The collapsing Euro will drive the U.S. stock market to new lows. Investor’s concerns about the sovereign debt of the PIIGS (Portugal, Ireland, Italy, Greece and Spain) has caused a sharp and sudden sell off in the Euro against most of the other major currencies and most especially the U.S. Dollar. Since hitting its 2009 peak versus the U.S. Dollar on November 26, 2009, the Euro has fallen by 10% and is currently at a seven month low versus the Dollar.

The leading European nations such as Germany and France are scrambling. They will likely find a way to solve the debt woes of Greece, which is arguably the weakest of the PIIGS. While the global equities markets and the Euro will likely mount a short term recovery rally on the announced solution the damage has already been done to the Euro. The debt solvency problem of the PIIGS is just the tip of the iceberg. Greece’s debt solvency crisis has exposed the real problems that the PIIGS are facing which are the ongoing bloated budget deficits due to a high percentage of individuals being employed by their governments and extremely high unemployment rates. Spain’s unemployment rate is currently at 17% and is expected to go to 22% by the end of 2010. One of three Greek workers are currently employed by the Greek government. With high unemployment and a high concentration of those who are employed working for their governments the PIIGS will have great difficulties in covering their operating deficits and more importantly the pension payments to those baby boomers in Europe who have or are retiring.

The required belt tightening of the PIIGS is likely to cause social unrest and a political backlash in Europe. It could get to the point of severity, that, in a worst case situation, could threaten the utilization of the Euro as a currency. Even in a best case scenario I strongly believe that the Euro will fall to new multi year lows versus the Dollar and other currencies. I also believe that the Euro could possibly fall to new all time lows versus the Dollar by sometime between now and the end of 2011.

The depreciating Euro against the U.S. Dollar and the world’s other major currencies will result in a much faster acceleration to the downside of the global equities markets. The scenario, brought on by investors concerns about the PIIGS, which I predicted would eventually happen in my May 2009, article or report “Safe Haven Status of U.S. Delays Recovery” is now beginning to unfold. In that article I said that the biggest economic problem that the Obama administration would face would be the climb of the U.S. Dollar to record highs versus the Euro. Record highs for the U.S. Dollar would put great stress on the U.S. economy. The higher prices that foreigners would have to pay for goods manufactured in the U.S. would sharply decrease demand and the revenue and profits of U.S. businesses.

Investors should pay very close attention to the collapsing Euro. Since its inception in 1999 it has a history of volatility or price swings, which have pre-empted the peaks and troughs of the major U.S. stock market indices including the S&P 500 and the Dow 30 Industrials. The Euro’s steep declines versus the Dollar in the late summer of 2008 and winter of 2009, precipitated the crashes in the U.S. stock market which occurred in the Fall of 2008, and the Spring of 2009, respectively. Even the bursting of the dot com bubble in April of 2000 and the ensuing economic downturn in the U.S. can be blamed on a steep 15% decline in the Euro which began on January 3, 2000. These sell offs in U.S. stocks, which followed sudden and sharp upturns of the U.S. Dollar, were sparked by professional investors and analysts. They knew all too well that the sudden spikes in the Dollar meant that the prices of U.S. manufactured goods would have to go up and demand for them by foreigners would go down with the likely result being a U.S. economic downturn or a recession.

Sharp and sudden declines in the Euro have proven to be accurate leading indicators of market U.S. market crashes and economic downturns since the Euro’s inception in 1999. My argument is that it was the sharp decline of the Euro, which began in August of 2008, from off of its all time highs against the U.S. Dollar, which ignited the crash of the U.S. stock market in September of 2008. My belief is that it was the increased volatility of the Euro and its sharp and sudden sell off and not the sub prime debt problem, which caused the failures of Lehman, Merrill Lynch and AIG. The flight to safety in the Dollar and the increasing probability of a U.S. recession drove investors to dump the shares of all U.S. financial companies.

The recent increased volatility between the Euro and the Dollar is extremely troublesome because the rationale behind it is for reasons, which are much different than what caused the increase in volatility for the two currencies in 2008. The 2008 spike in the U.S. Dollar was motivated by a global problem, which was caused by the U.S. real estate bubble. The bubble was the result of the issuances of a significant number of U.S. sub prime mortgages. Even though the primary casualties from the bursting of this bubble were U.S. financial institutions the U.S. Dollar rallied or “strengthened” significantly against all other currencies during the Fall of 2008. It did so because of the widespread fear that the problem and its contagions would be the impetus for the collapse of the global banking system. Thus, the 2008, spike was caused by a flight to the U.S. Dollar over concerns about a global economic meltdown.

The current spike in the Dollar is for exactly the opposite reason. Its due to a “weakening” of the Euro against the Dollar. The weakening is due to a “local” or European, and not a global, problem as it revolves around the sovereign debt of five of the 17 members who make up the European Community Commission (ECC). This time the spike in the Dollar is directly attributable to a sell off of the Euro due to European economic woes and not the U.S.’. This revelation is significant. It means that the trend of the Euro versus the Dollar is not likely to reverse from a negative one to a positive one until there is a significant increase in employment for the European economy. In order for European employment to increase significantly the Euro must continue on its downward path versus the Dollar and other major currencies. The Euro must go to and “remain at” low enough exchange rate levels versus the Dollar for an extended period of time (more than a year) so that the economies of its member countries would be able to maintain a competitive price advantage over foreign imports. With the specter of a failure of sovereign debt hanging over some of its members the ECC has no choice and can only dig its way out of this problem by having the Euro decline significantly versus the U.S. Dollar and the other major currencies.

Should my predicted and highly probable scenario that the Euro bottom out and maintain an historically low exchange rate as compared to the U.S. Dollar and other major currencies happen, it will wreak havoc on the economies and the stock markets of the United States, Canada, Japan, China and South America. All have currencies, which are and will continue to appreciate versus the Euro. Their economies will be choked off from having demand from Europe for their products.

My prediction is that 2010 will prove to be a very difficult year for global stock markets and that the major U.S. stock market indices including the S&P 500 and the Dow Jones 30 Industrials indices will decline by at least 20% to 30% for 2010. I still continue to predict that the two major indices will eventually, if not during 2010, test the lows that they made in March of 2009, before a new Super bull market can begin. Under my weakened Euro scenario the prices of all hard assets and commodities including precious metals and oil will decline significantly. These commodities are priced in U.S. Dollars and will be forced down because of currency exchange rates. Finally, I predict that in the weeks and months ahead the higher Dollar will become an increasingly HUGE frustration for the Obama Administration and the U.S. Congress.

Investors would be wise to not dismiss or give serious consideration to my arguments and predictions. In my September 2007, Equities Magazine article “Have Wall Street’s Brokers Been Pigging Out” I said that “there will be a day of reckoning … and that day will be ugly for the five largest brokers” and to avoid their shares when the shares of each of the five including Merrill, Lehman, Bear Stearns, Morgan Stanley and Goldman Sachs were trading at or near to their all time highs. On October 2, 2008, I posted a blog on GE, “GE and its Shares are Skating on Thin Ice”, warning investors to sell GE shares when they were trading at $22 when even Warren Buffet was buying them. They subsequently fell to below $6.00. In my October 7, 2008, posted blog, “Look Out Below”, I said that the “stock market will continue in its free fall” and that proved to be the last day in which the Dow 30 traded above 10,000 for more than a year while falling by 40% to its March 2009, twelve year low. In my January 12, 2009, blog “Bank Stocks Led by Citigroup will Soon Send the Stock Market to New Lows.”, I predicted that the shares of Citigroup and the financials would lead the market lower. Citigroup’s shares promptly fell from over $6.00 to under $1.00. In October of 2009, I concluded a research study, which culminated with me writing an article “Tracking Revenue to Find the Bottom of the Bear Market” and publishing a video, on my findings that revenue for most industries in the U.S. was contracting at an alarming rate. Most recently, on January 15, 2010, I posted a blog, “The Era of Consumerism has Ended” which was one day before the major indices including the Dow 30 and the S&P 500 reached their highest points since the crash began in September of 2008. In my blog, I had said that the stock market had become frothy and would be much lower by the end of 2010. For more information on my predictions I suggest a review of my top ten historical predictions.

Finally, I recommend that investors do not fret about the possibility of my predictions coming true and that they instead become fully conversant on how to invest during a bear market or for extended periods of economic contraction. Those who are knowledgeable on those types of companies and industries which thrive during periods of economic contraction and bear markets will be able to generate returns that are as high as those that were obtainable in the previous bull market which ended in 2007. I can say this because I began my career in the stock market in 1977, which was during the previous secular bear market. For more information I suggest a review of my article or report, “A Super Bear is Upon Us” and my other free research reports, which are available at www.bearmarkettracker.com.