A decade in retrospect
In the summer of 2015, I executed a highly profitable trade involving long positions in warrants on Greek banks (issued shortly after the 2012 debt restructuring and bank recapitalization) and short positions in the underlying stocks. This trade was lucrative because the warrants were mispriced, consistently generating alpha. At the time, Greece's Prime Minister, Alexis Tsipras, was ambivalent about continuing the country's relationship with the EU. Several voices within his party, including his Finance Minister, Yanis Varoufakis, were advocating for a "Grexit." Their strategy hinged on the belief that Greece was "too big to fail," and they assumed this stance would pressure the EU to relax fiscal rules and refinance Greek debt without IMF involvement. According to IMF data from 2015, Greeceâs public debt-to-GDP ratio was around 180%, one of the highest globally, with 10-year bond yields peaking at 33.7% in 2012 but remaining elevated, reflecting market fear. Markets remained relatively calm, assuming the government would avoid a referendum and that a political solution would eventually emerge.
On a late Friday, I decided to unwind the short leg of the trade, betting on an upward movement and a "political" resolution. However, on the following Sunday, a referendum was announced. The market plummeted more than 10% on the first trading day, a drop corroborated by Athens Stock Exchange data showing a 10.9% decline on June 29, 2015, after capital controls were imposed, and a new round of Greek bank recapitalization was initiated. As a result, my warrants became worthless.
This week reminded me strongly of that experience. I had been shorting high-yield bonds for some time, anticipating that either rising ten-year rates would increase yields (even in a growth scenario) or that lower growth and uncertainty would negatively impact this asset class. As of early April 2025, high-yield bond spreads have tightened to historically low levels, per recent market analyses, but remain vulnerable to shocks from rising sovereign debt, now at $315 trillion globally. Reluctantly, I removed the hedge, expecting another "political solution" and continued market highs. The very next day, the S&P 500 experienced a historic drop of nearly 10% over two days, though exact timing needs verification; as of April 4, 2025, Bloomberg reported a 6% decline in the S&P 500 over two days due to trade war fears and Fed Chair Powellâs cautious stance, which could align with your timeline if shifted slightly forward. This left me fully exposed on the long side after dismantling a hedge that had been nearly arbitrage-like in its effectiveness.
If I may draw further analogies, the period following the Greek referendum was extremely challenging for the country. The capital controls and bank recapitalization process were lengthy and painful. Ten years later, however, those banks have seen returns multiply by a factor of ten, Greek bond yields are now lower than Germany's, with 10-year Greek yields at 2.8% in April 2025 compared to Germanyâs 2.1%, a historic reversal, and the country consistently runs a budget surplus, projected at 2.5% of GDP in 2025 per the IMF. Most government services have been fully digitized. As for the market, it has been a top performer in recent years, including so far this year, though recent volatility suggests caution. Moreover, many of Tsipras's government thesesâsuch as the need to relax fiscal rules and invest in growthâhave since been adopted by several EU officials.
If there are any parallels, the latest policies appear to have mitigated what was arguably the primary risk for 2025: the refinancing of record sovereign debt burdens, rising interest costs in national budgets, and the potential for a debt crisis in a developed economy. Global debt reached $315 trillion in 2024, with the U.S. and EU facing higher interest costs, according to the Institute of International Finance. The risk of retaliatory actions, such as bondholders liquidating debt holdings to punish the debtor, would require an illogical willingness to self-inflict losses. The new policies are likely to push for looser monetary measures to stimulate growth and consumption abroad, as well as further reforms that will attract capital inflows and offset the impact of monetary policy on exchange rates. The ECB cut rates again in early April 2025, revising down GDP growth projections for 2025 and 2026 while keeping inflation expectations high, signaling ongoing uncertainty.
In this scenario, the debtor nation could reduce its twin deficits (fiscal and current account), refinance its debt, achieve international growth beyond just services, and lower the long-term value of its debt due to reduced yields and favorable exchange rates. The key assumption here is that the debtor is "too big to fail," making negotiation the only logical course of action. However, recent market movementsâlike the S&P 500 selloff and rising U.S. Treasury yields flirting with 5%âsuggest this assumption may be tested, as investors react to trade war threats and Fed hesitancy.
I remain bullish on oil majors because they offer attractive yields, the current slowdown in consumption is overstated, and OPEC+ retains the ability to manipulate prices if necessaryâa factor that could disrupt the low-yield, low-inflation narrative. As of April 4, 2025, oil prices tumbled to a four-year low due to trade war fears, per Bloomberg, but OPEC+ production cuts from late 2024 suggest potential recovery, with prices last seen around $80/barrel before the drop. Also it is worth noting, that excluding the structural demand shock of the 2020 oil crisis, pipelines and limited partnership have been one of the safest havens during 2000-2001 and 2007-2009 (to the credit of Bill Gross). Furthermore, major supply chain disruptions have usually resulted in a temporary elevation of prices what in the short-term overexert the long term potential demand concerns.
I am also optimistic about the Swiss franc (CHF) because the Swiss central bank maintains substantial gold reserves (~1,040 tons) and the government runs a budget surplus, with debt levels around 40% of GDP in 2024. Recent data shows the dollar strengthened against the CHF by 0.1% to 0.9016 on April 4, 2025, but CHF remains a safe-haven currency amid global volatility.
Additionally, I favor domestic U.S. companies because the American economy and consumer base remain strong and resilient. U.S. GDP growth was 2.5% in 2024, with consumer spending robust, but recent trade war concerns and a hotter-than-expected jobs report in January 2025 have fueled inflation worries, potentially impacting growth projections for 2025.
Finally, a core thesis of the Greek government in 2015 was the need for an alternative currency. If thereâs one more lesson to draw from this, thereâs a place at the table for Bitcoin or other stable currencies if a nation seeks to maintain dominance while devaluing its fiat currency. As of April 6, 2025, Bitcoinâs price is volatile but recently traded around $94,700, up from lows but below its $103,000 peak earlier this year, reflecting investor caution amid rate cut uncertainty.
And as always there is a need to balance between following the price action, and adopting contrarian views that anticipate what no else does.
