I can’t imagine how this will end well. It took overwhelming intervention by the ECB in 2011 to prevent a market melt down over anxiety of European bank exposure to southern countries, unaffectionately referred to as the PIGS. (Portugal, Italy, Greece,and Spain) Greece and ailing southern European countries. Forbes referred to this as did many other outlets as a crisis worse than 2008. This might have been just a wake up call with the real act being the French withdrawal from the EU, thereby certainly guaranteeing its collapse. At the latest gathering of the elite at Davos, JP Morgan CEO Dimon said that EuroZone may not survive if concerns are ignored. Shorting European government bonds from Germany FGBL, France FOAT, and Italy FBTP might provide outstanding returns. We are examining doing this on the Eurex Exchange with future and options on the futures. Other ways to express this view, could be shorting the euro, FXE or going long the UltraShort Euro EUO. Buying GLD, gold could provide opportunities and has been acting better lately. Shorting French bank ADRs such as Credit Agricole CRARY, Natixis NTXFY, BNP Paribas BNPQY, and Society Generale SCGLY, although this may be counterproductive if rates rise as perception is banks will do well. Buying the CDS on these banks may be a better idea. We will be updating this on a regular basis.
1. Uncertainity of the future of the euro and the European Union might drive up borrowing costs therefor lowering the value of the bonds.
2. The Federal Reserve’s desire to gradually raise U.S. rates may force global interest rates higer for every country.
3. Increasing uncertainity about the possibility of protectionist trade rhetoric from the new Trump administration could lead to dollar safe haven buying lowering the value of the euro versus the dollar.
4. Expansionary Russia under Putin might make Euro centric investors uneasy. Coupled with Trump’s wavering committment to NATO might create a flight from euros.
Leading anti-immigrant and antiestablishment politicians rallied in the Rhineland to launch an election year they hope will topple the European Union, displaying a new level of ambition and organization and casting U.S. President Donald Trump as their inspiration.
Source: Boosted by Trump, Europe’s Antiestablishment Unites – WSJ