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Author: kwl1763 One star, 50 posts Old School Fool Global Fool SC1 Red Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 189  
Subject: Still want to short Euro Date: 1/2/2011 6:28 PM
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First let me say I don't have a desire to use one of the leveraged ETFs to do so such as EUO because of the fundamnetal problem with that type of ETF (futures costs, etc) and also because I have no idea the timing or severity of the move.

Now that we're done with that. I do think the Euro is in trouble in the next 12-30 months. I see 3 possible scenarios coming out of the current issues in the region.

1) Everything they've done will work, the economy will improve, greece will not default. Even portugal will be OK (to speak nothing of Span and gulp, Italy) and won't need significantly more bailout money. The rising tide will make the issue go away.

2) The Euro zone will commit to the Euro. The stronger members like France and Germany will agree to take on for the greater good. Some kind of bailout fund will be established or they will deal with the one offs and it will be managable and the euro will survive

3) The problem is to big for the strong guys to swallow and the euro either goes away or is massively transformed


Now I'll do some speculating. I believe the first is highly unlikely. Less than a 20% chance. There are to many headwinds and challenges for this to work out. Economic improvement in even the rosiest of forecasts will not be robust enough to magically solve the issues.

Scenario 2 I think is most likely (greater then 50% chance). There is a lot at stake for these guys and letting it fail could be disasterous at least in the short run. So if this happens I do not see how the euro cannot devalue significantly. If you know germany, france, etc will bailout the weak greeac, portugal, etc then ther should be no difference in the rates on their soveriegn debt. Why would you get 3% in Germany when you could get 7 or 8% in Greece since they will not be allowed to default. If this happens the euro will neccessarily devalue, strong country rates will go up.

Scenario 3 is about as likely as the first so I give it around a 20% chance. There could be a push for protectionism. It's even more likely during trying times. If this happens the euro would go into chaos. Longer term I have a hard time buying it. There is more talk of a global currency then going back to more currencies but we may have to have some creative destruction here.

Now on to my second point which is at least as important. I don't especially like the USD either. I honestly see out only route out in the long term is to inflate our debt issue away. I will leave it at that so as not to derail the post. So given that, I don't want anything that is a euro/dollar play. In other words normally you would short the euro against the USD. I don't want to do that. I think both may weaken against places like china and switzerland and the ultimate currency of commodities.

Again, to reiterate, I also don't want something that has to work in x amount of months. I think this could take a few years to play out so I don't want the play to expire and then be right.

So what is your opinion on the best way to play?

Is there a way to short euro vs swiss frank? I guess you could pair a short euro in USD terms and long Swiss frank in USD.

Can you short the euro vs a basket of non US currencies or against a commodities basket. ( I realize you could do your own with several trades)

I'm also open to doing it through stocks if that seems the best way also.

How would you play it?
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