Clay Maitland

On a quest for quality in shipping

POSIDONIA REFLECTIONS: The true meaning of ‘lingering doubts’

Posted on | June 13, 2010 | 1 Comment

claytoonjpgA visit to a Greek shipowner’s yacht is a characteristic feature of Posidonia, Greece’s iconic shipping jamboree, held every two years in what a local banker calls “the cradle of democracy and denial.”

The denial part has to do with a third “d”, namely default. For everything about the health of the global, and therefore Greek, shipping industry, has to do with the effect of future Greek default on its IMF loan obligations.
Next September, an IMF team will visit Greece, to find out if in fact the government has in place the stringent austerity measures agreed to at the time of the Great Bailout of nearly two months ago.

There is no doubt that Greece will receive the first tranche of its bailout money. But, there is a growing conviction here that the IMF,  er, German, scrutineers will find that this government’s woes have actually
worsened, and that the “loan” was and is in fact an irreversible gift.

Great will be the wrath of Merkel. Greater still will be the wrath of the German taxpayers. Anguished will be the holders of Greek bonds.

This is a Bad Thing, as the authors of 1066 And All That once said. Because, once default here takes place, down will go the European economy. Don’t buy any container shares if that happens.

Oh, yes, my friend’s yacht. He named it for his oldest daughter, but says that if he had a second choice, it would now be “LINGERING DOUBTS”.

Why that particular choice?

“Because I’ve had lingering doubts that the future is as rosy as my bankers say”.

I asked him why. “”Look at the values. Ship values are mostly headed south. The prices of second-hand ships bottomed out at too high a level. Our shipping recession was too short. So, what are our golden Greeks doing now, Maitland?

They are ordering new ships from Chiinese and Korean yards. Only one million dry bulk tons, that we know for certain, went to the scrapyard so far this year. We stillhave no clear picture of what the world orderbook looks like, but my guess is that what is actually going to be built is maybe 22% capes, 44%panamaxes and 33% handymaxes.

Banks — the ones still in the business — are willing to lend the right people 60% to 65% for a newbuilding. Something’s wrong with this picture. I definitely have lingering doubts.”

Comments

One Response to “POSIDONIA REFLECTIONS: The true meaning of ‘lingering doubts’”

  1. Area
    December 8th, 2015 @ 10:09 pm

    (and nobody shulod think) that every Greek citizen is born corrupt. Yet, unfortunately, international markets have understood (at least intuitively) all of the above, and also that nobody can survive in Greece without bending state rules. This is what we shulod all be here for, to change this pitiful social life through drastic and radical reforms. But the lack of credibility described above, poses a serious constraint to any thought of going back to the drachma.Defaulting on bonds will simply lead most Greek commercial banks to bankruptcy (nobody in the EU would be eager to save Greek commercial banks, unlike what has been agreed on the 26th of October, 2011). If the Greek state handles the chaos resulting from an internal banking crisis successfully, then within a few days most Greek commercial banks will be nationalized. Experienced Greek rent-seeking groups will start complaining and violently ask for rents. The Greek government will issue bonds that can only be put forcefully inside nationalized Greek commercial banks. The central bank will have to swallow all newly issued bonds in order to guarantee the balance sheet of commercial banks, printing drachmas.The above mechanism is so well understood by incidents and observed practices in countries such as Argentina, Brazil, Turkey, etc., that experienced investing banks will bet on an enormous depreciation of the drachma, playing a key role to causing a self-fulfilling prophecy. Hyperinflation will simply cause more volatile economic and social conditions in Greece and chaos will be an almost sure outcome. In light of the above, I think a safe prediction is that if Greece somehow goes back to the drachma, it will end up cutting 6 zeros from prices every 2-3 years for about 10 years until a socioeconomic miracle happens. I really do not want to comment extensively on how harmful and disappointing I find that Greek economists publicly recommend a return to the drachma. In my humble opinion, it gives a terrible signal about what economists think and say, and about our understanding of Greece’s problems. Instead, we must acknowledge the serious corruption problem in Greece, which is part of an economist’s job. Instead of focusing on plain-vanilla current-account calculations with devalued drachmas, we must consider that with Brussels putting the Greek state under the microscope, there is long-term hope. There is no shock therapy for the corruption problem and an extensive politico-economic Greek crisis will not lead to any therapy of corruption. Externally forced fiscal transparency will lead to “killing the beast” described in points 1 and 2 above (not to be misunderstood: I do not mean to eradicate any unions or democratic parties, but the minority of the hardcore rent seekers). Once society internalizes that old rent-seeking practices are not possible for the next 30 years, I think that Greek citizens will start welcoming reforms instead of being suspicious about each and every new reform idea discussed nowadays.

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