because it can affect their portfolio significantly.
The eurozone crisis, which sent ripple effects into the global economy, is rising again. In the early days of the eurozone crisis, we heard how the economies of such nations like Greece, Spain, and Portugal were suffering. Now, the bigger nations in the euro region are showing signs of stress. Consider France, the second-biggest economy in the eurozone, for example. This major economic hub in the global economy witnessed contraction in the third quarter. On top of this, France’s unemployment rate continues to increase.
Germany, the biggest economy in the eurozone and the fourth-biggest economic hub in the global economy, slowed in the third quarter. The gross domestic product (GDP) of the country increased just 0.3% in the third quarter. In the second quarter, Germany’s GDP increased by 0.7%. (Source: “Gross domestic product up 0.3% in 3rd quarter of 2013,” Destatis, November 14, 2013.)
Similarly, Japan, the third-biggest nation in the global economy, continues to struggle, despite the extraordinary measures the central bank and Japanese government have taken to boost the economy. In the third quarter, the growth rate of the Japanese economy slowed down. The GDP grew 0.5% from the previous quarter. The annual GDP growth rate of the Japanese economy was 1.9% in the third quarter. (Source: “Gross Domestic Product: Third Quarter 2013,” Cabinet Office, Government of Japan web site, November 14, 2013.)
Adding more to the misery of the global economy, we have the U.S. economy and the Chinese economy, the two biggest economic hubs in the global economy, struggling to find growth.
The Chinese economy is slowing at a very dramatic pace. This year, China’s GDP growth will be much slower than its historical average. Likewise, the U.S. economy, the largest in the global economy, remains far from any economic growth. The GDP growth is embarrassing for the amount of money that has been printed, and key issues like unemployment and a weak housing market still remain.
Looking at all this, one question comes to mind: how can one profit from a situation in which the global economy is witnessing an economic slowdown?
If the slowdown in the global economy strengthens, then companies on key stock indices will see their earnings decline—and their stock prices will reflect this. In this situation, investors may be able to short stocks and profit.
Another way investors can profit is through exchange-traded funds (ETFs) like ProShares UltraShort DJ-UBS Crude Oil (NYSEARCA:SCO). At the very core, this ETF provides investors with exposure to oil prices—when the price of oil declines by one percent, this ETF increases by two percent.
The reasoning behind this investment strategy is that as the global economy slows down, the demand for oil will slow, too. This will cause less demand for crude oil, therefore leading to lower prices.
This article is brought to you courtesy of Moe Zulfiqar from the Daily Gains Letter.