As I wrote about in yesterday's post, Europe is in trouble. Ireland, Spain, Portugal, Greece and possibly Italy are at the forefront of the financial crisis in Europe. Overwhelming debts combined with already weak economies are creating serious issues. The EU is now contemplating whether to make the bailout fund larger to suit the current position that Europe is facing. However, Germany, largest contributor to the bailout fund, is hesitant to make the bailout fund larger because Germany is risking a large sum of capital in countries that are on the brink of defaulting.
I do believe that at the end of the day, Germany and the rest of the EU will have to compromise to allow a bigger rescue fund. If they decide not to, the consequences could be devastating to markets around the world.
All the while these events are happening, the Euro is being hit hard against the dollar. Similar events occurred earlier this year when Greece was the main problem.
Now it seems those days have returned and that sets up a few good trades as far as currency goes. I recommend Powershares Bullish Dollar Index (UUP), and Proshares Ultrashort Euro (EUO). These trades made great returns during the first European incidents at the beginning of the year, and they are sure to make good returns the second time around until Europe can stabilize the ailing economies.
There are other options at your disposal if you don't want exposure to currency. We can use put options or short the individual countries that are having a hard time cutting down debt and stabilizing their economies. A few trades that would be ideal are: iShares MSCI Ireland Index (EIRL), iShares MSCI Spain Index (EWP), iShares MSCI Italy Index (EWI).
Another route you can go (if you want a higher risk, higher return situation) is shorting Europe as a whole or shorting financials, which are the hardest hit sector in Europe. If you want that higher risk a few plays that would suit that screen are: Proshares Ultrashort MSCI Europe Index (EPV), MSCI Europe Financials Sector Index (EUFN). Be sure that if you play one of these trades that for EPV is already a short fund so you would simply just buy the ETF. However with EUFN you would need to short it or buy put options.
No matter what way you plan to play the European crisis, I urge you to do your own research before you invest money, to understand if the risk is suitable for your financial situation.
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Disclosure: no positions
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