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It was a very long two weeks... Not only was I watching the value of
my dollar slip away, I was drowning my sorrows in Czech beer with a bunch of
Canadians.
Needless to say, I woke up on the wrong side of the bed more often
than not.
It was September 2008. I was starting my Eastern Europe reconnaissance
trip when Lehman Brothers announced its bankruptcy, and the world's biggest
financial institutions fell to their knees under the sudden crushing weight
of their poor investment decisions.
I should have run to the money exchange and turned all my dollars into
euros. On Sept. 18, 2008, the U.S. dollar traded for 0.7004 euros. By the
time it was clear that the government would not hand Lehman Brothers a
bailout, the U.S. dollar was in a freefall.
On Sept. 24, one dollar would have only bought 0.6777 euros.
Let me put it to you another way. Excluding fees, if I had exchanged
$400 on Sept. 18, I would have gotten €280.16. On Sept. 24, I would
have gotten €271.08.
That's a 3.24% drop in a week! Huge moves for currencies...
It may not seem like much, but when you're on a travel budget and
you're keeping up with the Canucks at the bar... it hurts.
Lucky for me, I wasn't in Euroland for long.
After a brief night in Austria, I headed to one of my favorite
places on the planet: the Czech Republic.
The Czech Republic has been on the verge of adopting the euro currency for years. But now, it is
a good thing it didn't. Since Jan. 3, 2009, the Czech koruna has climbed 8.2%
against the euro. I'm sure Slovakia wishes it were in the same boat. Slovakia
was to adopt the euro currency by January 2009.
The Slovakian currency was already trading much higher than its neighbors just before the transition. But the beer was
just as cheap.
(If you're headed to the Money Crisis Survival Summit in Las Vegas
this weekend, ask me about the Alligator Bar and why I was blowing black snot
out of my nose for a week.)
The Czechs' stronger currency means more purchasing power. It is a
double-edged sword, however.
The country's exports are now more expensive, and it exports products
mainly to European countries that are seeing the euro currency lose power.
Indeed, there are several countries with this same deal. They're all
"Union" members, but they aren't tied to the euro. Countries like
Poland, Hungary, Lithuania, Romania, Bulgaria and Latvia. Now, the opposition
to adopt the failing currency is growing.
Let me explain why... it's more than just the obvious idea of a
currency that's losing value.
The majority of Eastern European economies are still far behind the
big, Western European nations.
Poland -- one of the most promising new EU economies -- has a per
capita GDP of $18,800. That's just under 53% of
Germany's GDP per capita figure.
Heck, even Portugal has a higher figure.
If Poland were to adopt the euro, consumer goods prices would shoot up
far more quickly than wages.
The economy would flounder.
An interesting idea would be to find out how much further the euro
would have to fall to allow Emerging Europe to be able to jump in without
adjusting any of their economic factors. Could the euro be headed there?
Or will it die first?
One thing's for certain... Even developed European economies aren't
going to want another Greece on their hands. That could happen if new EU
members adopt the euro before they're fiscally ready.
But this sets up a unique investment opportunity.
Emerging Europe will outperform Western Europe, and there are now ETFs
that will give you a shot at these markets.
You can get access to a basket of Emerging Europe countries through
ETFs like the iShares MSCI Emerging
Markets Eastern Europe Fund (ESR:NYSE) and SPDR S&P Emerging
Europe (GUR:NYSE).
Here's the thing.
Both of these funds are super heavy on Russia. This might not be a bad
thing, but if you're targeting only Eastern Europe, or if you already have
Russia in your portfolio, these ETFs might be both too much and not enough.
As solution is to look at the Market Vectors Poland ETF (PLND:NYSE), which we talked to you about
back in October 2010.
This is the only single-country ETF for new Union members.
If you take a look at PLND's chart, you might think I'm crazy... We've
seen a bearish crossover in the moving averages, like Jared talked about on Tuesday. But
I see real value here. PLND's price has really come down out of the clouds.
We are seeing the bottom for this ETF. The last time we saw a bearish
crossover, the 50-day moving average fell sharp and quick. When it got too
far away from the 200-day moving average, PLND suddenly found support.
We're looking at just that scenario again.
Market Vectors Poland ETF (PLND:NYSE) is a buy at current
levels. We could see a quick bounce back up to $24 for a gain of more than
20%.
But this could be just the beginning...
Use a 10% trailing stop for this one.
It will be a rocky ride at first.
Sara Nunnally
Taipan Publishing Group
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