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Baltics

Friday Mailbag

All- there were a lot of great comments and questions this week, I will review several here:

LATVIA

Excellent insights on Latvia and the way to trade the devaluation. Johan from Sweden asks if we are too late shorting Sweden’s banks. I think not, and here’s why:

Swedbank, one of the largest Swedish banks in Latvia, posted a 2 billion kronor ($250 million) second quarter loss just hours ago, compared to the average estimate of 1.27 billion kronor. Loan losses soared to 6.67 billion kronor ($850 million), a 1500% increase over last year’s loan losses.

This tells the story of what has happened to the bank’s loan portfolio *before* Latvia devalues. The post-devaluation carnage will be even worse.

Given the bad news, what happened to Swedbanks’s stock today? It rose 11.6%… simply because management expressed ‘confidence.’ I think this is absolutely insane.
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Tagged as: Baltics, investing

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Four reasons to short Sweden

by Simon Black · View Comments

A final note on Latvia today before I put the Baltics to bed for now–

Yesterday I argued that Latvia is definitely headed for devaluation, and that European governments are practically bending over backwards to make sure we know about it.

In comments yesterday, the astute Mr. Marriott pointed out that the grey economy is now flourishing in Latvia; this is undeniably true, and we see evidence of dark economies around the world in times of crisis. Argentina and Cuba are great examples.

But I would submit that the grey economy is even more reason for the devaluation– tax revenues become even lighter as dark economies grow, while the government’s fiscal burden remains heavy.

So how specifically do we profit from this?