Interview with European Money Manager Confirms – Yes, the Euro’s in Boiling Water Plus, Don’t Miss These 2 Hot Picks to Profit

Kat Von Rohr (June 10, 2010)

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 Fort Wayne, Ind., 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 just how bad does the euro’s situation look from the inside?

Well, I just spoke with Danish banker and Senior Vice President of Jyske Global Asset Management, Thomas Fischer for some true on-the-ground intel. And his take is surprisingly … bleak.

Here’s why…

The EU View from Denmark

We all know it’s bad over there right now. But I don’t think most of us know just how really, really bad it is.

You may know Thomas – he writes every so often here in the A-Letter and in The Sovereign Individual . He’s also been a crowd favorite speaking at Sovereign Society events for the last decade.

But the reason I love to pick is brain is to explore his deep understanding of the currency markets, so that I can share his unique outlook with you.

Thomas was a Forex trader for over 20 years – he traded world currencies in the 1970s before most investors knew the Forex market existed.

And now he has a front-row seat for the worst euro crisis the world’s ever seen.

From Thomas’s view in Denmark, his prognosis is not what I would have expected from my ever-optimistic friend.

From where he stands, 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 3 cents away as of this writing) … but further still.

The euro could hit 1.12 before it stops bleeding…

Nine eurocents may not sound like a lot (unless you’re a Forex trader). But it is enough to petrify an already confused, battered, torn and beaten-up market.

So even if currencies aren’t your “thing,” the ever-sliding euro could impact your portfolio.

How?

Because this alone could push commodities, other foreign currencies, and even stocks lower.

Here’s why…

The Terrible D-Word Threatens EU (hint: it starts with D and ends with “eflation”)

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 and closing their wallets just as their governments gear up to pile on more taxes.

And that’s exactly the kind of environment that will lead to deflation in the months ahead.

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 this week’s latest bailout package, Germany will foot most of the bill for the 440 billion euro bailout ($525 billion in U.S. dollars).

According to Thomas, it’s the largest German bailout package since World War II. It’s not likely they’ll be up for another.

He tells me when push comes to shove, everyone will look out for their own interests. This could mean taking care of their own countries individually rather than saving some strangers a few countries away.

Bad news for the euro!

2 Easy Ways to Profit from the Mess

Now, rather than mourning the euro’s demise, I’m going to take this golden opportunity to profit from their misfortune.

Yesterday, 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 will stop at nothing to prevent speculators from inflicting further pain on the currency.

Fortunately, there’s no such thing as a ban on short-selling foreign currencies. As a currency speculator, you’ll find that there are still a few relatively easy ways to effectively “short” the euro through 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 of the euro crisis. Even with trillions in debt circling over the dollar like a pack of vultures, there’s no denying that everyone wants dollars right now.

Being the most traded currency in the world makes the dollar the most liquid. This makes it considered the “safe place” to run in times of trouble.

Now, I’ve got to give it to you straight here. A dollar play doesn’t make much sense knowing what I know about the dollar’s long-term health; but in this case, I’ll go with what the market is saying in the nearer term.

So my first “anti-euro” play is a dollar bull fund you can buy through your normal stockbroker — PowerShares DB Bull Fund (NYSE: UUP). We recommended this gem to Currency Capitalist readers in March as a hedge. So far, it’s up 8% and climbing fast, but there’s still time to buy. (To get the full details about how to play UUP, take our Currency Capitalist service for a try risk-free – get started here today!)

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. I 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.

Here’s how that works: If the euro falls 50%, this fund rises 100%. In other words, it moves fast. Make sure you set a stop-loss commensurate with your risk tolerance if you go this route.

Either way, take advantage of the euro’s stumble. Things are getting worse by the day. And be sure to read tomorrow’s A-letter. I’ll be back with another, more long-term strategy, to play the euro’s next leg down.

Til then – Good Currency Investing,

Kat Von Rohr, Managing Editor
World Currency Watch

P.S. To read more from Kat … and to get easy-to-execute currency plays hot off the presses – with complete details on how to buy and when to take profits – check out this special Currency Capitalist offer for A-Letter readers by clicking here.

Tags: Currency