How to Get Rich off the Eurozone Recession
Traders appear to have forgotten the massive economic mess happening across the Atlantic in the eurozone. Remember Greece? The European debt crisis took Greece down with two separate bailouts. It has been so dire for this beautiful country on the Mediterranean Sea that Greece required a second bailout to make the payments on its first emergency loan.
The reality is that the eurozone financial crisis is still around; the eurozone problem is not going away.
Consumer confidence in the eurozone came in at -23.9 in January, which was an improvement over the -26.5 in December, but the region has a long road ahead. (Source: European Commission web site, last accessed February 15, 2013.) The problem with the eurozone is not only tied to the massive debt loans that have impacted Greece, Spain, Ireland, Portugal, and Italy; it’s also tied to the ongoing recession and high unemployment rate.
The eurozone has recorded three straight months of contraction in its economy, contracting 0.6%, or about 2.5% on an annualized basis, in fourth quarter 2012, according to data from Eurostat. What was also a red flag were the economies of the eurozone’s two largest members: Germany, which shrunk by a worse-than-expected 0.6% in the fourth quarter, and France, whose economy contracted by 0.3% in the fourth quarter. My major concern is that the mess in the weak countries is driving down growth and pushing up the unemployment rate in France and Germany, the two pillars holding up the eurozone. Capital Economics suggested France and Germany will face another recession in 2013.
At the same time, a major issue is the region’s super-high unemployment rate. In the eurozone, the unemployment rate was 11.7% in December—a slight improvement from November, though it’s still a mess. (Source: “Eurozone unemployment ‘stable’ at 11.7% in December,” The Economic Times February 1, 2013.)
Spain has an extremely high unemployment rate, with about a quarter of its people out of work. Greece’s unemployment stands at 23.1%, while Portugal’s unemployment rate is 15.7%, Ireland’s is 14.9%, and Italy’s is 10.7%, according to Thomson Reuters. And you thought we had it bad here, with the unemployment rate at 7.9%. The problem is that the high unemployment rate is not good and it causes social unrest. Just take a look at Europe and the rallies and marches on the streets in response to the high unemployment rates there.
Add in the massive debt loans and pressure to cut spending, and you’ll realize why I have remained deeply concerned about the eurozone mess.
For all those who believe the worst is over in the eurozone, I doubt that.
Trust me when I say things will likely get worse in Europe before they improve.
Given the persistent weakness in the eurozone, holding euros or euro-based investments is probably not a good thing to do. You can short the euro against the U.S. dollar as a trade if you are familiar with the foreign exchange market, but this could be tricky.
An alternative way to short the euro with less risk is with exchange-traded funds (ETFs) that short the euro, such as the ProShares UltraShort Euro (NYSEArca/EUO) ETF and the Market Vectors Double Short Euro ETN (NYSEArca/DRR).