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FreeMarkets (42.09)

Death of the EURO? Don't you believe it!



May 26, 2011 – Comments (2) | RELATED TICKERS: IBM , MSFT , INTC

Free markets are absolutely fascinating because in the end they get the price right, but the road is filled with ups and downs.  This is where investors can make money, buy low then stomach the ups and downs, then sell high.

Every time Greece or Portugal is in the news it is about defaulting on their debt.  The EURO loses some value, the dollar strengthens, and then traders forget about what happened yesterday and they weaken the dollar and strengthen the EURO.  Those traders are wrong - VERY WRONG!  Default by Greece or Portugal will eventually strengthen the EURO, because without the bailouts or newly printed EURO, there are LESS EURO's to go around.  Unless your outlook is that the EUROzone will crash and abandon the currency, the less EURO's the better FOR the Euro.

I get the argument that traders are looking for a safe haven due to fear of the unknown.  And if that fear is that the PIGS get bailouts, then the EURO should weaken, but that's not the mentality of the European nations.  They still have a great fear of inflation, a fear the U.S.A. does not have because it is impossible for bad things to happen to us.

My investment advice is to see weakness in the EURO as an opportunity to buy stocks that do a lot of business in the Europe.  I.B.M. / Microsoft / Intel are some of the bigger names. There are many others, so do a little research and start betting on a STRONGER EURO to make your portfolio grow.  In the end, you'll be better off for it.

2 Comments – Post Your Own

#1) On May 26, 2011 at 3:04 PM, rfaramir (28.63) wrote:

Long-term, I think the Euro will die. After all it is a fiat currency. But these near-term fluctuations are interesting to watch, anyway.

Whenever a PIGIS member gets in the news, whining about their debt, Euro investors in general get worried that they will be bailed out, creating more Euros and diluting its purchasing power. This causes selling. Specific investors who *hold* PIGIS debt get really worried that they will default and NOT be bailed out, which also causes selling.

When a default actually happens, some Euros will disappear (or at least Euro-denominated bonds will, almost the same thing), so your argument should hold true. But really, how confident will investors be in the Euro, if some countries' Euro-denominated bonds are not trustworthy? That would push the Euro down more than the monetary effect of a few of them disappearing.

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#2) On May 26, 2011 at 9:15 PM, FreeMarkets (42.09) wrote:

And yet the Euro is trading at 1.41, when only 1 year ago it was around at 1.25.

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