Posted by: Sanity Rules | July 2, 2008

The Euro: Time to reconsider your exposure.

To date, the story of the Euro has been one where this currency has consistently outperformed the Dollar.  This situation is likely to change in the near future for a number of reasons.  It is probably a good time to start diversifying to limit your exposure to the Euro before the broader market wakes up to the fact that it has become significantly over-valued. 

One big problem with the Euro, is that the history of this currency is limited at best and many of the suppositions which support it’s value are at best, suspect.  

Long term, the Euro is a risky investment because Europe is divided politically.  The “European Union” never has been united.  The political forces which divide Europe have not changed significantly since the Napoleonic Wars.

In addition to historical issues, the recent rush to the Euro has created a speculative bubble.  Fueling the rush to the Euro, was our own falling Dollar.  The situation today is not that the Euro is so valuable, it is that investors are clammoring to find another place to put their liquid assets.   At this point the Euro is simply not as valuable as the market is reflecting.  

The third major reason for concern for the Euro is that as it becomes more valuable, the less attractive European exports will be to the rest of the world.  They will price themselves out of the world market to a degree.  This will weaken their economies and increase their unemployment rates.  Their socialist elected governments do not have a proper understanding of how markets work, and without the ability to diagnose the problems, are not equiped to correct them.

The recent economic prosperity that the Europe has come to enjoy was the result of the ending of the cold war, (thank you Ronald Reagan) capitalism and in over exuberant speculation.   Over time the people forgot the hard work and conservative principles that brought prosperity.  Now they are preoccupied with sports, entertainment and leisure activities and are left unprepared for the coming storm.  

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Responses

  1. Hi. Your post on where the Euro is headed and why we should have a bit more confidence in our currency is reassuring especially since I look around and see nothing but a curbing domestic market. I’m looking to build up incoming links for my blog. Would you like to exchange blogroll links with me? If yes, please visit: http://greatdebater.wordpress.com/2008/06/25/why-i-blog/ and leave your URL there. The purpose of my blog is to generate debate on anything and everything that matters.


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