Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21
CISCO 2020 Dot com Bubble Stock vs 2021 Bubble Tech Stocks Warning Analysis - 6th Oct 21
Precious Metals Complex Searching for a Bottom - 6th Oct 21
FB, AMZN, NFLX, GOOG, AAPL and FANG+ '5 Waves' Speaks Volumes - 6th Oct 21
Budgies Flying Ability 10 Weeks After wings Clipped, Flight Feathers Cut Grow Back - 6th Oct 21
Why Silver Price Could Crash by 20%! - 5th Oct 21
Will China's Crackdown Send Bitcoin's Price Tumbling? - 5th Oct 21
Natural Gas News: Europe Lacks Supply, So It Turns to Asia - 5th Oct 21
Stock Market Correction: One More Spark to Light the Fire? - 5th Oct 21
Fractal Design Meshify S2, Best PC Case Review, Build Quality, Airflow etc. - 5th Oct 21
Chasing Value with Five More Biotech Stocks for the Long-run - 4th Oct 21
Gold’s Century - While stocks dominated headlines, gold quietly performed - 4th Oct 21
NASDAQ Stock Market Head-n-Shoulders Warns Of Market Weakness – Critical Topping Pattern - 4th Oct 21
US Dollar on plan, attended by the Gold/Silver ratio - 4th Oct 21
Aptorum Group - APM - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 3rd Oct 21
US Close to Hitting the Debt Ceiling: Gold Doesn’t Care - 3rd Oct 21
Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
Original Oculus VR HeadSet Rift Dev Kit v1 Before Facebook Bought Oculus - 3rd Oct 21
Microsoft Stock Valuation 2021 vs 2000 Bubble - Buy Sell or Hold Invest Analysis - 1st Oct 21
How to profit off the Acquisition spree in Fintech Stocks - 1st Oct 21
�� Halloween 2021 TESCO Shopping Before the Next Big Panic Buying! �� - 1st Oct 2
The Guide to Building a Design Portfolio Online - 1st Oct 21
BioDelivery Sciences International - BDSI - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 30th Sep 21
America’s Revolving-Door Politics Behind the Fall of US-Sino Ties - 30th Sep 21
Dovish to Hawkish Fed: Sounds Bearish for Gold - 30th Sep 21
Stock Market Gauntlet to the Fed - 30th Sep 21
Should you include ESG investments in your portfolio? - 30th Sep 21
Takeda - TAK - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 29th Sep 21
Stock Market Wishing Away Inflation - 29th Sep 21
Why Workers Are NOT Returning to Work as Lockdown's End - Wage Slaves Rebellion - 29th Sep 21
UK Fuel PANIC! Fighting at the Petrol Pumps! As Lemmings Create a New Crisis - 29th Sep 21
Gold Could See Tapering as Soon as November! - 29th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Falling Euro May Offer the Best Investment OPPORTUNITY of 2011

Currencies / Euro Jan 09, 2011 - 10:37 AM GMT

By: Bryan_Rich

Currencies

Best Financial Markets Analysis ArticleAs we start the New Year, the global investment climate looks remarkably similar to this time last year. The world is getting more bullish on the outlook for the U.S. Meanwhile, the unfolding sovereign debt crisis in Europe threatens to squash global risk appetite and send not only Europe back into recession, but perhaps trigger another global financial crisis.


When the global financial crisis erupted in 2008, it exposed the structural flaws of the European Monetary Union (EMU), the then 9-year old concept of monetary unity between sixteen European members. Since then, the crisis in Europe has only worsened.

European officials tried to sweep this crisis under the rug. They denied its severity and then made shocking, empty promises that they were willing to absorb the damage at any cost.

Now the question is:

Will 2011 Be the Year the Euro Collapses?

The challenges ahead for the euro zone suggest that it will.

The euro offers risk and opportunities.
The euro offers risk and opportunities.

Investors may think a euro collapse is strictly a risk to their investments. But the fallout in Europe could also offer the biggest investment opportunity in 2011. Either way, the events as they unfold command attention and respect.

Nearly $1 trillion of sovereign debt needs to be refinanced this year in Europe. And nearly $1 trillion of European bank debt needs to be refinanced in the next two years. All will require much higher interest rates than were enjoyed last year this time — every euro of the €750 billion European Financial Stability Mechanism (EFSM) could be called on.

But we’ll likely find that this mass-scale rescue plan offered by Europe and the IMF in the middle of 2010 was nothing more than talk.

Moreover, Europeans who have been forced into austerity may stop the music first. What I mean by that, is private depositors of European banks might not stick around to see how it all plays out.

According to the Bank of International Settlements (BIS), European banks sit on $2 trillion of debt from the PIGS nations. Indeed, a vulnerable situation.

Before the ECB started buying government debt directly from these countries in 2010 to keep them breathing, they indirectly supported their sovereign debt markets by making ultra-cheap loans to European banks. Those same banks then bought the shaky sovereign debt in Europe.

So a default or restructuring of any one of these countries would pose serious problems for the European banking system, and likely spread into a global financial crisis that could make the subprime crisis pale in comparison.

A massive run on Ireland's banks could devastate the common currency.
A massive run on Ireland’s banks could devastate the common currency.

In Ireland, a country that has been pulverized by its banks’ fast and loose lending practices, we’ve already seen a 10 percent year-over-year withdrawal of deposits from its banking system in recent months. A continued “run” on Ireland’s banks could quickly bring the façade of European/IMF rescue to an end. And it’s safe to expect similar runs on the banking system across Europe.

As you might imagine, these problems are, and will continue to be, expressed in a lower euro.

But even with the above in mind, the euro still sits 14 percent above purchasing power parity vs. the dollar.

Plus, given all of the government intervention around the world in recent years, market participants have convinced themselves that governments can impose their will on nearly everything, including saving the euro.

So we’ve seen forecasts in recent quarters for the euro to return to 1.50 versus the dollar and beyond. But if politicians could avert every problem and every disaster, we would never have economic downturns or even a single downtick in global stock markets.

If you factor in the overvaluation of the euro and the market’s misperception of its safety, a fallout could be quick and violent as people scramble to find the exit door. That presents risk to global markets, but also opportunities for investors.

The Euro’s Problems Equal Opportunity

As we’ve seen, this global economic crisis is far from being the “contained” event most global officials thought it would be back in 2008. At one point there were over 60 countries simultaneously in recession. So clearly the “Great Recession” has affected everyone worldwide.

And here’s some important perspective: History shows us that the deleveraging process of the decade-long global credit buildup is likely only less than halfway through!

So it’s safe to expect the shocks and crisis to continue. Yet it is possible to avoid the damage and capitalize on the opportunities.

Take a look at the chart below. It shows the two-year downtrend in the euro, with the path of the declining channel projecting parity versus the dollar, possibly by year end.

With the advent of exchange traded funds (ETFs), it’s easier than ever to take advantage of this opportunity — or to hedge against this outcome if you have existing exposure to the euro …

You could consider shorting the CurrencyShares Euro Trust (FXE), or buy the ProShares UltraShort Euro (EUO), an ETF designed to rise 2 percent for every 1 percent decline in the euro.

And if you would like more in-depth analysis and strategies on capitalizing on the opportunities in the currency markets, check out my World Currency Trader. For more information click here.

Regards,

Bryan

P.S. This week on Money and Markets TV, the Weiss Research editors kicked off the New Year by giving you a peek at some of their favorite investments for 2011.

If you missed that episode or would like to see it again, simply go to www.weissmoneynetwork.com and follow the on-screen instructions. Access is free and no registration is required.

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Auberon
18 Jan 11, 17:51
Euro's future

We seem to have heard about the forthcoming fall of the euro for quite a time now. The fact is that it is at £.83 and has been about that for months despite the chaos in Greece and Ireland and threat of collapse in Spain, Portugal and Italy.Of course, if there is a panic rise in interest rates in the UK it will fall but the Bank of England is reluctant to do that and push up the cost of mortgages as well as damage exporters. We are all set for massive industrial unrest in the UK and that will damage the UK economy. So I doubt if the euro/pound exchange rate will be much different a year from now compared to what it is now.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in