I've read too many articles talking about the disintegration of the eurozone, various euro crisis scenarios, etc. And the main investment theme is to short the euro. This mainly based on recent history. 2010's euro trip to the abyss and back still leaves a lasting impression. It is the wrong play. Japan tells you everything you need to know about shorting a country's currency because its economy is weak. How did those yen shorts play out over the years? There is a much greater probability of deflation in Europe than the U.S. No matter how much Trichet warns about inflation and Banana Ben tells you there is no inflation. The demographics of Europe are much closer to that of Japan than the U.S.
How can you go short a currency of a place (EUR) that has a better trade balance, is tighter monetarily, and less willing to print to solve all their problems than the currency of the country that you are going long (USD)?
If you are negative on Europe, short non-export based European stocks. Not the euro. They will probably mostly be small caps. I know it takes more homework and you need to use your brain a little. If there is a crisis in Europe, those European stocks will go down much more than the euro.
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5 comments:
All paper currencies are like musical chairs taking turns in a race to zero.
First of all there is no crisis in "Europe". There's a few problems with some tiny countries within Europe.
In case you haven't noticed, Germany is outperforming the US economy by a comfortable margin. It's not far-fetched to think that the other core countries are going to benefit from this as well and fall in line. with Germany.
I guess you could be bearish on small caps, but then again you should be bearish on small caps period. A lot of reasons, but a world with 6 billion people on it should do a much better job at sustaining large cap competitiveness than small cap (as a group).
I said IF. I don't think there is a crisis and I am NOT bearish on the stock market. If you've read my posts over the past month, you'll notice I've been very bullish.
Yeah ok. I agree with your post then. By the way the European markets are again vastly underperforming the US markets for some reason. I don't like it.
I believe European stocks are following the Japanese stocks path of the 1990s of no returns for several years. The US will join in but with much easier monetary and fiscal policies in the US, it will take longer to get going to the downside.
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