Long term readers may recall how we started studying the oversold Greek property market back in 2015-6 for a possible reversal bounce. Thanks to the confidence and trust of a small band of believers, we launched on this investment theme starting 2017, and the market has been very much a one way rising streak for us:
We first started buying in 2017 and first began taking profit in 2023 (slightly early but not a bad call given the still bloated bureaucracy dogging some of our exits - a story for another time!). In USD terms we also caught the bottom of the cycle (red line below), and began selling when prices exceeded the GFC peak in Euro terms (blue):
Given the brewing of another bigger sovereign debt crisis in Europe, and the worsening geopolitical outlook (Greece could perversely benefit as a fringe region and receive fleeing capital from neighbouring conflict jurisdictions, so may not be all bad), now is a time to close out this theme, until the coast is clear for us to revisit Greece next cycle.
Relative winner too, not just absolute gains
We are happy to also see how the Greek market gained significantly more than many mainstream property peers from the 2017 bottom to now, eg. Athens prices are up 153% vs HK:
Against the a favourite investment of Hongkongers - London - Athens also outran by 126% in the same period:
The only exception is our current top favoured destination - Perth - Athens peaked (coincidentally when we started disposing in 2023) when we began going overweight W Australia in a big way, which has now outperformed Athens some 30%:
From frog to prince? How Greece looks now...
Macro conditions are better but probably not sustainable enough going forward, because on many factors, Greece's recoveries are not strong enough to lead to long term continued improvements:
a) debt recovery did not reach a self balancing level before global ZIRP has turned into high interest rate environment:
Despite refrained govt spending, debt levels have still been rising (blue line below), and although GDP growth has caught up since 2020, the gap remains too large to close:
b)still large trade deficit to sustain balance of payment improvements:
c) demographic headwind remains strong - despite recent spike in immigration (red line below), the ageing population and accelerating negative natural growth rate (blue line) will pose huge challenges for productivity.
Further immigration momentum is now curtailed due to govt raising thresholds (eg the Property transfer tax backlash, see Article 4), and potentially China's shutting of emigration routes which has provided the largest group of migrants to date (see Article 1- How Chinese investors quietly transformed Athens – one visa at a time).
The main source of immigrants are currently tax refugees (see Article 3 - Will the last millionaire to quit socialist Britain for sunny, low-tax, Thatcherite Greece please turn out the eco-lightbulbs), but local supply challenges may continue to pressure govt to close the gates further (see Article 2).
Conclusion
So we are glad we have captured this rewarding and culturally most enriching jouring, but for the near future, it is adio (Αντίο) Athena, and thanks for all the fish...
The recent French riots is but the tip of the iceberg in
what could spiral out of control in the 2nd largest economy in the EU, as we
have aluded to for some time now. The next big crisis will be from sovereign
bonds, and France is indeed leading the charge (see here). More graphically, the debt pile is now much higher
than even the USSR at the time it broke up:
Europe faltering on all fronts
The woes in Europe does not stop at the English Channel - as
indicated in the how HSBC may be caught in a rising tax trap (see Article 7),
UK is also facing some severe fiscal challenges and tax hikes may be the only
solution, which will surely weaken the tax base even further.
And Germany's continuous decline in manufacturing output (Article
1) could further undermine investor confidence when any bad statistic hits
the wires next. All major economies are now in a spiralling interest cycle, and
any default by a weak payer could trigger the next contagion:
On top of all this, when more central banks next hike policy
rates, the momentum could accelerate in long bond yield increases:
Fed – further 50bp of Fed hikes expected
RBA – risk of further tightening this year
ECB - 25bp hike expected by year end
BoE – a 25bp hike by year end
BoC - expect to lift 25bp in both December and March
While some banks may be advocating long bonds at this
juncture (below chart shows massive long bets on bonds right now), may
be due to myopic focus of very short term trading patterns, the mega
multi-decade turning point upon us could swiftly sweep all longs into big
losses, so beware of who you listen to...
Other factors to exacerbate rate pressures
There are some truly worrying developments all over the
place that suggest inflationary pressures will not ease, for example,
Supertanker Rates Soaring To Near Record $1 Million A Day, adding cost of oil
and bulk commodities being shipped (Article 2), and even in the US,
diesel prices are reaching new highs:
As govts lose people's confidence (eg Scottish, Welsh and
Northern Irish leaders meet to plan break-up of United Kingdom, Article 3),
separatist movements is now clearly on the march, increasing trade and
investment friction, further adding to inflationary pressures. The next one to
watch will be the Alberta vote to leave Canada:
Meanwhile increasing temptation to add sanctions will
further disrupt global supply chains, as Trump signed the Russia and Iran
Sanctions Bill (Article 4)...
US should be safer, private sector in better shape, but
hyperscalers...
Although the US debt situation is severe (most of 2026
rollover is already on short duration, and likely see some coupon inflation
soon, see chart below), the likely blow up first shot will be fired in
Europe or Japan, or some other fringe economies.
We continue to see the pandemic to be centred on public
sector, as for the first time in the past 70 years, govt debt is by far the
biggest elephant in the room:
Also worth staying vigilant is how the new bubble of AI may
be pricked given how extended the euphorial rises have become, and of course
with it all the hundreds of billions of AI related debt issued of late:
Risk of false flags rising
When govts lose control, the temptation rises to create
false flags to divert attention to 'external enemies'; the institution of
emergency conditions may also conveniently defer or cancel elections in which
current politicians in power could dodge the unavoidable losses facing them.
The telltail signs are now becoming quite obvious:
- Poland's prime minister warns of Russian 'accidental'
attacks on Ukraine's allies (Article 5);
- Moscow Sends Nuclear Warning to NATO as Tensions Rise in
the Baltic (Article 6)
So many things can go wrong, and some of them
catastrophically... all we can hope is to be prepared and safeguard our own
immediate circle of care. Hope our fears of the bad outcomes are overly
pessimistic, it still does not make the case for preparation invalid.
Two weeks ago, we explored the background of why privacy crypto coins were doing so well. We didn't expect their stellar rises to have continued, here is the one-month performance vs BTC (black line):
ZCash has since risen 106% vs BTC's 4%, on a one-year horizon, its performance is a jaw dropping 29x:
All of this highlights how screwy the world has become, and the relentless poking at the people's private financial affairs by the bankrupt govts is driving more money underground...
In view of this new trend, we heartily recommend you read an excellent primer comparing the big two privacy coins: Monero vs Zcash (Article 3), and which one might be suited to your needs.
Weaponisation of Stablecoins
As we have half expected, as soon as govts lay their hands on the levers of control, they cannot resist pulling them. And how hard they did this time, whether maliciously or willfully, against some unsuspecting genuine userss.
The whole sordid story is painfully laid out in Article 2, chronicaling how Tether froze USDT wallets at government request, without warrant or court sanctions. Basicallyl Tether (or other regulated stablecoin issuers) are now the 'legal' way through which governments could not constitutionally do by themselves!
Decentralised Stables the way forward?
In view of this alarming development, may be all our future stable holdings will need to go decentralised... Luckily in the self executing protocol space, and with reasonable liquidity, we have Ethena (USDe) and DAI to fall on:
Both are trading on as narrow 90-day volatility ranges as Tether, and both have well over 3 years of track record. Perhaps these will now become the privacy coin equivalent of winners in the stablecoin space as self protecting users also flee the potential tyranny and confiscation they might be subjected to?
A scary summary of the above dystopian Tether incident is summarised well in this schematic:
Perhaps freedom loving Americans need to find ways to reverse this quick or they will be no different from the average East German under Stasi?
Some good news amongst the doom and gloom
The good news however, is that crypto at large do seem to have caught their cyclical bottom as we highlighted in an earlier technical analysis reprot - one of which we did not include is added here:
a sign we may have bottomed out this cycle?
In fact, looking at more technicals, that does indeed suggest so:
BTC may hit $97k (+13%) within weeks
Bitcoin could even trashing the AI infussed S&P:
hitting trend top suggest 90+% outperformance vs S&P by early 2027
There are champions of personal freedoms out there
Despite the ever encrouching state, it is not all grim ahead, we see liberty championing crypto natives starting to fight back, eg billionaire Ben Delo (see his fascinating, even inspiring story in Article 1).
Some reader feedback from our last missive - 'I am not as bearish as you' being a common theme. This triggered us to bring out more charts from our extensive collection on the subject.
We are not here to scare, but try to warn so we are all prepared... The above view may be premised on the belief that Central Banks (CB) are able to save the market, again. But the below factors are suggesting that this time may be very different:
1) govt debt levels are already too dangeriously high
Japan debt aside, take another big OECD stalwart, France - its debt has now exploded to such levels that it is approaching Grexit Debt Crisis levels:
France now approaching Grexit debt crisis levels
The market is now so nervous about it that the spread over the Bund is higher than Grexit times (see Article 3). Of course the debt pile is not just even France's problem alone, the developed market taken together we are at post WW2 highs already:
The comfort and trust in sovereigns back in the early 1900s were premised on debt levels in the 40-60%s, not the 120+% we are sitting at now...
2) weak and fickle holders are all we have left
We showed how even Japan and China were lightening their treasuries load last instalment, what is more scary is how high the govt bond market is now inhabited by ultra-short term holders such as hedge funds:
They would bolt at the first sight of trouble, meanwhile, more prudent central banks continued to amass gold in their vaults, as shown here:
3) wars and trade wars will exacerbate inflation
The marching war drums are getting louder as more European countries plan for compulsory drafting (Article 2). Perhaps it is because of the unstable debt and wilting political support that the politicians will have no alternative but to divert attention abroad. What better excuse than the Russian bogeyman they have been counting on (but disappointed) for so long?
Wars bring more inflation, but even before the bullets fly, trade wars (what we have highlighted as deglobalisation) are already creating price volatility, as seen in the latest round of US-Canadian trade spat:
- Trump ...to ban imports of some motorcycles, dairy and alcohol (Article 5);
- Canada publishes list of US products subject to counter-tariffs effective September 8, 2026 (Article 6).
Under such dysfunctional global economic, geopolitical situation, how could inflation not rise further?
3) issue competition is huge
This cycle is different from past debt crises in the sense that the most powerful, the most loaded up and cash rich companies in the world (ie the hyperscalers, the Mag7s) are competing with sovereigns for the pockets of investors amounting to hundreds of billions of bonds. One estimate puts the 2026 issuance in the long duration space at close to 70% of the size of Treasury issuance:
No wonder the yields are spiking everywhere, here is 10y TB:
4) confidence is already lost, we are in finale
We know the market's confidence in the sovereigns are gone when you see rates rise while economic indicators tank - below the blue arrows and red arrows move in lock step in the good old days... until the market realises that bad economy can no longer be saved by rate cuts, and that whatever the CBs do beckons even more selling (and higher yields):
All the theatrics that the govts can throw at the problem (see Bessent's "I am the house now" claim, Article 1) is not going to work, because people see that rotating long duration into bills is akin to taking poison, as the cycle is now out of control:
The Debt Spiral and Currency Debasement
Whatever short term reprieve will likely be a short opportunity... a bit like Soros adding his bets everytime the UK asserted that the pound was safe.
Why the private sector is safe this time?
Because this time the crisis is not in the corporate or household sector, for example, the US household sector has improved its liability ratios for most of the past 2 decades:
Of course, we need to beware whether these households are overly long on potentially toxic AI investments...
We know that corporate balance sheets are also in sound shape, and that is why in the next debt crisis, it will not be the Corp-less-govt spread blowing out, like in past crises (blue arrows), but could be a complete opposite (red arrow):
Some govts are in much better shape (eg most of Asian jurisdictions), which allows bond issues there to still garner good demand (eg HK's Silver Bond, at 4.25% guaranteed yield, see Article 4). But we know high inflation could clip these what seem to be generous levels, so we would even avoid better quality bonds, and go straight to real hard assets, anything that the bankrupt issuers (including currencies) cannot print...
Article 1: The Treasury Is Now Supporting Its Own Debt Market
The trigger of the bond rout in the past month has caused some severe volatility spikes in so many asset markets that it is worth us spending some time looking into the cause, and effect of this symptom. The event was the record high US bond sale yield made in end-July auctions (Article 2)...
Of course, as the chart above illustrates, this is not an isolated incident in the US debt market, in fact all OECD govts are facing a crisis of trust, where market believe in their credentials as 'risk free' instruments are now doubted, and this is reflected in the almost synchronised yield spikes, with the Japan yield staging the most spectacular rise in 2026!
Socialism the source of Western debt woes
The cause for this suddent flip in market confidence did not come suddenly overnight it is the result of decades of deficit spending, and politicians promising endless welfare, and issuing mountains of debts to finance it, ending at where we are not - the point of no return, where physics takes over:
govt spending as % of GDP reaching post war highs
When the govt budget is nearly 60% of the total economic output, you know high taxes are not far behind, and of course, the crowding out effect of govt activities is also reaching dangerous levels. What is interesting is how quickly the USA got addicted to this game (yellow line), only after the GFC - the crisis that gave central banks the carte blanche to print to help fight crisis after crisis:
past manipulations used up much of CB's ammunition?
Of these the Japanese have the worse intervention in the free market as its CB owns over 100% of its GDP in balance sheet assets (mostly JGBs?)...
Inflation now left the train station
With endless money printing - through CB purchases of govt papers, and artificially low interest rates (yep, none of the CBs are setting rates with inflation at or below their target rates of late), and forever wars disrupting all global supply chains, inflation is set to accelerate much more than people realise (eg oil price eased by massive release of strategic reserves, consumer prices cushioned by inventory as cheaper old prices, food prices yet to reflect diesel and fertiliser price hikes, etc). What is certain for sure, is China's PPI (red line below) will rise further (and the country being better stocked strategically than most western countries, will definitely see a milder PPI spike than elsehwere):
PRC PPI may have to be followed by trend CPI rises
This will filter into CPI this time in a way never seen in past cycles - because in the past PPI were restrained by new supplies, but this time we will have no new supply coming as all materials are either stranded, sanctioned, or destroyed by geopolitics...
US PPI likely exceed Ukraine war highs this time
The rise in rates is full spectrum and accelerating, take one of our sources - even the resource rich NZ - interest market is seeing trend rises, accelerating into the recent bond collapse:
Short term fixes will come back to bite
What do govts do besides forcing pensions, CBs to buy? They issue shorter duration debts in the hope that rates will fall later:
But any jitters in the geopolitical front, or a debt default, could trigger the next bond burst (ie govts unable to sell below pre-auction yields), with premium (also called auction tail, red area below) rising into future years when markets either get spooked by undersubscription or mainly CB buying of bond auctions:
As the interest and flood of debt supply both rise, govts will soon be hitting record highs in interest servicing burdens - a first stop for the US could be 23% last achieved in the late 80s, but this time we could exceed that handsomely given how large the debt load is compared to the 1980s:
US Treasury Interest / Expenditure
Note - even during the WW2, the US Treasury interest spending stayed at the low end of the post-war range, showing how much more indebted we are now compared to then...
Hyperbolic rise in debt servicing cost begins
With US interest cost hitting $1.4trn by some estimate and likely to accelerate further as rates climb (yellow line below), the impact on rest of the economy, let alone bond market, is beginning to be felt.
No wonder, despite record high stock market prices and low headline unemployment rates, with the elder generations feeling most bearish; even the youngest cohorts are hitting lowest confidence levels (red and dark blue lines):
End of the central banking cult
For most pundits who follow the Fed's minutes, or the MPC guidance, ECB musings, the game may be about to change, as thes gods of finance lose control of their games. In fact, they are customarily wrong in their predictions or forecasts, as is clearly shown here:
Perhaps the Fed is being honest this time, by projecting a major spike in debt/GDP ratio, but our guess is that even that will be woefully inadequate, just like their 2017 forecasts...
Self protection - in gold and real asset only
As debt explodes, like in Weimar Germany, it becomes devastating, when fiat loses its meaning and people hide in gold and real estate, this was what it looked like:
No wonder the smart money have already ditched hoarding fiat reserves and went straight for the yellow metal, some doing so under the radar screen like China:
But ever one is at it, as the confidence in other people's paper evaporate, so is the trust in other govts safekeeping your own gold disappearing, for example:
Is it any wonder that China's gold reserve has quardrupled, while its treasuries holdings are down by 63% (both in % weighting terms):
Another form of distrust of govt is of course when people start voting for leaving the govt that rules over them - past examples include Brexit, we will have Alberta independence vote this Nov also, and even a tiny British village is thinking of the same (Article 1)...
Which is the first flashpoint?
Most market focus is on the US debt problems, but the likely first to fall are Japan or Europe, the former facing too great a catch up on too perilous a starting point (see far right in chart below), and the latter being embroiled in two wars that kills its energy and food supplies, not to mention the lack of economic growth.
In summary, the big blow out may well be outside of the USA despite its large share of financing needs:
Position for the fallout - sell bonds now
By forcing pensions to buy 'risk free' bonds, govts have created a sure source of demand, but when the risk free becomes high risk, pensions could not only see their own liquidity crisis, but could trash the asset through their own stampede out of it - collectively pensions own some 60% sovereign debts vs 40% corporate bonds:
We have been advocating real assets as the safe haven, and even gone as far as suggesting real estate in commodities heavy (ie real asset heavy) jurisdictions. These are of course illiquid, so prepare to allocate some short term win cash for immediate daily needs, and precious metals for large allocation that is also portable in times of crisis...
One final through for our HK heavy readers - The new geopolitical reality may benefit the Fragrant Harbour city, as well argued in article 3, but we believe this eventuality is probably post crisis win for HK, and less an automatic ascent as the crisis unfolds... so perhaps lighten up in HK could avoid any unforseen sanctions or other empire moves as the US-CN decoupling inevitably worsens.
Article 1 Tiny England village plans referendum on leaving U.K., joining U.S. to protest migrant housing plan https://www.cbsnews.com/news/uk-piddington-village-referendum-leave-uk-join-us-protest-as-housing-plan/
Article 2 US Sells 30-Year Bonds at Highest Interest Rate Since 2001 https://www.theepochtimes.com/us/us-sells-30-year-bonds-at-highest-interest-rate-since-2001-post-6075156
Article 3 A Shifting Global Currency Landscape https://research.gavekal.com/article/a-shifting-global-currency-landscape/
