How to Profit from Europe's Folly. The euro is now 50% overvalued versus the U.S. dollar..

August 05, 2008


How to Profit from Europe's Folly
By Dr. Steve Sjuggerud

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.

The Euro Shoots to the Moon


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.

The Euro Hasn't Been This Expensive Since 1995


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.


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In the latest issue of my newsletter Sjuggerud 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.


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The Fed has cut its rate target 3.25 percentage points since last September, trying to help the economy stagger through the housing crunch. Without those cuts, the economy might be in far worse shape than it is now.

Yet it's troubling that the cuts have done little to make credit any easier than it was a year ago.

A fixed, 30-year mortgage went for 6.6% last week, according to HSH Associates, compared with 6.4% the day the Fed started cutting rates. Mortgage lenders are demanding tougher terms. U.S. auto makers are cutting back or eliminating auto leases.

Corporate borrowing costs are higher, too. The average yield of the high-rated bonds that make up the Dow Jones Corporate Bond Index has risen to 6.1% from 5.9%. Rates for riskier corporate borrowers have risen even further.
– Wall Street Journal



According to Statistical Surveys, a Michigan market research firm, sales of class-A motorhomes, the biggest vehicles, fell by 31.3 per cent in the first five months of 2008 compared with a year earlier. This included a 43 per cent plunge in May.

"This cycle has been particularly nasty," says Craig Kennison, analyst at Robert W Baird.

He estimates motorhome registrations will tumble to 35,000 units this year, down almost half from their 2004 peak, well below the trough of the industry’s past two downturns.
– Financial Times

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