Two Ways to Profit Off the World's Most Miserable Currency
By Kat Von Rohr
I’m about to let you in on some insider information.
Right now, everyone and their brother is yammering on about the euro crisis. Even non-financial folks in Indiana were talking about “the euro collapse” when I visited my hometown a few weeks ago.
So I won’t insult your intelligence by telling you that the euro is facing its first major crisis ever thanks to the PIIGS that built their financial houses with straw.
But I will tell you I just spoke with one of my contacts in Denmark, Thomas Fischer, who had a very surprising take on this euro crisis that’s essentially happening in his backyard…
The EU View from Denmark
You may know Thomas – as a Danish banker and now as Senior Vice President at Jyske Global Asset Management – he writes every so often for FX University Daily. He’s also been a favorite speaker at our events for the last decade.
But as a currency person, I love picking his brain because he also was a Forex trader for over 20 years – he was trading currencies back when most investors didn’t know the Forex market existed in the late 70s.
As I said, he has a front-row seat for the entire euro crisis right now. From Thomas’s view in Denmark, the prognosis is as not as cheery as I would have expected from my normally optimistic friend.
In short, yes, the euro is the most miserable currency in the world right now. But it’s about to get much worse.
Thomas believes the euro will not only fall to its inception rate of 1.17 (a mere six cents away as of this writing)…it could fall further still.
The euro could hit 1.12 before it stops falling.
That may not sound like a lot (unless you’re a Forex trader).
But it could be enough to petrify an already confused, battered, torn and beaten up market. That sentiment could push commodities, other foreign currencies, and stocks lower.
The Terrible D-Word Heading for the EU
No one in Europe is spending right now. They’re not getting the growth they need to sustain a recovery. Europeans are tightening their belts, closing their wallets, just as European governments get ready to add on more taxes.
That’s exactly the kind of environment that will lead to deflation in the months to come.
Meanwhile, Germany is fed up with all these bailouts. They’re tired of playing the Good Samaritan and giving a handout to those outside their own country…namely the austerity-ridden Greeks.
With last week’s latest bailout package, Germany will be footing most of the bill for the 440 billion euro bailout ($525 billion). According to Thomas, it’s the largest German bailout package since WWII. It’s not likely they’ll be up for another.
He says when push comes to shove; everyone will look out for their own interests. That could mean taking care of their own countries individually rather than saving some strangers a few countries away.
That’s not great news for the euro.
The Easiest Way to Profit Off This Mess
Now rather than mourning for the euro, I’d much rather profit from all this. As of yesterday, both German and French leaders called for the EU to ban short-selling on certain European stocks and bonds.
Sounds to me like they smell blood in the water, and are trying to stop the speculators from inflicting more pain on the country.
Fortunately, there’s no such thing as a ban on short-selling foreign currencies. As a currency speculator, there are still two relatively easy ways to effectively “short” the euro with your normal stock account.
First, you can take a page out of the biggest hedge fund manager’s playbook, and buy the U.S. dollar.
So far, the dollar has been one of the biggest beneficiaries from the euro crisis. Even with the trillions in debt circling over the dollar like a pack of vultures, there’s no denying that everyone wants dollars right now.
As the most traded currency in the world, the dollar is the most liquid. So it’s considered the safe place to run in times of trouble. (Doesn’t make much sense knowing what I know about the dollar’s long-term health, but in this case, I’d go with what the market is saying.)
With your normal stock broker, you buy a dollar bull fund (like the PowerShares DB Bull Fund NYSE: UUP), to take advantage of the next surge. We recommended Currency Capitalist readers buy this gem in March as a hedge. So far, it’s up 8% and climbing fast, but there’s still time to buy.
If you’re feeling a bit more gutsy, you can buy a more speculative inverse fund that tracks the opposite of the euro’s performance, like the ProShares UltraShort Euro (NYSE:EUO).
But be warned: this is an “ultra” fund, which means it tracks double the inverse of the euro’s performance. This means if the euro falls 50%, this fund rises 100% etc. In other words, it moves fast. As such, make sure you use a stop-loss if you go this route.
Bottom line: Make sure you take advantage of the euro’s next stumble.