Betting on a Bounce in Greece, Part 2; Locking in 27.5% gains on the Euro

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Recommending that you re-enter this position after having been stopped out of it a month ago is awkward — perhaps even annoying. Yet, successful trading is about making money and forgetting about past missteps. The fundamental investment thesis behind owning the National Bank of Greece (NBG) remains intact. And here’s why I continue to believe that the substantial upside potential in NBG justifies the risk.

After much metaphorical handwringing, the Greek parliament last Thursday approved its third austerity program in three months — a €4.8 billion (£4.3bn) package aimed at slashing the budget deficit and rebuilding Greece’s credibility with international financial markets. Equivalent to 2% of GDP, the program includes unprecedented cuts in civil servants’ allowances and bonuses, a pension freeze and increases in indirect taxes.

Market consensus is that this latest package finally hit the nail on the head and that it will be enough to reduce Greece’s deficit from 12.7% to 8.7% of GDP this year. As a sign of the investors’ confidence, Greece successfully raised €5 billion from the capital markets one day after the new measures were announced. The offering was three times oversubscribed. This bond issue marks a turning point for Greece as it prepares to raise another €20 billion over the next two months to refinance its expiring debt.

The result? Last week, the Athens General Index closed 8.8% higher, its largest weekly gain since October 2008. Meanwhile, data showing a smaller-than-expected cut in U.S. jobs also helped European indices achieve their best week for eight months. The bottom line? Sentiment has turned and it’s time to get back on board the train before it leaves the station.

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So buy the National Bank of Greece (NBG) at market today and place your stop at $3.50. There are no options on this one.

That said, let me remind you that NBG remains a highly speculative, volatile pick. Full disclosure: This is a position that I hold on behalf of my clients at Global Guru Capital.

Portfolio Update

iShares MSCI Chile Investable Mkt Idx (ECH) jumped 4.46% last week, as the powerful earthquake barely registered as a blip on Chile’s stock exchange. With Chile’s stock exchange proving as robust as most of Chile’s rigorously constructed buildings, ECH remains a BUY. Raise your stop to $54.50.

UltraShort Euro ProShares (EUO) treaded water this week. Although I firmly believe that the long-term pressure on the euro is on the downside, with the situation in Greece settling, I am recommending that you sell your remaining May $20 calls to lock in 27.5% gains on the options. Your bet against the European currency is now a HOLD.

Mechel (MTL) soared an eye-popping 12.95% last week, as risk appetite returned to the markets. With Mechel trading just below its recent high on Jan. 19, I am keeping this volatile pick as a speculative BUY. Raise your stop to $22.30.

China North East Petroleum Holdings Ltd (NEP) stagnated this past week, as the company revealed it has to re-state its SEC required year-end 2008 10K and the various 10Q reports from 2009. It will be several months before this work is complete and before the Q4 2009 results are released. Although the long-term prospects of the company are not in doubt, from a short-term trading perspective, I am moving NEP to HOLD.

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P.S. If you want to keep up with my latest insights on developments in fast-paced global markets, you can now follow me on Twitter on @NickVardy.

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The choppiness in global markets continues -- although the jump in risk aversion from January's sharp sell-off has settled. All of your stock positions in the portfolio had a strong week, jumping between 1.48% and 5.9% over the last five trading days. Your watch list positions in VALE S.A. (VALE), Arcelor Mittal (MT) and the iShares MSCI Taiwan Index (EWT), all rose this past week as well.

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