Time To Take That European Vacation You’ve Been Waiting For…
Those crepes outside of the Eiffel Tower just got cheaper…
Flakey, delicious German pastries and chocolates? Those are on sale, too.
And don’t even get me started on a nice dish of authentic Italian pasta – prices just took a haircut!
Add it all up and there’s a storewide sale going on right now in the Eurozone. Everything that you’ve wished for on your dream vacation to Italy, Spain, Greece, Germany, France (to name a few) is 20% off.
20% off is nothing to sniff at – considering just eight months ago you’d be paying full price.
Best of all, there’s no sale at the local travel agency with a few crusty plane tickets left over from last year. Nope! You can take advantage of this sale at your own agent or your favorite travel website (like that weird Trivago dude you see on the commercials.)
That said, I won’t begrudge you if you stop reading right now and go make some travel plans – after all, the sale is on.
But if you’re wondering about the bigger story surrounding this 20% off sale, please read on…
Currency Wars Create Cheap Travel…And Unsettled Investors
If you haven’t guessed what I’m talking about with this European travel sale – I’m talking about the rapid, precipitous fall in the euro currency.
Just eight months ago in May 2014 the euro was “steady as she goes” around 139 basis points. That’s when the wheels started to fall off across the pond. Failing to recover from the 2008 meltdown, the Eurozone economy was struggling. Some countries were worse than others, but overall energy prices were high and so was unemployment. Add it all up and the economy was sick with a capital “S”.
Thus, back in May 2014, the head of the European Central Bank (ECB) took action and said the ECB could take action with a stimulus plan.
That was the beginning of a precipitous fall in the euro. Days ago the euro index hit 1.11 – that’s a stunning 20% drop in just eight months. Put another way, if you’re an American going on a European vacation the exchange rate just toppled in your favor to the tune of 20%. Cheaper pastries, crepes, hotels, tours, pasta and more!
But while things are peachy keen in the travel scene, there’s an ominous dark cloud circling the globe — a dark cloud of currency manipulation (and devaluation) that’s been kicking up storms for the past few years. Every now and then lightning strikes, central bankers manipulate and currencies go wild.
So while today’s news is good for anyone looking to take that European vacation, for investors, it’s storm season and things are getting ugly.
The big fireworks in 2015 started when the Swiss National Bank made a surprise move to unpeg the Swiss Franc from the euro last week. That single, unexpected move caused massive financial downfall. As you’ve likely heard, brokerages have gone out of business, investors that were basing trades on the peg got hammered and some weird fallout that you may have heard from Jim Rickard’s, like Eurozone mortgage payments that were based in Swiss currency suddenly went up 20-30%, overnight.
That’s scary stuff – and it’s just the beginning.
The move we’ve seen in the euro was much more telegraphed. For months we’ve known it was coming, but yet for months the euro continued to fall. Surprising most everyone on Wall Street.
The biggest outcome of this whole euro drop is the “weird new normal.” In short, a dropping euro INSTANTLY and DIRECTLY makes the U.S. Dollar stronger. For example, since May 2014, the U.S. dollar index is up over 18% — it recently hit 95 basis points, up from 80 in May.
Simply put, here in the U.S. we’ve gotten used to the U.S. dollar dropping in value to other currencies. But today we’re seeing the direct opposite. The greenback is appreciating and there’s no end in sight.
The Folks That Said The Dollar Can’t Go Higher Are Wrong
A word to the wise, the dollar can keep going higher. It can also stay right where it is (strong), for a long time.
Indeed the folks along the way that said the U.S. dollar couldn’t go higher are wrong. A quick look back to September there were warning signs that the dollar still had room to run. Here’s what we said…
“How high can it go? Well, it doesn’t take much of a head turn to look back to late 2008 and see the dollar index near 90 basis points — a 7% premium to today’s price. Loosen up your neck a little more and look at the long-term chart to see the dollar index near 120 as recently as 2002 — a 42% premium to today’s price.”
Today’s dollar index is near 95 points. So there’s still room to run if we’re going to eclipse those 2002 highs.
However, there’s another side to the coin, of course. Here’s what I said back in September…
“So you see, Janet Yellen may be dancing around taper talk and continuing to overwhelm the market with stimulus and continued low interest rates, BUT if Mario Draghi and the European Central Bank can outdo Janet’s moves, the dollar index can continue to skyrocket.”
That’s the crux of the argument, dear reader.
The only thing that’s going to put the U.S. dollar back on its path to eventual destruction is a big move by the U.S. Fed. Right now Mario Draghi and the ECB are opening the floodgates of stimulus. Meanwhile, Janet Yellen and the U.S. Fed are closing the spigot.
If nothing gives here we’re in store for a strong dollar for as far as the eye can see.
However, in the currency world something’s got to give. I don’t think it’ll be long before the U.S. Fed whips out its magic wand and joins the global race to the bottom in currencies.
The U.S. dollar is strong today – a little too strong if you’re the head of the U.S. Fed. It won’t be long before the U.S. joins the race to the bottom – which means another round of stimulus here in the U.S. may be just around the corner. That’ll be the next big round of fireworks we see in 2015.
While we wait for the show, now’s the time to look at picking up some safe-haven gold. While the world’s currencies F-L-U-S-H themselves into the toilet, the time tested power of precious metals with outlast them all.
Oh, and… go ahead and book that European vacation.
Keep your boots muddy,
P.S. Don’t expect this sale to last long. It’s only a matter of time before the U.S. “fires back” and depreciates the greenback. When that happens, make sure you stay up to date with a free subscription to Daily Resource Hunter. Click here now to sign up.