I recently noticed that Ireland and Portugal issued bonds at record low yields. Wait, weren’t Ireland and Portugal the next troubled economies after Greece? Aren’t they the “I” and “P” in PIGS? Don’t Spain and Italy still have plenty of problems also?
So now it dawned on me why the Euro is doomed. When a country gets over its skis, the capital markets have a self-correcting mechanism to push that country through its economic cycles. In general, that country’s currency gets devalued and interest rates rise to entice foreign investment. The Euro bloc is full of countries where this should happen. Countries over time naturally need to go through periods of feast and famine.
The question remains, where would the individual currencies trade if the Euro didn’t exist? Is the Euro equal to the sum of its parts? It’s hard to exactly quantify this number but I would guess that the Euro should weaken much further. Safer currencies like the dollar and gold look attractive versus the Euro.
This article was written by Treesdale Partners, portfolio manager of the AdvisorShares Gartman Gold/Euro ETF (GEUR) and AdvisorShares Gartman Gold/Yen ETF (GYEN).