How many have buried Europe? For good reason, of course. No way they could come out clean on the other side of that huge pile of debt. Not one, two or even three countries in trouble. At least six are looking for some assistance, which is nearly 1/3 of the entire region.
The sovereign nations have borrowed and borrowed until their credit limit was reached, and then borrowed a bunch more. If history was teaching us any lessons, this would end very badly – default and the collateral damage would be huge.
AN OLD SAYING
But, to paraphrase Mark Twain: the death of Europe has been completely exaggerated. Now, I’m not saying everything is rosy – far from it, but the powers that be understand the importance of getting it right without much disagreement – this time.
DON’T FIGHT THE TIDES
The most recent calls from ECB Chairman Draghi puts more distance between saving the region and Armageddon. One thing we know is when central banks are in control you don’t fight them.
We hear about the continued troubles in Greece, Spain, Cypress and others – Italy, France and Ireland…and wonder whether the big guns like Austria and Germany can shoulder a large part of the burden. Large deficits, unemployment levels at record highs and government that is like a revolving door. It’s not their fault, yet the help will come from them for sure. But what will help? Clearly if the growth engine gets going there is the possibility of fighting off the failure of a European Union.
WHY IS THE EURO STRONG?
So, with the mountain of debt, very little oversight, independent governments making outlandish comments and no solution in sight – why is the euro so strong? Let’s face – the currency is a reflection of the economic strength of the region/country supporting it. And if the ECB is buying bonds as promised, clearly they are discounting the euro – yet maybe they have hit upon the solution. Time will tell, but with improving economic data (at least not getting worse) I would be Europe surprises more to the upside than downside.
ETF PLAY
With the strong run in the euro the best way to play it is using the FXE CurrencyShares Euro Trust ETF, which is a proxy for Euro/dollar. There is an ominous looking double top there but I would tend to buy any dip here to 128 which is a good support level and lines up with longer term moving averages.
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