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How to Profit from Europe's FollyBy
Tuesday, August 5, 2008
The euro is now 50% overvalued versus the U.S. dollar... In fact, the euro is as expensive as it's ever been. So it's time for it to come back to earth. Let me explain the story... The euro went from expensive to outrageously expensive in the last year, as the chart shows.
Now, the euro has reached the point of ridiculousness. Here's a concrete example: A McDonald's Big Mac in Europe will cost you 50% more than a Big Mac in the States. The Economist magazine's Big Mac Index is actually a pretty darn useful gauge of which currencies are cheap and which are expensive. This index simply compares the price of a McDonald's Big Mac in all the major currencies of the world. The theory goes that countries with similar levels of development should have similarly priced Big Macs. So in theory, a Big Mac should cost roughly the same in Europe and America. According to the Economist, early 1995 was the last time a Big Mac was 50% more expensive in Europe than it was in the States. The last time Europe's currency got this expensive, it crashed by nearly half.
Could the euro continue to get even more expensive? Of course. But as the Big Mac chart suggests, the euro currency "rubber band" is stretched as far as it's ever been stretched. The rubber band always returns to its "equilibrium" state of value. Just when is the question. In the latest issue of my newsletterSjuggerud Confidential, I told my readers about the very best way to safely make money on the euro falling. I think we'll make 50% or more over the next two years. We are at the brink of a major downtrend in the euro. I think it's time to make a safe wager. Bet against the euro while it's extremely overvalued and get out in two years or so. The euro will probably still be too expensive, but it'll be a lot cheaper than it is now. Good investing, Steve P.S. If you're particularly interested in currencies, you could also check out what my longtime friend Jack Crooks is up to... He's one of the only currency traders I know that's not just a trend follower. In fact, his method is similar to our cheap, hated, uptrend model. I trust Jack. He's honest, smart, tries hard, and won't do you wrong. I learned a lot from him about currencies when we worked 15 feet away from each other for a couple years. If you want to get started trading currencies,check out what my friend Jack Crooks is up to.
Further Reading:
An Obvious Trade in the World's Cheapest Big Currency Market NotesTHE ULTIMATE WAY TO OWN REAL ESTATE More proof that "there's safety in trees" today... Timberland is one of the long-term investor's best friends. Trees grow constantly. Harvesting times can be put off until prices are strong. And timberland prices aren't correlated to the stock market, so it's a nice diversifier. For a picture of timberland's "friendliness," we present the long uptrend in Rayonier. Rayonier is one of the few publicly traded timber plays available to the U.S. stock investor. Rayonier and its uptrend have survived the worst credit crisis in generations, a huge bear market in commercial real estate, and a 20% decline in the broad stock market. During all this misery, Rayonier has managed to gain 44% over the past three years and throw off steady dividend payments. For more proof of the tree thesis, Rayonier's contemporary, Plum Creek Timber, reached a new all-time high in July. It's business as usual for what could be the world's best way to own real estate. |
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