Disneyland Economics And Planning For 2011

Business, China, Company Strategy, Economics, Europe, US

Please stop taking the Mickey..

xin_570503012043958088264.jpgSource of picture: China Daily


By John Richardson

ECONOMIC bubbles have been given their name for a good reason: They behave exactly the same as the soap bubbles that were prevalent at Hong Kong’s Disneyland, where I paid with my three-year-old son yesterday.

So when the momentum of rising equity and commodity prices – mainly driven by what’s happening in emerging markets – slows down the surface tension of economic bubbles eventually increases and they go pop.

It doesn’t have to be one major event that causes such events and so it won’t necessarily be another Lehman Bros-scale trigger that will cause equities and commodity prices, including chemicals, to retreat. It could instead be a loss of confidence that causes the momentum of bubble inflation to slow down, leading to investors exiting as they cash-in on their profits.

“During bull runs, like the one we are experiencing right now, the longer a rally lasts the more investors start becoming deluded that this time it will be different, that this time the boom will last forever,” a former investment banker, who is based in Hong Kong, told the blog late last week.

“I know of several hedge funds which have strategies in place to take advantage of the end of the current run.”

Ironically, it might be Asian investors who have made a fortune from the boom who pour money into hedge funds based in this region that are ready to short markets in a big way.

“Chinese investors are emerging as new a source of capital for (hedge fund) managers in Asia as fundraising from international institutions has become tougher after the financial crisis,” writes Bloomberg in this article.

In the same article, the news service reported that hedge fund JT Greater China Long/Short Fund was launched in Hong Kong last week by a former senior adviser to China’s state pension fund and the ex-head of Morgan Stanley’s prime brokerage.

The blog remains convinced that the long-term trajectory for chemicals demand is very positive. Emerging markets have surpassed a tipping point, meaning that levels of consumption will over the next few decades compensate for any long-lasting problems in the West.

But this doesn’t meant to say that the road ahead won’t be rocky and littered with fragmented and slippery bubbles, in what indeed is an ugly sentence with an appalling mix of clichés.

John Authers, in his excellent The Long View in last weekend’s edition of the Financial Times, makes the point that the rallies in equities and commodities since Lehman Bros can be exactly correlated with the availability of lots of cheap money.

And the latest round of Fed quantitative easing has resulted in more cheap money and the expectation that interest rates will remain depressed for a long time.

This in turn, of course, has led to the flood of money into emerging markets in search of higher returns, creating the danger of currency wars and inflationary pressures that hedge funds are likely to attempt to take advantage of.

“For investors, there is money in bubbles, so it is best to go with the herd and buy anything that would benefit – gold, oil and emerging markets could also rise much more before the bubbles burst – and make sure to get out in time,” writes Authers.

For chemicals markets the dangers are that real demand pictures get distorted as buyers hedge against the anticipation of higher oil prices by building stocks (sounds familiar?).

And as the great scramble to guard against feedstock inflation gathers momentum, those who trade in chemicals might well be tempted to come out with outlandish and silly stories to justify why “real demand” is strong – i.e. to promote a bit more panic among the buyers.

We will detail suspected examples of these silly stories over next week or so.

Chemicals producers preparing budget plans for next year need to be prepared.


South Korea To Raise C2 Capacity By 9.2 Percent


By John Richardson SOUTH Korea is set to raise its ethylene and propylene capaci...

Learn more

LG Chem - Tried And Trusted Versus New Businesses


  By John Richardson THE potential returns from LG Chem’s electric ba...

Learn more
More posts
China’s shift towards styrene self-sufficiency adds to pressure for new petrochemicals business model

By John Richardson IT IS dead simple, apparently. All you have to do is find alternative geographica...

Why a hard look at the data show China has not seen a V-shaped recovery

          Note: All the data comparisons below are year-on-year By John Ric...

China moves closer to Iran as tensions with the US build: Implications for petrochemicals

By John Richardson Opinions and emotions and can shape how we interpret data, but, as we all know, o...

China polyolefins market H1 review: so far so good, but beware of the risks ahead

By John Richardson ALL looks fine in the polyolefins world. The Old Normal appears to have reasserte...

Polyethylene market recovery could be threatened by slower China crude buying, weaker economic growth

By John Richardson EVEN by China’s standards, where just about every number is eye-wateringly larg...

Why the polypropylene industry must switch from volumes to value

By John Richardson EVERYONE knows about the oversupply in the polyethylene (PE) market as it has bee...

China consulate closure underlines long-term split with US, potential big shift in petchems trade flows

The views in this blog post are, as always, my personal views and do not reflect the views of ICIS. ...

China’s real GDP could have been negative in Q2: What this may mean for PP

By John Richardson CHINA’S official GDP growth of 3.2% for Q2, which was announced last week, may ...


Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more


Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more