Euro Zone Austerity or Growth


Published on - Euro Zone Austerity or Growth -

Last year’s torrential rains across Latin America are over and things have dried out, a little too much.
For commodity traders the most recent news is that soybean futures are up on news of South American drought.
The combination of high global demand for food, the prospect of diminished production capacity, and futures trading make for profit potential.
Traders may simply but futures contacts so soybean futures are up on news of South American drought.
More cautious traders may trade options on soybean futures, hedging investment risk while still taking advantage of the leverage that options trading offers.
A big part of how to trade commodities is fundamental analysis of weather trends as well as global supply figures.
However, when the market starts to move, other speculators buy and sell futures with the intent of making a profit.
As often as not futures prices can overshoot price targets that fundamentals might predict.
As such traders always need to keep an eye on market sentiment.
Global Demand for Food
The population of the world is growing. And, many previously poor nations are becoming wealthy and eating better.
A recent news item noted that bikini sizes in Brazil are getting larger as the lithe young girl from Ipanema has filled out due to an abundant supply of calories.
All of this leads to a higher global demand for food. These factors are demographic and strong.
Trading the fact that soybean futures are up on news of South American drought is not trying to outguess the market. The only questions are how much and how soon.

Diminished Production Capacity
As urban areas grow, previously productive farm land gets covered up with suburbs, concrete shopping center parking lots, and highways.
And there is always the weather. This last year was historic with flooding across much of South America. And then the rains stopped and the dry season, South American summer, arrived.
There has been no rain in some areas for months, just as crops should be ripening.
Yields will likely be down across much of Brazil and Argentina. This situation is not as urgent as what was caused by the recent draught in Eurasia but sufficient to for the fact that soybean futures are up on news of South American drought.
This is similar to trading a disaster such as the Japanese tsunami or a hurricane in the Gulf of Mexico, except that a drought develops slower that than the arrival of a hurricane or tsunami wave.

Futures Trading
Futures trading allows producers and buyers of grains, meats, and other commodities to hedge investment risk.
It allows speculators to profit from careful analysis of fundamentals and astute technical analysis of market sentiment.

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Euro Zone Austerity or Growth

  1. 1. Euro Zone Austerity or Growth
  2. 2. To see a complete version of this presentation and to obtain our free EBook follow this link: Austerity-or-GrowthRead the Forex Conspiracy Report for insights into trading foreign currencies. Get your copy at Austerity-or-Growth
  3. 3. Will Euro Zone austerity or growth be the key to getting the various European Union economies back on track?
  4. 4. The issue of Euro Zone austerity or growth came to the fore the other day when the Spanish Prime Minister, MarianoRajoy, announced that Spain will exceed its austerity limits in the coming year.
  5. 5. Spain has the dubious distinction of being one of the PIIGS economies(Portugal, Ireland, Italy, Greece, and Spain).
  6. 6. All of these nations have been in danger of defaulting on their national debts and have had, to varying degrees, to rely on supportfrom the greater European Union for help in making payments on their bonds.
  7. 7. An offshoot of the greater Euro Zone debtdilemma has been a broad agreement to set clear budget goals and to maintain fiscal discipline.
  8. 8. The belief of the more solvent members ofthe Euro Zone is that the debtor states have simply been profligate spenders.
  9. 9. The belief of theItalians, Greeks, Spanish, Portuguese, and Irish has been that if they had moresignificant economic growth none of these would be an issue.
  10. 10. With this background Spain agreed toausterity measures. However, Spain has thehighest unemployment rate in the Euro Zone and its Prime Minister, Mr. Rajoy, believesthat he needs to temper austerity measures and promote jobs and growth.
  11. 11. If your options trading has a Euro Zonerecovery in mind, the Spanish experiment may be instructive.
  12. 12. The various members of the European Union, including Spain, have just signed thetreaty changes that obligate each EU member to maintain tight fiscal discipline.
  13. 13. This treaty change is the price that moresolvent northern EU members exacted for coming to the rescue of their southern brothers.
  14. 14. For northern EU member the Euro Zoneausterity or growth issue has been decided on the side of austerity.
  15. 15. However, Spain had a budget deficit of over eight percent of its GNP last year and wasinitially aiming for just over four percent this year.
  16. 16. However, Mr. Rajoy now says that Spain willlikely come in with a 2012 deficit of slightly less than six percent of its GNP.
  17. 17. The obvious issue with the math for the EuroZone austerity or growth issue is that a nationcan have exactly the same monetary figure of deficit for the year but come in with variouspercentages depending on just how high their GNP rises or how low it sinks.
  18. 18. Spain is opting for faster growth in hopes that growth this year will result in a lowerproportional debt next year. Now, what doesany of this have to do with profitable options trading?
  19. 19. The European Union as a whole is aneconomy on par with the United States. Many Euro Zone stocks trade as American Depository Receipts in the USA.
  20. 20. Bank stock options have been strongly affected by events in the EU as bank investment in national debt bonds hasthreatened to provide substantial losses.
  21. 21. Options traders of bank stocks stand to make large profits if they are able to correctly anticipate the result of the Euro Zone austerity or growth issue.
  22. 22. A higher debt load in Spain, Italy, or other nations will likely lead to high bond yields. However, with Greece as an example, if thesituation becomes dire, investors will end up taking a loss on their capital investment inorder to avoid losing all of their investments.
  23. 23. Although this issue is largely one forEuropean banks there appears to be some degree of US bank exposure as well.
  24. 24. For more insights and useful informationregarding options and options trading, visit