Euro: How To Play Into The European Disunion (DRR, EUO)

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September 14, 2011 1:05pm NYSE:DRR NYSE:EUO

Kevin Kerr:  The massive differences between the various nations in the European Union have always been apparent. But now as the euro zone is literally crumbling in front of us, the depth of that divide has become more obvious than ever.

Clearly there are, and always have been, major socio-economic divides, vastly different political philosophies, varieties of languages, and even diverse religious views. The list of things that makes a “European Union” next to impossible could go on and on. Despite that, the vision of one Europe and even one currency went forward.

Joining the Club

The concept of a unified Europe is nothing new. Throughout history the idea has been considered and discussed, largely due to the devastating effects of war between the various nations. So many famous people in history, such as William Penn, Victor Hugo, and Giuseppe Mazzini, turned to the idea of a unified Europe in some form or another.

But the concept to develop the EU we know today really took off after World War II, mainly because of the widespread devastation both on a human and an economic scale.

However, “the dream” that was the EU and eventually the euro currency was flawed from the start. I compare it to the idea of combining the dollar and the peso. Obviously Mexico and the U.S. have vastly different economies and cultures. And to try and put together one currency, some call it the “amero,” would make about as much sense as the euro does.

Even so, many of the poorer southern European and Baltic countries, including Estonia where I live, desperately wanted to be a part of the EU. They felt joining the euro club would elevate them to a higher level of respect putting them on equal footing with the wealthier European nations such as Germany and France.

But the results of belonging to this club can end up very different depending on where you are located. Take for example the differences between two of the poorer European nations …

A Tale of Two Countries

Estonia shows how a disciplined steady exchange rate can bring long-term economic benefits, albeit at the cost of short-term pain. Its rigorous fiscal policy was all in an effort to gain euro-zone membership and eventually the euro.

Is this a club you would really want to join?
Is this a club you would really want to join?

This did not happen by magic; it was the result of years of self-discipline and a simple, flat tax system. Estonia chose to be extremely fiscally conservative after it gained independence from the Soviet Union in 1991. So what you see is a country that has behaved as though it were in the euro zone for much of its life.

Greece was the mirror image and failed to accept the fiscal discipline that the zone is supposed to require. Its government spent like drunken sailors, and has put the country on the verge of default and even a return to the drachma.

Now that Estonia is a full member of the EU/euro club some are left scratching their heads and wondering if all the years of pain to gain membership were really worth it. Some equate it to being invited to a wedding, and it actually turns out to be a funeral.

What’s more, the divide is widening between the wealthy northern European countries and the poorer southern EU countries like Greece, which for the time being is clinging on by a thread. The once explicit support from the rest of Europe and the International Monetary Fund has all but dried up, and tensions are at the boiling point.

The level of uncertainty in Europe has reached a fever pitch. And the problems are likely to just get worse, with the divides and resentments even deeper. Consequently, the EU itself may not survive, and it’s highly likely the euro in its current form will not either.

How to Profit from a Collapsing Euro

ETF options offer the ultimate in flexibility for betting against the euro.
ETF options offer the ultimate in flexibility for betting against the euro.

Personally, I think it’s pretty risky to bet against the euro with futures and options right now. A much better way, in my view is by using an exchange traded fund (ETF) that bets against the euro. One idea to consider is the Market Vectors Double Short Euro ETN (NYSE:DRR). This fund is double short the euro. For instance if the euro falls 15 percent, the fund is meant to appreciate approximately 30 percent. The reverse is also true, of course.

Another ETF I really like is ProShares UltraShort Euro (NYSE:EUO). Readers recently grabbed up to 29.6 percent profits in only 2 weeks, on just the first half of their EUO option play in my Master Trader service, and now they have open gains of up to 70.4 percent for the second half. Incredible!

Yours for resource profits,

Written By Kevin Kerr From Money And Markets

Money and Markets (MaM)is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaMare based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economics.

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