Bank Cards and Airport Lounges: A Thought

This:

IMG_5595.PNG

Has a lot of people upset.

In and amidst all of the goings-on all over the world, you’d be amazed at how many emails I’ve received suggesting that this should be a post. Accompanied by much forwarding of this moneyweb article: FNB’s incredible shrinking SLOW Lounge rewards.

For The Non-South-African Readers: A Background

My read on this is as follows:

  1. South Africa has four banks that cater to the middle and upper class: First National Bank (FNB), Standard Bank, ABSA and Nedbank. It also has a fifth bank, Investec, that caters almost exclusively to the 1% and the soon-to-be-1%.
  2. Each of the four mass market banks also has a Private Banking arm (FNB’s one is RMB), but I think the general consensus is: if you want good service, and you’re willing to pay for it, then you go to Investec. If they’ll have you.
  3. Investec seems to go after two kinds of clients:
    1. Really rich clients, obviously; and
    2. Young professionals (Chartered Accountants, Doctors, Lawyers, etc) – who aren’t rich yet, but who are a fairly good future bet.
  4. Back when I started my CA traineeship, and became semi-eligible for an Investec account (I was never actually eligible, being an “Eff Tee Aarh” as the Investec Staff informed me, which was their disdainful acronym for a foreign temporary resident), Investec was the bank that gave you airport lounge access with your debit card.
  5. And as you may know, airport lounge access is the sign of real status. When you’re travelling, it’s very important to update your Facebook status with a check-in to the “Bidvest Premier Lounge” or the “SLOW Lounge” or wherever, along with details of where you’re flying to. I know this to be true because I have a newsfeed that is dedicated, in equal parts, to:
    1. Engagement announcements;
    2. Wedding photos;
    3. Gratuitous inspirational quotes; and
    4. Travel check-ins and itineraries.
    5. As an aside – there were actually more parts, but I have generally unsubscribed from anyone issuing instructions to re-share posts “If You Hold Him As Your Lord And Saviour”. Because I’m pretty sure that public piety and guilt-tripping is problematic*.
      *Parable reference: The Pharisee and the Publican. In which the Pharisee was (ironically) doing all the public stuff. 
  6. Anyway. Pretty soon after that, the other banks started to follow suit. In particular, FNB – with their Platinum Cards, which gave you free domestic SLOW lounge access.
  7. The trouble is: this has made the domestic SLOW lounges impossible. FNB was not near as selective with who would qualify for their Platinum accounts. And whatever the SLOW lounge staff might say about kicking out Platinum cardholders when the lounge gets full – they don’t, really. And the whole “exclusive” part of being a more prestigious client (ie. more than just a Platinum cardholder) has rapidly been losing its shine. And I’m sure that the business class passengers have been complaining as well.
  8. So it was only a question of time before those benefits started to fall away.
  9. That question of time has now been answered. And the answer was “From 1 July 2015.”

My Thought

Bank accounts should not be selected based on access to an airport lounge.

If you want lounge access, you can always pay for it.

Here are two alternatives for bank accounts with lounge access:

  1. Get a bundled RMB Private Bank account (which will give you what FNB’s Platinum Card once did, including mostly-unlimited free access to domestic airport lounges); or
  2. Get an FNB Gold Account, and then sign up for a full access Priority Pass for anytime lounge access in almost any airport across the world.

The costs:

  1. Option 1:
    1. The bundled RMB Private Bank account will cost you R399 per month, or R4,788 per year.
  2. Option 2:
    1. The Gold FNB Cheque Card will cost you R100 per month, or R1,200 per year.
    2. The full access Priority Pass card, without the discount, will cost $399 (or about R4,900).
    3. So in total, you’re looking at R6,100 per year. Or R508 per month.
  3. So for an extra R109 per month, Priority Pass will give you access to international lounges as well. Which is less than half the cost of a subsidised single visit to an International Lounge with an RMB Private Bank account.

The Personal Experience

Speaking as a frequent flyer, I’ve had lounge access in three ways:

  1. As an FNB platinum card holder;
  2. As a Priority Pass member; and
  3. When I finally had enough tier points to qualify for lounge access on BA’s Executive Club program.

My experience:

  1. Because it is entirely useless for international/regional flights, I have used my FNB platinum card access maybe once, on a Cape Town trip. And the lounge was full. And I was disgruntled.
  2. Priority Pass was great. I had lounges to choose from and I tried most of them. Also: the whole thing was very clear cut in terms of cost and what I was entitled to.
  3. Having lounge access with BA has been the best (their lounges are excellent). But it does mean that I spend a lot of time working out tier points for my flight bookings. And now, I find that I won’t book flights with any carrier that isn’t part of the One World Alliance, which can be a bit limiting. And I’m pretty sure that I have spent far more in relative terms on maintaining my tier points than I would have with Priority Pass.

As I see it, if you really want the lounge access, the best thing to do is just pay for it separately.

And then pick a bank account that will just be a bank account, and won’t irritate you with rewards and changes to rewards and strange fee structures.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.

Mr Tsipras Wrote A Letter

Disclaimer: this seems to have been the blog post where I discovered gifs. Apologies in advance. I didn’t mean to look like Buzzfeed. Also, might be worth waiting for the page to fully load. Sorry.

Two seemingly incongruent things happened yesterday:

  1. The Greek Prime Minister sent a letter to Jean Claude, Mario and Christine, telling them that Greece mostly accepts the original bailout package, with some small adjustments (read it here); and
  2. Then he gave some speeches asking for everyone to vote “No” on Sunday.

are you serious

The markets apparently “surged” on that news.

really queen

judging you aint gonna happen

Some notes:

  1. Tsipras has said that he’ll resign if the Greeks vote “Yes” on Sunday.
  2. The Eurozone folks don’t like this Leftist style of negotiation – they would welcome a Tsipras/Syriza resignation.
  3. The Greeks will almost certainly vote “Yes” on Sunday.
  4. So why negotiate with a leader that’s just hung himself?

A list of reasons why Greece will likely accept the EU proposals in the referendum:

  1. Back at the end of May:
    1. 71% of Greeks wanted to keep the Euro, and
    2. 68% of Greeks thought a return to the drachma would make things far worse.
    3. Those are not great starting statistics for the “No” camp.
  2. This week, the Greeks are getting a taste of what life could be like outside the Eurozone:
    1. restricted access to money in the banks (even if you’re prepared for it, it’s still annoying),
    2. complete uncertainty about the future,
    3. being led by a government that won’t present a clear picture of what they’re asking/planning/implying,
    4. promises of pensions only to discover that some of those pensions hadn’t been deposited yet,
    5. shortages of fuel (because people panicked about a fuel shortage – so obviously, they filled up their cars and now there are empty petrol stations)…
  3. With Tsipras’ decision to date the referendum for after the bailout expired (in the vain hope that he could get the bailout extended until after the referendum), there’s virtually no need for the “Yes” supporters to campaign. All the reasons for accepting the EU proposals are being lived through this week. And as the week continues, the more we’re seeing the polls swing in favour of a “Yes” vote.
  4. At this point, the only real platform for the “No” campaign is one of national pride. And presumably, the letter was just one more way of trying to incite that (the implication being: “See, even when we concede publicly, they deny us. The Eurozone wants us out, so why should we stay?).
  5. But also, the Greeks (like myself) might have experienced a sway in the direction of a “No” vote last week, with all the talk of blackmail. But in the cold hard light of being temporarily cut-off from the Eurozone, one realises that a “No” vote would put one on the same side as the Golden Dawn party. And also, the referendum requires a very simple answer to a very dubiously-phrased question, with no idea of what the outcome of the campaigned-for “No” answer will mean. So from what I can tell, the majority rules of thumb here seem to be:
    1. Whatever the Golden Dawn would want, vote the opposite; and
    2. When the question is dubious but the government has a very clear answer that they want you to give, vote the opposite.

What That Means For A Deal Before Sunday

From the Eurozone partners’ perspective, they would be crazy to do a deal at this point:

  1. If the Greeks vote “Yes”, then Tsipras will resign and there will be a new set of negotiations with a new government whose overriding mandate will be “politics aside, just accept the EU proposals and implement the reforms”.
  2. If the Greeks surprise us all with a “No” vote, then even if a deal were already signed, it would be immediately rejected as soon as the outcome of the referendum were announced.

So we wait for the referendum outcome.

For older and less flippant posts:

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.

Eskom, NERSA, Load-Shedding, Etc.

On Monday, South Africa’s National Energy Regulator rejected Eskom’s tariff increase application – the one that was needed to fund the cost of load-shedding.

Specifically, the cost of limiting the amount of load-shedding.

This tweet:

Screen Shot 2015-07-01 at 8.20.53 AM

 

When I hear NERSA officials saying things like “We reject this application because it isn’t in line with the multi-year pricing methodology” – I roll my eyes. You don’t reject a tariff increase because you’re feeling fussy about methodology – you reject an increase because that increase is unnecessary. If the increase is needed, and you reject it, then you are being useless.

To be fair, I don’t know enough about electricity pricing to know whether Eskom is or is not getting what it needs at the moment. But from what I am told by people that should know better: the reason that we’re facing load-shedding is because there was not enough money for:

  1. Repairs and Maintenance; and
  2. Capital Expansion; and
  3. Certainly not all at the same time.

Then we reached capacity. And then we started losing capacity due to all the R&M that hadn’t taken place. So Eskom was forced to use more expensive sources of electricity (Open Cast Gas Turbines – OCGTs), and buy expensive electricity from elsewhere (Short Term Power Producers – STPPs), while trying to do the R&M and finish the capital expansion projects.

Which means that Eskom now has to:

  1. Catch up the past repairs and maintenance that it hasn’t done during the years of cheap electricity; and
  2. Make enough to cover the current repairs and maintenance requirement as well as the ongoing capital expansion; as well as
  3. Make enough to cover the short-term expensive power that it’s obtaining/generating in order to limit the amount of load-shedding.
  4. To say nothing of the impact that load-shedding is having on infrastructure and the future R&M requirement (I mean – in my suburb, we had load-shedding twice over the weekend, and twice there were faults when they tried to turn the power back on – and just cast your eye over the City Power Jhb twitter account to see just how widespread that issue has become).

But Eskom must do all this without too much of a tariff adjustment.

Frankly, however you feel about how we got here is a bit irrelevant. The only relevant fact is that the current situation is what it is, and it needs to be paid for if we want to have a national grid.

The way we’re going, I’m not sure that we’re going to have much of a national grid in the near to medium term. Possibly even the longer term.

And I don’t mean in that “If effing Eskom ain’t giving us no effing electricity then it ain’t an effing grid” sort of way.

Consider how South Africans are reacting to the load-shedding situation. It’s in one of two ways:

  1. Those who can afford it are taking steps to reduce their reliance on Eskom (by installing solar panels and generators and inverters); while
  2. Those who can’t afford it are just having to make do.

But:

  1. Those who can afford to reduce their reliance on Eskom are also those people that could pay more for their electricity. After all, consider how much they’re investing in having reliable electricity (tens/hundreds of thousands of rands).
  2. Meanwhile, those who cannot afford to reduce their reliance on Eskom also probably can’t stomach a tariff increase.

Now I don’t know for sure, but I suspect that these two conflicting responses will start to spiral:

  1. As the well-to-do move off the national grid, there is less money flowing to the national grid.
  2. Less money to the national grid means less money for repairs and maintenance, as well as lower credit ratings (which mean higher interest, which makes for even less money for repairs and maintenance).
  3. So the national grid gets more unreliable.
  4. Which incentivises more of the well-to-do to move off the grid.
  5. And the cycle continues, until:
    1. The well-to-do are self-sufficient; and
    2. The less-well-off are supplied with highly erratic power by an underfunded shambolic mess.

If that’s what we want, that’s fine. It’s not especially developmental of us – if anything, it’s many steps backward.

On the upside, we might be greener. And at least NERSA is showing leadership, or whatever it is that the DA is calling it.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.

Should Greece Vote No? Grexit, Stage Left.

Good morning. It’s Default Day, and Greece is now in Restricted Default. Or it will be from midnight tonight. But the poker hand is now all-in – and on Sunday, the Greeks decide whether to fold or call the bluff. Well, more a decision to fold or Fold with a capital Exit.

Starting with the European Commission President

Yesterday, Mr Juncker got up and said some very confusing things about the proposal that the Mr Tsipras walked away from:

He won’t let the Greek people go down…

I will never let the Greek people go down, never. And I know that the Greek people don’t want to let down the European Union.

He’s tried really really hard, guys, and, like, why aren’t you noticing that?

After all the efforts that I have made, after all the efforts of the commission and of the other institutions involved, I feel a little betrayed because people are not taking enough account of my personal efforts and the efforts of numerous other people.

Like, really really really hard.

I have done everything, and we don’t deserve all the criticism being heaped upon us.

And the Greeks mustn’t kill themselves because they don’t want to die (?).

I will say to the Greeks who I love deeply: You mustn’t commit suicide because you are afraid of death.

And always say yes, whatever happens.

You must vote yes, independently of the question asked.

Extremely confusing. Also, a teensy bit of falsehood, possibly. Like saying that there were no pension cuts in the “comprehensive” proposals. Um – I think there were. I read them. They are here in English and here in Greek. Cast your eye down to section 4 (Pension Reform). Raising the health contributions on pensioners from 4% to 6% sure sounds a lot like a pension cut to me… But perhaps, if I squint my eyes and pretend that there is no section 4, then it won’t be a pension cut.

Then Stiglitz and Krugman

Two Noble Laureates in Economics came out yesterday in favour of a Greek “No” vote in Sunday’s referendum. Here is Joseph Stiglitz: How I would vote in the Greek Referendum. And here is Paul Krugman: Greece Over The Brink.

In both pieces, basically this:

  1. Austerity is not working.
  2. The creditors are REFUSING to see that it is not working.
  3. They are condemning Greece to suffer this depression from now until forever – or at least until the creditors decide to restructure the debt. Whenever they decide to do that.
  4. Voting “No” and defaulting will be bad as well – but at least it might give Greece a chance to shape its own destiny.

So I have some thoughts on this.

And the main one being: let’s not understate the impact of a Grexit. For a real world example, have a look at what happened to Argentina in 2002, the last time we had “the biggest default in history”. Argentina’s trade doors closed. To the point where diabetics couldn’t get their insulin because there was no trade corridor through which to import it. There was no money to pay for it, and no legitimate way to make that transaction happen.

Be clear: people will die in a Grexit. Not to be too dramatic about it or anything.

Of course, some people will head abroad for treatment while Greece is sorting itself out – and the Greek diaspora will be sending medications back to their parents and grandparents.

But.

There will still be a large portion of the elderly that will lose access to their chronic medication and hospital care. And many of them will pass away. Which would be, forgive me, but quite the extreme pension reform.

And let’s not pretend that a Grexit would suddenly make Greece a better economy for youth employment. Whether Greece leaves or stays, I think that the youth of Greece will mostly have to emigrate in search of job opportunities.

The point is: we can talk about Greece being able to shape its own future – but that needs to be balanced against the cost.

Those EU proposals…

So let’s talk about the 10 point proposal that Mr Tsipras is calling blackmail, and weigh it up against the Grexit alternative. Firstly, because not all of their proposals are bad. And secondly, because some of their proposals should happen regardless of whether Greece leaves the Eurozone or not.

Here is my summary of what the creditors want to happen (and again, here is the link to their longer version):

  1. Primary Budget Surpluses
    1. Greece must continue to collect more money than it spends (ie. the Greek government must turn an effective profit, before paying off its debts and interest).
    2. It must make a 1% profit margin* in 2015, a 2% profit margin* in 2016, a 3% profit margin* in 2017, and a 3.5% profit margin* in 2018.
      *the non-private sector term for profit margin is ‘budget surplus”.
  2. VAT Reform
    1. Simplify VAT by making the rate for everything 23%;
    2. Except for basic foods, energy, hotels and water, which will be at 13%;
    3. Super-except for medicine, books and theatre, which will be a 6%.
    4. I thought that the theatre super-reduction was weird.
    5. Also, eliminate all discounts and simplify any VAT exemptions in order to make the VAT process easier to enforce.
  3. Fiscal Structural Measures
    1. Tidy up the Tax Code by removing lots of the special-interest group exemptions.
    2. Fix other legislation which creates ring-fencing for special interest groups.
    3. Reduce military expenditure.
    4. Raise the corporate tax rate from 26% to 28%.
    5. Introduce/extend some other special taxes that specifically target the wealthy.
  4. Pension Reform
    1. Basically, make it so that you only become eligible for a pension from the age of 67.
    2. And redesign the pension system so that it’s more self-funded through contributions.
  5. Public Administration, Justice and Anti-Corruption
    1. Standardise public sector wages so that we know what we’re dealing with.
    2. Sort out the department that prepares the statistics so that we get better statistics.
  6. Tax Administration
    1. Get yourselves an autonomous tax collection agency.
    2. Change the wage-garnishing system so that you can collect taxes more effectively.
    3. Do some things to combat fuel smuggling.
    4. Chase tax evasion by checking bank account transactions.
    5. Put in place a plan to get more Greeks to pay with their cards rather than with cash.
  7. Financial Sector
    1. Re-organise the insolvency laws. Because you get good-faith debtors and strategic defaulters – and those two should be treated differently.
    2. Also, get that bankruptcy process moving along a bit faster. Geezlike.
  8. Labour Market
    1. Start looking at changing the labour law – because it seems over-protective.
  9. Product Market
    1. REMOVE THE SPECIAL INTEREST GROUP PROTECTIONS.
    2. Privatise the Electricity Provider.
  10. Privatisation
    1. Privatise everything else.

The big thing that is missing from the EU plan: no mention of any form of debt relief.

My only possible counter to this: some kind of debt relief/restructuring is inevitable even if Greece stays in the Eurozone. There is just no way that Greece can pay back its current debt burden – and I don’t think anyone disputes that. Really.

But as Angela and co keep saying – there can be no talk of debt restructuring until the reforms have been implemented. That doesn’t mean “No restructuring ever” – it rather means “Put these reforms in place – many of which you have already agreed to – and then we can go back to our parliaments and tell them that Greece has changed, that Greece has demonstrated her commitment to Europe, and that we now can and must do the same by wiping that slate clean.

So the Grexit alternative

Some thoughts on what would happen to the conditions of that 10 point proposal in a Grexit:

  1. Primary Budget Surpluses
    1. Well, Greece could now run a deficit.
    2. Only, it wouldn’t be able to borrow money to finance that deficit. It would have to self-finance, either through taxes or through money-printing.
    3. History has shown that the Greek central bank is a dab hand with the printing press, so Greece would certainly get devaluation, and almost just as certainly, high inflation.
    4. The only possible upside: the devaluation might prove stimulative by making Greek exports and tourism more competitive.
  2. VAT Reform
    1. VAT would go unreformed, with 0% VAT on medicines and books.
    2. Except that you probably wouldn’t be able to buy the medicines. At least in the short term.
    3. And in the long term, those medicines would be more expensive due to:
      1. Inflation;
      2. Devaluation; and
      3. Special Interest Group protections (the pharmaceutical industry gets its own special bullet point in the EU proposal).
    4. So whatever the outcome of the referendum, the Greeks will end up paying more for things.
  3. Fiscal Structural Measures
    1. These reforms would be mostly positive.
    2. Without them, the Special Interest Groups would continue to be protected.
    3. And the tax code would stay as it is…
    4. Unless the tax code goes through some reforms anyway, in order to finance that deficit.
    5. At least with the “Yes” option, you might get rid of the Special Interest protections.
  4. Pension Reform
    1. Pensions will devalue in real terms as soon as Greece leaves the Euro.
    2. Pension reform is coming regardless.
    3. If Greece stays, at least the process will be managed.
  5. Public Administration, Justice and Anti-Corruption
    1. These reforms are necessary.
    2. But will they happen in a Grexit scenario?
    3. I doubt.
  6. Tax Administration
    1. Again: positive reforms.
    2. But unlikely post Grexit.
  7. Financial Sector
    1. More positive reforms.
    2. More reforms that are unlikely post a Grexit.
  8. Labour Market
    1. Still more positive reforms.
    2. Still more reforms that are unlikely post a Grexit.
  9. Product Market
    1. And yet more positive reforms (with the possible exception of the privatisation).
    2. And yet more reforms that are even more unlikely post a Grexit.
  10. Privatisation
    1. At least post Grexit, the state-owned enterprises won’t be sold for peanuts, as Yanis Varoufakis keeps describing it.
    2. Only they might. Who knows what a Syriza-led Socialist State might do in the aftermath? There are plenty of Socialist States that have lambasted the West for trying to buy their assets, and then promptly turned around and sold those same assets to China.
    3. But also, a question: aren’t Greek state-owned enterprises basically privatised already? Honestly, I have no idea if that’s the case. But I can’t help but think that the families/individuals that run them are already basically running them for their own benefit anyway. And a privatisation would really just sever state-protection for an essentially private enterprise… But that is complete speculation on my part.
  11. Default on the odious debt though
    1. At least Greece would be able to restructure its debt.
    2. Maybe.
    3. It’s still unclear.
    4. These aren’t private debts any more. They’re institutional ones. And institutions don’t really forget debts involuntarily.

But at least Greece would claim its sovereignty?

Even if it means that your average Greek citizen would now be beholden to internal special interest groups and the political parties that they support…

To summarise

I think that a “No” vote would mean that a lot of useful reforms will never happen; and many of the more odious parts of the EU proposal would effectively take place anyway (like pension reform and the increased cost of basic goods and medicines).

As I see it, this Grexit conversation is happening too soon. Of course Greece must consider exiting the Eurozone if the Eurozone refuses to consider the possibility of debt restructuring – but that conversation should take place after these reforms have taken place.

What I’m hoping for Greece:

  1. The Greeks vote to stay in the Eurozone on Sunday
  2. Syriza resigns
  3. A more moderate government gets elected, and implements most of the special interest group reforms over the next 18 months on the back of the referendum’s mandate (in my mind, that’s sort of the same timeframe during which the Grexit pain would be at its worst – so there’s some ambivalence around the economic situation either way)
  4. At the end of next year or so, Greece goes back to the creditors with a progress report, and asks to discuss debt restructuring to assist with the reform process
  5. Greece then hosts a new referendum
  6. And at least if Greece chooses to exit the Eurozone then, it does so with a more reformed governance system.

I realise that’s a bit pie-in-the-sky. But I can hope.

And if I can offer a pithy reduction of Sunday’s vote*:
*Which is almost a complete revision of my gut reaction to Mr Juncker yesterday

  • Voting “Yes” – means voting for government reform.
  • Voting “No” – means voting for the status quo.
  • The rest…will almost certainly happen either way, in one form or another.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.

Greece: But Why Is There Cash In The ATMs?

So that…escalated quickly.

Although given that the word “blackmail” was being thrown around on Friday, perhaps not that surprising? I guess?

Anyway. Where we now find ourselves:

  1. The Greek government has imposed capital controls, closed Greek banks until Monday next week (at least), halted trading on the Athens Stock Exchange, and generally taken the country into suspense until the results of this coming Sunday’s referendum are in.
  2. The rest of the Eurozone are either berating the Syriza government for declaring a referendum, or beginning to talk about “18” members. Or both.
  3. And the economic commentary has already moved on to discuss Spexit, Itexit, Pexit, and other fun cobbled-together derivations. Which allowed me to post this tweet (I’m very proud of it):

Screen Shot 2015-06-29 at 8.05.22 AM

Twitter, of course, has exploded with quasi-informed commentary. Mostly along the lines of “Bet the Greeks are wishing that they bought gold now, amirite?” and/or “Bank RUN!!!

However.

Many of the ATMs still have cash in them. Or, at least, they had cash in them yesterday. And the BBC can phrase its headline as “Only 40% of Greek ATMs have cash” – but that’s still an infinity percent more than most people were expecting. And as for these ATM queues, here’s a picture from someone in Greece:

Screen Shot 2015-06-29 at 8.15.21 AM

*Laughs out loud*

That is not a queue. That is a Saturday morning!

No no. This*:
*(thank you, my Zimbabwean heritage)

This is what a bank run looks like.

This is what a bank run looks like.

So the bigger question is: why is there still cash in any atm? And where is this bank run?

This graph from Zerohedge:

Greek Bank Deposits

The truth is: the bank run has been happening since, oh, 2009. Because the Greek depositors are not blind.

I mean, would you leave your money in situ after:

  1. Six years of Grexit threats; and
  2. Syriza; and
  3. What happened to all the depositors in Cyprus?

The problem seems to be that many people feel that there should be no money at all left in deposits.

But if you stop to think about it, that wouldn’t be true, really.

The “Possibility Of Capital Controls” Thought Experiment

Let’s say that you were faced with the likelihood of capital controls in the near future, with the possibility of a sudden rapid re-denomination of your bank account into a much lower purchasing power balance (whether through the introduction of a new currency, or through a massive tax on deposits like what the eurocrats did to Cyprus).

What would you do?

At first, you might try and take all of your money out of the formal banking system. But then you’d realise that you probably shouldn’t take all of it out because you have debit orders that need to be paid – and it’s quite hard to pay debit orders when there is no money in your account.

Then you might recall that you have a credit card, and having credit cards requires minimum balances and minimum repayments.

Then you might start asking yourself what capital controls are, actually? They’re limits on transfers abroad, not transfers internally. So you’ll still be able to make local payments by card or by EFT.

And tbh, keeping all your money in a mattress can be cumbersome. And you never know what your unemployed 25 year old son might do while you’re out during the day…

So really, the rational reaction to the threat of capital controls is the following:

  1. Split your bank account in two:
    1. Savings; and
    2. Day-to-day living expenses.
  2. Keeping the savings in your Greek bank account? Not a great idea. Move it out: either into cash, or into assets, or into Germany (or any tax haven other than Cyprus – because that was all fun and games until the Eurozone burnt everyone something hardcore).
  3. Then take out a cash buffer. Because if capital controls involve limiting cash withdrawals, it’d be nice to have some cash on one. Also, that rather helpfully means you can evade VAT by paying for things without a receipt. And given that most Greek shops will only accept cash (other than the large chains), you’re doing that anyway.
  4. The money that you keep in your bank account can now be limited to the sum of:
    1. Your outstanding debts with the bank (because then you can offset your redenominated bank balance against your redenominated debt);
    2. Your outstanding debts to suppliers; and
    3. What you could reasonably spend in a large supermarket (using your debit/credit card) during a mass scramble for value.
  5. And ACTUALLY, if the debt is going to be re-denominated as well (it would have to be – that’s how a currency redenomination works), wouldn’t this be a good time to try and take out some loans?

Where I’m going with this: an orderly bank run doesn’t involve depleting your bank balance down to zero. It involves minimising your exposure to a potential devaluation.

When bank runs are disorderly, it’s because:

aint nobody got time for dat

You take out as much as you can, as soon as you can. Because that is “minimising your exposure” in a hurry.

In Greece, there was no hurry. If anything, there was time to possibly get yourself exposed to some upside, through a little borrowing action. At least, that would have been my plan.

Some Statistics

So I did a bit of rummaging around in the Bank of Greece statistics earlier this morning. As one does.

And I made some graphs.

I want to start with this one:

Greek Savings in Money Market Funds

Greek Savings in Money Market Funds

Now I don’t know what happened in 2004/2005 to spark off the mass decline in Money Market investments by Greek residents (although that might have been around the time that people first started murmuring about the Greek government playing with the statistics for their entry in the Eurozone). But certainly, since 2008, there has not been very much money left in money market funds.

Meaning that: longer term Greek savings have long since fled the Greek banking system. I mean, it’s almost embarrassing just how small that savings balance is. From the heady days of €16 billion balances, down to €0.5 billion at the end of last month. A miniscule 3% of what it once was.

To put that number into perspective:

  • The labour force is about 4.7 million Greeks (as of end March 2015).
  • Money market balances are €550 million.
  • So about €117 per working Greek in a money market account. Or two days of ATM withdrawals under capital controls.

But that’s not really the interesting part.

I also redid that graph from Zerohedge:

Deposits from Individuals and Corporates

Deposits from Individuals and Corporates

And happily, the Bank Of Greece statistics let us break that down a little more:

Screen Shot 2015-06-29 at 11.24.05 AM

So most of the deposits are household deposits. And looking just at the households (who would be leading the bank run charge):

  • In 2013, there were estimated to be around 3.8 million households in Greece.
  • So given that the total household deposits were about €110 billion at the end of May, we’re talking about average household account balances of €29,000.

Seems a bit high, right? Almost as though the Greeks ought to be out there, fleecing those ATMs with cash left in them?

Except for the debt levels of Greek households:

Household Debt

Greek Household Debt

If anything, it looks like your average Greek household is trying to maintain their debt level as high as possible, while taking their deposits out of the system.

So let’s do this:

  • Take the deposits of €110 billion at the end of May, and subtract the €96 billion of outstanding household loans.
  • Why? Because that’s really the “unexposed” portion of the deposits – at least, it won’t be exposed to a new currency (because you’d use the new nominal deposit to offset the new nominal debt).
  • Meaning that the net exposure for households is about €14 billion.
  • Or €3,800 per household.

But let’s be clear, that was at the end of May.

€14 billion is not a completely unfeasible withdrawal in a month. Back in January, when Syriza first came to power, €9 billion of household deposits disappeared.

And based on this Reuters article from June 18:

  • Until June 15, between €200 and €300 million euros a day were being withdrawn.
  • On the three days between June 15 and June 18, €2 billion had been withdrawn (so about €650 million per day).
  • Assuming that rate of withdrawal stayed constant until capital controls were imposed last night, we’re talking about €11 billion in withdrawals in June.
  • Leaving ±€3 billion in household accounts, or about €800 per household.
  • Although, admittedly, that does imply that no money was received into the accounts during June.
  • But I’m assuming that there was partial offset in both accelerated withdrawals in the last week, as well as slightly higher general spending (wouldn’t you go and do a big grocery shop if you’re worried about not being able to draw cash?).
  • In any case, a household can spend €800, €1,000 or even €3,000 in a hurry. They might struggle a bit if everyone is doing it. But they’d get most of their money’s worth.
  • Also, if you wanted, you could shuffle the money between the household accounts and to your grandparents’ and start hauling out €60 per person per day. If there are 5 of you, including the grandparents, you’re doing €300 per day. I mean – you could find a way to get the cash if the bank balances are minimal.

My main observation is this: there’s still cash in the ATMs because there’s not really a need to draw any. That die was cast months ago. The only time you need to keep drawing money is when you receive more into your account (like the pensioners receiving their pensions this morning).

More concerningly, you might find that there’s a vested interest for some in a default and Grexit.

Consider: if you’re in a net debt position, a Grexit could mean that your domestic debt burden gets chopped down in swathes by a devaluating drachma…

I’m just saying that this would not be the first Greek flirtation with currency chaos. And the mentality for dealing with that chaos, and the distrust that came with it, are almost certainly still there. Paying attention and planning.

PS: if you want to read something that should concern the rest of Europe, check out this article. Worth your time.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.

Blackmailing Greece

I wasn’t quite ready to write this post – but given the deadlocks and failed meetings and Monday deadlines (aren’t we all just so tired of all these deadlines?) – I thought that I’d better get in there one more time, in case Monday is a complete blowout.

First off, Greece is still going. I was there last week, soaking up the late Greek island evenings and eating an embarrassing amount of sun-ripened cherries.

And apart from some lingering concerns about being able to draw money at an ATM (I didn’t try – because the ATM informed me that there was a 5% withdrawal fee for cash before my own bank’s charges), everything seems to be trucking along. And for all those foreigners panicking about domestic bank runs, I didn’t see any.

Of course, I think that’s because:

  1. Greeks tend to keep their money out of the formal banking system (you’d be amazed at how hard it is to pay for things by card – most business-owners hail from the “cash only” school of business); and
  2. Most of the money has already left – if any Greek is caught by surprise in this, shame on them. There has been a good six years in which to take measures against the possibility of default.

I did see the preparations happening for the Syntagma Square protests on Sunday evening. Some pictures:

Food trucks and press trucks. We're ready.

Food trucks and press trucks. We’re ready.

Early warning signs...

Early warning signs…

Panoramically prepared

Panoramically prepared

Do buy a flag.

Do buy a flag. Or some corn on the cob. Or nuts.

Collect your placards here

Collect your placards here

Protesting is hungry work. Here, a souvla. Have one.

Protesting is better with a souvla. 

Looking festive

Looking festive.

But despite how fun the protests look, and even though the cafeneios are full and the metro system is abuzz, you can definitely see that things are not well:

  1. The relatively well-to-do are drinking coffees in the cafés, not eating meals.
  2. The restaurants are full of empty tables on Friday and Saturday nights.
  3. There are pensioners begging on the streets and on the underground.
  4. The only flourishing businesses seem to be lottery ticket salesman and betting houses (I counted three of the same chain in the same 800m stretch of road).
  5. There is a mass profusion of €1 stores and discount supermarkets.

Admittedly, I did see some street parties in central Athens. But I would ask why the parties are on the streets and not in bars; and also why all the twentysomethings are out on the streets on a schoolnight.

As an overall impression, to me it seems that the Greeks just want some kind of a decision to be made already.

Yes, they want to stay in the Euro. And yes, they don’t want austerity. But actually, I suspect that the biggest factor at play is fatigue. The economy is sitting on a knife-edge of being in or out of the Eurozone – and it’s been slowing bleeding on that knife-edge for the last half a decade.

For what it’s worth, I think that this is the most important graph that you need to look at:

Let’s repeat that graph a few times from different sources:

Every time the IMF, the ECB and the European Commission have insisted on a program, and made a prediction of the impact of that program on the Greek economy, they have been wrong.

Deeply wrong.

To be clear, the Greek government has returned to a primary budget surplus. They are spending less than what they collect in taxes. They are doing what the Troika suggested. They are attempting to live the conservative ideal.

But it is not working.

So when the IMF and the European finance ministers get all aggravated about the Syriza negotiating tactics – I want to know where the acknowledgement is that their own programs have failed to deliver on their predicted outcomes.

I just do not understand the unrepentant insistence on more cuts when none of the existing cuts have delivered what they were meant to. Especially when the IMF says things like “We won’t accept the more aggressive tax collection measures in the Syriza proposal – we will only accept more cuts.”

To quote Paul Krugman (reluctantly):

At this point it’s time to stop talking about “Graccident”; if Grexit happens it will be because the creditors, or at least the IMF, wanted it to happen.

You should read his blog post on this: “Breaking Greece“.

Also, check out this piece from the Guardian: Greece is being blackmailed.

To be honest, I’m beginning to agree with the people saying that the short-term pain of a Grexit might be the lesser evil for Greece.

As for the rest of the Eurozone – they’re not nearly as prepared for a Grexit. For their sake, I hope that they’re right about the impact it would have on them.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.

Airbnb: Why Hotels Will Be Fine

For my brief stay in Beirut weekend before last, I used Airbnb. For the first time.

In case you’ve never used it before, some advice:

  1. DO NOT START BY MAKING A BOOKING ON AIRBNB.
  2. Because, as you make a booking, Airbnb will reserve money on your card. Instantly. As in: *Clic-receivesnotificationmessagefrombank-k*
  3. Except that making a booking on Airbnb does not mean that you have made a booking.
  4. What it means is: you have tried to book the apartment that you found and liked. And the host of said apartment still has complete autonomy to decline your booking.
  5. And when they decline your booking, you get this:
Airbnb Voids My Reserve

Well – AS LONG AS IT’S IMMEDIATE ON YOUR PART

And to be clear, “declined bookings” can happen for any of the following reasons:

  1. The host has forgotten to tell Airbnb that the place isn’t available.
  2. The host has a friend coming to stay.
  3. The host might be going away but isn’t sure yet.
  4. The host forgot to reply to your booking request in time.
  5. The host didn’t like your profile picture.
  6. The host suspected you of being a weirdo.
  7. The host thought that you might try to steal something.
  8. *insert whatever reason you like*

After getting hit with reserves and declines twice (shame on me) – I realised that what you have to do is make contact with the host first, and let them issue you a booking invite.

Which I did do, eventually. And lucked out with an amazing host and an amazing apartment and basically, I was the envy of all the Lebanese people that came to visit en route to wherever we were going.

However, some observations:

  1. Airbnb – not that much cheaper than a hotel. SORT OF THE SAME PRICE, REALLY. The main difference: you might get slightly more room with Airbnb, and it feels like you’re living in the city.
  2. That said: “living in a city” comes with all sorts of consequences, like plumbing issues, strange smells, not-double-glazed windows, mediocre air-conditioners, and having to clean the dishes and make your own bed.
  3. Which is cool if that’s what you want from your holiday.
  4. But that’s not what everyone wants from their holiday.
  5. Because hotels come with turndown service and rooftop swimming pools and helpful receptionists in the lobby.

Which is part of the reason why I think that Airbnb is not going to be nearly as disruptive as investors think. I will still be using hotels when I travel – except where I’m wanting a more “authentic” experience. For example: New York. I think I definitely want to experience New York as a New Yorker. That would be cool.

But that’s not the only reason why I think that Airbnb is destined to become an adjunct to the main tourist parade. The other reason has to do with my visit to Greece.

While I was in Greece, I stayed in hotels. But when I wandered through the Psirri district in Athens in search of awesome Greek-hipster restaurants (and said restaurants were located – just for the record), what I saw were blocks of Airbnb apartments. They looked fresh and vaguely Scandinavian, with minimalist lobbies and much gratuitous glass. But basically, we’re talking about blocks of rooms, dedicated to tourists.

Also, from my brief foray onto Airbnb for Athens, some of those apartment blocks now come semi-serviced. With perhaps a 24 hour number that you can call for help with any problems in the room.

Hmmm.

A block of rooms that are dedicated to tourist “rentals” that come furnished and semi-serviced?

I’m sorry – but those are hotels.

Which makes me think that Airbnb is headed in roughly the same direction as that of PrivateProperty and Property24. Those were meant to cut out the estate agent middle-man. But they really ended up being mostly just another advertising platform for estate agents.

And Airbnb? My bet: those Airbnb apartments are going to start looking a lot like hotel accommodation. After all – if you’re now paying similar prices, would you settle for less?

And on the plus side: hotels are a lot less likely to decline your booking because you didn’t sound, I dunno, cheerful enough in your introductory message.

But I could be wrong. And in the interim, here’s an infographic:

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.