Europe Led The Stock Markets Down In May … Those Short The Markets Profited

May 30, 2010 7:07 PM ETFEZ, SCO, BOM-OLD, EPV, FXE, GLD
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Contributor Since 2010

I am not an investment professional. I do not engage in stock or currency trading. I am a blogger and investor who believes the failure of credit has created an investment demand for gold, and that gold bullion is the sole means of wealth preservation.

European Stocks, FEZ, were down 12% this month;  those short the market with ProShares 200% inverse ETFs saw profits ; the top bear performers for the month were SCO and BOM with 35% and 20% – 200% inverse of oil and, 200% inverse of basic material stocks, which came from an unwinding of yen carry trade investment in the more speculative investment of oil, and the growth sector of steel.  EPV gained 18% on falling European shares.

SCO +35% … 200% inverse of oil

BOM +20% … 200% inverse of basic materials

EPV +18% … 200% inverse of Europe 

BZQ +18% 200% inverse of Brazil – fell on unwinding carry trades in this hot natural resource and fast growing  country.

JPX +18% 200% inverse of Asia excluding Japan — these fell on unwinding carry trades in growth sectors and emerging countries.

The Finvz Screener of ProShares bear market ETFs SRS, SJH, SSG, EEV, SMN, SMK, BZQ, SIJ, EPV, FXP, SCO, JPX, BOM presents charts for these investments, which have produced a portfolio gain of 20% since 04-24-2010. Profits came to those who have foreseen the financial risks stemming from the risk of sovereign debt default spreading to financial stocks and causing an unwinding of yen carry trade in growth industries and in emerging markets.

The Euro, FXE, fell 7% this month; the question arises what will it take to stabilize the Euro as well as the European shares.

The President of the European Council Herman Van Rompuy proposed a “crisis cabinet” reports Honor Mahoney of the EUObserver on May 25, 2010 in article Van Rompuy Wants Clearer Hierarchy To Deal With Future Crises.  He said that “there is not much hierarchy or organic links between the main players and the main institutions”.  European Commission President Jose Manuel Barroso, the head of the European Central Bank Jean-Claude Trichet and Mr Van Rompuy himself would be the triumvirate in this “crisis cabinet”.  And Honor Mahony again reports that at the same time the President of the European Commission, Barroso,  called Germany’s plans on improving economic governance in the eurozone as “naïve”. He believes that any treaty reform is not feasible in the moment.

It appears that a Crisis Cabinet is the Missing Link in the Eurozone Crisis debate.

The May 2010 EU Finance Ministers Summit announced the foundation of European Economic Governance and waived state sovereignty. I believe The EU Crisis Cabinet could very well emerge to provide European wide policy and mechanisms for unified economic, banking, monetary and seigniorage government without Treaty reform or State Parliament approval.

A currency crisis arose which took Europe out of the age of national independence into the age of mutual interdependence: the Euro Stability Pact was announced in early May 2010 at the EU Leaders Summit as a means of crisis resolution 

We are now living in age of global governance where leaders meet in summit and announce policy, that is rules of governance; national sovereignty is foregone for the common good of all; then task forces develope consensus, and make further policy recommendations for final committment by leaders, who announce a Framework Agreement, which sets forth the economic, political, monetary and seigniorage rules for the region. Because of crisis, the word, will and way of the leaders supersedes constitutional law and national parliaments.  A  hierarchy of leaders, workgroups, and stakeholders govern, and the people follow.

Can there be any doubt that the 27 member Eurozone area is headed for stronger governance? Herman van Rompuy said …. Being in the ‘Euro zone’ means, monetarily speaking, being part of one ‘Euroland’.” relates Forside blog which provides the following quote: “I have no doubt that monetary union can function very well without far-reaching political union. On the contrary, there could even be a risk that excessive centralisation or harmonisation of economic policies might stifle healthy competition and weaken economic efficiency”. – Then ECB Chief Economist, Otmar Issing, 2001.

While one could invest in the gold ETF, GLD, I personally am invested in gold coins, as I believe the chart of the gold shown by analyst Corey Rosenbloom, shows a cup and handle pattern, suggesting that prices will be heading much higher

I suggest a look Tim Knight’s Wrap-Up Video For May – It’s way cool because it integrates video, speech and data — nice use of technology Mr. Bear.

Disclosure: I hold an investment in gold coins.
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