| MARKET ROUNDUP |
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 We couldn’t get much going in the way of follow through in stocks today, despite yesterday’s breakout. The Russell 2000 that everyone has been focused on gave back more than 12 points by the close, while long-term Treasury yields fell around four basis points after weak retail sales data.|
“Many of the emerging markets got beaten by the ugly stick last year and in early 2014. But there are some intriguing bottoming patterns out there, and India is leading the pack.” |
But while stocks weren’t doing much of interest, and bond yields were taking a breather, the euro currency was doing anything but relaxing! It tanked yet again, losing more than a half cent against the dollar.
Just look at this chart and you can see what I’m talking about. The euro reversed sharply a few days ago, and it has now dropped three cents in a virtual straight line, a sharp move in the fairly staid currency market. Not only that, but it also knifed through an uptrend line that dates all the way back to last summer!
The culprit? This headline on the front page of The Wall Street Journal‘s website: “Bundesbank is Open to ECB Stimulus Measures.”
What you’re seeing is the standard bearer of tight money — the German central bank — start to cave. The Germans are now talking about allowing or strongly considering everything from negative interest rates … where a bank has to PAY the central bank money to keep on deposit … to targeted asset purchases … to full-scale “Euro-QE” from the European Central Bank.
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| The euro reversed sharply a few days ago, and it has now dropped three cents in a virtual straight line. |
Or in other words, the ECB is going to follow the trail blazed by the U.S. Federal Reserve and the Bank of Japan. The goal is to fight off euro-zone deflation or disinflation, and to debase the value of the euro currency against the dollar and the currencies of other trading partners.
This is PRECISELY what I’ve been expecting for a while now. About a month ago, for instance, I said that interest rate differentials, monetary policy developments, and economic growth all point to a weaker euro currency.
So what can you do to PROFIT? Well, it just so happens there’s an ETF that is designed to rise 2 percent for every 1 percent decline in the value of the euro — the ProShares UltraShort Euro (EUO). You may want to give it a look. Or you can take a look at my Safe Money Report, which has precise “buy” and “sell” signals for EUO and many other recommendations.
What about you? Have you used a falling euro to your advantage as an investor? Why do you think the ECB is following in our Fed’s footsteps? Will it work — or is it going to fail spectacularly for the European economy too? Hit the blog and let me know!
| OUR READERS SPEAK |
I know from your comments that at least some of you see opportunity in beaten-down emerging markets — and the one I highlighted yesterday as particularly promising. Reader Vivian R. had lots to say about India and the potential opportunities there:
“The time is right for the Indian economy to vastly outperform other countries and assets. India has excellent demographics. The average age in the country is less than 25 years. Narendra Modi has vowed to increase the skill level of the Indian worker and attract jobs. He has stated he will focus on infrastructure. He has a track record of running an effective government.
“India suffered for 10 years due to a criminally corrupt government that wasted opportunity by not undertaking critical reforms. This is about to change.”
Thanks for your thoughts Vivian! Many of the emerging markets got beaten by the ugly stick last year and in early 2014. But there are some intriguing bottoming patterns out there, and India is leading the pack.
One the other hand, Reader Denise isn’t so enamored by foreign shares. Her take? “I give up on emerging mkts, never made $$ off them. Losing $$ on ITUB and AMX.”
I suppose it depends on when and at what price you buy them, Denise. Itau Unibanco Holding SA (ITUB) of Brazil and America Movil SAB de C.V. (AMX) of Mexico had terrible years in 2013. But ITUB is rallying back nicely and AMX is trying to get off the mat, too. We’ll have to see if those moves have staying power!
Any other thoughts about possible emerging market plays? Let the group know here.
| OTHER DEVELOPMENTS OF THE DAY |
Retail sales were downright soggy in April, even as the weather improved. Sales gained just 0.1 percent after a 1.5 percent rise in March, disappointing economists.
Reminder: If you have any thoughts to share on these market events, don’t hesitate to use this link to put them on our blog.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
