Firing Up the Presses
Just last week, reports surfaced that the ECB has done financial modeling to gauge the effects of a 1 trillion euro annual bond-buying program to counter deflationary pressures.
In line with the Fed’s own program, the ECB tested buying 80 billion euros monthly over a year, estimating it would boost inflation by 0.2% to 0.8%.
Realizing the strong euro’s been weighing on hopes for inflation (it makes imports cheaper), Draghi’s been talking down the currency every chance he gets.
There are two major “unconventional” policy options Draghi could well use. The first is of course printing to buy bonds.
The second is keeping interest rates low, even once the economy starts to improve… just in case. He may even lower deposit rates below zero – essentially charging banks for leaving cash with the ECB.
That’s been the case since 2012 in Denmark, helping the Danes become the most debt-ridden people in the world, as they borrow ever more.
Imagine the possibilities when the same policy begins rolling out across Europe…
Odds are the ECB is more ready than ever to unveil a bond-buying program the moment it gets the go ahead.
Ride Their Folly to Your Profit
So how do you prepare and profit as Europe follows in the footsteps of America and Japan?
On the conservative side, consider hard assets like precious metals, commodities, commodities producers, and even real estate to protect against the inflation that the ECB is hell-bent on achieving. These will protect and grow their value as inflation sets in. That’s my main focus for subscribers of Real Asset Returns.
If you want to take a more aggressive approach, consider a European stock ETF, like theiShares MSCI EMU Index ETF (NYSEARCA:EZU). It’s up about 34% since bottoming last July, but when the ECB creates conditions similar to the Fed in the United States, it’s likely to head much higher.
And finally, you could short the euro, the value of which the ECB would happily see decline against other major currencies. If the EUR/USD exchange rate drops below 1.35 (the 200-day moving average) and keeps heading lower, you could use the ProShares UltraShort Euro ETF (NYSEARCA:EUO), which aims to generate twice the inverse daily returns of the U.S. dollar price of the euro.
Remember, if anything strikes fear in the heart of a central banker, it’s dreaded deflation.
And the ECB never met a QE program it didn’t like.
Easing is coming to Europe, and it’s only a question of when. So take advantage of their fiscal largesse by positioning yourself now…
We’re in the midst of the greatest investing boom in almost 60 years. And rest assured – this boom is not about to end anytime soon. You see, the flattening of the world continues to spawn new markets worth trillions of dollars; new customers that measure in the billions; an insatiable global demand for basic resources that’s growing exponentially; and a technological revolution even in the most distant markets on the planet.And Money Morning is here to help investors profit handsomely on this seismic shift in the global economy. In fact, we believe this is where the only real fortunes will be made in the months and years to come.