Why I Am Betting Against Europe Using The EUO And EFZ ETFs

Europe is in big trouble, and the trouble is getting worse, much worse listening to all the news lately. Why it is getting worse is that it is now apparent that neither the left nor the right has a workable solution to the two major Europeans issues, overspending and declining economic activity. By the left, I mean the existing political structure of government dominated economies. By the right, I mean a German style austerity program.

In my opinion the real problem is that the creation of the Euro in 2000 has allowed each member of the Eurozone to spend more than it makes regardless of what actually is going on in the local economies.

What Europe spends big bucks on is cradle to grave support by the state. The prevailing belief is that everyone deserves to be taken care of. The key word here is DESERVES. Therefore, borrowing to pay bills even if you cannot afford to pay back the debt is obviously the JUST way to go.

So what if sustainable rapid economic growth in Europe is not possible due to rules created to preserve the status quo and that also makes it very difficult to be an entrepeneur in most of Europe. And on top on a no growth model, a lot of European countries do not even bother to collect all the taxes they could.

To be clear, the German economy works. Yes, the German export machine has taken advantage of hiding behind a depreciating Euro to be cost competitive in high tech particularly as an OEM, supply. But overall there are less restrictions to economic activity in Germany and maybe you could even add England and a few other fringe players to the good side of growth list.

The economies of most of the rest of Europe do not work. That is why the German and International Monetary Fund solution of austerity will not work. Yes, other then Germany Europe overspends. And stopping overspending is as an important first step as is stopping the bleeding before a victim bleeds out.
 
But stopping overspending without creating a possibility of future economic growth is a sure recipe for political chaos and ultimately riots in the streets.

Therefore, what is required by Europe is a two-fold solution. The first triage step is to stop the bleeding. The second step is to create an environment where entrepreneurial activity is supported and not stopped. How to do you create a favorable environment for economic activity?

The first step is simple, eliminate all the rules and hurdles in Europe that are necessary to start and shut a business.

Who could afford to start a business where the approvals and bureaucratic necessary could take forever without bribes being paid, and where automatically you have future obligations to any and all employees if the business were to fail?

The likelihood of Europe creating a business environment supporting entrepreneurial activity is as unlikely as the United States reversing its trend of making it more and more difficult to start and run businesses.

Therefore, longer term I personally remain short Europe via owning the ProShares Ultra Short Euro ETF (EUO), which is double leveraged short the euro and the ProShares Short MSCI AEFE ETF (EFZ) which goes up if the stocks in the non-US developed world, mostly Europe, go down in price.

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