The National Statistical Service of Greece has recently published the unemployment report for June 2009. The report shows a rise in unemployed people from 7.3% in June 2008 to 8.6% in June 2009. The total number of employed remained pretty much unchanged where the non-economically active population of Greece has decreased from 4,314.8 thousands last year to 4,265.6 in June 2009.

The results of other industrial production statistics reports which show how the global credit crisis has impacted Greece and to what extent are summarised in the table below.

                                                                      July 2009 Year on Year Comparison (YoY)

 Industrial Production                  -9.2%

Mining & Quarrying                    -14.3%

Manufacturing                           -9%

Electricity                                  -9.5%

Water Supply                               -0.7%

The Consumer Price index is the main measure of inflation for macroeconomic purposes and should form the basis for the government’s inflation target. The below CPI summary report shows the yearly percentage change in prices of consumer goods and services purchased in Greece.

                                      August 2009 YoY % Change

Food and Drinks                               1.6%

Alcohol and tobacco                        6.3% 

Clothing & Footwear                       2.9%

House & Utilities                              -4.9%

Furnishings                                       1.9%

Health                                                2.8% 

Transport                                           -3.1%

Communications                              0.4% 

Culture & Leisure                             1.2%

Education                                          4.7%

CPI YoY                                              0.8%

This report shows how much prices have changed in the past 12 months and it’s obvious from the summary table below that since the credit crisis begun prices have mainly risen. There are only two categories that have dropped, namely House and Utilities and Transport services, but at least one can argue that the drop in prices for these two particular categories is quite significant. However the rise in Education prices is also substantial as it is the price rise for alcohol and tobacco consumption.

Statistics may not always reveal the full picture. That’s why my advice is always to do your homework and always evaluate each statistical report in comparison to others in order to reach a conclusion about the country’s current economic state.

Having said that I hereby provide you with a summary of the June retail sales report again from the National Statistical Service of Greece in Athens:

Finally, it would be wrong not to mention the state of the Greek banks at all so I’ll briefly mention the following: yes, it is true that the Greek banks had had no major exposure to the subprime mortgage market but once again if you only look at this event in isolation you are going to miss the point out.

Greek banks do face higher borrowing requirements to fund the current strong loan growth at a time of rising costs and this is all due to the global credit crunch crisis.

The large Greek banks are indeed well-capitalized compared to the standards set by central banks in other European countries; however please do not forget ever-ever again the first and most important economic lesson (pay attention!): Cash is King! And as a senior banker put it: “Banks are known to fail because of liquidity not capital”

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The euro became yesterday the official currency of Slovakia but it’s already heading for further declines as analysts expect the European Central Bank to cut the target lending rate from 2.5 percent to encourage spending. The European index of manufacturing fell to its lowest level since the beginning of the data in 1998. The European Central Bank’s basic refinancing rate is expected to be set at the area of 1.5 percent.

The housing downturn has caused a major blow to the UK economy; however Europe is having more gloomy data and a less proactive approach to the handling of the regional financial crisis. There’s no doubt that Europe would eventually be forced to face its dire economic position but it looks like regulators are ready to prolong the crisis in the future rather than take radical measures today… postponing the remedy, will not save the world.

So what’s the game? It will win them some time and hopefully for them enough time, to elegantly put the responsibilities to someone else’s shoulders, while saving them at the same time from the trouble of accepting the consequences of any decisions.

Now, it’s a good time to add some dollars in your portfolio, as there are views between the traders that the USD currency has been oversold whereas the euro will continue its slide in the first half of 2009. The euro is not going to hold on to the 11 percent gain it achieved over dollar last month and it is likely that it will also decline against the following currencies: British pound, Norwegian krone, Swedish krona and yen.

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Banks were hardest hit initially, but the gathering global gloom has hit other industries
such as mining, oil and gas, carmakers and retailers.

• Equities are significantly over valued versus credit
• Corporate bonds and loans are compensating investors for the downside risk if you
  ignore funding
• CDS risk premiums on financials and large corporates are not fully pricing n the potential impact of rising sovereign default risk: this is an issue for iTraxx Europe and iTraxx Asia
• The cash-CDS basis looks very attractive; however, it will remain negative and very
  dislocated, as long as repo funding costs remain high
• IG (Investment grade) and HY (High Yield) corporate bond spreads staying at these levels if financial institutions continue to struggle to de-lever
• Remain more pessimistic on European IG than US IG, given the heightened sovereign
  risk in Europe

As equity valuations fall further and bond yields trade towards zero, pension funds that are close to breaching their solvency limits will need to be looking at better yielding, high-quality, longer-dated corporate bonds to drive returns coupled with diminished supply, this could well create a positive technical for cash credit over time.

Defaults are set to climb markedly in 2009, given current unprecedented credit conditions. The potential for large variance in default projections is high: 10-20%. Based on a bottom-up analysis, expect 10%. Lending standard projections point to a baseline peak rate of 14.3% increasing into 2010.

This down cycle is looking very similar to that of the 1970s. These cycles exhibit
surprising regularity in how they play out, and the early-warning indicators that have worked over the past 40 years worked this cycle too.

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• Overweight Investment Grade, Underweight High Yield. Deleveraging and high yields in a world of low nominal returns produce attractive risk-adjusted and relative return prospects for corporate bonds. We favour investment-grade credits at present but would look to extend into high-yield as the economic and financial environment stabilises.
• Underweight BBB cyclicals. Tight credit conditions and funding pressures are likely to weigh on levered companies that are vulnerable to a cyclical economic slowdown.
• Overweight more defensive sectors. Stable cash flows and limited financing requirements should continue to benefit Consumer Product, Healthcare, Defence, Telecom, Utility and Energy companies.
• Modest Financial sector overweight. Durable and comprehensive government support will likely result in substantial issuance, but also makes the sector more defensive relative to non-financials.
• Take advantage of the new issue calendar. In the early stages of a credit cycle, the strongest companies usually issue debt on favourable terms for investors. Additionally, the wide basis of cash bonds over CDS offers an added benefit.

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Sterling was for once the stronger currency leading the strength against the Dollar. The Pound rose two cents from 1.4775 to 1.4984 while against the single currency it made some small headway. Yesterday, Sterling hit an all-time low against the Euro at 0.8825 area. BOE’s Barker anticipates recovery towards end of 2009 but the UK economy is very weak and short term outlook is not strong.

The Russian Central Bank set the ruble-dollar rate at 27.9310. Since the beginning of August investors have removed about $200 billion from the Russia market (according to BNP Paribas) and the ruble has stumbled 16 percent against the US dollar – partially due to the global economic crisis and the falling oil price, but mainly because of Russia’s invasion of neighboring Georgia on the day the Olympic Games began in Beijing. Russia devalued the ruble for the fifth time in a month, widening its trading band against the dollar and euro after reserves fell $161 billion defending the exchange rate.

Currency Market Snapshot
                Open           High            Low
EURUSD    1.30227       1.31584      1.3001
EURGBP     0.88071       0.880775    0.8763
GBPUSD    1.4786         1.49853      1.4774
EURJPY     120.775        121.68       120.28
USDJPY     92.765         92.88          92.265
USDRUB    27.9310
EURRUB    36.6678

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But that wouldn’t matter, if PPI was not a complete rip-off. So, don’t allow yourself to be pressurized into buying it, unless you have seriously done your homework and are convinced it offers good value for money. If you know you might have financial trouble in the near future, you would be better off not considering a loan or a credit card as a solution to your financial problems in the first place.

PPI is designed to provide cover in case you cannot repay your loan, credit card or mortgage installments because of an accident, sickness or unemployment. Although, it is considered to be a valuable back-up, truth is that lenders are pocketing an enormous profit, as customers end up paying far more than they need when they have bought this cover.

Do I really have to say that claims get very easily rejected when someone is in indeed in financial trouble and tries to make a use of the cover? I didn’t think so. Usually, payment protection insurance covers sold simultaneously with consumer credit products are full of get-out clauses and loopholes.

ID fraud protection is also just another easy way for lenders to make money, taking advantage of the fear they spread to the audience. If they ever call you to let you know that your credit card has been lost on the way to you… get ready for an ID fraud protection sales pitch and turn it down!

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Traditionally, derivatives were developed for hedging and risk management purposes, but as traders and investors realised their potential to leverage profits, they are now being widely traded for speculation reasons as well.

Now, let’s take a close look to commodity derivatives and the reasons they are now growing in popularity as an investment tool, outperforming both equities and bonds in the current state of the economy.

In earlier years, trading in commodity derivatives markets was driven by people who had the need for the commodity itself, such as farmers. Examples of commodities that can be traded in the commodity derivatives markets are the following:
• Energy (including oil, the most heavily traded commodity of all)
• Precious metals, such as gold, copper, etc
• Agriculture, eg soybeans, corn, etc
• Softs, e.g. orange juice

Bloomberg reports that according to data compiled by the Bank for International Settlements, global trading in commodity derivatives has risen by 52% in the first quarter of 2008, compared to a year earlier. Energy and agricultural derivative products led the race during the first quarter of 2008, but not all major players managed to come up with the appropriate strategy to turn the game in their favor.

Goldman Sachs and Morgan Stanley are making money buying and selling commodities, and the two investment giants together accounted for about half of the $15 billion if revenue that the world’s ten largest investment banks generated from commodities last year, said a financial-services industry consultant in a Bloomberg interview.

However, analysts in the City estimate that JP Morgan has lost around $400 million in energy trading in the past two months, after taking a rather dangerous short position against the oil at $110 per barrel. In plain words, their bet was that the price of the oil will reach the ‘ceiling’ at $110, and then start falling…. In reality, the consumer fears have become the speculators hope and the fact is that oil prices now have no ceiling – only limit is the sky!

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“We are seeing some credit and bonds trading at stupid prices,” Oppetit, the $4 billion London-based hedge fund’s founder said in an interview on March, 28. “There are a lot of people forced to liquidate their positions. There’s been a real crash. It’s the worst I’ ve seen as far as I can remember.”

Although Oppetit confirmed that he is not buying mortgage – backed debt, he did not want to be more specific about Centaurus Capital’s investments. He said however, that he is finding more value in senior secured loans than bonds.

Loans and bonds are trading at very low prices, due to lack of liquidity in the market. But given the market crash, how easy is it to tell which one is a bargain or a rip-off?

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Pret a Manger is owned by its two founders, Julian Metccalfe and Sinclair Beecham, and by McDonald’s – who bought its stake in 2001, at the price of £50 million. While the two founders will have the opportunity to reinvest, McDonald’s is expected to exit when the sale is agreed and the new terms negotiated.

The sandwich chain was founded in 1986, it currently has a branch network of 163 branches in the UK, 13 in New York, 11 in Hong Kong and one in Singapore. The owners were hoping to achieve an offer price of about £400-£450 million just last September. However, the actual offer price is £100 millions less than anticipated by its founders, but certainly good news to the private-equity sponsors, who do not have to dig deep in their pockets…

NM Rothschild is advising on the sale, and for them it has been a long wait backing the last standing bidders. From the press report it was understood that three sponsors remain in play, those are: Morgan Stanley Private Equity, Advent and Bridgepoint.

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Carrefour announced strong sales figures for the fourth quarter and it is expecting a further 6-8% sales growth in 2008 and operating profit growth above that range. And that is excluding acquisitions – the retailer just bought a 75% stake in PT Alfa Retailandon in Indonesia for $72m!

On the grounds of this success, the French Goliath, which has almost 15,000 stores worldwide, is also planning to spin off its property (real estate) into a publicly traded company.

Despite the fact that the food retailer’s group sales rose as much as 7% last year, to almost 92.3 billion euros (£68.93 billions), the French food retailer, is still cautious about the consumer.

Carrefour’s management has very wisely decided to postpone the real estate IPO given the current market turmoil and stays open to alternatives. In my opinion, it is worth keeping on eye on the company’s next moves…

On a more detailed basis:

• 4th quarter sales rose 1.8%
• 4th quarter turnover rose 10%
• sales up by 4% in France
• 3.4% in ROE
• 2.9% in Asia
• and by- an outstanding- 10% in Latin America.

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