Tags: Europe | Euro | assets | invest

The Masses Have It Wrong on Europe and the Euro

By    |   Monday, 06 August 2012 08:22 AM

I know it sounds crazy to say the markets have it wrong when it comes to Europe and the euro, but it’s true.

Yes, things have been bad in Europe. Yes, they’ll probably still remain that way for a bit longer.

However, there comes a time when that is all priced in. And I believe that time is now.

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In my latest recommendation in the Ultimate Wealth Report, I went hunting for a hugely undervalued asset to profit from. Why?

For starters, almost anyone you talk to, professionals or otherwise, all say to short the euro. They’ve been saying that for so long now that the short trade is getting crowded. In other words, there comes a point when just about everyone who’s going to short has already done so.

There also comes a point when the euro becomes so oversold that the “smart money” will begin to work its way into the euro and European stocks.

Foreigners outside of Europe particularly can benefit from buying, as both the currency and the stocks begin to snap back during the coming months.

You see, the euro has fallen from a high of around 1.50 to the dollar down to a low of around 1.20. Now it’s bounced back slightly into the 1.23s, but six to 12 months from now, the euro will very likely be much higher, not lower.

All it takes is one decent piece of economic data or one “right word” from the European Central Bank or the Federal Reserve and all of those short sellers will go scrambling for the sidelines en masse.

As they do, it will propel the euro even higher. However, it’s not just the euro that’s overdone. I also mentioned that European stocks were, too.

I believe the risk has largely been priced into many European stocks. For instance, I just snatched up a European exchange-traded fund (ETF) this past month in the Ultimate Wealth Report that was up 16.61 percent within about 10 days because of how oversold it was at the time and because of how undervalued it had become.


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How much so? Well, the Standard & Poor’s 500 Index trades at a price-to-earnings (P/E) ratio of roughly 16 right now. However, the European ETF, which holds large-cap European shares, is trading at an average P/E of 8.

So you’re now paying half as much in Europe for the same level of earnings comparatively. When huge equities like this trade into the single digits on their P/Es, you can be confident that the pendulum will swing the other way and come to some sort of balance over time. As it does, the P/E edges higher and can still trade at a huge discount to U.S. stocks, and we can make out like bandits. And that’s what’s already happening for us.

Why? We searched for value where no one else wanted to look for it. In other words, we went where no one else wanted to go. Who wants anything European right now? After all, things are bad over there.

But the question is never, “Is it bad?” The question is, “Has the ‘bad’ been more than priced in to the asset?” If it has, then it makes sense to snatch up the asset before everyone else comes to their senses and realizes the value that’s to be had.

You see, in order to get a return on your money that most investors aren’t getting, you’ve got to be willing to consider assets that no one else wants to consider right then. That’s when the money is to be made…in seeing what others don’t see.

Europe is priced right now like it’s going to fall apart and never come back. Look, I’m not saying things are going to go back to being rosy anytime soon. The point is that they don’t have to in order to make a huge profit.

All they have to do from this point is to go from “bad” to “less bad” and we’ve reaped a nice profit.

So, when you’re considering assets, do like we do in the Ultimate Wealth Report and just judge the asset by its valuation and how overdone it has become. Don’t stay away from the asset simply because the masses are negative on it. If you do, you may be passing up a huge return. You have to buy when no one wants it, and sell when everyone wants it.

That’s what we do in my newsletter. We do what Warren Buffett says, “Get greedy when others are fearful and become fearful when others are greedy.” That’s been the key to his success through the years, and it’s the key to ours as well.

So keep a sober mind when you’re analyzing assets out there. Don’t let what’s on the news be your guide. Size up the company fundamentally and technically and make your decision irrespective of the negative headwinds that are out there in the news.

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Ultimate Wealth Report. Discover more by Clicking Here Now.

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Monday, 06 August 2012 08:22 AM
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