Some say he is Devil incarnate, some draw inspiration from him, while others believe he is just a fictional caricature of a bygone era. To us, he is just another experienced insider, who’s been at the crossroads before. Ladies and gentlemen, we invite you to an exclusive interview with the Man himself, Mr. Gordon Gekko.

We met at Gekko’s office, around 12 BST, the eye of the storm of the daily volatility hurricanes that have been sweeping the global markets lately. After the early European vol, reacting to the Asian close & local news, and before the arrival of the American vol it was safely calm to have a brief chat. Gekko looked nothing like a man that has been chewed and spat out by the system and the regulators. He was on top form, vintage Gekko, if I may say so, albeit maintaining his rather outdated sense of fashion. Enjoy the ride:

NG: Mr. Gekko, let’s start by briefly setting the scene. You had that run-in with the SEC about 20y ago..

GG: A misunderstanding. The most valuable commodity I know of is information. There was some confusion regarding my sources, but hey..as I said, a misunderstanding. It was very quickly sorted out and I was back making waves, although more silently, ever since.

NG: You run your PE firm and there have been quite a few deals lately that you were involved in.

GG: Correct, the last 6y have been good. There were a lot of opportunities to..liberate companies. Size was not an issue. There was a lot of capital for people like me. America was working.

NG: Some say that this credit galore was what brought the system down. A house of cards that could not withstand the headwinds of an economic downturn.

GG: Nonsense. I hear the word greed mentioned all too often lately. Greedy bankers, greedy investors, greedy consumers…At the risk of repeating myself, let me tell you that greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind.

NG: So you think that all these mortgages based on questionable or even fraudulent personal data were right to be handed out? You promote households and countries living on a stockpile of credit cards and loans? Loans to go on holidays, loans to buy cars, loans to pay their loans?

GG: There have been excesses, it is true. There was a point where people thought that everyone could just make money. They thought no-one was losing. Bankers would get their bonuses, average Joe would get his dream house and a car to go with it, credit rating agencies were getting their fees telling us that the world was risk-free, regulators were happy with the financial reports they were getting from Wall Street. I could raise capital to buy any corporate that I wanted. Hell, capitalism stopped being a zero-sum game. Suddenly everyone was winning..<GG laughs at this point> I was meeting many of these people at my club and I was telling them: ‘You’re walking around blind without a cane, pal. A fool and his money are lucky enough to get together in the first place’.

NG: I see you didn’t concentrate your criticism just on Banks.

GG: What do you expect? Let’s say that I am Mr. American-Bank-CEO…I don’t make my balance sheet work harder, but I remain risk-averse and what happens? The equity analysts will come and say I’m running my shop inefficiently, I am a cash-rich underperformer and I will be taken out..

NG: Indeed, and now you are the villain because you grew your balance sheet, and amassed some Level 3’s along the way, and you need a capital injection from the state or you’re history; as a company, because as an individual, you would have lost your job by now.

GG: Unless you are in the UK.

NG: …

GG: And then you have the investors. When the world was risk-free you were going to Mr. Banker asking for yield. Well, pal, there is only one way you get more yield, and that’s by getting more risk. Enter structured credit. The only way to satisfy Mr. Investor the last years was for Mr. Banker to create the CDOs and CPDOs and so on. And when they wanted more yield they would make the CDO squared and if we had time we would see the CDO cubed and so on.

NG: Of course someone was asleep at the wheel for giving these the high ratings they had. Model complications aside, when you are running such a high correlation and you fail to see the systemic risk of the structure that would eat it right up to the AAA, then..

GG: Speaking of correlation. Monoline insurers, pal. People were paying them premia to insure their structures; the same structures that were so low risk in our risk-free world. So what was the risk? Only of a systemic event when a shock, let’s say a housing bubble burst, would spread like wildfire and bring the house down. So that was what you were hedging against with the monolines. Ok, pal? if we go down that route and the monolines have insured every structure in the market, what do you think will happen to them? But there are no surprises when it comes to herd mentality…Ever wonder why fund managers can’t beat the S&P 500? ‘Cause they’re sheep, and sheep get slaughtered.

NG: Fair points..but let’s fast forward to the present. Hindsight is easy. What do you think of the current situation?

GG: A mess, pal. The system is in seizure. The lubricant of capitalism has evaporated and the clogs have seized. The politicians, agencies and regulators were too busy doing whatever they were doing, and we wasted time. The herd has panicked and is running scared. Thank god they are more on the ball now, and there are some proper responses.

NG: You are referring to TARP, the liquidity injections and the UK measures…

GG: I like the UK measures. I am not a man who would trust someone called Darling with anything of value, but I am impressed. The banks need capital, not just selling their toxic <GG scoffs at this point> assets. They lost billions from marking these down, they lost their capital, they need to replenish it.

NG: Would you say some sort of government supervision is required to ensure that all these capital and liquidity injections will eventually get transferred to the interbank market and then to the consumer and the corporate borrowers?

GG: Absolutely. I usually get sick when I hear the words ’government intervention’. But I agree these are tough times, and daddy needs to come and bail the system out. Ban shorts? I would rather die than utter the words, but if your main strategy now is to short and accelerated the drop, you’ll have to ask yourself two questions: ‘Will your broker be around to give you your gains?’ and ‘What exactly will you be doing with your paper once the system is in depression? Origami?’ Sure, for the time being central banks have been pumping billions into the system and it feels like they are thrown into a bottomless pit. They never reemerge. The Banks don’t trust each other and they won’t lend to the corporates, let alone the consumers. This is a guaranteed ’road to hell’ scenario. We are heading to recession, but if this persists it will be a depression.

NG: A vicious circle, starting with the lack of credit and causing mass layoffs, defaults, decreased consumption..Not pretty. But do you think we’ll make it?

GG: I am optimistic. I think there is finally a lot of political muscle on a global scale wrestling with the monster. G7, IMF, USA, UK, EU, China finally got serious. I need to see the measures getting acted upon, though…But, I believe we are turning the corner.

NG: Man looks in the abyss, there’s nothing staring back at him. At that moment, man finds his character. And that is what keeps him out of the abyss. That’s what you are saying?

GG: Exactly. The herd got scared these last days. They realized that things are pretty critical for big daddy to coming to the rescue like that. Banks go down, companies lay off people and are fighting for dear life themselves; Mr. Joe has a hard time remortgaging or getting a loan, countries are close to default. But that’s good. We need it.

NG: Capitulation.

GG. Yes, I think we are close to a bottom here. Big volumes on Friday, 20% drop in a week for the DOW and SPX. 30% – 60% for the financials. I like financial stock at these levels. They give big thrills in ST moves. But we haven’t bottomed out just yet. I don’t think the governments will mess it up and cause huge dilution and stock value destruction once they recapitalize, else they are missing the point. I like the GEs of this world and pharma and utilities too for some long term gains. Don’t get me wrong, I’m buying some C for my grandchildren too.

NG: Any other investments you like? Gold, oil, currency,…safes?

GG: Safes. Ok, pal..if you buy a safe what are you saying? You think the banks will go down and the ATMs will stop working. So you want to keep paper money in your house. If the doomsday scenario does happen, bon appetite eating your origami locked inside your place. They won’t be buying much, assuming you make it outside without getting shot.

NG: So no safes, anything else?

GG: Not sure with Oil. We are heading to a recession at best, so I am not bullish with that. Gold as an inflationary haven with all this billions being printed may be a good choice. FX? Well, there are a lot of blind currencies out there and I am still struggling to find the one-eyed one.

NG: That was very colourful and insightful Mr. Gekko. Thanks for your time.

GG: Remember pal. Life all comes down to a few moments. This is one of them.

* Κάθαρσις is the final act of an ancient tragic drama; its greek for “purging”.

For years now, a drama is being staged in the birthplace of theatre. Since Greece joined the European Union, in 1981, a strange symbiosis has been taking place. This blog aims to shed some light to the Greek psyche -a major factor we believe in helping assess the outcome of the current situation- rather than overanalyse the numbers. The latter have been parading throughout analyst bulletins, research pieces and news for a good few weeks now; last year’s deficit was corrected by around 3%, to 7.7% and the estimate for this year’s deficit was corrected from 6% to 12.7% of GDP (in the process, the EU discovered that the Greek statistical service was under the control of the government); Greek public debt is around 113% of GDP (Euro area average is 79.5%, still Greece comes 3rd after Italy and Britain); S&P had reacted by giving Greece a negative outlook, and one day later Fitch substantially downgraded the country from A- to BBB+ (on a day of very limited market liquidity and not waiting for the still pending outcome of Greek-EU discussions-probably an analyst just working on a deadline); this brought forward speculation on the future eligibility of GGB’s as ECB (and also GC) collateral, as well as whether investors would support future Greek issuance and the repercussions of such events; Greek spreads have sky-rocketed and the curve has flattened, GGB’s have plummeted v Bunds and the questions regarding the ability of the country to service its debt are growing louder. What is going on in Greece then?

The country, geographically isolated from the rest of the Union, is indeed burdened by a structurally and perennially weak economy; plagued by high public and personal debt levels, rife tax-evasion, a rampant black-market and an underdeveloped, non-diversified and uncompetitive industry, Greece has long been one of the weakest links in the Union. Instead of making full use of the generous EU development funds, the state and the economy has been steadily growing poorer, while (a significant part of) its population has been fattening themselves. Inevitably, it has frequently been the subject of less-than-glowing articles and analyses. Recently Goldman Sachs immortalised it as the G in PIIGS (alongside Portugal, Ireland, Italy & Spain), the unattractive acronym given by the mighty GS to the laggards of Europe.

Politically, Greece has been dominated, since the end of the military junta in the mid ’70s, by 3 families; the Papandreou clan -whose patriarch George was PM in the mid-60s- founded the Socialist party and dominated during the early EU years, from 1981 to 1990 and again from 1993 to 1996 under Andreas Papandreou and are currently steering the country under the premiership of his son George; the Karamanlis family, founders of the Conservative party, held the PM office between 1974 and 1981 with Konstantinos, and between 2004 and 2009 with his nephew of the same name; the Mitsotakis family, the significant other of the conservatives, held the PM office between 1990 and 1993 with Konstantinos and his daughter Dora, who has just (unexpectedly) lost the battle to become the new leader of the party, remains a force to be reckoned with. Put differently, the 3rd Hellenic Republic (starting after the junta) has been defined by the Papandreou and Karamanlis families for 26 out of its 35 years. Arguably, the socialists were the ones who moulded the huge, labyrinthine and largely inefficient public sector and the complex system of benefits and social policies that have been draining the public coffers for decades, albeit without promoting growth. Should we be branded as anti-Papandreou, let’s make clear that the conservative governments were themselves lacklustre, uninspiring with policies mostly undifferentiated from those of their predecessors; they eventually managed to steal the limelight by effectively presenting heavily doctored budgets to the European Commission and tarnishing the reliability and respectability of the country along the way (whether Greece is the only member state fudging budget numbers is highly unlikely, but it is the only one caught red-handed).

Socially, Greece is intriguing. Greeks are quite a solitary people. A small nation, effectively an island in the EU, separated by geography, speaking an old but also insular language (‘it’s all greek to me’), believing in a different brand of Christianity (orthodox). Ethnos Anadelfon they sometimes call themselves, a nation with no brothers (which makes their recent Eurovision successes even more impressive, given the absence of alliances to count on -apart from Cyprus, but that’s a different and long story). Domestic news dominate bulletins – up until very recently Greeks insisted that the global crisis was someone else’s problem. Modern Greeks still feel as if they live in the centre of the world, a veritable Medi-terranean nation. They do not travel much and are notoriously difficult to please when they do. There is no place like home. Partly due to Greece’s rich history and partly due to their south-European temperament Greeks also attribute to themselves a certain edge over the westerners and they are characterised by a certain wit and mischief -which can be charming at times (epic conquests of Scandinavian tourists) but damaging at others (budget fudging). And just in case the Greek wit is confused with the British variety, Greeks do not do self-deprecating.

Mix decades of timid governments and socially-friendly laws with free (European) money, a good measure of Greek temperament and a dash of a global credit crisis and you get a fiscally explosive cocktail. PM Papandreou definitely got one thing right in today’s address to the nation (and its creditors): for Greece to survive this crisis much more than spending cuts and taxes are required. The issues have become interwoven with the Greek psyche itself. Serious change is imperative for the nation to have a chance. Change in civil servants’ mentality (‘we are untouchables and since we do not evade tax like the rest of you, don’t complain if we milk our perks‘), in private business (a badly paid, stagnant environment made possible since there is extremely limited job mobility and availability), in freelancers & professionals (where tax-evasion is rife and cash-under-the-table payments are common practise among craftsmen and doctors) and finally in public administration (where the path of least resistance and compliance with vested interests has provided the shady and dump environment for all other problems to mushroom in).

It is not going to be easy. PM Papandreou, in one of the most important moments of his career, made quite a few brave announcements tonight, very uncharacteristic of modern Greek politics. His speech was probably too long, had too much detail in some areas and too little in others. The first 15 minutes though were an audacious dissection of the current Greek socio-economic stalemate and he didn’t mince his words there. For the first time in many decades did a Greek politician attempt to rouse the nation by referring to dangers to their sovereignty. Far-fetched as it may seem, it may well be the only thing that Greeks will respond to. And their buying in Mr Papandreou’s call to detox the nation is imperative for Greece. The measures will be not be pleasant and the awakening will have to be a rude one.

Our bid/offer on the eventual outcome is pretty wide. Greeks might have been complacent for just too long. While we were listening to Papandreou’s speach on one of the biggest Athenian radio stations, 15 minutes in the broadcast was interrupted for a 5 minute commercial break.

As PM Papandreou put it tonight, the Greeks will ‘change or sink‘.

cw

The transcript of PM Papandreou’s speech (as reported by Bloomberg®):

BN    18:50    *GREECE PM ENDS SPEECH IN ATHENS

BN    18:49    *GREECE PM SAYS DECISIONS TAKEN WILL BE PUT INTO EFFECT BY FEB

BN    18:48    *GREECE PM SAYS IMPERATIVE TO TAKE DECISIONS, IMMEDIATELY

BN    18:44    *GREECE PM SAYS WILL PROCEED WITH STATE ASSET SALES

BN    18:41    *GREECE PM SEEKS BEGINNING OF TALKS FOR NEW, JUST TAX SYSTEM

BN      18:37   *GREECE PM TELLS MINISTERS TO REDUCE SPENDING ANNUALLY

BN      18:34   *GREECE PM SAYS PLANS DEFICIT UNDER 3% OF GDP BY 2013

BN      18:34   *GREECE PM SAYS DEFICIT WILL BE UNDER 5% IN 2012

BN      18:33   *GREECE PM SAYS 2010 BUDGET DEFICIT CUT IS NEAR 4 PCTAGE POINTS

BN      18:32   *GREECE PM SAYS 2010 BUDGET CUT IS MORE THAN EU8 BLN

BN      18:32   *GREECE PM SAYS 2010 BUDGET WAS FIRST STEP

BN      18:30   *GREECE PM SAYS TACKLING CORRUPTION IS KEY

BN      18:28   *GREECE PM SAYS TO CUT ADMINSTRATIVE LEVELS FROM 5 TO 3

BN      18:23   *GREECE PM SAYS IMMEDIATE NEED TO REFORM HOSPITAL SYSTEM

BN      18:23   *GREECE PM SAYS LEGALISING MIGRANTS WILL BOLSTER PENSION SYSTEM

BN      18:21   *GREECE PM PLANS LAWS FOR PENSION SYSTEM BY END-JUNE 2010

BN      18:21   *GREECE PM SAYS PENSION SYSTEM TALKS AIM AT VIABILITY OF SYSTEM

BN      18:20   *GREECE PM PLEDGES TALKS TO OPEN UP CLOSED PROFESSIONS

BN      18:15   *GREECE PM SAYS MAIN GOAL IS ECONOMIC GROWTH

BN      18:13   *GREECE PM SAYS EACH MUST CARRY BURDEN ACC TO THEIR ABILITY

BN      18:13   *GREECE PM SAYS WILL PROTECT MIDDLE-INCOMES, POORER GREEKS

BN      18:13   *GREECE PM SAYS MANY CHOICES WILL BE PAINFUL

BN      18:12   *GREECE PM SEEKS SUPPORT TO BEAT CORRUPTION, TAX EVASION

BN      18:11   *GREECE PM SAYS AT POINT WHERE DECISIONS WILL DETERMINE FUTURE

BN      18:10   *GREECE PM SAYS CONVINCED EU PARTNERS OF THE ISSUES, ROADMAP

BN      18:08   *GREECE PM SAYS MARKETS WANT ACTIONS, NOT WORDS

BN      18:08   *GREECE PM SAYS BIGGEST DEFICIT LACK OF CREDIBILITY

BN      18:03   *GREECE PM SAYS GOVERNMENT WILL CLASH WITH MENTALITIES OF PAST

BN      18:00   *GREECE PM SAYS CRISIS CAN BE AN OPPORTUNITY TO CHANGE GREECE

BN      18:00   *GREECE PM SAYS CHALLENGE IS FOR EVERY GREEK TO CHANGE

BN      17:59   *GREECE PM SAYS DEBT UNDERMINES GREEK FUTURE

BN      17:57   *GREECE PM SAYS DEBT CLOSE TO EU300 BLN

BN      17:56   *GREECE PM WILL TAKE DECISIONS THAT HAVEN’T BEEN TAKEN IN DECADE

BN      17:55   *GREECE PM SAYS WILL TAKE DECISIONS WITHIN NEXT 3 MONTHS

It feels a bit chilly, despite the approaching spring time, doesn’t it? Maybe it is because the last weeks have been somewhat of a rude awakening to the global economic mess. No, things are not getting better. No, the bottom has not been touched yet. Yes, there have been (and will be) many short sucker rallies.

Politics and intervention continues to rule the day, with disappointing economic flashes keeping the mood sombre. Last Firday was another typical black Friday, althought this crisis has managed to produce black Mondays, Tuesdays, Wednesdays and Thursdays as well, with the occasional black Saturday and Sunday.

Citi on its all too familiar narcoleptic crawl, US GDP dropping an astonishing 6.2% on a quarterly basis, all forecasts getting adjusted downwards (apart from the unemployment ones). Hungary asking the EU for some EUR 180billion to help CEE countries & corporates to weather the crisis.

Oh yes,  CEE… Balcans, Poland, Czech, Hungary, Baltics..not a small chunk of the European continent and its population. And pretty weak in defending the,mselves against the chaos that prevails. They looked good (for a few months) when their cheap labour and drive to get a piece of the capitalist dream fuelled their growth rates. European tigers and all that.

Now the bell tolls, as France and Germany have much more serious problems of their own -trying to bail out their auto industries, appease their citizens who face rising job uncertainty (if they are lucky/ unemployment if they are not). pension deficit problems, massive budget problems (the list continues). The IMF/World Bank and the EBRD will be very busy, and we sincerely hope it is going to cope. EU is turning to its inner core, the Euro-members (EMU). The PIGS (should be more like PIGASS, if we add Austria and Sweden) will survive; that is assuming the bill is not so massive, or rather, assuming that the storm will not lead to a protectionism/nationalistic driven break-up.

That leaves those in EU but not EMU, and those wishing to join EU. If it were a beauty contest it would be one for the ugliest baby. So who is less ugly? Those who want to join EU have the luxury of unpegged currencies and are sacrificing them, depreciating their woes away (look graph below)

Those in the EU who are aiming for joining the Euro and ave fixed ccies, are unfortunately in a very tight spot. They cannot depreciate their linked ccies, they are not ‘indespensible’ to the EUR….well, they are the weakest link. They might get a lifeline by being allowed to sneak in the EMU, but the chances of that happening now are negligible. I am sure if France and Germany have the weeakest countries in EMU drop out with no impairment to the EUR it would have happened already!

The reply of EU-leaders afrer the last Brussels summit to Hungary’s request for EUR 180 billion? They promised to refrain from protectionism and promised lending EUR 7 billion in structural funds and EUR 8.5 billion from EIB.

Things are grim, I will not mess around with you. Those who read our last 2 weekly specials know that we were bracing for this (and worse). The bailout (TARP) is pretty much dead in the water in its current form and there is pain, panic & confusion in the markets around the world. EUR/JPY and global exchanges on freefall, corporates are hurting, commodities tank, a couple of % points of growth are estimated to perish around the world.

The shift of the focus this morning is in Europe, where the reality of the contagion (never in doubt by the practicioners) hit Banks, corporates, governments and investors hard. Russia routinely suspends trading in its 2 exchanges to cushion the fall, EU leaders are running scared, trying to prop up their country financial defences creating dangerous precedents for the future of the Union. HRE, Fortis, Unicredit, HBOS, Iceland (the whole country)…there are many fronts.

War-style economic cabinets are set up and extreme measures (recapitalisation of banks, rate cuts, blanket bank deposit guarantees, loans to corporates) are mulled over. I believe many of these have to happen and will happen. This is a huge crisis and no-one, anywhere in the world is going to adhere to strict peacetime rules.

The news run fast, the vol is spiking and the markets are not exactly perfect (and will become significantly less so). Act accordingly.

Over and out (for now)

What a week! In Hollywood terms it was a blockbuster:

• Drama-packed (Fortis, HRE, B&B, Glintnir but also HBOS, WaMu, Wachovia)
• Oh-so-many unexpected twists and turns (Congress passes bailout, House rejects it, Congress redrafts and passes it, House finally passes it)
• Superstars making cameo appearances (Warren Buffett, Wilbur Ross Jr, Bill Gross, GW Bush, Obama, McCain, Paulson, Bernanke, Sarkozy, Brown, Merkel, Berlusconi)*
• Comedy elements to relieve the tension (TV coverage of the House sessions on the bailout, tax-cuts on wooden arrows, puerto-rican rum and others)
• Critical acclaim by specialist and non-specialist publications & broadcasts (‘Fox and Hounds’*, ‘Taxicab Gazette’*, etc)
• An ending paving the way for a sequel (the closing scene, i.e. the close of the NYSE session, shows the Terminator’s* fingers -presumed killed- twitching and the red light coming back in its eye)

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