Europe: Dax buying pressure

Germany’s Dax continues to test medium-term support at 7200. Respect of support would signal strong accumulation. 13-Week Twiggs Money Flow oscillating above zero indicates buying pressure. Breakout above 7600 would confirm a primary up-trend.

Dow Jones Europe Index

* Target calculation: 7000+ ( 7000 – 6000 ) = 8000

The FTSE 100 (daily chart) is testing support at 5740/5750. Long tails suggest short-term buying pressure but bearish divergence on 21-day Twiggs Money Flow warns of medium-term selling. Breach of support would signal a correction. Breakout above 6000/6100 is unlikely at present, but would offer a long-term target of 6750*.

FTSE 100 Index

* Target calculation: 6000 + ( 6000 – 5250 ) = 6750

Canada: TSX Composite

The TSX Composite Index is consolidating between 12100 and 12800. Another 13-week Twiggs Money Flow trough above zero would signal a primary up-trend.  Breakout above 12500 would strengthen the signal, while follow-through above 12800 would confirm.

TSX Composite Index

* Target calculation: 12750 + ( 12750 – 11200 ) = 14300

US: Signs a top is forming?

The S&P 500 continues to test support at 1400. Bearish divergence on 63-day Twiggs Momentum warns that a top may be forming. Breach of support would strengthen the signal. The market is currently enjoying the “honeymoon” period in the lead up to the election. Reality is likely to bite after the results are in, as the government deals with some tough choices — like how to create jobs while reducing the budget deficit.

S&P 500 Index
The Dow Jones Industrial Average is similarly testing support at 13000 on the weekly chart. Breach of support — and the primary trendline — would warn that a top is forming. A 13-week Twiggs Money Flow reversal below zero would indicate rising selling pressure, while a trough above the line would suggest another primary advance. Recovery above 13650 is unlikely at present but would confirm an advance.

Dow Jones Industrial Average

* Target calculation: 13000 + ( 13000 – 12000 ) = 14000

The Keynesian Path to Fiscal Irresponsibility | Dwight R. Lee

With the ideological shift, supported by the intellectual acceptance of Keynes’s General Theory, politicians found themselves with an excuse to do what most had always wanted to do — take more money from the general public and transfer it to favored groups (or voting blocs). The benefits are invariably less than the costs, but they are visible, readily appreciated, and easily credited to politicians. Predictably, beginning in the 1930s federal spending began increasing as a share of GDP. It was about 4 percent of GDP in 1930, increased during the Great Depression and spiked to a historical high of about 47 percent during World War II. The federal government share of GDP then dropped to about 13 percent in 1948, reached a bumpy plateau in the early 1960s at slightly below to slightly above 20 percent that lasted for over 40 years, and then escalated rapidly in late 2008 to an estimated 25 percent in 2011……

The Keynesian Path to Fiscal Irresponsibility | Dwight R. Lee (pdf).

Australia's cultural revolution

Benjamin Herscovitch writes:

“Any genuine liberal democracy will be multicultural: a commitment to liberal rights and freedoms is counterfeit unless it comes with a commitment to cultural diversity. Beyond a corruption of liberalism, the idea of a monolinguistic and monocultural Australia is only plausible if we deny who we are. Australia is Chinese, Indian and Vietnamese just as it is Irish, English and Italian. Multiculturalism is not a collective aspiration; it is not a policy that can be terminated. It is unapologetically an Australian reality.”

Be careful not to throw the baby out with the bath water. Australia’s strength lies in its core values, many of which stem from its Anglo-Celtic past. One of those strengths is an open society that has successfully integrated successive waves of immigrants into mainstream Australian culture. Our culture has been enriched by the experience.

A unified society requires a cohesive set of values to which everyone subscribes — no matter their ethnic background, language or religion. We should celebrate our ethnic and cultural diversity but not use multiculturalism as an excuse for failing to properly assimilate some minorities. We need to be tolerant of diversity but intolerant of anything that conflicts with our core values of fairness and tolerance. To act otherwise would be simply un-Australian.

A cultural revolution to celebrate | The Centre for Independent Studies.

The real solution to poverty: JOBS | CIS

By Andrew Baker and Peter Saunders:

There are two ways to reduce “poverty”: increase the value of welfare benefits faster than the value of wages, or move substantial numbers of people off welfare and into full-time jobs. Anti-poverty campaigners invariably emphasise the first option and neglect the second, but the first actually undermines the second……

The real solution to poverty: J-O-B-S, J-O-B-S, J-O-B-S | The Centre for Independent Studies.

Australia: Household debt crisis

A few days ago I mentioned that Australia is in a housing bubble. The easiest way to gauge this is to compare Australian household debt/disposable income (DPI) to the US peak before the global financial crisis. After all, household debt is the fuel for a housing bubble.

Housing Finances

Australia’s current ratio of 150% (or 1.5 times DPI) is higher than the US peak of 1.3 times DPI during the housing bubble. And far higher than the current US ratio of 1.1 times DPI.

Credit Growth by Sector

No time to be complacent.

A Closer Look GDP Data | The Big Picture

By Barry Ritholtz

The GDP data this morning was a deep sigh of relief for those people who fear a recession may be coming. I don’t have that sense of relief. Perhaps its my own bias, but the details of the GDP report reveal not an organic growth period in a healthy recovering economy, but rather a tepid post-credit crisis expansion highly dependent on government largesse and Federal Reserve accommodation…..

via A Closer Look GDP Data | The Big Picture.

Australia: RBA running out of options

The Reserve Bank of Australia must be viewing the end of the mining boom with some trepidation. Cutting interest rates to stimulate new home construction may cushion the impact, but comes at a price. Consumers may benefit from lower interest rates but that is merely a side-effect: the real objective of monetary policy is debt expansion. And Australia is already in a precarious position.

Further increases in the ratio of household debt to disposable income would expand the housing bubble — with inevitable long-term consequences.

Housing Finances

While debt expansion is not in the country’s interests, neither is debt contraction (with growth below zero), which would risk a deflationary spiral. The RBA needs to maintain debt growth below the nominal growth rate in GDP — forecast at 4.0% for 2012-13 and 5.5% for 2013-2014 according to MYEFO — to gradually restore household debt/income ratios to respectable levels.

Credit Growth by Sector

If the RBA’s hands are tied, similar restraint has to be applied to fiscal policy. First home buyer incentives would also re-ignite debt growth. The focus may have to shift to state and local government  in order to accelerate land release and reduce other impediments — both financial and regulatory — to new home development. Lowering residential property development costs while increasing competition would encourage developers to cut prices to attract more buyers into the market. While this would still increase demand for new home finance, lower prices would cool speculative demand fueled by low interest rates.