April 2014

STANSBERRY INTERNATIONAL

How to Capture ’s Huge Upside… Now That the Police and Protestors Have Stopped Fighting

For a brief few seconds, it suddenly hit me where I was. “which means crossing through the protesters. But it’s peaceful, and you’ll be fine.” A few feet to my left, a row of riot police in helmets stood with their shields up in my direction. To the right stood the He was right. I walked right through the middle... As I front line of protesters. passed through that 30-yard gap, it dawned on me how things can turn around, how a couple of years can make a Last Wednesday morning, the streets in the center of huge difference in perception. were closed to traffic. I was crossing Syntagma Square, in the center of the city right outside the The strikes and protests continue in Greece... but they’re Parliament building. Syntagma remains the site where peaceful now. At least that’s what I saw. And it’s what the thousands of Greeks gather to protest against austerity Greek people I met also told me. measures. Last week, all the news in Athens was on the pending But two years ago, at the height of the Greek financial €3 billion ($4.1 billion) five-year bond issue. Its success crisis, the 30 yards of open space between the police and was considered a slam dunk prior to the issue. And by protesters might have been the most dangerous ground Thursday, the news confirmed it. According to one report, in Greece. There’s no way I could have walked through a over €20 billion ($27.5 billion) poured in from investors similar protest like the one assembled in Athens last week. wanting a piece of the action. Most expected to see a yield Two years ago... I would have been minutes away from somewhere between 5% and 5.25%. The government had witnessing violence in the streets. said it would be delighted with a yield of less than 5.3%.

Not today. No physical confrontation looked apparent or Given the massive demand, the yield came in lower, with imminent. I felt completely safe. the average yield expected to be around 4.95%.

As I walked through the gap... looking at the armed police, This is the first long-term Greek government bond issue then at the hundreds of Greeks chanting and waving since the European currency union suffered its 2010 their protest signs in front of Parliament... I recalled my financial crisis. Yes, the funds raised by the issue are a taxi driver’s advice as he dropped me off a few moments fraction of the country’s €328 billion ($454 billion) total earlier. debt, according to the National Debt Clocks website. And the interest rate is higher than the financing it pays its I was on my way to a meeting. And the taxi driver had lenders through its bailout arrangements. But its success is gotten me close to where I was heading when he stopped more about sentiment, confidence, and more autonomy... the car and said if I wanted to be on time, I needed to walk than simple economics. from there. “You’ll have to cross the square,” he said, Stansberry International Global Navigator

Real Interest 2014 Est. 2014 Est. 2014 Est. Country EV/EBITDA* Div. Yld. Rates P/Sales P/Earnings P/Book Value Greece 7.6% 0.7x 8.3x 25.9x 1.2x 1.9% Argentina 7.4% 1.0x 7.1x 12.9x 1.7x 0.8% Brazil 6.6% 1.0x 7.9x 10.4x 1.1x 4.2% Portugal 4.2% 0.8x 7.7x 24.6x 1.5x 2.9% Colombia 3.7% 2.2x 8.1x 15.3x 1.7x 2.8% Poland 3.3% 0.9x 6.3x 13.8x 1.3x 4.4% Spain 3.2% 1.2x 7.9x 15.9x 1.4x 4.5% New Zealand 3.0% 1.3x 10.5x 18.0x 1.9x 4.1% Italy 2.7% 0.6x 6.1x 15.3x 1.1x 3.2% Ireland 2.7% 1.1x 12.3x 17.7x 1.8x 1.9% * Based on 12-month trailing data The Greek government needed to show its ability to standards make using price-to-earnings ratios or price-to- raise cash in the open markets, and that it has made giant book-value ratios unreliable. steps toward a recovery over the past couple of years. A successful bond issue confirms investor confidence is Looking at the chart, in general, we’re interested in returning to the debt-troubled nation. countries that appear in the upper-left quadrant. (We’ve circled our “sweet spot.”) That’s where real interest rates And it suggests that if the Greeks can finance their own debt are high and stock prices are low. in the open markets, they can start to refinance their debts owed to the “Troika” – the European Union (EU), European Greece continues as the clear outlier on the chart, with Central Bank (ECB), and the International Monetary Fund. real interest rates at 7.6%. That’s down a bit from last As Greece becomes less reliant on the bailout financing, month and reflects the improved confidence lenders have it can operate with more autonomy and without the strict in the country. austerity measures placed on it by lenders. Brazil makes way for Argentina in second position with This month, we returned to Greece to visit companies that its real interest rates at 7.4%. But we should point out had popped on our radar. Each time we visit places and talk that Argentina recently changed its methodology for to people on the ground, we often find new ways we can calculating inflation... invest. This trip didn’t disappoint. We’ve come away with a The recent figures show inflation at around 3.4%. When number of opportunities we’re looking at in further detail. looking at a composite of contributors to Bloomberg This month, we’ll cover what we believe provides an economic forecasts, the general consensus is that inflation excellent opportunity to invest in the Greek recovery. We is more likely running above 10%. The Wall Street Journal think we’ll continue to see improvement in the economy. wrote this week that if we extrapolated the February CPI And we believe we’ve found a couple of ways that we figures out for 12 months, the compounding effect on could make enormous returns over the next few years as inflation would be around 49%. However, the newspaper things continue to improve in the Hellenic nation. pointed out massive distortions occurred at the beginning of the year when the country began devaluing the peso. For now, Before we get to the details, let’s check in with what our we’ll use the official Argentine rate, but we will monitor the Global Navigator is telling us... country’s reports over the coming weeks and months.

You’ll find our Stansberry International Global Brazil sits at No. 3 on the table with real interest rates at Navigator on p.2. This set of charts and tables is like our 6.6%. That’s down almost a full percentage point from last investing GPS, pointing out where we can find value and month. Remember, its cost of credit has shot up by more potential uptrends across the world’s markets. than a percentage point since October. Its central bank recently lifted its overnight base rate by another quarter To start, please note the Stansberry International Value percentage point to 11% as it tries to fight inflation. Monitor chart and table. They compare various countries based on their real interest rates (we measure real Italy creeps back onto the table this month. And Russia interest rates by taking the yield on the 10-year bond and – which was our new entrant into the top 10 highest real subtracting inflation) and the value of their stock markets interest rates last month – drops out of the table this (as measured by the average 2014 estimated price-to-sales month. ratio of each country’s benchmark stock index). Greece’s stock market hit a bottom around mid-2012. As we mention in the primer that accompanies this service Since then, it has climbed steadily and is now up around – “The Stansberry Guide to International Investing” – 140% from its 2012 lows. We know that is a huge gain in we’re looking for outliers. We want the countries with just under two years. But please keep in mind, it is still the highest real interest rates and the cheapest overall down more than 75% from its 2007 highs at just over the stock market. 5,200 mark. By comparison, the S&P 500 is about 22% above its 2007 highs. History tells us that when extremely high real interest rates coincide with super-cheap stock prices, a big market We think the Greek market has plenty of potential to run upswing is imminent. much higher from here. Its overall market trades at just 0.7 times sales. For comparison, the U.S. benchmark S&P 500 To facilitate an easy comparison, we value all markets trades at 1.6 times sales – more than double the Greek market. on their price-to-sales ratios because varying accounting Below, we’ve compiled a list of the top 10 companies little more than 5% – half the rate of only four years earlier. that trade on Greece’s major index, the Athens Stock Exchange (ASE). We’ve listed the companies in order of During the first eight years after joining the euro, Greece’s index weighting. economy grew at an exponential rate. Gross domestic product (GDP) more than doubled from around €105 The Greek economic crisis is well-documented. We took billion ($145.5 billion) in 1998 to reach €233 billion ($323 a turn recounting the country’s descent in our first “beta” billion) 10 years later in 2008. Then the party came to test issue. We encourage you to review it at http://www. a grinding halt. GDP is down about 22% from its 2008 sbry.co/3mdjdg. highs, as you can see in the following chart.

So we won’t recount all of the history this month... We’re more interested in its recovery. And we have a number of indicators to share with you that show us that things are starting to improve.

In just a couple of weeks, it will be four years since the then-finance minister for Greece announced the country had accepted an international bailout that included tough austerity measures.

Greece’s financial crisis was simply a story of too much debt. The introduction of the euro currency made credit cheap for Europe’s weaker economies. And Greece took full advantage... Since 2010, the country has received €240 billion ($330 To give you an idea, back in 1998, before it joined the euro, billion) in bailouts from the Troika. Private investors yields on the 10-year Greek bond were more than 10%. The had to take a haircut... in some cases up to 75% of what euro became official currency in January 1999, although they were owed. And refinancing was agreed to at lower coins and bank notes didn’t hit the streets until January interest rates. The yield on the 10-year bond soared to 2002. By then, yields on its 10-year bonds were down to a more than 35% at one point midway through 2012. Pundits were calling for Greece’s exit from the euro and even a We believe this to be the case in Greece. breakup of the common currency. To understand what we mean, let’s look at what some That was right around the time when ECB chief Mario indicators are telling us... Draghi made his famous statement: “Within our mandate, the ECB is ready to do whatever it takes to preserve the A Recovery in Motion euro... believe me, it will be enough.” Consider the country’s GDP. As you can see in the As part of Greece’s bailout, its lenders, the Troika, forced following chart, fourth-quarter GDP last year declined the country to adopt tough austerity measures. And while by 2.3% compared with the year before. And fourth- we believe we are starting to see signs of a recovery... quarter 2012 GDP was 4.9% lower than the same period the government still has plenty of work ahead before the of the year before. And in 2011, fourth-quarter GDP was nation can say it is on the road to prosperity. about 8% lower than in 2010. The Greek economy is still The protests we saw last week indicate that many of contracting... but the trend is improving. Forecasts indicate the working population are still facing tough times. But the recession should end by the end of 2014. talking with retailers, restaurateurs, and financial experts in Athens also confirmed most people feel the worst is behind Greece.

Some of the data are showing optimism, and that the country’s economic woes are lessening. Things are improving slightly... Things are, as we like to say, a little less bad.

And remember, despite the economic trouble, Greek businesses are still engaged in plenty of economic activity. Even after the crisis, the country’s GDP is still more than double its pre-euro days. Despite the government’s debt problems, the private sector will continue to do business. The country’s current account has also improved immensely, last year reporting a surplus earlier than While the stock market is up more than double from its expected. The current account provides a simple measure 2012 lows... we believe it has a long way to run over the to see how much money is flowing in and out of a country. next few years as Greece gets back on its feet. The components making up the current account include As so often occurs in a crisis, market prices can drop the balance of trade (imports and exports), together with lower than anyone can possibly imagine. As we’ve net income (salaries, investments, etc.) and any unilateral mentioned before in these pages, this is where we can find transfers such as foreign aid. The balance of trade outstanding opportunities as investors. Remember, we generally makes up a large portion of the current account want to invest as places that are coming out of a crisis. calculation. In essence... it shows us whether a country is We want to get in when things are still cheap... but the earning more than it spends. And right now, Greece is... economy is starting to improve. We’ll pocket healthy Imports have declined, largely thanks to reduced demand profits as we ride the trend back to normalcy. from a shrinking economy and recent fuel destocking.

Greece’s Economic Crisis 2007 2008 2009 2010 2011 2012 2013* GDP ($ billions) $305 $342 $321 $292 $289 $249 $251 GDP per capita ($) $28,505 $31,963 $30,000 $27,290 $27,009 $23,271 $23,458 Unemployment 8.1% 7.9% 10.3% 14.2% 20.7% 26.0% 27.5% Budget Deficit % of GDP -6.5% -9.8% -15.7% -10.7% -9.5% -9.0% -4.1% Public debt as % of GDP 90% 97% 113% 143% 165% 157% 175% Source: Bloomberg *2013 figures are estimates And despite a recent tick down, the overall trend for of €13.2 billion ($18.3 billion). Tax revenues did, however, exports has been up since the lows of 2009. These two come in about 4% lower than targeted. Nevertheless, factors have contributed to the country recording an improvements in revenues and cost cutting are additional accumulated current account surplus in 2013. signs that the austerity measures are starting to bear fruit.

The current account reached a 0.7% surplus of GDP, which Manufacturers are also gaining confidence... The from the data we have available is the first time since 1980. below indicator measures manufacturers’ production Major Greek bank says it is the country’s expectations relative to their sector, including the status of first current-account surplus since 1948. Either way, that’s their order books, production activity, capacity, and their an impressive feat. prospects looking forward.

As you can see in the below chart, manufacturer confidence levels are on the rise. The index is now well above the equilibrium point of zero and climbing. We’ve spoken with manufacturers in the region who said manufacturers have made the necessary cuts and renegotiated labor contracts. In effect, Greek manufacturers are becoming more competitive, which should send more business their way in the coming months and years. It’s not at levels seen prior to the crisis, but it is up from the lows seen in 2009 and 2012. This is a positive sign for the overall sector.

The government budget also improved faster than Tourism is also a key industry in Greece, which is seeing expected as it recorded a primary surplus of about €600 million ($830 million), according to a Piraeus Bank report that cited Ministry of Finance Figures. Now, the primary surplus doesn’t take into consideration interest payments, but this is a significant step in the right direction. Greece met its target a year ahead of schedule. This sends positive signals to its lenders and the overall market that the government is taking appropriate steps to slash costs and boost revenue.

In a report out this week, the Wall Street Journal reported that data for the first quarter this year was also positive, with government revenue coming in at €12.7 billion ($17.6 billion), which is up from €12.3 billion ($17 billion) for the an influx of additional travelers and increases in spending. same quarter last year. Spending came in at €12.3 billion ($17 billion), which was also down from last year’s figures Last year, more than 20 million travelers poured into Greece from all over the world. According to data from the Bank of Greece, the county’s central bank, about half come from the EU countries. Most of the rest came from nations like Australia, Switzerland, Russia, the U.S., and Canada. The total number of visitors is up from a little less than 16 million in 2008 before the crisis hit. It dropped for a couple of years then started to climb again in 2011 and hit new highs last year.

Again, we expect this trend to continue, which bodes well for the overall economy as tourists spend their cash. Overall activity creates extra jobs and boosts the economy.

And finally, when we look at economic sentiment, things appear to be improving. Looking at yields across 24 developed nations around the world today, the average rate is 1.6%. According to The following chart shows the results of surveys the Bloomberg, New Zealand is next at 4.25% and Australia at 3.3%. Even Portugal, which received its own bailout, is only offering 2.5% on its five-year bond today. And Spain is down at 1.7% – less than half a percentage point above the U.S. Germany offers 0.6% on its five-year bond today.

When you take into account inflation... even if the officials say it is less than 1% in places like Germany, you’re underwater at these levels. So you can imagine, a 5% yield is appealing to investors wanting to park large chunks of cash.

Still, the austerity measures imposed on Greece are starting to improve the country’s finances. And investors European Commission conducts with local consumers lined up with billions in hand are a vote of confidence. The and business executives. It incorporates data from auction attracted more than €20 billion ($27.7 billion) for the industrial, services, and retail sectors, as well as an offering of just €3 billion ($4.2 billion). consumer-confidence figures. The survey includes Yields on the secondary bond markets have also dropped questions relative to each sector (for example, industrial substantially from their peak a couple years back. The questions relate to production activity). The answers official rate on the 10-year bond is now trading around are then compiled to form the below index with a mean 6.1%, down from more than 11.5% only a year ago. valuation of 100. Again, the Greek recovery is only at the start of a long Sentiment is still much lower than during the pre-crisis journey. But all the indicators are giving positive signs. If years in the early to mid-2000s. But it too is well up from the government can continue with reforms, conditions for the bottoms of 2009 and 2012. businesses will improve. And that will create employment As we mentioned at the outset, the Greek government and increase demand and consumption. Who Stands to Gain as the Economy Improves

We think buying Greece’s largest and best banks offers some of the greatest opportunities in the market today.

Many readers will find it difficult to bring themselves to invest in banks from broken-down countries. The thought of it goes against the grain of most people when they’ve seen an economy break down and stock prices decimated. It’s tough to overcome the fear factor when a stock has dropped by more than 90%. And it’s also tough when markets have been saying that these banks will fail. issued its first lot of five-year bonds last week. The issue So let us explain our viewpoint and thesis. was a huge success for the government. When the sovereign crisis hit Europe in 2011/2012, many We agree it is a positive sign for the country. But before we banks were in debt way over their head. It’s a little like get too carried away with the euphoria, let’s keep in mind when Warren Buffett says it’s only when the tide goes out that yields around the world are now at historic lows. A that “you know who’s been swimming naked.” In 2012, 5% yield might sound paltry (especially considering where we learned a lot of banks in weaker European countries they were just two years ago). But it looks huge compared (Portugal, Ireland, Italy, Greece, and Spain – known as the with what the debt of other stable economies yields. “PIIGS”) were swimming naked. But as the cleanup in these markets took hold, countries Below is a table of the four banks with some comparable created a systemic banking structure. Some countries metrics. (like Spain) created a bad bank where they could dump Greece’s Systemic Banks Overview a lot of their toxic assets, including properties and bad Alpha Piraeus National Bank Eurobank loans. They also rounded up all the insolvent or poorly Bank Bank of Greece run banks and either merged them, sold them off to Market Cap € 8.6 € 10.5 € 7.0 € 2.1 larger more solvent entities, or broke them up and sold (Billions) off the pieces. Foreign investors – including billions Assets (billions) € 73.6 € 92.0 € 111.0 € 77.0 of dollars from U.S.-based hedge funds like Apollo, Deposits (Greek 20% 29% 26% 19% Blackstone, and Cerberus – have poured into these market share %) Loans (Greek market countries making the most of bargain-basement prices 23% 30% 19% 20% in properties and distressed debt sitting on banks’ share %) balance sheets. Loan / Deposit ratio 122% 111% 121% 110% Nonperforming Loan 34.9% 34.3% 28.6% 30.74% What’s left are national flagship banks – like the (NPL) Ratio Spanish giant Banco Santander (SAN.MC) that Core Tier 1 Ratio 15.9% 13.9% 10.3% 11.3% we recommended in January. These banks typically Price-to-Book Ratio 1.0 1.1 1.3 0.7 dominate the banking system in their relative country. Loan Coverage Ratio 54% 51% 56% 50% They hold the majority of the deposits and loans. The HFSF Shareholding 71% 67% 84% 93% country depends on them. Without them, the financial Capital requirement system breaks down. from stress test € 262 € 425 € 2,200 € 2,800 (millions) Investing in banks allows us to take part in the Source: Bloomberg overall economic recovery. As the country returns to normalcy, banks participate in almost all facets of Shares of all four banks are down heavily from their the recovery. Deposits grow. Individuals and businesses respective 2007 highs. Eurobank is down 99%, National spend and borrow more, allowing the bank to increase Bank of Greece 98%, Piraeus 98%, and Alpha is down 91%. its loan book. That in turn generates profits from the margins for the bank. We know... those numbers sound scary. But when you consider the consolidations that have already taken place, We also expect to see major projects develop in the the improved efficiencies, and the growth potential... we country due to privatization, particularly in infrastructure, think the situation gives us incredible upside potential. which will also give banks the opportunity to attract foreign investment and participate in funding requirements Remember what we just said... when and where conditions are suitable and appropriate. We think investing in selective banks is a great way to Which Banks Will Benefit capture an overall improving economy. We think the from the Recovery improving macro environment will give some (and maybe all) of these banks an opportunity to take advantage of the Greek’s banking system has undergone significant huge growth the country could experience over the next consolidation. few years as Greece returns to normalcy.

Unlike Spain and Ireland, Greece so far hasn’t created In this economic environment, we want to buy the national a “bad bank.” Instead, it has established what Greece flagship banks that hold large customer deposits and loan considers four “systemic” banks: , portfolios. And we want to select the banks with the most Piraeus Bank, , and . high-quality capital... known as “Core Tier 1 Capital.”

All four banks are majority controlled (to varying degrees) As we mentioned in our January issue, deciphering by the Hellenic Financial Stability Fund (HFSF). We’ll the different tiers of bank capital can be arcane. And talk more about that in a minute. The HFSF was set up in new regulations are coming into play with Basel III July 2010 as part of the bailout to maintain the stability of international standards, which are being phased in over the the Greek banking system. This means ensuring adequate next few years and come into full effect for 2019. You’ll capital ratios for its banks. see more banks reporting on Basel III requirements over the coming months and years as central banks undertake stress tests and outline those requirements. For now, we’re mean paying 12% this year... 14% next year, etc. It makes using Core Tier 1 as the highest quality. perfect sense for the bank to redeem these shares and eliminate high interest rate premiums moving forward, The Greek central bank – which was supported by the especially now that it has proven its ability to go to the financial consulting firm Blackrock Solutions – recently open markets. performed a “stress test” on its banks to assess their capital requirements. And we have factored these results Piraeus was next best on the capital shortfall, needing to into our analysis. raise €452 million ($620 million). It, too, recently issued new shares raising €1.75 billion ($2.4 billion) in new capital. The other thing that can undermine a bank’s performance Likewise, it plans to redeem €750 million ($1 billion) in is its nonperforming-loan (NPL) portfolio. How the preferred shares, held by the state that carry a 10% annual banks manage these portfolios of bad loans influences interest rate. At the end of March, Piraeus also successfully their overall performance in coming months and years. raised €500 million ($690 million) in the international debt And if banks can turn around some of these NPLs into markets on three-year 5% unsecured notes. performing loans, we could see net profits soar. And that is where we see huge upside for these banks. Both these banks are showing the best capital ratios under the stress tests and the best ability to raise cash. As you can see from the table on the previous page... all four banks have horrendous levels of NPLs. But from Now, you should know that Eurobank announced just last looking at the most recent results, the “NPL formations” week its plan to raise €2.8 billion ($3.8 billion). Bloomberg are slowing down at each of these banks. By that, we mean reported last week that the National Bank of Greece the number of additional loans that are 90 days past due planned to raise €2.1 billion ($2.9 billion) in capital, is coming down. This doesn’t mean the NPL figures are pending the approval of its board. declining yet. But it does indicate that, failing any drastic change in the trend, we should be nearing a peak in the Both of these banks may be successful in raising additional banks’ NPL numbers. cash and may make good investments. But based on the data available today, we consider both Alpha and Piraeus Alpha Bank stands out. The total value of its NPL to be better-capitalized banks, which provides more formations fell €352 million in the fourth quarter. And its security. They are both fundamental to the banking system year-over-year numbers dropped by half. The other banks in Greece, have acted swiftly in raising cash, and are are also on the decline, but Alpha was the only bank to improving operations. We think recent investor confidence show a negative number in its latest results. in their share issues warrants consideration for our capital. The Best of the Bunch We met with both Alpha and Piraeus banks and reviewed their annual reports, results from stress tests, NPLs, and Looking at all the data from the four banks, we consider what plans and procedures they’re putting in place to the best of the bunch to be Alpha Bank (ALPHA: AT) improve operations and get their banks back to producing and Piraeus Bank (TPEIR: AT). profits for their shareholders.

And here is why... Cost reduction in funding and operations is the priority for these banks. Both demonstrate a plan to improve Results from the recent stress tests proved Alpha Bank operational efficiencies and return the bank to profitability. needed the least in capital requirements. It recently issued Their reports indicate that NPLs should peak this year. €1.2 billion in common stock to cover the relatively small €262 million shortfall and enlarge its capital base. It plans We mentioned earlier that, so far, Greece has not gone to use some of the funds to pay back €940 million ($1.3 down the “bad bank” route. Instead, these banks will billion) to the government to liquidate some outstanding manage their NPL portfolios through special business preferred shares, which also eliminates the expensive units with specialized personnel and resources. As we’ve interest payment the shares yield. already said, once banks are able to manage their NPL portfolios with a degree of success... and ideally start The preferred shares attracted a 10% annual interest turning these non-performing loans into performing payment and have a 2%-per-year step-up feature if the loans... profits could soar from here. shares are not redeemed after five years... which comes due this May, according to corporate filings. That would Piraeus has integrated six banks over the past 18 months, closed unnecessary branches, and reduced headcount and there is a lot more potential in this stock. Piraeus remains operational overhead. It expects substantial cost savings about flat with its share price last year. So far in 2014, from these integrations. That should be reflected in the Alpha is up 8% while Piraeus is up 13%. bottom line starting this year. Piraeus has an international presence with subsidiaries in Romania, Bulgaria, Albania, You should also know that all European banks will Ukraine, Serbia, Egypt, and Cyprus. It also has one branch undergo stress tests later this year. Those are separate in both London and Frankfurt. More than 80% of its from the ones overseen by the Bank of Greece. We expect income came from its Greek operations last year. the upcoming tests to be stringent. The ECB will submit the banks to simulated recession conditions. The ECB Alpha Bank has integrated its Emporiki Bank acquisition. chief Draghi recently said that some banks will need to The efficiencies and cost savings are already starting to kick fail to prove the credibility of the test. in with the reduction in overhead and head count. Alpha too has international operations with its focus on Cyprus and Given what we’ve seen from these banks, we think Alpha Romania. It also has smaller operations in Bulgaria, Serbia, and Piraeus will be fine. But we can’t know what, if any, Albania, and Macedonia. Greek operations made up more surprises might appear. We’ll continue to monitor any than 80% of the bank’s revenues last year. developments. And we think the risk taken to invest in these particular two banks is well worth the rewards we In the table on p. 8, you’ll note that the HFSF holds a believe we’ll see further down the road. 71% and 67% stake in Alpha Bank and Piraeus Bank, respectively. When the two banks raised capital last year, And on a final note concerning risk, there is always an they issued warrants that shareholders may convert to element of political risk when investing in countries going stock at varying strike prices over the next 4.5 years. The through or coming out of a crisis. European parliament warrants convert into shares currently held by the HFSF. elections are scheduled next month. According to recent polls, it will be close. In a recent Bloomberg interview, Their conversion would simply reflect existing shares Greece infrastructure minister Michalis Chrisochoides changing hands between HFSF and private investors. It said he didn’t believe the outcome will affect political would not result in the creation of new shares and would stability in Greece. not influence the value of your existing position. That may or may not be true... but we think it’s important HFSF has a mandate to liquidate its position in the banks to understand the potential political risks when investing over this period. If share prices appreciate as we expect over in international markets. As more than one person told this period, we’ll see these conversions grow. Plus, we expect us on our visit, you can always expect some political risk we’ll see larger participation from foreign investors as they in Greece... especially in recent years. While the general too realize the Greek recovery is underway and understand elections are not coming for another couple of years, due the huge growth potential available for these two banks. to the political and economic situation, there is always the possibility that Greece could hold the elections earlier. Earlier, we mentioned how the share price in Piraeus was down 98% from its 2007 highs, and Alpha is down 91%. To sum up, we see huge upside for both these banks. Alpha has climbed by about 135% over the past year. But remember it was coming off an extreme low. We believe So rather than focus on one bank, we’re recommending both banks as a combined position in our portfolio. If you read our January issue, we recommended a combined position on three Spanish banks. We believe we have the best of the bunch based on the information we have available today. We think both will do well. But we also want to spread our risk in the event that one bank gets knocked around more than the other.

For a combined position, simply divide equally over the two shares the amount of capital you would normally allocate to a single position.

Action to take: We recommend you buy Alpha Bank (ALPHA: AT) up to €0.75 per share. And buy Piraeus Bank (TPEIR: AT) up to €1.90 per share. Please use a 35% trailing stop loss on the combined Gas Carriers (VLGC) ships carrying LPG just hit historical position. That means instead of using individual stop highs. The trade publication Maritime Economy reported losses on each stock, consider these two stocks as one day rates hit $110.56 per tonne, which translates to daily position. As always, we recommend you only place up to spot rates of around $97,000, according to the report. between 1% and 2.5% of your investment capital into these stocks and you follow your stops. StealthGas operates in the smaller Handysize vessels, so VLGC day rates don’t affect its business directly. Day We have posted a report on our website on how to open rates for Handysize vessels are very stable. Nevertheless, a brokerage account to buy shares on international this recent news for VLGC shipping is more confirmation exchanges. In the report we provide a list of brokers you of LPG demand. And we should see demand filter down to can consider. We hope you find it useful. You can find the Handysize vessels, as shippers take delivery from the the report on the tab under special reports, or by going to main distribution hubs in each region then transport it to http://www.sbry.co/m5nDEs . its final destination. Portfolio Update StealthGas’ second announcement back in February was the issue of 3.3 million shares to a single institutional Earlier this month, shares of our Spanish banking giant investor. Vafias confirmed Michael Dell had taken up the Banco Santander (SAN: MC) climbed on the back of shares. The well-known computer executive holds a 9.9% 2013 annual results and positive news announced by CEO stake in the company. Emilio Botin. We’ve said before that we love the LPG story and the Botin recently declared that Spain’s recovery is now a opportunity that lies ahead for StealthGas. The company fact and credit is returning to the markets. He believes dominates its sector of the market with around 25% of the Spain will be among the most positive stories in the business. Plus, it is growing its fleet. And as we saw this group’s results over the next three years and forecasts month, it is able to sign up vessels on long-term contracts. a massive €3 billion ($4.1 billion) in profits from the That provides tremendous stability in revenues for the company’s home country. That’s a massive boost company. And as its fleet grows, so should earnings. considering last year Spain contributed just €478 million Shares continue to trade around the $11 mark, which is a ($660 million) to the bottom line. little under our entry point. StealthGas remains a buy. He also confirmed the dividend will remain at €0.60 ($0.82) Our Greek engineering company Metka (METTK: AT) per share, which reflects an 8.8% yield based on current announced 2013 earnings last month with positive results prices. The bank also launched an aggressive credit expansion across the board coming in. Sales were up an impressive 45% plan for small and medium-sized enterprises (SMEs). in the fourth quarter at €201 million. And for the full year, The bank began the program in Spain last month and will sales grew almost 11%. EBITDA for the quarter was up 61% introduce it to Brazil, Mexico, and the U.K. later this year. In year over year and averaged almost 10% growth for the year. 2015, it will take the program to the rest of its international Net profits hit €91.7 million, up 15% over 2012 figures. operations, including Argentina, Chile, Portugal, and Poland. Still, despite the good news, the share price has suffered The bank has a presence in 15 countries around the globe. over the past two weeks, dropping from more than €14 We’re up 7.4% including dividends. down to around €12.70 as we go to press. We continue While in Greece, we met with the CEO of our liquid to believe in the potential for capital and dividend petroleum gas (LPG) shipping company StealthGas appreciation, and that shareholders will do well over the (Nasdaq: GASS), Harry Vafias. In February, we coming years. A dividend is forecast for payment next confirmed a couple of important company announcements. month. Metka is currently trading a little over our buy-up- One was the expansion of the company’s fleet. Vafias to price of €12.50. If you own shares, hang on to them. If advised that the company took delivery of one of the you’ve not yet bought in, keep an eye on the share price, ships earlier this month and signed it up on an eight-year you might get an opportunity to get in under our buy-up-to contract. He advised it now has signed up two of its new price. Metka is a hold at current prices. builds plus two secondhand vessels for eight-year contracts as well. This is excellent news and shows the strength in What’s next... demand for LPG shipping over the long term. As we said at the beginning, a number of opportunities have On a side note, he commented how day rates for Very Large popped onto our radar in Greece which we’re researching further. Spain and Italy remain on our radar as well. While on the subject, we’d like to express our thanks and appreciation to subscriber Dr. Alexandros Kolovos Last month, we mentioned Brazil is also on our radar. The of Greece, who was kind enough to drop us a note stock market in Brazil has bounced about 10% over the and put us in contact with the managing director of an past month. But for now, its downward trend from 2010 is international wealth-management firm in Athens. We enjoy still in place. We think Brazil will provide us with some and appreciate meeting with locals to discuss the overall excellent buying opportunities at some point in the near economy, business conditions, and investment ideas. It future. So we’re keeping an eye on the market and are always leaves us with a better understanding of cultural looking for bargains. We’ve reached out to some contacts issues and overall sentiment. We were delighted to receive in the region and expect we’ll be visiting soon. the contact, and it was a pleasure to meet with him.

Likewise, China and South Korea have popped a little Thank you once again for joining us at Stansberry over the past month, yet we believe with patience, our International. time will come to invest in these places. Remember our strategy. We’re looking at markets where real interest rates Regards, are high... and coincide with cheap valuations in the stock market. We have plenty of opportunities ahead of us and we know we’ll find some great bargains.

As we’ve mentioned before, if you live in any of these places or could put us in contact with people who live and Porter Stansberry and Brett Aitken work in the region, please drop us an e-mail. We love to April 17, 2014 hear from you... you can e-mail us at http://www.sbry.co/ glsaoD . Stansberry International Portfolio Review

Stansberry International Model Portfolio Prices as of April 16, 2014 Recent Exchange Symbol Ref. Date Ref. Price Dividends Description Action Return* Price Energy Infra- Metka Athens METTK 09/27/13 € 12.20 € 12.50 Hold 2.5% structure StealthGas Nasdaq GASS 11/01/13 $11.56 $11.03 LPG Shipping Buy -4.6% Global Engi- Duro Felguera Madrid MDF 12/09/13 € 4.72 € 4.91 € 0.12 Buy 6.6% neering (EPC) Banco Madrid SAN 01/20/14 € 6.70 € 7.05 € 0.15 Banking Buy 7.4% Santander BBVA Madrid BBVA 01/20/14 € 9.66 € 8.88 € 0.17 Banking Buy -6.3% CaixaBank Madrid CABK 01/20/14 € 4.39 € 4.55 € 0.05 Banking Buy 4.8% Combined banking position 2.0% Tenaris Milan TEN 02/20/14 € 16.02 € 16.17 Oil & Gas Pipes Buy 0.9% Gas Natural Natural Gas & Madrid GAS 03/20/14 € 19.59 € 20.22 Buy 3.2% Fenosa Electricity Alpha Bank Athens ALPHA 04/16/14 NEW € 0.69 Banking BUY NEW Piraeus Bank Athens TPEIR 04/16/14 NEW € 1.75 Banking BUY NEW Combined banking position *Includes dividends