How to profit as the eurozone crisis worsens – MoneyWeek

Thisiswherewehitasnag。

Globalgrowthseemstohavehitabrickwall。

ThepayrollfiguresfromtheUSonFriday(whichshowedthatagrandtotalofnojobswerecreatedinAugust)werejustthelatestinalitanyofeconomicdatapointingtoasevereslowdownacrosstheworld。

Ifwecantgrowourwayoutofdebt,thatmeanswereleftwiththepainfuloptions。

Youcandefault;youcanembracedebtslaverybyslashingspendinganddedicatingallofyourresourcestorepayingdebts;oryoucancombinethetwooptionsbyinflatingyourwayoutofdebt。

Noneofthoseoptionsispleasant。

Butaseurozonemembersarecurrentlyfindingout,crossingyourfingersandprayingforgrowthisnolongeranoption…

Theeurozonecrisisisgettingworse

WithUSmarketsshutyesterday,theeurozonewasthemainthingoninvestorsminds。

AsWorldBankPresidentRobertZoellicktoldBloomberg,wearemovingintoadangerousperiod,withEuropefacingaparticularlysensitivetime。

TherewererumoursthatacreditratingagencywaspreparingtodowngradeItaly。

ThelatestGreekbail-outisinconfusionoverdemandsfromtheFinnishforcollateraltobacktheirpartoftheloan。

AndagrimregionalelectionresultinGermanyovertheweekendforAngelaMerkelspartyraisedfearsthatvotersmaynotbeinthemoodformorebail-outs。

Italysawitsten-yearborrowingcostsrisebythemostinalmosttwomonths。

Spanishbondyieldsalsojumped。

WhatreallyunnervedthemarketisthattheEuropeanCentralBankhasbeeninterveninginthemarketalotmoreaggressivelythananyonehadexpected。

Lastweekitbought€13。

3bnineurozonegovernmentbonds,twicethetotalofthepreviousweek。

Aswevenotedalready,thebottomlineisthis:thereistoomuchdebtintheworld。

Itcantberepaidatthetermsagreedwhenthemoneywaslentout。

Sothatmeansthatsomebodyisgoingtocarrythelosses。

Thefundamentalproblemwiththeeurozonerightnowisthatnooneissureexactlyhowthatisgoingtoplayout。

Thethreewaystodealwithbaddebt

Youcandealwithdebtthroughdefault。

Youadmitthedebtisbad,andjustwipetheslateclean。

ThatswhatIcelanddid。

Itwaspainful,andcontinuestobe。

Butthecountryisseeingthelightattheendofthetunnel,andhasbeenabletoreturntothecapitalmarketstoborrowmoney。

Youcandealwithitthroughsevereausterity。

Youbreakyourbackifnecessarytoslashcostsandcarryasmuchofthedebtburdenasyoucan,andwritetherestoff。

ThatswhatIrelandisdoing。

Thatsbeenpainfultoo,andstillis。

ButasmycolleagueDavidStevensonnotedyesterday,therearesignsthattheeconomyisimproving。

BorrowingcostsforIrelandtoo,havefallenfromtheirhighs。

Oryoutrytodealwithitbystealth。

Yourepaythedebtindevaluedcurrency。

Sofar,thatstheplanbeingfollowedbybothBritainandtheUS。

AnditsalsotheplanthatmarketswouldreallylikeEuropetofollowtoo。

This,ultimately,iswhataEurobond,oranagreementbytheEuropeanCentralBanktodoquantitativeeasing,wouldbe。

Sofar,thatsresultedinadrawn-outpainfulprocesswherethestandardoflivingforthevastmajorityisdeclining。

Meanwhile,nooneisquitesurewhatwillhappennext,andasaresult,isnotpreparedtoinvestforthefuture。

Butitdoesmeanthatthebankscankeeppretendingtobesolvent,andtheirchiefexecutivescanstillgetpaidvastsums。

Ifavourdefault,Imustsay。

Thatwayyoupunishlenderswhofailedtodotheirjobsproperly,andclearaspaceformorecompetentones。

Youalsorapidlyandcleanlyreduceassetpricestolevelswherethosewithcapitaltodeployarekeentojumpin。

Thatcanincludepejoratively-namedvulturefunds。

Oritcouldbethearmyoffirst-timebuyerswhostillcantaffordtobuypropertyintheUK,forexample。

Itsthefairestwaytodoit。

ButitdoesntmatterwhatIthink。

Sofarinflationisthefavouredoptionforthosegovernmentsthathavethechoice。

TheworryforEuropeisthattheresachanceitwillbeforcedintothedefaultoptionbeforepoliticianscanagreeonawaytogofortheinflationoptioninstead。

Whatshouldyoudo?

Stickwithsafegold。

ItwillcontinuetodowellaslongastheFederalReservecontinuestogofortheinflationoption。

ItmaywellalsobenefitfromtheSwissNationalBanksattemptstoprotectitscurrencyfromstrengtheninganyfurtherbypeggingitat1。

20francstotheeuro。

Withoneso-calledsafehavenoutofcommission,demandforotherscanonlygrow。

Meanwhile,theeuroislookingverywobblyagain。

Ifyoufancytryingyourhandattradingit–bearinginmindthatplayingcurrenciesispurespeculationandsoveryrisky–thenspreadbettingisoneoftheeasiestwaystodosoforaprivateinvestor。

Youcanfindoutmoreabouthowtogoaboutit,andtacticsforminimisinglossesandmaximisingprofits,inourfreeMoneyWeekTraderemail。

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