The Contagion Risk of Europe

But there are very sad things going on. It is not just banks that are losers here. Pharmaceutical companies are starting to refuse to deliver to Greek hospitals, as they are up to two years behind on their payments. It turns out that Greece owes some €6 billion to private businesses like hospitals and simply cannot pay. Those costs are rising, and much of it is to hospitals for medical care supported by the government. They are issuing bonds (shades of California) for the debt in some cases, which sell for a discount of 50%, if they can be sold. And we thought finding €12 billion was a hard thing.

This is not just a Greek problem, it is a concern in many countries that are having financial difficulties.

A Greek Coup?

Now, time for some speculation on my part. For Greece to leave the euro, the politicians would have to make a rather serious decision. That will not happen overnight. The minute there was any speculation or a “secret” meeting of Greek leaders to discuss leaving the euro, the run on the banks would be massive and fast. It would all come down quickly.

To go back to the drachma would require a bank holiday for a week, and it would have to be a surprise move. About the only way for that to happen would be a military coup coupled with a bank holiday and promises to return to elections after the currency issue was solved. The current government does not have the votes or the power to declare a holiday and move to the drachma, or at least they don’t as I read it. Just a thought.

No Good Deed Goes Unpunished

Switzerland was irrationally expensive. Small Diet Cokes at the Mandarin Hotel were $12. That is not a typo. I get a full 12-ounce can on sale here for about $.25. A casual meal, not particularly outstanding, was easily $100. Taxis are outrageous, with a one-mile trip costing up to $70.

In the category of no good deed goes unpunished, the Swiss are suffering such high prices due to managing their country responsibly. Everyone wants the Swiss franc. It was about $1.20 for one franc. I remember when it was $.25. Then again, so was the German mark.

In the Biggest Loser category, the award for the central bank that made the worst trade in history goes to Switzerland, with losses of 21 billion francs in 2010, trying to keep the value of the franc down against the euro. That’s about $25 billion at today’s valuation.

Home Again, Home Again

I have been gone for 31 days, and it is good to be back home. And I am home for much of the next three months, at least the way it looks now. I have a speech at the Agora conference in Vancouver late July, and my annual trip to Maine to fish with my son at David Kotok’s event (with so many friends) in early August (which I will likely combine with a few days in New York). And not all that much travel in September, though that could change. That really sounds good right now, as I have almost 100,000 miles on American Airlines alone this year. I hope I can cut that down to about a third for the last half of the year.

Kiev was amazing. I don’t know what I was expecting, but what a vibrant place with lots of things going on and building everywhere. Our host, Andy Bain, came to Kiev in 1992, fresh from Yale with an MBA. He started going east in Europe and kept finding too many MBAs to compete with, until he got to Kiev. He now has some 20 companies and is quite successful.

He invited us to his annual company picnic on Saturday, at a lake park outside the city. There were about 200 people there. The unusual thing was how young the group was. I remarked on that to his CFO, who is only 38 himself. Who are all these young girls and guys?

He pointed them out: “This girl manages that company and that one has this account…”One woman started out as a receptionist two years ago and is now managing three national advertising accounts. I looked around. The only “gray hair” was the ex-patriots. It turns out that when Andy started, he had to hire young people who were trained under Soviet management styles and who would work. They were right out of college, and as the business grew they simply got promoted fast. Andy was essentially training a new generation. This was also an alumni picnic, so many people came who had been trained at his companies but now run other operations. Quite the eye-opener.

My son Trey had a great time, with so many young ladies in bikinis. Kiev may have the most beautiful girls of any city I have ever been to. I think Trey is thinking of learning Russian, which many of them spoke. He is certainly begging to go back. It was fun to have him on this trip. But for Dad, the best moment was when he said, “I have to learn another language. I don’t want to be stuck in the US all the time.”Italian? French? He now gets it. It made the whole trip worth it. I wish I had figured that out at 17. I truly regret not being multilingual. C’est dommage.

It is time to hit the send button. I have to start in tomorrow on the 400 emails that are still in my inbox. I owe a lot of people responses and will work hard to catch up, plus I have some writing to do, etc. While I love the internet and it has been very, very good to me, it has also got me busier than at any time in my life. But who’s complaining? It is a fun life! Have a great week.

Your happy to be home analyst,

John Mauldin

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