"The longer the fuse of Grexit burns, the more likely the whole Eurozone will collapse"

Adina Ardeleanu (translated by Cosmin Ghidoveanu)
Ziarul BURSA #English Section / 10 august 2015

"The longer the fuse of Grexit burns, the more likely the whole Eurozone will collapse"

Interview with Mr. Patrick L Young, CEO DV Advisors

Reporter: How do you see, so far, 2015 from a financial point of view, globally and in Europe?

Patrick L Young: Globally I am worried. The Chinese bubble is bursting, the misguided extrapolation of Quantitative Easing is finally ending in much of the west and we are about to see a huge repricing of debt risk as interest rates rise. We already have a commodity price collapse, are on the verge of a bond bubble collapse and Chinese equities are sickly (albeit after significant Y/Y gains) despite the government essentially nationalising the stock exchange. This challenges the strongest vestiges of my sunny Reaganite optimism! A big dislocation may be imminent and that is a huge concern, as the world economy is not well placed to fight back this time around.

Europe is a brilliant example of the mess the political classes will make when they believe they can somehow ignore the forces of, let's call it 'economic gravity.' The Euro is a political shambles, Greece is being beggared for a miasma of failures both within and beyond its borders. The single currency project is increasingly attempting to bind together multiple tectonic plates with duct tape which are all moving in opposite directions. No matter how strong the bandages, even carbon fibre composite bindings will break under enough strain!

On a broader European level, essentially all governments have squandered the opportunity to make economic reforms, so they are now left to manage decline through a dismally unproductive socialist ethos, as opposed to growing which marks an interesting departure, as western Europe has lost its mojo.

We live in interesting times...and I would wager very volatile ones in the interim period.

Reporter: What is your view on the situation in Greece? What chances do you give to a Grexit?

Patrick L Young: Greece is in a hideous situation. The only sane approach - presuming you do not endorse beggaring the population (which curiously it seems the current Marxist Prime Minister does...) - is Grexit.

The whole affair is a disaster for Europe and Greece. The latter is impoverished, the former looks entirely incompetent and incapable. A third bailout merely renews the fuse of Grexit and the longer the fuse burns, the more likely the whole Eurozone will collapse. The political classes are incapable of evaluating the risks objectively (or are in denial about it). As an entrepreneur and investor, I cannot afford to avoid economic reality in the way the dysfunctional blob of Europe goes about conducting its (to put it mildly) rather disorganised affairs.

Reporter: What investments do you consider to be most interesting at the moment? What estimations do you have for the next period? What events should investors pay attention to, this year?

Patrick L Young: I happen to still like exchanges. We are working on several projects in this area, as the digital world perfectly fits with the benefits of exchanges. These network opportunities are enormous - everywhere.

At the same time, I have a considerable involvement in startups per se and am closely involved in Poland (through a startup group I cofounded "Mission ToRun) and across the world.

Technology is fundamentally interesting and there are huge opportunities for everybody at every age in the current environment. I am however worried about the overall macroeconomic picture and hence have been selling/pruning my portfolio of conventional assets in real estate, equities and so forth. I have no bond holdings right now - in fact I am more likely to be short of bonds/equities currently...awaiting much juicier yields in the near future (I like P2P / marketplace lending for this reason incidentally).

The biggest issue to pay attention to is the state of the world economy. China is in difficulty, the US remains sluggish thanks to the leftward lurch of the Obama administration, yet the US expansion is surely closer to an end for this cycle. Europe is a basket case overall. Sorry I cannot be more optimistic on the short to medium term but look at it this way - we live in a world of opportunity and technology on the horizon is simply incredible.

...albeit we have to work hard to get government to move out of the analogue era and accept our exciting digital future, even at the cost of the upheaval it can create.

Then again that could work hugely to Romania's advantage if we can break the remaining influence of corruption and empower a better, broader meritocratic society for the nation which thrives with a nimbler bureaucracy such as, say Estonia's wondrous digital government...

Reporter: What are at the moment the favorite safe havens?

Patrick L Young: I struggle to find any truly safe havens. Property and physical assets have generally been pushed up by QE. Stocks and bonds can look frothy (globally - I have not had much time to do incremental Romanian calculations of late). Right now I am mostly watching and playing from the short side. I hold a little Bitcoin and am broadly diversified but all investors will need to be nimbler not merely to profit but to protect their wealth in the months ahead, I fear.

Reporter: What is the impact of the conflict in Ukraine on the markets?

Patrick L Young: Currently not much. A rush of geopolitical madness to the head of the stubborn EU has been matched by a stubborn defensive reaction from Moscow. The Ukrainians are left in a limbo of bankruptcy - a bit like the Greeks but more militarised. The affair has not been the finest hour for 21st century international politics.

Reporter: How do you see the asian markets?

Patrick L Young: Dominated by China. The panda has flu, Asia has a problem until it is cured.

Reporter: How do you see the evolution on the Romanian stock exchanges?

Patrick L Young: I am delighted to see how Ludwik Sobolewski has made such progress with Bucharest SE. For the first time in its history the institution is truly beginning to look like a cohesive business where international investors will be attracted. That said, in terms of maturity, Bucharest remains little more than an infant and the danger of backward steps are considerable, especially without government support. I hope Ludwik can continue to build cohesion in the exchange, he has done well so far.

However given that the total number of investors in Romania would barely fill a large football stadium, let's not delude ourselves, this is still an embryonic business and there are huge mountains to climb.

Expanding investor education is clearly just one component to an ongoing approach to build an investor culture.

Reporter: Are you still an investor in Sibex? How do you see this market, from the perspective of the partnership with Athex Clear?

Patrick L Young: I have held a few SIBEX shares and I dearly would love to see that market succeed. However it has no vision, no coherent understanding of the opportunities available to it and thus is adrift in an ocean where fewer and fewer brokers even connect to it - Indeed I think my shares are back in limbo at the CSD after yet another broker quit the market! Exchanges have enormous potential. That SIBEX has comprehensively failed to exploit any of this, is a terrible indictment of dismal management and a missed opportunity for Romania.

Reporter: Would you invest in Romania? Why?

Patrick L Young: Romania remains a people play: marvellous well educated polyglot technologically literate employees. I wish I could employ more of them!

I maintain some investment in Romania, with highly capable staff helping produce my daily newsletter "Exchange Invest" read by the world's market infrastructure executives from the Chairman of the NYSE across the world... Hence I am sold on the potential of investing more in Romania...

...but the bureaucracy and the corruption factors remain wearing. President Iohannis has his work cut out to turn Romania from its current post-feudal approach to commerce into being a vibrant prosperous capitalist democracy. The Romanian bureaucracy is so dispiriting it makes Poland look like an excerpt from Ayn Rand's ideal world - and in reality Poland is pretty sclerotic too! However Romania is just dire to run a business in - expensive, ridiculously bureaucratic and a waste of time that can be used to profit elsewhere. Rampant deregulation is required to reduce the insanity of a system which appears convinced private entrepreneurship is still some sort of anti-social activity.

However, despite that dysfunction and because of the huge talent pool, I would love to invest more in Romania. I am particularly interested in working with startups and we're investigating bringing my crowdfunding entity "HanzaTrade" to Romania too.

Reporter: What is the chance of Romanian exchanges, in the perspective on the Capital Market Union?

Patrick L Young: Capital Markets Union is at that stage where everybody loves it because they all perceive it in a different way. As I put it at the FESE (European Stock Exchange Federation) Convention in Oslo last month: 'CMU is that ravishing dream girl at the prom you have glimpsed from the distance on a perfect midsummer's evening...but once you get up close you may notice she is nether as pretty, interesting or accomplished as you had hoped at first sight.'

CMU is a huge opportunity.

Romania is a nation bursting with opportunity.

The historical record clearly states that both have a severe lack of political ability/will to actually make things work.

...and the EU is coming off the back of financial legislation such as MIFID II which is, like so many "sequels,' a dismally pointless continuation of a once worthwhile theme.

Hopefully it will work out for the best... However when it comes to anything involving the EU, once again my sunny Reaganite optimism is challenged...

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