ColinTwiggs, Author at the patient investor

September 26, 2014

How Laissez-Faire Made Sweden Rich | Libertarianism.org

From Johan Norberg:

…But in one century, everything was changed. Sweden had the fastest economic and social development that its people had ever experienced, and one of the fastest the world had ever seen. Between 1850 and 1950 the average Swedish income multiplied eightfold, while population doubled. Infant mortality fell from 15 to 2 per cent, and average life expectancy rose an incredible 28 years. A poor peasant nation had become one of the world’s richest countries.

…And so Sweden—a small country of nine million inhabitants in the north of Europe—became a source of inspiration for people around the world who believe in government-led development and distribution.

But there is something wrong with this interpretation. In 1950, when Sweden was known worldwide as the great success story, taxes in Sweden were lower and the public sector smaller than in the rest of Europe and the United States.

September 26, 2014

China’s Deadly Miscalculation… | RealClearDefense

From Joseph A. Bosco, senior associate at the Center for Strategic and International Studies:

Effective deterrence requires both the will and the capabilities — and the proper communication to the adversary that we are armed with both.

…several U.S. China experts publicly say otherwise, that the U.S. would not and should not intervene. Such talk, taken with other factors, encourages China’s planners to reach the same conclusion. I believe they are wrong, but a major strategic miscalculation is in the making — not because of U.S. capabilities, which are far more than adequate, but because of the perception of the lack of U.S. will.

Without the credible threat of war, the world becomes a dangerous place, with rogue states invading other territories in the belief that a response is unlikely.

As Henry Kissinger says of the Korean War, “We did not expect the attack; China did not expect our response.” Of such miscalculation, devastating wars are made.

It is evident that US foreign policy is based on President Theodore Roosevelt’s maxim: “speak softly, and carry a big stick.” But you must demonstrate that you are prepared to use the stick for it to be an effective deterrent.

Margaret Thatcher (Statecraft: Strategies for a Changing World) put it in a nutshell:

“Interventions must be limited in number and overwhelming in their impact.”

September 25, 2014

What If Everything You Know About Terrorism Is Wrong? | The XX Committee

Great insight into the murky relationship between various government intelligence services and terrorist groups. This goes far beyond provision of weapons and money and includes founding and direction of some terrorist groups which act as covert arms of the intelligence service while providing the sponsoring state with “plausible deniability”.

…One happy by-product of the current American-led war on the Islamic State is that some people are now more willing to state that Iran does in fact possess ties to various terrorist groups, among them AQ and the Islamic State. Yet it’s still a struggle to get many people to see what’s obvious here.

Part of this willful disbelief is due to simple ignorance. Most “terrorism experts,” and virtually all of them possessing academic credentials, have exactly zero personal interaction with operational counterterrorism; therefore they are ignorant of the fact that many intelligence services — and all of them in the Middle East — play a wide range of operational games with terrorist groups, AQ very much included, encompassing everything from placing agents inside terror cells to actually creating terrorist fronts like Tawhid-Salam…..

The appearance of the Islamic State as a major force in Iraq and Syria, with threats of terrorist attacks on the West, has concentrated minds again to a degree. But unwillingness to ask difficult questions persists in many quarters. Despite the fact that we have more than circumstantial evidence that the Islamic State is being manipulated by Syrian intelligence, and Iran’s too, these notions are dismissed out of hand by too many Westerners who study terrorism. Yet if we want to defeat the Islamic State, it would be wise to actually understand it. That Washington, DC, continues its bipartisan blocking of release of the full 9/11 Commission Report, which includes troubling details of Saudi misconduct regarding Al-Qa’ida, is not an encouraging sign.

September 25, 2014

Is Russia making preparations for a great war? | OSW

Andrzej Wilk asks “Is Russia preparing for a large-scale war?”

In total, these armed exercises involve over 200,000 soldiers and several thousand combat vehicles, hundreds of planes and helicopters, and about a hundred ships…… military spending has become the undisputed priority of Russia’s financial policy. For 2015, this will reach the value of 4.0% of GDP (compared to 3.5% of GDP in 2014), a rise of more than 10% in real terms (to a level of at least US$84 billion). The increase in the Russian army’s activity and military spending is being accompanied by an information campaign which is increasingly intense, and is being channelled to meet public expectations, according to which Russia must defend itself against the aggression of the West.

….At present, it is increasingly relevant to question whether the spiral of militarisation which the Kremlin has set in motion has already reached the point of no return. The only way out in such a situation would be, in the best case, to achieve a spectacular success along the lines of Russia reducing the whole of Ukraine to a vassal state… and in the worst case, for Moscow to start a war on a far bigger scale than its actions in Georgia in 2008, or currently in Ukraine.

September 25, 2014

Gold threatens four-year low

Gold & Silver

Silver broke long-term support at $18.50 per ounce, offering a target of $15.50/ounce*. First, expect retracement to respect the new resistance level. Gold is likely to follow Silver to a new four-year low.

Spot Silver

* Target calculation: 18.5 – ( 21.5 – 18.5 ) = 15.5

Gold respected the new resistance level at $1240/ounce and is now testing $1200. Follow-through below $1180 would offer a long-term target of $1000*, while respect would suggest another rally to $1240. Declining 13-week Twiggs Momentum, below zero, further strengthens the bear signal.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

Gold Bugs Index (representing un-hedged gold stocks) is also testing long-term support. Breach of support at 200 would strengthen the bear signal for Gold.

Gold Bugs Index

Interest Rates and the Dollar

Rising Treasury yields and a stronger Dollar both add downward pressure to Gold. Higher interest rates increase the carrying cost of gold, while the Dollar competes with Gold both as a safe haven and as an appreciating asset (against other currencies).

The Dollar Index broke through resistance at the 2013 high of 84.75. Rising 13-week Twiggs Momentum, above zero, signals a primary up-trend. Expect retracement to test the new support level. Respect is likely and would offer a long-term target of 89*. Reversal below 84.50 is unlikely, but would warn of a correction.

Dollar Index

* Target calculation: 84 + ( 84 – 79 ) = 89.00

The yield on ten-year Treasury Notes respected resistance at 2.65 percent and is retracing to test support at 2.50. Follow-through above 2.70 would signal an advance to 3.00, but 13-week Twiggs Momentum below zero continues to suggest a primary down-trend. Failure of support at 2.50 would indicate another test of primary support at 2.30.

10-Year Treasury Yields

* Target calculation: 2.30 – ( 2.60 – 2.30 ) = 2.00

September 24, 2014

Wall Street goes “Putin” on IEX

From Michael Lewis:

One of our financial sector’s most striking traits is how fiercely it resists useful, disruptive entrepreneurship that routinely upends other sectors of our economy. People in finance are paid a lot of money to disrupt every sector of our economy. But when it comes to their own sector, they are deeply wary of market-based change. And they have the resources to prevent it from happening. To take one example: in any other industry, IEX, the new stock market created to eliminate a lot of unnecessary financial intermediation and the subject of my last book would have put a lot of existing players out of business. And it still might. The people who run IEX have very obviously found a way to make the U.S. stock market — and other automated financial markets — more efficient and, in the bargain, reduce, by some vast amount, the take of the financial sector. Because of this they now face what must be one of the best organized and funded smear campaigns outside of U.S. politics: underhanded attacks from anonymous Internet trolls, congressional hearings staged to obfuscate problems in the market, by senators who take money from the obfuscators; op-ed articles from prominent former regulators, now employed by the Wall Street machine, that spread outright lies about the upstarts; error-ridden pieces by prominent journalists too stupid or too lazy or too compromised to do anything but echo what they are told by the very people who make a fortune off the inefficiencies the entrepreneurs seek to eliminate….

September 24, 2014

F. Scott Fitzgerald: The rules of life are written…

An insight into the mind of F Scott Fitzgerald, from Malcolm Cowley. Originally published in The New Republic on August 20, 1951.

Tender Is The Night was published in the spring of 1934…. It dealt with fashionable life in the 1920’s at a time when many readers wanted to forget that they had ever been concerned with frivolities; the new fashion was for novels about destitution and revolt….Nor was it a popular success as compared with Fitzgerald’s first three novels, which had been easier to write: in the first season it sold 12,000 copies; This Side of Paradise had sold 50,000 in a similar period. Presently the new book seemed to be forgotten, although it really wasn’t; it stayed in people’s minds like a regret or an unanswered question. “A strange thing is that in retrospect his Tender Is the Night gets better and better,” Ernest Hemingway told Maxwell Perkins, of Scribner’s, who was the editor of both novelists. In scores of midnight arguments that I remember, other writers discovered that they had the same feeling about the book.

Fitzgerald continued to brood about it, although he didn’t blame the public or the critics. It was one of the conditions of the game he played with life to accept the rules as they were written; if he lost point and set after playing his hardest, that was due to some mistake in strategy to be corrected in the future. He began looking for the mistake in Tender Is the Night….

Read how Fitzgerald re-wrote the novel at How F. Scott Fitzgerald Wrote and Revised Tender Is the Night | New Republic.

September 24, 2014

The risks in a galvanized Nato | Business New Europe

From Mark Galeotti, Professor of Global Affairs at New York University:

…Of course, Nato still has a role, not least to ensure there is no temptation for rather more robust pressure from Moscow on Europe. But to think that it can or even should try to respond to the full range of challenges of the new age of conflict is foolish — and even dangerous.

First of all, the task of inoculating bordering states from potential Russian mischief — whether stirring up disgruntled minorities, subtle destabilization or unsubtle economic pressure — is more properly handled by other agencies. National governments, obviously, need to pay more attention to what, in military terms, would be called “target hardening.” Those minorities need to be integrated, due diligence should identify flanking Russian buyouts, political finance regulated. The trouble is that this means not just taking action now that Russia looks problematic, but sustaining it — turning away potential investment, alienating a neighbor and so on — even when things look quieter.

Of course, the EU could also play a positive role here, but to date the EU’s capacity to mobilize and maintain this kind of action is also questionable. But the second serious concern is that the more Nato eases itself comfortably back into its role as the defender of the West from the Russian hordes, the more it consolidates the current dangerous and zero-sum confrontation. It also plays to a nationalist, even xenophobic constituency within the Russian elite, especially strongly represented within the security agencies and the Orthodox Church, who actually appreciate any opportunity to cut themselves off from the West and its dangerously infectious notions of egalitarianism, transparency and rule of law. This faction is currently in the ascendant, but it need not be so, especially given the evident concerns of many within the Russian business community at the prospect of being locked away from the West.

This is the challenge. Nato patently still has a role. But it is far too blunt an instrument to be able to deal with the range of subtle, deniable or downright devious tactics Russia would deploy. Instead, the West will have to develop new, more appropriate defenses — and try to avoid playing into the hands of the ultra-nationalist wing in the Kremlin happy to find excuses to see their country surrounded and beleaguered.

September 24, 2014

Must-watch interview with Edward Lucas on Latvian TV

Must-watch interview with @edwardlucas on Latvian television http://t.co/5XUFXxKUos Well worth 40 minutes of your time

— Brian Whitmore (@PowerVertical) September 24, 2014

September 23, 2014

Aussie under the pump but ASX finds support

The Aussie Dollar is now testing support at $0.89 after negative projections from Nouriel Roubini’s team. Reversal of 13-week Twiggs Momentum below zero warns of a primary down-trend, but expect further support at $0.8650/$0.8700. Breach would confirm a target of $0.80*.

AUDUSD

* Target calculation: 0.87 – ( 0.94 – 0.87 ) = 0.80

The ASX 200 is testing support at 5300/5350. Long tails on the last two candles suggest short/medium-term buying pressure, but 13-week Twiggs Money Flow below zero warns of long-term selling pressure. Recovery above 5450 would suggest another rally, while breach of 5300 would warn of a fall to 4900/5000*.

ASX 200

* Target calculation: 5350 – ( 5700 – 5350 ) = 5000

The ASX 200 VIX is rising, but remains at levels typical of a bull market.

ASX 200