Rumors of Euro's Death Overly Exaggerated

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Nov. 15, 2011, 12:01 a.m. EST

By Mark Hulbert, MarketWatch

CHAPEL HILL, N.C. (MarketWatch) "” Ready for today's investment pop quiz?

Where does the euro stand today compared to the beginning of this year?

No cheating, either. This is a closed-book exam.

As you think about your answer, remember that this has been a year in which the very survival of the European Monetary Union has been regularly and forcefully called into question.

How many of you answered that the euro has risen?

/quotes/zigman/4867933/sampled EURUSD 1.3569, -0.0065, -0.4767%

Don't be too hard on yourself if you didn't. Given the bankruptcy watch that is the daily drumbeat of news out of Europe, you'd be excused for thinking that the euro should have completely collapsed.

But it hasn't. At the end of 2010, one euro /quotes/zigman/4867933/sampled EURUSD -0.4767%  was worth $1.3391. It currently stands at $1.3631. That means that the euro has performed better this year than the S&P 500 index /quotes/zigman/3870025 SPX -0.96%  .

Instead of a pop quiz, perhaps I should submit the euro's strength as an entry for Ripley's Believe It or Not.

To gain insight into what is going on, I checked in with John Dessauer, who in the 1970s worked for a multinational bank in Switzerland and who, in the decades since then, has been a money manager in the U.S. ( Read my Jan. 21 interview with Dessauer about the euro's prospects, entitled "Reports of its death are premature." )

One reason Dessauer says that we should not have been surprised by the euro's strength, notwithstanding the overwhelmingly bad news about the European Monetary Union (EMU): Non-member countries have wanted to become members. Estonia joined at the beginning of this year, for example, and there are a handful of other countries that are standing in line to join as well.

Why, Dessauer asks, if the euro really did represent a sinking ship, would non-members be so eager to jump on board?

Click to Play $(function () { $("#video_A8B8B4E8-81E2-42A8-8C0E-1A84AC010D89").click(function (e) { e.preventDefault(); MarketWatch.Video.loadAndStartVideo('A8B8B4E8-81E2-42A8-8C0E-1A84AC010D89', 'video_A8B8B4E8-81E2-42A8-8C0E-1A84AC010D89', '287', '162'); }); }); Greece woes still linger

Developments in Italy may have overshadowed events in Greece for the last few days, but all eyes are now on the newly appointed Prime Minister Lucas Papademos and how he plans to solve Greece's debt crisis.

What is attracting these non-member countries to join, according to Dessauer, is the EMU's success in reducing the barriers to trade. By eliminating tariffs and other barriers, and by countering ongoing protectionist tendencies, the EMU "has been a tremendous success," Dessauer argues.

"Those who think that the euro is doomed are just not focusing on these many benefits" that the euro has created, according to Dessauer.

In arguing that the EMU will continue to not only survive but prosper, does Dessauer forecast a rising euro?

Not necessarily, at least for the intermediate term. He thinks that the European Central Bank (ECB) will have to reduce interest rates in coming months in order to stimulate the anemic European economy. Those lower rates, of course, will most likely cause the euro to decline.

But, he hastened to add, rather than indicating that the euro is doomed, that will represent nothing more than the normal give and take of currency fluctuations.

/quotes/zigman/4867933/sampled Add EURUSD to portfolio EURUSD USD/EUR 1.3569 -0.0065 -0.4767% Volume: 0.0000 Nov. 15, 2011 10:17a var embeddedchart2139702522Chart = new EmbeddedChart('#embeddedchart2139702522', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:EURUSD'); jQuery.data($('#embeddedchart2139702522').get(0), 'embeddedchart', embeddedchart2139702522Chart); /quotes/zigman/3870025 Add SPX to portfolio SPX S&P 500 Index 1,251.78 -12.07 -0.96% Volume: 533.46M Nov. 14, 2011 4:33p var embeddedchart124732823Chart = new EmbeddedChart('#embeddedchart124732823', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:SPX'); jQuery.data($('#embeddedchart124732823').get(0), 'embeddedchart', embeddedchart124732823Chart); //$(document).ready(function() { var storywidth = $('#mainstory').width(); var maxwidth = storywidth; $('#maincontent pre').each(function (index, value) { var thiswidth = $(value).width(); if (thiswidth > maxwidth) maxwidth = thiswidth; }); var offset = maxwidth - storywidth; if (offset > 0) { var margin = 13; var blanketwidth = $('#blanket').width(); var contentwidth = $('#maincontent').width(); $('#blanket').width(blanketwidth + offset + margin); $('#maincontent').width(contentwidth + offset + margin); $('#mainstory').width(storywidth + offset + margin); } //});

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

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Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD... Expand

Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD became a service of MarketWatch in April 2002. In addition to being a Senior Columnist for MarketWatch, Hulbert writes a monthly column for Barron's.com and a column on investment strategies for the Journal of the American Association of Individual Investors. A frequent guest on television and radio shows, you may have seen Hulbert on CNBC, Wall Street Week, or ABC's World News This Morning. Most recently, Dow Jones and MarketWatch launched a new weekly newsletter based on Hulbert's research, entitled Hulbert on Markets: What's Working Now. Collapse

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