Then what are you going to run to... the euro? Ha! You might just be jumping from the frying pan to the fire...
What makes a euro better than a dollar? Nothing.
They're both paper money. The U.S. dollar is "backed by the full faith and credit of the U.S. government." I'm not sure what that gets me. But the euro is backed by... what exactly?
The U.S. and Europe were both hit by the Great Recession. As I've showed you recently, the U.S. appears to be coming out of it. Europe isn't. The Economist forecasts the Euro-area economy will shrink by 4.4% this year.
Well, then, you must get paid more for putting your money in Europe, right? Nah... Benchmark 10-year bonds in Germany pay less interest than their U.S. counterparts. No interest-rate advantage.
OK... Then Europe must not face the kind of inflation we're likely to see in the U.S., right? Wrong again. For 2009, inflation in the U.S. will likely benegative (-0.4% is the consensus forecast, believe it or not). While in Europe, inflation is expected to be positive (+0.4%).
Well there's got to be some reason to buy the euro... How about because it's cheap relative to the dollar? Wrong again! And this is the one that really gets me...
The euro is actually more than 30% overvalued today versus the U.S. dollar. That's according to one of my favorite currency indicators – the Economist's "Big Mac Index."
Once or twice a year, the Economist finds the prices of a McDonald's Big Mac all over the globe. You see, a Big Mac is essentially the same all over the world. So in developed countries, all things being equal, a Big Mac should cost roughly the same. When you start seeing big discrepancies, you know something is out of whack with the currency.
I've tracked this Big Mac Index for 20 years. The track record has been pretty good... When a Big Mac gets cheap in Europe (relative to the U.S.), the euro eventually rises. And when a Big Mac gets expensive in Europe (relative to the U.S.), the euro eventually falls.
See for yourself:
The Big Mac Index Shows the Euro Is Way Overvalued
Right now, the euro is overvalued at $1.42, based on the Big Mac Index. It's only been up at these heights once before... back in 1995 (I'm using the German mark as a proxy). The euro crashed over the next six years, bottoming in 2001.
When the world economy started to unravel in 2008, investors wanted dollars, not euros. Now that we've had a few months of sunshine, investors like euros again. But why?
What makes a euro better than a dollar? Nothing.
So before you consider getting your money out of the dollar and into the euro, think about what you get for your money... With the euro, what you get is a currency that's 30% overvalued – with no advantages over the dollar whatsoever.
I'm not excited about the future of the U.S. dollar. But I'd rather keep my cash in dollars than euros right now...
Big news from one of the greatest trading vehicles of all time: Biotech stocks are "breaking out" on huge volume.
As we frequently mention in DailyWealth, biotech stocks are always worth keeping an eye on for one reason: They regularly go through enormous booms and busts... which can be traded for huge gains (read here for the numbers).
Biotech stocks offer promises no other sector can. The great potential of cancer cures, miracle pills, and wonder drugs can attract billions in "hot money" and drive prices to the moon. Catch a big bull market in biotech and you can buy a house on the beach with the profits... which makes this week's action worth mentioning.
Driven by good news from a major biotech company, the PowerShares Biotech Fund (PBE) just "broke out" to its highest level since October. This jump was accompanied by a huge amount of trading volume... which indicates large institutional investors are piling in. This kind of "big money buying" is like a starter's pistol being fired at the beginning of a foot race. We can't know if this is the beginning of a legendary bull market... but we can say it's starting to look like one.
This Precious Metal Is a Great Buy Right Now By Dr. David EifrigThursday, July 23, 2009
Right now, you would need 71 ounces of silver to buy one ounce of gold. This difference in value is wildly out of step with centuries past. And it's not going to stay that way...
The Last Cheap Asset Class Today By Dr. Steve SjuggerudWednesday, July 22, 2009
So the recession is over. No doubt about it. The Script nailed it. Now that it's over, you won't believe what goes up next...
How to Get 20% a Year Out of Your Property By Tom DysonTuesday, July 21, 2009
Today, the Seven Sisters Inn is famous across the country as one of the finest bed and breakfasts in America. Here's the thing: The owners weren't able to cover their mortgage costs... and this week, the bank will sell the Seven Sisters Inn in an online auction.
How I Found a Pile of Cash Paying 11% Dividends By Tom DysonMonday, July 20, 2009
High-quality bonds are the secret to investing in a debt deflation. As the prices of everything around you collapse, the coupon payments you receive from your high-quality bonds appear to grow.
