THE BLOG
01/13/2017 06:01 pm ET Updated Jan 14, 2018

Greece Tipped Over ...

Greece Tipped Over ...

I spoke about "The Greek Tipping Point" in November 2015. At that point Greece was on the brink. As of today, Greece is over the brink. I am not sure the exact moment Greece tipped over; I think it was shortly after the end of summer vacation when taxes were raised to 60.5% (45% income for those earning over €40,000, and another 15.5% social security tax). To add insult to injury, employers pay 24.5% in social security taxes on employees' salaries. Do the math.

So why pay anyone? This is not simply a rhetorical question, it is reality; people are not being paid.

Beginning in September many "employees" have been going to work without pay. You might wonder why, but it is either go to work for nothing with the hope that things improve or they can join the ranks of the "unemployed."

It is unclear how unemployment in Greece is calculated, but the government announced that the official unemployment rate has improved to 23.1%. This number is misleading. First, part-time employment in Greece is estimated to be 33% of the work force. Second, I would estimate (based upon our discussions with various Greek businesses) that the number of "working" Greeks not drawing a salary is over 15%. The actual number of Greeks working full-time (and being paid) is 30%. Read that again, only 30% of Greeks are working full-time and collecting a salary. How much longer can this continue? The €20 billion that is rumored to be in "mattresses" throughout Greece is quickly being depleted.

2016 was a lost year. This followed the lost years of 2009, 2010, etc. The reality is that these years are part of a lost generation, much like what happened in the United States from 1929 to 1939.

Nothing has passed, no loans have been sold, nothing has changed. The one bright spot had been Taiped's successful auction of the Greek National Railroad (Trainose) following the sale of the Astir Palace and several other privatizations. Once the government removed the head of Taiped last fall (for being too good at his job), all privatizations have stopped. It is only a matter of time before the government announces that Trainose will not be sold.

Meanwhile, Tsipras continues to outsmart the Europeans at every turn. This is despite the fact he has a poker hand with a "nine high."

It has become somewhat of a tradition to make predictions about the upcoming year. I thought I would join the club. I will gladly keep score and report my record at the end of the year.

So here goes ...

1. Tsipras will be the Prime Minister on December 31, 2017. This is actually pretty easy. He has nine lives and has only used up one (the TV auction debacle). There is no "confidence vote" on the horizon, so there is no reason he will be ousted.

2. Real estate prices will drop another 30%. This is subjective at best since there is no market to begin with. However, there is an over-supply of buildings with no tenants, therefore rents will continue to drop, and with dropping rents, dropping values. Rents in Class A buildings in Athens are $1.50 per square foot (€15 per square meter). The residential "price-to-rent ratio" published by the Bank of Greece fell from 100 in 2015 to 68 in the third quarter of 2016. There is no reason to believe that the next 30% drop will bring us to the bottom. Now is not the time to be long real estate in Greece.

3. Capital controls will not be lifted. This is not even an issue any longer. People have adapted to a cashless society and there is no reason that anything should change.

4. The Greek stock market will outperform the Dow Jones Industrial Average in 2017. We must remember that the market is a barometer, not a thermometer. Markets look forward and if the Greek banks begin selling non-performing loans in 2017, the Athens Index will outperform the Dow.

5. The EU will contribute €30 billion to Greece in additional financial assistance and it will barely make the news. The EU gave an additional €2.8 billion to Greece in late October and it barely raised an eyebrow. The EU's problems are so much bigger than Greece, why bother to argue about another €30 billion.

6. There will be an escalation of tensions between Greece and Turkey brought on by a void in US foreign policy in the region. The Russians and the Chinese recognize Greece's economic and strategic importance and are active in Greece; the US is not. Turkey will continue to use the refugee crisis, natural gas transmission and Cyprus as leverage to offset any unfriendly moves against the Erdogan government.

7. Non-performing exposures (NPEs) will increase to €130 billion. Today the official NPE number is €106 billion. No matter how you slice the numbers, take whatever the total loans by the banks and multiply that number by 67%.

8. The four systemic banks will still exist, although there will be public discussions about merging one of the banks out of existence ... probably Piraeus. This is not because Piraeus is unhealthier than the other three, but rather infighting between various shareholder groups has left the bank leaderless.

9. Attica Bank will survive ... somehow. What is commonly referred to in Greece as the half-bank may not only survive, but could become the first healthy bank in Greece. The old management was dismissed as part of the scandal involving the TV licenses and new management has been charged with cleaning it up or shutting it down. Since there is no legacy to protect, new management might actually sell NPLs and successfully recap the bank. If they are successful, the afterthought Attica may be a bank to be reckoned with. (This is probably my most far-fetched prediction).

10. The number of tourists could approach 30 million. With Turkey being a place to avoid, Greece should see continued growth in tourism. As late as 2012 when the crisis was just taking hold, the number of tourists was 15 million. In 2016, that number was 25 million. A jump of another 20% is not out of the question.

11. Bonus prediction ... Lohan (the nightclub started by Lindsay Lohan) will go out of business.