Focus on the Eurozone

Euro crisis putting the hurt on ethylene production

Production of ethylene, a material used in a variety of products such as plastics and synthetic fibers, has started to fall at petrochemical complexes.

The Asahi Shumbun,

30 December,2011

This signals that the European sovereign debt crisis is beginning to spread to emerging economies and that it will cause production declines around the world.

"There is global uncertainty about the future. The psychological pressure is strong," said Showa Denko K.K. Chairman Kyohei Takahashi, who also chairs the Japan Petrochemical Industry Association (JPCA), at a news conference in November as he explained why chemical manufacturers across the board have started to slow production.

The biggest reason is that orders from China, which the industry has come to rely on, have started to fall in number, he said. And the cause is the crisis in Europe.

Japan exports to China plastics, fibers and other materials made from ethylene. Chinese firms then use them to make products such as clothing, home appliances and automotive parts that they then export to the West. As consumption "downstream" in Europe falls, the effects are felt "upstream" in Japan.

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Italy seeks bigger euro fund after tough debt sale

Italian Prime Minister Mario Monti sought reinforcement for the euro zone's bailout fund and pledged new efforts to boost the economy after a disappointing bond auction on Thursday underlined the threat to the country's shaky public finances.

Reuters,

30 December, 2011

Investors demanded a yield of nearly 7 percent on 10-year paper at the auction of medium- and long-term bonds, down from the record highs seen last month but still unsustainable given the 450 billion euros ($580 billion) that Italy needs to raise through debt issuance in 2012.

An unprecedented European Central Bank injection last week of nearly half a trillion euros of cheap funding for banks eased pressure at a short-term Italian debt auction on Wednesday, but longer-dated bonds still pose a challenge.

Monti put a brave face on the auction result, which analysts described as "slightly positive" or "average" at best.

"Auctions held yesterday and today went rather well, this is encouraging but the financial turbulence absolutely isn't over," Monti said during a traditional end-year press conference.

For article GO HERE

Jim Rogers: Little Reason for Optimism in Anything but Agriculture

World markets may be riddled with uncertainty, but billionaire investor Jim Rogers anticipates gains in one sector for years to come.

CNBC,

28 December, 2011

“If I were buying anything I’d be buying agricultural commodities,” he says. “Going forward we’re going to have huge shortages of everything – including farmers – I think ag will be a great place for the next 10-20 years,” he says.

But don’t take that to mean that ag stocks are a buy – that’s not what he means. 

“Yale did a study recently showing that investors made 300% more by putting money in commodities themselves rather than commodity stocks – that is unless you’re a great stock picker.”

In other words, he’d play his thesis with commodities futures   or ETFs that track them. 

And his thesis is based on massive research, part of which involves the performance of commodities in the 1970’s. “At the time economies did nothing and yet commodities went through the roof,” he explains.

Jim Rogers co-founded the Quantum Fund with George Soros in 1973. Although a native of Alabama, Rogers famously moved to Singapore due to his on-going belief that Asia is on the cusp of great prosperity.

“He’s an investor who eats his own cooking,” says Fast Money trader Stephen Weiss. In other words, he doesn’t just talk the talk, Rogers walks the walk.

And largely Rogers is short because he is not optimistic about what’s going to happen in the world over the next two or three years.

“I’m short emerging markets, short American technology, short European stocks – I don’t see much reason to own equities,” he says.

In a nutshell, Rogers expects global economic problems to get much worse. 

But whether that happens or not he still thinks a long position in commodities makes sense.  That’s the one area of the market where he sees potential.

Here's why.

If his thesis doesn’t hold and the economies of the world improve, “I’ll make money in commodities because (increased demand will generate) shortages,” he says. “But if the world doesn’t get better, then governments print money and the way to protect against that is to own real assets.”

In other words, he thinks commodities are a win/win.

And in case you’re wondering about his thoughts on gold [GCCV1  1556.80    15.90  (+1.03%)   ], Rogers says, “it would not surprise me to see gold go to $1200 – but if it goes that low I’d buy a lot more – gold has been up 11 years in a row it deserves a substantial correction.”