Colin Twiggs, Author at the patient investor

September 6, 2012

Pro-Growth and Pro-Wall Street is an Oxymoron | Beat the Press

Dean Baker responds to a NYT opinion that “Mr. Clinton is the president who made the sustained case to Democrats that they had to be pro-growth and pro-Wall Street, not just to get elected, but also to build a more modern economy.”

President Clinton’s policies set the country on a course of bubble driven growth. The prosperity of the last four years of his administration was driven by an unsustainable stock bubble. The collapse of the bubble was responsible for the recession of 2001 and the deficits that get the Washington establishment types so excited. It was difficult for the economy to recover from this downturn which led to, at the time, the longest period without job growth since the Great Depression. When the economy finally did recover from this downturn and start to create jobs it was on the back of the housing bubble.

via Pro-Growth and Pro-Wall Street is an Oxymoron | Beat the Press.

September 6, 2012

ECB Unveils Bond-Buying Program – WSJ.com

By GEOFFREY T. SMITH

The ECB will buy in the secondary market only government bonds with remaining maturities between one and three years without announcing any limits in advance, and as long as the government in question is under a program approved by the euro zone.

The measures will primarily benefit fiscally troubled countries like Spain and Italy, which are facing difficulties financing their budget deficits…

via ECB Unveils Bond-Buying Program – WSJ.com.

September 6, 2012

Dollar weak, Gold Bugs double bottom

The Dollar Index is testing primary support at 81.00. Downward breakout would warn of reversal to a primary down-trend. Fall of 63-day Twiggs Momentum below zero would strengthen the warning, while respect of zero would continue the primary up-trend.

US Dollar Index

* Target calculation: 82 + ( 82 – 78 ) = 86

The Gold Bugs Index, representing un-hedged gold stocks, responded by forming a double-bottom. Breakout above 460 would signal primary advance to 530*. Recovery of 63-day Twiggs Momentum above zero would strengthen the signal.

* Target calculation: 460 + ( 460 – 390 ) = 530

Spot Gold respected its new support level at $1640 and is advancing toward $1800 per ounce*. Recovery of 63-day Twiggs Momentum above zero indicates a primary up-trend. Expect some resistance at $1700 but reversal below $1640 is unlikely.

Spot Gold

* Target calculation: 1650 + ( 1650 – 1500 ) = 1800

The CRB Non-Energy Commodities Index shows commodities responding to the weaker dollar. Short retracement followed by breakout above 296 indicates a test of primary resistance at 305. Recovery of 63-Day Twiggs Momentum above zero suggests a primary up-trend. Breakout from the trend channel indicates the primary down-trend is over, but no clear (primary) up-trend has yet formed.

CRB Non-Energy Commodities Index

Brent Crude is consolidating between $112 and $116 per barrel. Narrow consolidation suggests an upward breakout and test of $126. 63-Day Twiggs Momentum recovery above zero strengthens the bull signal. Reversal below $112 is unlikely, but would signal another test of support at $100.

ICE Brent Crude Afternoon Markers

September 6, 2012

China’s overinvestment: the problem of having too much

By Zarathustra:

How is it that an economy grows at 7.6% yoy is squeezing corporate profitability so hard? How is it that an economy growing at 7.6% yoy feel like there is not enough demand for all the goods and services being produced?…..The answer, to our mind, is quite simply that China has been investing in too much productive capacity…… The return on investments might be good before the financial crisis, yet the collapse of external demand after the financial crisis and more recently in the persistent Euro Crisis have cut external demand significantly. Meanwhile, domestic demand is not growing quite enough to pick up the slack created by collapse of external demand. Worse still, it is rather clear that domestic demand has been sustained by none other than investment itself. Thus, it should come as very little surprise that IMF’s estimate put China’s capacity utilisation at just about 60%.

via China’s overinvestment: the problem of having too much.

Hat tip to Macrobusiness.com.au

September 5, 2012

The work of John Maynard Keynes shows us that counter-cyclical fiscal policy and an easing of austerity may offer a way out of the Eurozone crisis. | EUROPP

Simon Wren-Lewis, professor at Oxford University and a Fellow of Merton College, says the ECB failed to undertake quantitative easing at the appropriate time because of mis-diagnosis of the problem:

The story told by many is that the Eurozone crisis is a result of fiscal profligacy in some countries, and the need to put that right quickly because of market pressure. This account misses two essential underlying causes of the crisis, which have to be recognised if a solution is to be found. The first missing element ….. private sector demand was too strong, encouraged by large capital inflows from abroad and real estate bubbles…..The second key feature of the current crisis is also a result of excess private sector demand in periphery countries, and that is a banking crisis.

……There is an underlying pattern behind Eurozone policy errors. They reflect a view that macroeconomic difficulties are primary due to bad government decisions, while private sector decisions within a free market environment do not create problems. Whatever label we want to give this view (Ordoliberal or Anti-Keynesian), it is the fundamental cause of the current Eurozone crisis. Its persistence despite all the contrary evidence allows the crisis to continue and threatens the integrity of the Eurozone itself.

via The work of John Maynard Keynes shows us that counter-cyclical fiscal policy and an easing of austerity may offer a way out of the Eurozone crisis. | EUROPP.

September 5, 2012

Simon Johnson: Why Are the Big Banks Suddenly Afraid? – NYTimes.com

The threat of too-big-to-fail banks has not diminished. The combined assets of the 6 largest US banks is bigger now than in 2008. Simon Johnson, Professor of Entrepreneurship at M.I.T. Sloan School of Management, writes:

A growing number of serious-minded politicians are starting to support the point made by Jon Huntsman, the former governor of Utah and a Republican presidential candidate in the recent primaries: global megabanks have become government-sponsored enterprises; their scale does not result from any kind of market process, but is rather the result of a vast state subsidy scheme.

…..Serious people on the right and on the left are reassessing if we really need our largest banks to be so large and so highly leveraged (i.e., with so much debt relative to their equity). The arguments in favor of keeping the global megabanks and allowing them to grow are very weak or nonexistent.

The big banks will vigorously defend any attempt to break them up and they have deep pockets. It would be far more effective and politically achievable to raise reserve requirements, lifting capital ratios and reducing leverage to the point that large and small institutions alike are no longer a threat to the economy. Even if we adopt a two-tier approach, with higher ratios for institutions above a certain size.

We need to remember that a fractional-reserve banking system is not an essential requirement of the capitalist system. All that is needed is an efficient intermediary between investors and borrowers. Equity-funded banks proved effective in funding Germany’s industrialization prior to WW1. Islamic banks today follow similar principles. Over-dependence on deposits is the primary cause of our current instability.

via Simon Johnson: Why Are the Big Banks Suddenly Afraid? – NYTimes.com.

September 4, 2012

Don't Expect Consumer Spending To Be the Engine of Economic Growth It Once Was

By William R. Emmons:

The recession itself could be described as a period in which consumer spending contracted sharply, while other sources of private demand were unable to offset the shortfall. The subsequent recovery, such as it is, largely has been the result of massive government interventions in the form of financial rescues, unprecedented monetary stimulus and record-breaking government budget deficits. We’re left with extremely low short-term and long-term interest rates, as well as historically large budget deficits—all of which must reverse at some point.
…..To assure strong, sustainable growth in the long term, the U.S. economy needs to include a larger role for business investment and exports than has been the case in recent decades.

via Don’t Expect Consumer Spending To Be the Engine of Economic Growth It Once Was.

September 4, 2012

FedEx First-Quarter Earnings View Citing Weak Global Economy – WSJ.com

FedEx Corp. FDX -0.10% on Tuesday said a sharp decline in manufacturing activity would harm its profits this year, a sign of how declining Chinese output is ricocheting across economies around the world.

The world’s largest air-cargo shipper by revenue said earnings in the August-ended quarter came in below its already reduced expectations.

via FedEx First-Quarter Earnings View Citing Weak Global Economy – WSJ.com.

September 4, 2012

China’s steel mills braced for slowdown – FT.com

Wang Qinghai, chief executive of Shougang, one of China’s biggest state-owned mills, says one reason for slowing steel demand is that China is changing its economic development model. “The investment-led mode of economic development isn’t sustainable, so the government is actively lowering the growth rate . . . in order to create space for economic structural adjustment,” he said at a conference in Beijing on Saturday. That adjustment is a painful process, however, and Mr Wang summarises the outlook for the steel industry as “huge production capacity, a bleak market, and meagre profit”.

via China’s steel mills braced for slowdown – FT.com.

September 4, 2012

Australia: Housing market weakens

Housing credit growth is at its lowest level in over 30 years: lower than the dip of the early 1980s and the crash of 1987. The current rate of growth is barely sufficient to match already depressed construction rates for new homes*. The decline should see a gradual softening of housing prices, accelerating if there are any further falls in housing credit growth.

RBA Housing Credit Growth

*Housing finance, for both owner-occupied and investor housing, totaled $59.8 billion for the year ended June 2012 according to the RBA, while residential construction — excluding land — was $44.2 billion according to ABS estimates.