the great Euro panic: a fantastic contrarian opportunity

The Euro might be one of the best investment opportunities of the past several weeks and coming months. Sentiment is just so extreme, and all the clues that a contrarian investors needs are bourgeoning so obviously, that it also makes it a very good risk/reward opportunity.

Another interesting point is coming from my post yesterday and Robert Prechter's interview. Even Prechter, the always contrarian thinker, said that the Euro was very much oversold, but he admitted he wouldn't touch it! This reminds me of Jeremy Grantham, the bull disguised in bear.

Adding to magazine covers about the Euro, this week is NewsWeek:

Adam Hamilton has also published an essay very much worth reading. Here are a few quotes:

The incredibly bullish outlook on the euro today is not based on fundamentals, but technicals and sentiment. There is no better time to buy anything than when everyone thinks it is heading to zero in the heart of a panic. Nathan Rothschild’s famous quote of “buy when there’s blood in the streets” is one of the core tenets of contrarianism. With today’s wild popularity of the euro-to-zero trade, and the universal extreme fear, this time-proven wisdom has never been more appropriate for the euro.
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Investing and speculating are about buying low and selling high. The reason contrarians are the most successful at this game is because we ignore our own emotions and buy into extreme fear and sell into extreme greed. Extreme fear and greed manifest themselves on the charts as exceedingly large moves in short periods of time. The faster and more anomalous any move, the more intense the emotions that drove it and hence the less sustainable it is.
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The euro is radically oversold today while the dollar is radically overbought. Fear permeates every aspect of the euro while greed clouds traders’ fundamental judgment on the dollar. Neither of these emotions, nor the extreme price anomalies they have recently driven, are sustainable. Going long the euro today is as good of bet as going long the SPX was near its March 2009 lows.
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The bottom line is the recent precipitous plunge in the euro was either a panic or panic-like event. It was driven by extreme fear that simply isn’t sustainable. The fate of Greece, or the other small peripheral debtors, is irrelevant. The euro fell too far too fast and hit totally irrational levels that have nothing to do with fundamentals, and everything to do with runaway emotions. Odds are this will soon reverse with a big and fast euro rally.