Courtesy of John Nyaradi
As governments and central banks around the world struggle to keep their overwhelming debt loads under control, they remind me of the old fable of the little Dutch boy who saves his country by sticking his finger in a dike to stop the dike from breaking.
Everywhere we look, we see leaks springing in the damn and one can only wonder how many fingers are available to keep the dike from breaking?
As policymakers and governments struggle to stop the leaks of sovereign default, banks going under and soaring bond yields, many wonder if the dike is beyond repair and if plugging the leaks only stalls the eventual reality of flash flood, global catastrophe, and a new world depression.
Catastrophic leaks along the levy include, but are not limited to, a failing Euro Zone, in which the open spigots of Greece, Ireland and Italy threaten to flood the entire European continent. The European Central bank and the IMF have tried numerous measures to cork these leaks, but alas, they haven’t worked so far.
Greece keeps springing a leak in spite of their best efforts and Ireland has recently been downgraded to junk. Italy sprang a big leak last week as the European Union met in emergency session to stem that tide.
On our side of the Atlantic, the dike is in no better shape as Dr. Ben, President Obama and Congress quickly run out of fingers and time.
Dr. Ben let Congress know last week that his punch bowl is running empty and the Obama-Congress debt ceiling wars still rattle markets as the clock clicks towards the August 2nd.
So what are little guys like us supposed to do?
As always, exchange traded funds offer investors the opportunity to seek profits and safety in any market environment.
If the dike breaks in Europe, a great choice could be (EUO) ProShares Ultra Short Euro which would gain in value if the dike breaks and the Continent drowns in its debt. (EUO) moves opposite to the Euro and so if the European Central Bank and IMF can’t fix the leaks in Greece, Italy, Spain and Portugal, this could be a good place to be.
Regarding our problems at home, a default by the U.S. government would devastate the U.S. dollar, and (UDN) PowerShares DB U.S. Bearish Dollar Index could help keep your money dry if the floodwaters should hit. This ETF directly compares US dollar performance to other currencies including the Euro, Swiss Franc, and Japanese Yen by trading USDX Futures contracts. Therefore, in the event of a dollar crash, (UDN) could offer a path to higher ground
Another ETF offering potential safety from floodwaters is (GLD) SPDR Gold Trust which has been setting new records seemingly every day simply because gold seems to rise as US currency falls:
All in all, leaks in the global economic dike are springing up everywhere, and even Moody’s warned on Thursday that the dike might burst soon. Like the little Dutch boy, Dr. Bernanke and his counterparts around the world are sticking their fingers in the dikes of debt destruction. If they’re successful, the story will have a happy ending, and if not, ETFs that play the floods will likely be winners and good ways to keep your powder and your dollars dry.
All charts courtesy of www.stockcharts.com
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