Long Term View: The French Economic Crisis

First, there was the collapse of the Greek economy. Then Cyprian retirement funds were seized by the government to help pay down its national debt. Unemployment in Spain and Italy hovers above the 50% mark. Portugal is also floundering. The one thing these countries all have in common, besides general economic turmoil, is that they are bound by the same currency: the Euro. And these countries cannot simply print more currency to help alleviate their debt. Unlike the United States, they can’t just print more Euros to be used for beneficial economic stimulus packages, not as individual countries, only centrally through the ECB.

Which brings us to France. While not currently hit as hard as Greece, Portugal, or Spain – not yet – France is on the brink of being engulfed in the smothering tide of the Eurozone crisis. One of France’s top economists, Bruno Moschetto, has suggested that the French government immediately increase taxation. At 75%, France already has one of Europe’s highest tax rates, so that suggestion seems laughable, to say the least. Add to that the fact that French welfare spending is much higher than the rest of the world, a significant trade deficit, and a 15-year low in unemployment, and it’s not hard to see why a serious economic crisis is about to hit France.

Unlike Germany and other economically sound countries in the Eurozone, France cannot continue with its current economic policies and not expect to enter the same kind of crisis that countries like Greece, Italy, and Spain are going through. The gap between pensioners and earners continues to widen in the wrong direction: more elderly people collecting checks and fewer workers earning the money to pay for them. French debt is nearing the same levels as some of the more peripheral Eurozone countries. They could ask Germany to write them a fat check, but that would only devalue the Euro.

This all points at a downtrend for the Euro at some point in the near future. The ETF that profits from a falling Euro is ProShares UltraShort Euro (NYSEArca: EUO). Right now though, EUO is trading at near-record lows and there is no indication that it will rebound soon. Right now it’s trading at a little above $18. If it does rebound in the coming months and begins trading at, say, $19, that could be the sign we are looking for and could be a trigger point for great money making. If that happens, the timing could be just perfect to short the currency. And timing is everything when it comes to investment.

Let’s not forget that ALL major governments are in a race to destroy their currencies, especially the Japanese, so the time to take a big short the Euro is evidently not here yet. But, in any case, a European currency shock will be a shockwave to all markets, and part of our ongoing theme of a ‘perfect storm’ for 2014. We must remain vigilant.

As the economic and political situation continues to evolve in the Eurozone, EUO could be in for a turbulent ride on the market. It’s our job here at the Midas Legacy to keep our radar tuned to its market development in the months ahead, and we will keep you apprised of any changes and, more importantly, any potential for good profits.

Meanwhile, enjoy the next market bounce…

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