A year and a half after the American economy screeched to a halt in the wake of the collapse of Lehman Brothers, now it's Europe's turn to tremble on the brink. Just as in September 2008, nobody knows what to do, what will really work.
Some think that the European Union will have no choice but to pay whatever it takes to rescue Greece, and later Ireland, Portugal and Spain, too.
Others believe that the EU will create a mechanism to banish economically errant nations from the euro bloc. And there are those who hold that the euro bloc will not survive the crisis, and that we will yet see the return of German marks, French francs, Spanish pesetas - and Greek drachmas.
The economic damage to the states of Europe, not to mention the rest of the world, would be enormous. But speculators, by definition, view the nightmare scenario as opportunity. In the United States, speculators who predicted the subprime crisis back in 2007 made a killing.
Take hedge fund manager John Paulson, who bet massively on a mortgage meltdown and made more than $10 billion, attaining rock-star status in the investment world. There's even a book about him, "The Greatest Trade Ever," by Gregory Zuckerman.
Upheavals ruin some and make others rich. For the daring, here are nine strategies that should make you money if the European Union falls apart. But remember: If Europe's economies pull through, you lose.
1The dollar: If the euro ceases to exist, companies and investors will go back to keeping their cash in dollars. That includes central banks. It is a simple, easy bet to make that you can leverage almost without limit by virtue of the depth and liquidity of the euro-dollar market, the biggest financial market in the world.
2Not just the dollar: Other currencies will benefit from the euro's collapse, including the Swiss franc and the Japanese yen, considered safe havens in times of financial drama. The British pound, the currencies of emerging markets and the Israeli shekel are also likely to benefit if the euro is eliminated.
The fact is, as the euro sank all through last week foreign investors stepped up their purchases of shekels.
3German government bonds: These are a natural safe harbor for euro-bloc investors. Germany is the largest, richest and most stable and steady member of the EU. Germans hate inflation and adhere to budgetary discipline, and their bonds are considered better than those of the United States.
4Short European shares and corporate bonds: This means bet that these European investments will fall. Mainly bet against those from small countries, which will be hurting more.
The economic crisis that is sure to follow the financial crisis will hurt corporate revenues, hence their profits and their share prices, too. The boldest can ape Paulson and buy insurance against the default of companies (or countries ) that do most of their business in Europe. Financial insurance of this kind costs a few percent a year and if the company or country collapses the speculator gets 100%.
Obvious candidates to short are shares and bonds of European banks, which will be in serious pain if states such as Greece default on their debt. The banks hold government bonds in their proprietary portfolios. They will also suffer if the economies slow down.
5Short oil: Remember what happened to oil prices during the subprime crisis? They fell from a record $147 per barrel to around $30, based on suspicions that the trouble would deeply depress demand for the black gold. Europe produces very little oil itself. Oil prices already began dropping last week.
6Italy: Some countries stand to benefit if the euro collapses, simply because they were hurt by its creation in the first place. One example of this is Italy. It could create a "new lira" that could render its products attractive and in turn push up the share prices of Italian manufacturers.
7Sell Belgium: The small state between France and the Netherlands made a name for itself in the past decade as the home of the institutions of the European Union. Without it, Belgium is mainly a source of great chocolate and Tintin.
8Sell Bulgaria and Romania: It turns out that their banks are based on the Greek ones. Greek banks own 25% of the banks in Romania and 45% of the banks in Bulgaria. A crisis in Greece will be bad for the Bulgarian and Romanian economies, which are in trouble anyway. (It would also be terrible for the Israeli real estate market companies that invested there. )
9Greek tourism: If Greece gets thrown out of the euro bloc, if the euro collapses, if Greece sinks into mayhem - any and all these scenarios will make Greece, already a great vacation destination on account of its islands and beaches, really cheap as well.
The idea here isn't to swim in the Aegean, it's to find and invest in tourism-related businesses, which stand to benefit from the stampeding hordes of foreigners.
