Shorting The Euro… Yet Again

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

That’s why you see that — with one exception — all of your recent positions in the Global Bull Market Alert portfolio are currency bets. In times of global economic dislocation, currencies continue to be where the action is. Though the remarkable volatility in global financial markets makes it a challenge to profit even in this sector, the longer-term trends remain in place. This week, we revisit the Market Vectors Double Short Euro ETN (DRR) — a position you were stopped out of during the incredible market events of two weeks ago. Here is why I think it’s a good bet that the euro will continue to fall against the U.S. dollar.

For all the criticism surrounding the U.S. government’s $700 billion bailout of the U.S. banking sector, even critics must concede that it is at least an attempt at a systemic solution. In contrast, Europe is still behind the curve and addressing crises on a case by case basis. The European Union’s extensive bureaucracy notwithstanding, Europe probably has neither the ability nor the willingness to implement a U.S.-style response. Yet with the housing bubble in the United Kingdom, Ireland and Spain bigger than in the United States, the real estate loan problems of Europe’s banks are no less serious. If the past is any guide to the future, the U.S. effort will likely be judged as swift and appropriate while Europe’s is dithering and evasive.

Even as German and French leaders are enjoying the moment, publicly sounding the death knell of U.S.-style capitalism in an orgy of schadenfreude, worries about the European financial sector are coming home to roost. Over the weekend, the Belgian, Dutch and Luxembourg governments nationalized parts of banking and insurance group Fortis and agreed to inject 11.2 billion euros into the financial group. Meanwhile, troubles at U.K. bank Bradford & Bingley have led the U.K. government to nationalize its lending activities, while the retail branches and deposits have been sold to Spanish bank Santander. Germany is in the middle of bailing out property lender Hypo Real Estate, even as its share price has fallen 76% today.

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All of this means that European currencies continue to come under pressure, even as the U.S. dollar rallies as the proposed $700 billion bailout deal looked set for approval. Already in today’s trading, the euro fell nearly 2% against the U.S. dollar.

So buy Market Vectors Double Short Euro ETN (DRR) at market today and place your stop at $37.50. There are no options on this one.

PORTFOLIO UPDATE

Your short position in the British Pound Sterling improved this week as the CurrencyShares British Pound Sterling Trust (FXB) resumed its downward trend. With another bailout of a large U.K. mortgage lender over the weekend, the U.K. currency has fallen back down to the 1.80 level.

Your safe haven currency CurrencyShares Japanese Yen Trust (FXY) was mostly flat last week. The S&P Biotech ETF (XBI) continues to impress with its resilience and ended the week up.

You were, however, stopped out of the Direxion Funds Dollar Bull 2.5x Fund (DXDBX). This is also a position I am keeping on an informal “watch list” for possible re-entry in the near future.

P.S. Join me in the nation’s capital for the 4th annual Money Show Washington, D.C., November 6-8, 2008, at the Wardman Park Marriott. Hear from 50+ world-class experts in more than 170 FREE workshops where they will give you every opportunity to refresh your perspective and prepare yourself for the new political landscape that lies ahead. Meet face-to-face with 125+ investment companies and evaluate the products and services designed to help you improve your market performance. Call 800.970.4355 and mention priority code 009613 or visit The Money Show Washington, D.C. Web site to register FREE today!

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