Pssst! Do you want to make some money trading some initials? Real easy money?
As soon as you read this "ECB QE and EU LTRO for Dummies" explanation, which would take even a dummy about two minutes to understand, you'll be set to trade some initials.
For real. I just made my subscribers 382% trading these initials. And we're not done. After closing out our 382% gain, we're in the same trade again, and we're up 180% in just a few weeks - and still going.
We're also in a conservative trade, trading the same initials mind you, and we're up 41% there.
The initials are EUO. EUO is an ETF (exchange-traded fund).
Soon, you'll be ready to make some real money...
ECB QE: The World's Biggest Economic Experiment
The ECB is the European Central Bank. It's Europe's central bank, just like the U.S. Federal Reserve is the central bank of the United States.
The EU is the European Union. The EU is a confederation of 28 European countries, a sort of wannabe United States of Europe. Of the 28 countries in the EU, 19 of them exchanged their sovereign currencies for the euro, the EU's single currency. The other nine EU member countries, though they gladly accept euros, kept their old currencies.
After the credit crisis of 2008 and the Great Recession, which devastated Europe as much as the United States, the EU and the ECB followed the U.S. government and Fed's "stimulus" plan and worked to drive interest rates down.
The ECB embarked on an LTRO program, longer-term refinancing operations. But its "stimulus" program wasn't nearly as big as what the Fed did in the United States.
While the Fed spent about $4 trillion buying U.S. Treasuries and agency mortgage-backed securities ("agency" means that those mortgage-backed securities are guaranteed by some federal agency, like Fannie Mae or Freddie Mac), the ECB spent less than half that amount on asset-backed securities and covered bonds from European banks.
The Fed's stimulus programs, which happened in three stages - the first in November 2008, the second in 2010, and the third in 2012 - became known as QE1, QE2, and QE3.
Here's what it all means...
QE stands for quantitative easing.
When the Fed drove down interest rates to essentially zero in 2008, and growth in the economy wasn't stimulated, it began the experiment we now know as QE.
Quantitative easing simply means the central bank has driven interest rates as low as it can and the central bank is out of old-fashioned ammo. So, to try and get banks to lend more to stimulate consumption and production, the central bank buys assets from banks. By buying assets that banks are sitting on - meaning U.S Treasuries the banks stockpile and mortgage-backed securities the banks invested in (to earn interest) - the trillions of dollars the Fed pays banks to buy their inventoried bonds is supposed to make the banks flush with cash that they supposedly will lend out, stimulating consumption and growth.
At least that's the idea.
The jury is still out here in the United States as to whether QE was just a boon to the big banks who benefited from it, whether or not it artificially pumped up "risk assets" like stocks, or whether it exacerbated income inequality and wealth disparity by enriching those who benefited by owning stocks and real estate "risk assets" while middle-income incomes stagnated and the ranks of the poor grew.
Nonetheless, the U.S. economy is growing while Europe faces its third recession since 2008. U.S. banks are in better shape than their European counterparts. And in spite of everyone's deficits and government debts increasing, the United States is managing to slow the rate of its debt growth while European nations are piling on more and more debt.
Viewing all that, the ECB, in consultation with its oversight body, the European Commission, decided last Thursday to embark on its own version of quantitative easing.
Quantitative easing in Europe is vastly different from the ECB's former LTRO programs. QE means for the first time the ECB isn't just going to buy asset-backed securities and covered bonds (essentially those are packaged corporate loans and bank loans) - the ECB is going to buy government debt obligations from member nations in the EU.
That's historic.
Make These Trades
Okay, here's how to make money on the new ECB QE experiment.
To grow its way out of recession, Europe has to export more goods and services. To make its exports cheaper to buy, Europe has to devalue its currency. The ECB is printing money to buy member nations' government bonds, and asset-backed securities (ABS) create more money in the system. More money in the system is supposed to devalue the euro.
In other words, the ECB is doing QE to devalue the euro.
On the other side of it all, whether or not this experiment creates growth, remains the fact that if it doesn't work, if the ECB can't create inflation (which it won't be able to do) and growth, and faith in the European Union experiment itself comes into question, the euro could be doomed.
In my trading services, Capital Wave Forecast and Short-Side Fortunes (shameless plug, YES!), we've been betting, correctly, that the euro will fall against the U.S. dollar.
We've been doing that by betting on EUO. EUO is the ProShares UltraShort Euro (NYSE Arca: EUO), a leveraged ETF that goes up in price if the euro falls in value relative to the U.S. dollar. And the euro has been falling.
We bought EUO some time ago at an average price of $17.165. It's now up to $24.25 (it might be higher or lower by the time you read this), so we're up 41.275% on that trade.
We also bought May $26 call options on EUO. We paid $0.25 for them. They're now trading at about $0.70, so we're up about 180% and counting.
We previously bought January 2015 $21 calls on EUO last year for $0.28 and sold them before expiration for $1.35. So we made a tidy 382% there.
I'm betting that the ECB QE will be a bust one way or another for the euro.
I hope you make these trades - and I hope you also make a HALOM... a helluva a lot of money.
Unless you're a subprime borrower, you probably don't think subprime auto loans affect you... But what you don't know could hurt you. Because just as they did in the late stages of the housing boom, subprime borrowers are now eclipsing prime borrowers in the auto sales arena. This is a worrisome trend - and it's much closer to your doorstep than you think...
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.