Profiting from the Crisis in Europe

There’s no ignoring the European debt problems today. Real estate loan defaults are crippling a few Spanish banks, and the IMF has advised that Spain’s banking sector needs to consolidate quickly to provide a more solid backstop against defaults.   

If this reminds you of the scramble here in the U.S. to have weak financial institutions like Merrill Lynch and Countrywide be absorbed by stronger companies, it should.  

And we should also recall that while consolidation helped mitigate some of the potential effects of the financial crisis, it wasn’t a smooth road. Even the strong banks eventually required billion in bailout money to keep them afloat.   

So yes, history is repeating itself in Spain.   

Of course there are differences. Spain’s economy is not huge or particularly influential. The bailout and consolidation of 4 Spanish banks is expected to cost 35 billion euros. But for Spain, which is already having debt problems, it’s a lot.   

Two years ago, Spain was creating jobs at the fastest rate of any country in the EU. Now, it has the highest unemployment, at 20%. Just like in the U.S. the consumer spending and construction boom was short-lived.   

It seems clear to me that the EU needs to move quickly to aid Spain and provide liquidity for its ailing financial sector. The EU moved far to slowly on the Greek situation, and we saw what happened there.  

This is another opportunity for the EU to make a show of unity and strength. After it’s big show of announcing there is $1 trillion available to support the euro, it better step in quickly and without any quibbling.   

Of course, even if the EU responds quickly, the bigger question of debt around the globe will remain.  

So how does this affect the U.S. economy and stock market? After all, the U.S. is far ahead of Europe in terms of getting its financial sector on its feet. It seems likely there will be immediate weakness for the U.S. stock market.   

But I would not expect stocks to get completely washed out. Nor would I expect economic growth to be greatly impacted.   

One potentially interesting outcome concerns the U.S. and China. As you know, U.S. and Chinese officials have been meeting over the last couple of days to discuss a wide range of trade issues.  

 Yesterday, Chinese President Hu Jintao even agreed that China needs to allow its currency to appreciate. Of course, Hu is steadfast that only China can dictate the pace of yuan appreciation, but China is softening its stance.   

Cooperation between China and the U.S. is critical right now. Both countries need their exports to bring in revenue. And with growth in Europe likely to slow as austerity measures and restructuring efforts are implemented, the U.S. and China must be able to cooperate.  

If you want more perspective on how investors should approach the European debt crisis, join me on Thursday June 4, at 6 pm for a special video investment conference called Profiting from Crisis in Europe.   

Investors must be ready to act when volatility dominates the stock market. During this special Internet event, Profiting from Crisis in Europe, we’ll discuss how you can use the volatility we’re seeing right now to position yourself for market-beating gains in the years to come.  

Profiting from Crisis in Europe is free to attend, you can sign up for this critical event HERE .