LATVIA / SWEDISH BANKS
The link between the fate of Latvia and the stock price of Sweden’s major banks became even more apparent this week. On Monday, Latvia’s government announced that it had rejected a bailout deal with the IMF, spurring new concerns of devaluation.
In response, investors sold off shares of Sweden’s Swedbank to the tune of a 5% decline. The market sees these two parties as inextricably linked: as Latvia goes, so goes Swedbank.
We also learned that over 50% of Swedbank’s Latvian mortgages are under water, i.e. the value of the home is worth significantly less than the principal balance that the bank has loaned against it.
When this happened in the United States, default rates skyrocketed. I don’t see how this won’t happen in Latvia, especially given risk (certainty) that the country will devalue its currency.
Let me know if you disagree, I would love to debate the analysis.
LITHUANIA
In a related story that shows interesting promise, the government of neighboring Lithuania announced that its economy contracted by a whopping 24% rate from last year. Twenty-four. Not a type-o.
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Tagged as:
bank accounts,
Eastern Europe,
Gold and Silver
Croatia, in my opinion, is one of the most beautiful countries in the world, and the drive down here has been spectacular. From Budapest, the drive to Croatia took me south along highway M7, which arcs gently across Hungary’s rolling hills and hot springs.
But what brings me here is not the beauty of the drive, nor the sun-seeking Europeans on vacation… I came to town to visit a friend of mine who has one of the finest investment minds I know.
Gianni Kovacevic is Croatian by descent and spends a lot of time down here. He’s an international man, a great guy, and an incredibly shrewd investor, so when he calls me with a recommendation, I listen. So do a loyal following of Swiss bankers and fund managers that have made money with him in the past.
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Tagged as:
Eastern Europe
Burgers make better economic indicators than official statistics ever could.
As I travel, I typically perform an informal price study of my own basket of consumer goods– a loaf of bread, a pack of cigarettes, a liter of petrol, and a handful of… non-family friendly wares.
This is the type of information that is most valuable for me because, everything else equal, goods of similar quality should cost the same around the world.
Unfortunately, Heisenberg was correct when he postulated that I am not capable of being in multiple places at exactly the same time… which is why I get excited whenever the Economist releases a new iteration of its Big Mac Index.
The Big Mac Index compares worldwide prices, converted into dollars, of the McDonald’s signature sandwich. It is an excellent, though certainly not conclusive, indicator of whether a nation’s currency is undervalued or overvalued.
The most recent release from July 16th confirms absolutely what I am seeing on the ground here in Europe: the Eurozone is seriously overvalued…by roughly 30% according to the index.
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Tagged as:
Eastern Europe,
investing,
Old Europe