability to deliver investment advisory and restructuring services to financial and other clients in Europe and internationally. Leo has more than 25 years of experience in advising large families and financial instituions on complex, cross-border wealth structuring and investment matters.
Philip Ammerman begins mentoring at the SAP Start-up Factory in Armenia
SAP, the global ERP and software company, has announced the launch of a Startup Factory business incubator in Armenia in conjunction with the Business Angel Network of Armenia (BANA). Philip Ammerman was selected as a start-up mentor, and is providing support for a group of four start-ups based in Yerevan and Beirut, as well as training to the wider ecosystem in startup growth, scale-up, valuation and fundraising.
Limassol: 19-20 October 2021
This seminar focusses on developing value-based and behaviour-based customer segments and developing a year-round sales and retention plan using multiple communications channels. Learn More
Nicosia: 7-9 December 2021
This training seminar provides state-of-the-art training and technology for lawyers for the digital promotion of their services online, in line with the legal code of conduct and accepted practise. Learn More