How to profit from the coming Greek default … Five trades to make before the euro implodes … You don't exactly need a crystal ball to know what the biggest event in the financial markets of the next 12 months is going to be: Greece defaulting on its debts. This week Standard & Poor's cut its rating on the country to CCC, the lowest of any nation in the world. Only last week we learned that Greek industrial production was down 11% year-on-year. Unemployment has risen 40% over the past year, and now stands above 16% nationally. – Matthew Lynn, Marketwatch
Dominant Social Theme: A silver lining to every disaster.
Free-Market Analysis: This is a good article from Marketwatch's Matthew Lynn in the sense that it gives you something besides gloom about the euro and EU. Matthew Lynn suggests there will be numerous investment opportunities if the euro crumbles because of the Greek (and PIGS) budgetary crisis.
We like it because he doesn't hedge. He is quite sure that Greece is going to default and even take the euro and maybe the EU with it. A year after the IMF "rescue," Greece is back where it started or even worse, he points out, heading toward a depression.
The debt is too high and the deficit is too deep. Greece will default and every one knows it! (Even though no one will say it.) The question is simply one of time and amount. With this in mind, he provides us with five trades based on the unraveling of the euro that he believes are positive.
The first trade is German bunds; buy them and sell the DAX stock index. The deutsche mark that will arise from the ruins of the euro will be a dominant currency. This means German bonds will rise in value as the currency appreciates; at the same, Lynn believes Germany's exports may not have such a good time of it, at least not at first. Eventually German manufacturers will once more figure out how to do business with a strong currency as they did throughout much of the 20th century. But the learning curve will offer pain. Why participate? Sit on the sidelines.
The second trade is the Swiss franc. Sell it. Investors are buying the franc right now, and even the Israel shekel, desperate for a safe haven. What IS safe right now? The dollar? The yuan? The Japanese yen? Most countries are struggling these days one way or another, but if the euro evaporates, several currencies will likely emerge that might definitively claim safe-haven status. The deutsche mark, Lynn writes, will certainly draw money away from the Swiss franc, which will then depreciate.
The third trade is the Belgium index. Another sell. This is an obvious one for Lynn. Brussels, a tiny little pimple of a country, has been in the right place at the right time. The euro and the EU have puffed it up, and today somehow it presides over a super-state the size of America. Maybe not for long. Brussels is chock full of lobbyists, politicians and diplomats, all buying expensive meals and renting luxurious flats. That will change if the euro withers and the EU collapses. The economy shall surely deflate and many Belgium companies along with the stock index.
The fourth trading tip is European travel companies. Buy them. A problem with the strong euro is that it has virtually eviscerated the travel business to Southern Europe – one of the reasons the PIGS are having so much trouble economically. But once the pesky euro goes away, the normal balance of Europe will reassert itself. Northern Europeans will continue to enrich themselves and then, in the summer, travel south to Spain, Italy or Greece to relax. The local travel industry will re-establish itself. Even the Greeks will prosper.
The fifth trading tip is the US dollar. Buy. (Imagine that!) He believes the PIGS debt, dumped by German and French banks, has ended up in US hands. Thus, the US economy will take a hit; still, the dollar as a currency will appreciate. There is no alternative. The dollar, he writes, will be the recipient of a second wind and spend at least another decade as the world's reserve currency.
These are logical trading strategies, clearly laid out. Our only disagreement might be with the initial assumption. We're not convinced the euro is going away, nor the EU, at least not any time soon. We would like to think so, but we'll settle for a hampered euro and a humbled EU that cannot do so much damage to people's civil liberties as its handlers would prefer.
The initial idea of the EU as a free trading zone might be seen as a good one. The current monstrosity is a vicious mess that aspires to be an empire, though it's crumbling now. This is one trend worth encouraging.
Sure, Greece may drop out of the euro, even Spain and Portugal. The eurozone might simply default toward the North – Germany and the Scandinavian countries. If there is to be a euro, the northern industrial engine will run on it. They can form a formidable currency block if they wish to.
Lynn's remarks about selling the Swiss Franc seem feasible to us, if we accept the euro lingers on in the North. If so, Brussels won't entirely shrivel away. Too bad.
We are not sure we agree about buying the dollar. The US is in terrible trouble financially; we might be tempted to make it an honorary PIG. The US has been under attack by the power elite for over a century and we have trouble believing that attack will diminish any time soon. They regard the libertarian and republican sentiments of the US with enimnity; they are trying to crush the culture and the economy and these attacks will no doubt continue.
Even a shrunken EU and euro would be an enormous victory and a defeat for the powers-that-be who are trying to use the EU as a stepping stone to a kind of one world order. The most poisonous ambitions of the Anglosphere elite would be lanced. Defeat is a terrific prophylactic.
There would be knock off effects as well. The currency unions that the Western elites have been so assiduously encouraged in South America, Asia, Africa and even the Middle East would likely become less attractive given the euro's implosion. All to the good.
There will surely be numerous trades to contemplate as the euro situation evolves. Who knows, they may even hold it all together. We hope not. We would much rather bet against this evolving authoritarian empire than for it.