An Easy Way To Profit From Europe’s Debt Crisis

| May 11, 2010 | 0 Comments

What a crazy ride the markets have been on over the last week.  As an individual investor, it’s easy to feel like you’re caught up in a perfect storm.  I know I’ve had a few waves wash over my investment boat.

When storm clouds roll in, it’s important to hold onto your core principles and sell discipline.  You don’t want to sell into a panic.  It’s a sure fire way to sell at the bottom every time.

The good news is, with every storm there are new investing opportunities.  That’s why it’s always good to keep a portion of your portfolio in cash.  You need dry powder if you’re going to capitalize on a panic.

The biggest hurdle for many investors to overcome is their own fears.

Don’t let fear paralyze you into inaction.  Remember, as Warren Buffet says, the time to be greedy is when everybody else is fearful.  And the time to be fearful is when everybody else is greedy.

I don’t think you need to look any further than ground zero of the recent market turmoil to find a great opportunity.  Take a look at European stocks.  They’ve been lagging behind US stocks so far this year.

This is a major break from the two ETFs performance since March of 2009.  They had nearly identical performance until sovereign debt issues reared their head in February.  You can clearly see where the two began to go their separate ways on the chart.

Now the European Union finally has a real plan in place to bail out Greece.  And more importantly, they set aside $1 trillion to ensure other debt laden European countries don’t face the same fate as Greece.

The EU knew they had to act decisively to put an end to investors’ fears.  And that’s exactly what they did.  The $1 trillion fund will ensure there’s sufficient liquidity for all EU members to finance their sovereign debts for as long as it’s necessary.

It’s such a powerful force it’s being called the “nuclear option”.  It’s a last resort.  But it gets the job done.

With the recent turmoil now in the rearview mirror, I’m expecting European stocks to play catch up.

I wouldn’t be surprised to see VGK outperform SPY over the next few weeks and months.  At least until VGK catches up with SPY.  That means now’s a great time to buy VGK.

But VGK isn’t the only way to play a rebound in European stocks.  Many of the other ETF providers have European ETFs too.

If you’re looking to capitalize on a short term trade, you might take a look at ProShares Ultra MSCI Europe (UPV).

UPV is a leveraged ETF.  It’s designed to go up twice as much as the MSCI Europe Index on a daily basis.  If we get the bounce in European stocks I’m expecting, UPV should double the returns of the non-leveraged ETFs.

The leverage in UPV can turn a 10% bounce in European stocks into a very profitable 20% gain.

But it’s not going to happen unless you put aside your fears and buy when everyone else is still afraid.

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Category: ETFs

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets on a daily basis. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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