Trading on Portugal's Political Crisis (PT, IEV, EPV)

The likelihood that Portugal will seek a bailout increased after the resignation of the country's prime minister, who had been trying to push through structural reforms that are needed for the country to reduce its fiscal deficit and lower its borrowing costs. Like many leaders throughout Europe who are trying to introduce more discipline into their budgets, Prime Minister Jose Socrates' found that his reforms were largely unpopular. The idea of raising taxes and reducing spending is always and unpopular one, especially in times of financial uncertainty. However, these reforms are needed in several eurozone countries if they are to have any hope of reducing their fiscal deficits and lowering their borrowing costs. Prime Minister Jose Socrates was hoping to push through his reforms in order to avoid a bailout from the International Monetary Fund and the European Union, like Greece and Ireland received last year. He promised that if parliament did not enact his reforms, he would step down from his position as Portugal's prime minister. However, Prime Minister Socrates found out that European Central Bank President Jean-Claude Trichet was correct when he recently said that coming up with structural forms was only half the work that needed to be done and that getting the planned reforms implemented was they key to solving many of the eurozone's fiscal problems. The resignation of the prime minister was just the latest setback for Portugal, which saw its sovereign debt rating downgraded last week by Moody's Investors Service. Moody's also gave Portugal a negative outlook, which means that further rating cuts may follow. In a further blow to investor confidence, Moody's lowered the credit rating of 30 of the smaller banks in Portugal's bigger neighbor Spain on Thursday. With the loss of investor confidence in Portugal's ability to push through the painful reforms that are needed in order to avoid a bailout, the cost of financing Portugal's debt has increased. The rising cost for Portugal to finance its debt further exacerbates its fiscal woes and increases the chances that the country will be forced to seek a bailout. There are several options for investors to consider, depending on how they think the situation in Portugal and Europe will play out. Portugal Telecom SGPS, S.A . PT is a Portugeuse stock that also trades on the New York stock exchange and could see an upswing if the county's finances improve. The iShares S&P Europe 350 Index IEV is an ETF that could see gains if eurozone leaders are able to implement measures that improve the fiscal health of member countries and their banking systems. The ProShares UltraShort MSCI Europe ETF EPV is an ETF that could climb higher if the problems in Portugal, Spain and other eurozone countries continue to worsen.