ETF Pick of the Week: Double Short Euro (DRR)

Here's my ETF pick for this week: Market Vectors Double Short Euro (DRR)

DRR will move roughly 200% the inverse of the value of the euro.

Reasons for Selection:

1) Based on the Economist magazine's "Big Mac Index," the euro is among the most overvalued currencies in the world. Today, a Big Mac costs 50% more in euros than it does in U.S. dollars.

2) It appears that economies in the eurozone are about 6 months behind the US in terms of adjusting to inflated real estate prices and a slowdown in economic growth.

3) As slower growth becomes more of problem to policymakers than higher inflation, the European central bank will start cutting interest rates thus increasing pressure on the euro.

Catalyst: The downward trend of the euro is already developing a pattern and the euro recently fell through a trading range to the downside.

Tip: Remember that DRR is a leveraged ETF that moves twice the change in the value of the euro, so use sparingly. For those that want a direct play on the apparent resurgence of the US dollar, take a look at (UUP) but keep in mind that the US dollar has been up in 10 straight days.

Comments

[tudelson:]

NICE JOB CARL,
I HAVE BEEN THINKING OF HOW TO PLAY THE EURO ON THE DOWNSIDE AND YOU ARE RIGHT THERE. KUDOS

2008 Aug 19 11:39 AM

[tudelson:]

ANY THOUGHTS ON DOWNSIDE TARGETS FOR THIS TRADE AND CONCERNING THE GREATER EURO-DOLLAR RELATIONSHIP.

2008 Aug 19 11:40 AM

[Swedish inv...:]

Be a little cautious...The dollar has gained about 10 pct recently against the euro

2008 Aug 19 01:39 PM

[kkin365:]

How is the fund weighted re nations within EU?

2008 Aug 19 02:53 PM

[Alphabet Super:]

Which do you think outweighs the other? The E.U.'s relative inability to act swiftly and decisively to curb an economic downturn compared to the U.S. government. Or the U.S. governments ability to print print print in an effort to curb this downturn. It seems like the U.S. is more capable of at least taking action to aid in an economic recovery compared to the E.U. but does this ability outweigh the inflationary tendency of printing so much USD? Personally I am heavily short on the Euro right now.

Feb 20 05:02 PM

[optionsgirl:]

This is from Agora Financial's 5 Minute Forecast dated 2/23/09:
And in Europe, there’s a storm brewing that “could easily be as big as the U.S. subprime problem,” John Mauldin suggests.
“In Poland, as an example, 60% of mortgages are in Swiss francs. When times are good and currencies are stable, it is nice to have a low-interest Swiss mortgage. And as a requirement for joining the euro currency union, Poland has been required to keep its currency stable against the euro. This gave borrowers comfort that they could borrow at low interest in francs or euros, rather than at much higher local rates.
“But in an echo of teaser-rate subprime here in the U.S., there is a problem. Along came the synchronized global recession and large Polish current account trade deficits, which were three times those of the U.S. in terms of GDP, just to give us some perspective. Of course, if you are not a reserve currency, this is going to bring some pressure to bear. And it did. The Polish zloty has basically dropped in half compared with the Swiss franc. That means if you are a mortgage holder, your house payment just doubled. That same story is repeated all over the Baltics and Eastern Europe.
“Austrian banks have lent $289 billion (230 billion euros) to Eastern Europe. That is 70% of Austrian GDP. Much of it is in Swiss francs they borrowed from Swiss banks. Even a 10% impairment (highly optimistic) would bankrupt the Austrian financial system, says the Austrian finance minister, Joseph Proll. In the U.S., we speak of banks that are too big to be allowed to fail. But the reality is that we could nationalize them if we needed to do so.
“The problem is that in Europe, there are many banks that are simply too big to save. The size of the banks in terms of the GDP of the country in which they are domiciled is all out of proportion. For American readers, it would be as if the bank bailout package were in excess of $14 trillion (give or take a few trillion).”

Feb 23 02:48 PM