The European Central Bank (ECB) just doubled down on easy money.
In March 2015, the ECB began its quantitative easing (QE) program. This is when a central bank creates money out of thin air and injects it into the financial system. It’s really just another word for money printing.
The ECB thought printing money would stimulate Europe’s economy. But it hasn’t worked. Europe’s economy is growing at its slowest pace in decades. In many European countries, unemployment is in the double digits and climbing.
At this point, you would think the ECB would give up on QE. But Mario Draghi, who runs the ECB, just said he’s going to keep the printing press running for longer than he originally planned.
Bloomberg Markets reported yesterday:
“The presence of the ECB on markets will be there for a long time,” the institution’s president said in Frankfurt after the Governing Council agreed to add more than half a trillion euros to its bond-buying program and extend it until at least the end of 2017. Quantitative easing is “in a sense open-ended, it’s state-contingent,” he said.
According to Draghi, easy money is the only thing holding Europe’s economy together. Bloomberg Markets continued:
Draghi cited weak underlying price pressures, political uncertainties and inadequate government reforms as he laid out the reasons for expanding the ECB’s asset-purchase plan to at least 2.3 trillion euros ($2.4 trillion). He and his colleagues have frequently stressed that the euro area’s economic upturn is largely reliant on continued monetary easing as governments fail to play their part.
Doubling down on the same failed policies obviously won’t fix Europe’s economy.
• The euro, the official currency of the European Union, plunged 1.3% yesterday…
It was the currency’s worst day since Brexit. The euro has now fallen 8% against the U.S. dollar since May.
This might not sound like a big move. But keep in mind, we’re talking about the currency of the world’s largest economy, not some penny stock.
We think the euro could keep falling, too…
You see, printing money doesn’t actually grow an economy. All it does is create more paper money chasing the same number of goods and services. The average Joe ends up having to spend more money on groceries, clothing, and gas.
But Draghi's announcement isn't the only reason why the euro is in trouble…
• The Federal Reserve is doing the opposite of the ECB right now…
It stopped printing money more than two years ago.
More importantly, basically everyone expects the Fed to raise its key interest rate next week. And it could hike rates as much as four times next year, now that Trump’s going to be president.
If the Fed raises its key rate, U.S. bonds and other assets will pay higher rates, too. This should make the U.S. more attractive to foreign investors, which is bullish for the U.S. dollar.
And if the U.S. dollar gets stronger, the euro will get weaker. After all, a currency’s “value” really just measures how many units of another currency it can buy.
• Nick Giambruno, editor of Crisis Investing, thinks the euro will plunge in the coming months…
That’s because Italy, one of the EU’s most important economies, could soon abandon the euro. If this happens, Nick says the entire EU experiment could fall apart.
He explained why in the August issue of Crisis Investing:
Italy will likely return to the lira.
If Italy—the third-largest member of the eurozone—leaves, it will have the psychological effect of someone yelling “Fire!” in a crowded theater. Other countries will quickly head for the exit, and return to their national currencies.
Economic ties and integration are what hold the EU together. Think of the currency as the economic glue. Without the euro, economic ties will weaken, and the whole project could unravel.
This would obviously be bad for everyday Europeans. But savvy investors could stand to make a fortune by getting ahead of this coming crisis.
• In August, Nick encouraged his readers to short the euro…
Shorting is when you bet that an asset will fall in value. If you’re right, you make money.
Now, most people think only “sophisticated” investors short stocks and currencies. But Nick found a way to short the euro that’s as easy as buying a share of Wal-Mart (WMT).
Nick’s euro short has returned 3.8% since the ECB’s meeting yesterday. His readers are now up 15% on this trade in just four months. But they could see much bigger gains in the coming months.
• Europe is beginning to unravel…
As we all know, Great Britain voted to leave the EU on June 23. The historic decision rattled markets from Tokyo to New York, knocking more than $3 trillion from the global stock market in just two days.
At the time, most people thought things would quickly go back to normal. But as we explained on June 27, Brexit was merely “a taste of what’s to come.”
The Brexit has paved the way for other countries to leave the EU…
Shortly after news of the Brexit broke, France's National Front leader Marine Le Pen wrote: “Victory for freedom. As I've been saying for years, we must now have the same referendum in France and other EU countries.”
Ms. Le Pen is the front-runner to become the president of France next year. Two weeks ago, she said “France has possibly 1,000 more reasons to want to leave the EU than the English.”
Politicians in Italy and the Netherlands are also demanding “the right to choose” to leave the EU.
• Last weekend, another domino in Europe fell…
On Sunday, Matteo Renzi stepped down as Italy's prime minister after an important constitutional referendum. According to Nick, Renzi’s decision to resign could mark the beginning of the end for the EU.
He wrote in an alert to his readers on Monday:
The pro-EU Prime Minister promptly announced his resignation after the crushing defeat. A surging populist party waits in the wings. They're now likely a matter of months away from taking power, and then holding a new referendum on whether Italy should dump the euro and go back to the lira. If that happens, Italians will likely vote to leave. Without Italy, the euro currency would likely disintegrate. Without the euro, the whole European Union—the world's largest economy—would likely come unglued.
That same day, Nick said “I expect the euro to tank this week.” His call was spot-on. As we go to press, the euro has fallen 2% since Monday.
One euro will now buy you $1.05 (USD). According to Nick, the euro is now dangerously close to a critical level:
If it breaks below its March 2015 low of $1.046, it would pave the way for it to test parity with the US dollar (which hasn't happened since late 2002). If that happens, look out below.
• You too can profit from the collapse of the euro by signing up for Crisis Investing today…
You’ll also see how Nick has “flipped” other crises into huge profits for his readers.
For instance, his readers are already up 14% on a beaten-down uranium miner in just three weeks… They’re up 41% on a world-class oil company since March… And this morning, they closed out a position on a Ukrainian agricultural producer. That investment returned 103% in only four months.
If Nick’s right about Europe, his readers could enjoy similar—if not bigger—gains.
You can get in on Nick’s euro short right now by signing up for Crisis Investing. Click here to begin your risk-free trial.
Editor’s note: We have a must-hear interview with Casey Research founder Doug Casey to share with you.
In this brand-new interview with The Power Market & Report, Doug talks about why Argentina is becoming a better place to live…why Trump will probably be the last white male U.S. president…and why he’s still a long-term optimist.
What to Do This Tax Loss Season
Today, we have something special for you. Instead of our usual Chart of the Day, we have some actionable advice from Louis James, editor of Casey Resource Investor.
As we explained yesterday, we’re in tax loss season right now. This is the time of year when many investors close out losing positions. In the essay below, Louis explains what this could mean for gold…silver…and gold and silver stocks.
This excerpt originally appeared in this month’s issue of Casey Resource Investor.
The key factor regarding our investment decisions this month is that even though many of our stocks are up for the year, most have retreated significantly over the last few months. That makes them vulnerable to tax-loss selling from those in at higher prices who have turned bearish on precious metals. Their mistake is our opportunity, but we’re still at the beginning of December, and tax-loss selling tends to heat up as we approach the last week of the month. The Fed’s expected rate hike next week is another reason to wait before buying.
In short, even though we see good buys on the market now, we recommend waiting until the last week of the month for potentially better buying opportunities, and to be sure trailing stop losses don’t get triggered.
But what about taking tax losses ourselves? Well, if we thought gold was likely to stay down for a while, we might sell now and look to buy back in at lower prices after waiting the required month. But the market is too unpredictable at this point, and we don’t want to be caught short. We’d rather weather the storm than take losses, pay trading fees, and run the risk of having to buy back in again at higher prices—paying even more fees.
If we get stopped out, that’s another matter, of course, and a tax loss could be a silver lining to such an outcome.
That’s our take for this month.
Editor’s note: You can read Louis’s best insights, tips, and stock picks before anyone else by signing up for Casey Resource Investor. If you act today, we’ll give you a full 90 days to test drive the service risk-free.
We also encourage you to read tomorrow’s weekend Dispatch. In it, Louis explains what Trump's presidency could mean for gold and silver. You’ll also learn about which sector he's most bullish on right now…
Delray Beach, Florida
December 9, 2016