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Don’t Follow the Crowd Putting the Euro Down

Thursday, 01 Apr 2010 01:06 PM

By David Skarica

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There is a funny thing about trading in the markets: Sometimes you have to look crazy to be correct.

Usually when you buy, or turn bullish on, something and no one else is with you — that is when you are at the start of a new trend.

For example, in March 2009, I recommended people buy casino stocks.

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Most thought this was crazy because we were at the bottom of a severe recession and casino stocks were deep in debt and very economically sensitive.

But you should buy where the news is the worst.

Many casino stocks have since increased hundreds, if not thousands, of percent from their March 2009 lows.

This brings us to another recent drop: The drop in the euro.

We all know the problems of Greece. I contend that the Greek crisis is not a big deal in itself. Greece's total debt is about $400 billion, which is one-quarter of the U.S. deficit for this year. Greece’s economy contributes less than 3 percent of the euro zone bloc's $13 trillion economy. If Athens were kicked out of the euro, it wouldn’t force the collapse of the single European currency, contrary to what many reports are saying.

Watching business-news TV one day last week, all analysts I saw were negative about the euro, calling for declines to $1.20 or lower.

I didn’t see one who was positive about the euro. This is extreme psychology.

Right now, the U.S. government is benefiting from the fact that the United States can print money and doesn’t have to practice any fiscal discipline, like the kind that Europe is trying to bestow on Greece.

However, in the long run, this fiscal irresponsibility will hurt the United States a great deal. This will send the dollar much lower.

I suggest you continue to look at the psychology regarding the euro.

There seems to be a consensus that after a short-term rally, the euro will continue to fall.

However, the consensus is hardly ever right.

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