Focus: EurozoneThe MacroReport: Focus–Eurozone issue, published March 7, 2012, considered the effect on the U.S. and global economies of the Eurozone sovereign debt crisis and the volatile environment created by the saber-rattling among the U.S., the EU, and Iran.
Broadly speaking, the possible outcomes of the Eurozone crises may be categorized as: (1) No Greek Default, (2) Orderly Greek Default (3) Disorderly Greek Default, and (4) War with Iran. These economic scenarios were constructed by considering changes in each of the driving MacroRisk Factors, as shown in the "Eurozone Scenario Box."
The 18 MacroRisk Factors, developed by MacroRisk Analytics, generally explain over 90% of the variance of most ETFs, stocks, funds, and indexes. For this report, we focused on the Dollar/Euro Exchange Rate, the Gold Price Index, the FTSE 100, Euro Yield Curves, and an Energy Price Index.
Eurozone: Comparing Scenarios
Eurozone: Optimized ETFs
|Eurozone Scenario Box|
|SCENARIO||DOLLAR/EURO||GOLD||FTSE, OTHERS||YIELD CURVE||EQUITY MARKETS||ENERGY INDEX|
|Ezone Recession||Ezone Bond Yields||Ezone Bank
|Credit Tightens||Volatility VIX, GVDAXX||Higher Energy (Iran) PCIUFMFU|
|No Greek Default||dollar falls||falls||decreases||yields fall||yields fall||yields fall||VIX falls||rises|
|Orderly Greek Default||no change||no change||no change||yields soar||yields soar||yields soar||VIX rises||no change|
|Disorderly Greek Default||dollar rises||falls||increases||yields soar||yields soar||yields soar||VIX soar||falls|
|Iran War||no change||falls||increases||yields rise||yields rise||yields rise||VIX rises sharply||rises sharply|
|Source: MacroRisk Analytics|
- Movements in the Eurozone Large-Cap Bank Returns Index (KEBITR), due to the potential impact on larger European banks from a Greek default or Iran war;
- Movements in the DAX Volatility Index (DAX), used to reflect general concern in the German economy as a proxy for "healthy Europe";
- Movements in the CBOE Market Volatility Index (VIX), reflecting uncertainty in the U.S. market; and
- In the instance of an Iran war, movements in the Private Transportation Motor Fuel Cost Index (PCIUMFU), a U.S. index, to proxy the impact of disruptions to the world petroleum supply.
These changes were then analyzed in terms of their impact on the Indexes and ETFs that are being analyzed in this report.
Here's a comparison of the current economic conditions for these four scenarios with the conditions that existed at the time of the report's publication (March 7, 2012). Here also are updates of the Optimized ETF Portfolios and our QuickResponse Stock Portfolios.
The MacroReport is co-published by Sabrient Systems and MacroRisk Analytics.