It’s Just A Matter of Time

On Monday, the European Commission cut its 2005 forecast growth for the euro-zone from an abysmal 2% to an even gloomier 1.6%. In comparison, the US economy grew at 3.8% in the fourth quarter (annualized) and is expected to remain on course to grow by 3.4 % to 4.1% for 2005.

While the fragile recovery of the European economy seems to be faltering, and Japan is simply not spending money, traders are now starting to see the light. News Flash: The US economy is growing at a robust rate compared to the stagnation in Europe, and has been doing so for over two years while Europe survives on our leftovers. With the European economy falling apart, less Ireland and England, it is a wise choice to cash in those euros and ride the greenback wave.

An expert from the March 25 th, Powerhouse Weekly.

“…the inevitable rise of the dollar is less a matter of yields and more a matter of the European Union risk. Returns abroad – even with higher interest rates – are dismal and highly risky. Would you invest in a company that has been losing money quarter over quarter for the last 5 years? Well, that’s precisely the state of the European Union, and as investors continue to eek out meager returns for their risky ventures, they’ll slowly come home to graze on the almighty greenback.

“In fact, the EU’s largest economy, Germany, posted for the second month running, a drop in business confidence and posts a huge 13.4% unemployment rate. That’s a 148% higher rate of poor, dismal and down unemployed folks than we have here in the US--where we enjoy a healthy 5.4% unemployed.

“It was supposed that Germany and France were in recovery, however stagnant. But the latest jobless numbers, consumer spending and confidence from Europe, point to a different story. In fact, the indications are that the Franco-German economies are still on the down swing, briefly experiencing a little bump to the upside on the heels of drastic US growth in 2003 and 2004.” –Kyle Hodgens

The announcement of weaker growth than the EU hoped for will, and has, hurt the euro valuation. The final nail in the coffin could come on May 29th when the new European Union Constitution will come to a vote. And from the looks of it, the French are going to vote NO. The lack of cohesion in Europe will likely pressure the euro lower—conversely, the dollar will continue to rise. The next point of support for the euro, should it break through $1.28, is $1.26. Don’t be surprised, however, to see the euro at $1.24 to $1.22 if France votes no. We should see the euro drop by another 5% to 7% by years end.

Luke Hodgens is the editor of
Powerhouse Profits a conservative investment newsletter. Click here to read more of his cogent analysis."