ColinTwiggs, Author at the patient investor

July 4, 2014

One-size-fits-all alcohol policies fail to help problem drinkers |IEA

From the Institute of Economic Affairs:

The cornerstone policies of Britain’s alcohol strategy are failing to reduce heavy drinking amongst the most vulnerable. New research from the Institute of Economic Affairs outlines the significant flaws of advertising bans, licensing restrictions and higher taxes, which not only fail to help problem drinkers, but punish the majority of responsible consumers.

The government and health campaigners have long favoured policies which aim to reduce per capita alcohol consumption to reduce heavy and harmful drinking. This outlook is based on a blunt model devised in the 1950s, and ignores countless studies which have demonstrated that particular subgroups drink at extremely varied levels. Attempting to reduce a national average ignores the obvious: that heavy drinking amongst a minority drastically pushes up the average.

In Punishing the Majority, authors John Duffy and Christopher Snowdon examine how a relatively small number of drinkers consume a disproportionately large amount of alcohol, with close to 70% of alcohol consumed by one fifth of the population. Using several examples, the authors show the extent to which per capita consumption depends on the drinking patterns of a minority.

The paper calls for politicians and campaigners to wake up to the complex reasons behind problem drinking. Instead of favouring political interventions on price, availability and advertising, the health lobby should pursue harm-reduction and rehabilitation.

July 3, 2014

Aussie retraces as ASX 200 strengthens

RBA concern over the rising Australian Dollar is increasing, but whether this will motivate governor Glenn Stevens to do more than attempt to talk the market lower remains to be seen. The Aussie retraced to test its new support level, but only a fall below $0.92 would suggest a trend change. Recovery above $0.94 would suggest not, while follow-through above $0.95 would confirm a target of $0.97.

AUDUSD

The ASX 200 broke clear of its descending trendline, suggesting that the correction is over. But 21-day Twiggs Money Flow remains weak and follow-through above 5540/5560 unlikely. Further ranging between 5400 and 5550 seems likely. Reversal below 5380 is now unlikely, but would warn of a test of 5300.

ASX 200

* Target calculation: 5550 + ( 5550 – 5400 ) = 5700

ASX 200 VIX again tracked lower, indicating a bull market.

ASX 200

July 3, 2014

Enough to make Gazputin grin

Chinese stocks drift lower
Crude oil rising
Other commodities weak

China’s Shanghai Composite Index continues to drift lower on the long-term, monthly chart.

Shanghai Composite Index

Apart from crude oil, commodity prices have fared little better. But crude plays such a dominant role in most commodity indices that they appear more buoyant. Dow Jones-UBS Commodity Index rallied to 140 before retracing for another test of primary support. Oscillation of 13-week Twiggs Momentum around zero, however, does not suggest a significant trend.

Dow Jones UBS Commodities Index

Crude oil is doing a lot better, heading for another test of $110/barrel on the back of supply threats from geo-political tensions. The ascending triangle is very large, but breakout would suggest a long-term target of the 2008 high at $145*.

Brent Crude and Nymex Crude

* Target calculation: 110 + ( 110 – 75 ) = 145

…Enough to make even Gazputin grin.

July 2, 2014

Gold rallies as inflation expectations rise

Overview:

Treasury yields are recovering
Inflation expectations rise
The Dollar weakens
Gold rallies

Interest Rates and the Dollar

The yield on ten-year Treasury Notes found support at 2.50 percent. Recovery above 2.65 would suggest the correction is over, offering a medium-term target of 2.80 and long-term of 3.00 percent. 13-Week Twiggs Momentum below zero continues to indicate weakness. Reversal below 2.40 would signal a decline to 2.00 percent* — confirmed if yield follows through below 2.40 percent.

10-Year Treasury Yields

* Target calculation: 2.50 – ( 3.00 – 2.50 ) = 2.00

Long-term inflation expectations, indicated by 10-Year Treasury Yields minus 10-Year Inflation-Indexed (TIPS) Yields below, turned upward after 12-month CPI jumped to 1.8 percent in May, but are still range-bound between 2.0 and 2.50 percent.

10-Year Treasury Yields minus 10-Year Inflation Indexed (TIPS) Yields

The Dollar Index continues to head for primary support at 79.00 after retreating below 80.50. Respect of zero by 13-week Twiggs Momentum warns of continuation of the primary down-trend. Recovery above 80.50 is unlikely at present, but would suggest an advance to 81.50.

Dollar Index

Gold

Gold is testing medium-term resistance at $1325/$1330. Breakout would signal a test of $1400. Recovery of 13-week Twiggs Momentum above zero hints at a primary up-trend; breakout above $1400 would confirm. Retreat below $1280 is unlikely, but would warn of the opposite; confirmed if support at $1240 is breached.

Spot Gold

July 2, 2014

America’s Ukraine-Policy Disaster | The National Interest

From James W. Carden:

….A second unintended consequence of our involvement with Ukraine is the emergence of Russian hypernationalism. Little attention seems to be given to the effects that our facilitating an anti-Russian regime in Kiev has had on the political landscape in Russia; Russians now, more so than at any other point in the last quarter century, are under the spell of one man. According to the widely respected Levada Center, Vladimir Putin’s approval ratings stand at 80 percent. While respected analysts like the Carnegie Endowment’s Lilia Shevtsova seem to believe that this level of support is unsustainable, the numbers may point to a new and troubling phenomenon: that a rather prosaic Russian nationalism is in the process of transmogrifying into Russian hypernationalism. If this is so, a war in East-Central Europe becomes all the more likely, because as the University of Chicago’s John J. Mearsheimer has noted, “hypernationalism …is the belief that other nations are not just inferior, but dangerous as well, and must be dealt with harshly, if not brutally…[it] creates powerful incentives to use violence to eliminate the threat.”

July 1, 2014

Design of the Year | BBC News

Artist Dame Zaha Hadid’s Heydar Aliyev Centre in Baku, Azerbaijan, wins the Design Museum Design of the Year Award.

Heydar Aliyev Centre

Heydar Aliyev Centre The Heydar Aliyev Centre is a thriving conference venue, museum and gallery. The waves resemble dunes in a desert. Their biggest problem might be preventing skateboarders 🙂

July 1, 2014

Full Employment and the Path to Shared Prosperity | Dissent

Great summary of the current political gridlock by Dean Baker and Jared Bernstein:

There are many policies that can reduce inequality, but there is none as straightforward conceptually and as difficult politically as full employment. The basic point is simple: at low rates of unemployment, the demand for labor allows workers at the middle and bottom of the wage distribution to achieve gains in hourly wages, annual hours of work, and thus income.

Levels of unemployment are not the gift or curse of the gods; they are the result of conscious economic policy. The decision to tolerate high rates of unemployment is a choice. It is one that has enormous implications not just for the millions of people who are needlessly unemployed or underemployed but also for tens of millions of workers in the bottom half of the wage distribution whose bargaining power is undermined by high unemployment.

It is pretty obvious that low unemployment would enhance wage growth amongst middle- and low-income workers. But the policies to create low unemployment are not as clear:

Raising inflation to lower real interest rates would not get strong support in many quarters. It would seem that you are manipulating market signals to dupe business investors to act in a fashion that may not be in their long-term best interest.
Infrastructure spending is the key to a sound recovery, but beware of raising public debt to fund anything other than productive assets that can generate a market-related return (to service the debt).
The trade deficit is a big part of any solution. We need to penalize currency manipulators like China (Japan before them) for buying US Treasurys to suppress their exchange rate and undermine US manufacturers.
Job sharing is not a long-term solution, but it does enable unemployed workers to retain skills that would otherwise be lost.

Overall, an excellent summary of what needs to be done. But it omits one vital piece of the puzzle. How do we get politicians and interest groups to act in the best interest of the country rather than their own?

July 1, 2014

Full Employment and the Path to Shared Prosperity | Dissent

Great summary of the current political gridlock by Dean Baker and Jared Bernstein:

There are many policies that can reduce inequality, but there is none as straightforward conceptually and as difficult politically as full employment. The basic point is simple: at low rates of unemployment, the demand for labor allows workers at the middle and bottom of the wage distribution to achieve gains in hourly wages, annual hours of work, and thus income.

Levels of unemployment are not the gift or curse of the gods; they are the result of conscious economic policy. The decision to tolerate high rates of unemployment is a choice. It is one that has enormous implications not just for the millions of people who are needlessly unemployed or underemployed but also for tens of millions of workers in the bottom half of the wage distribution whose bargaining power is undermined by high unemployment.

It is pretty obvious that low unemployment would enhance wage growth amongst middle- and low-income workers. But the policies to create low unemployment are not as clear:

Raising inflation to lift real interest rates would not get strong support in many quarters. It would seem that you are manipulating market signals to dupe business investors to act in a fashion that may not be in their long-term best interest.
Infrastructure spending is the key to a sound recovery, but beware of raising public debt to fund anything other than productive assets that can generate a market-related return (to service the debt).
The trade deficit is a big part of any solution. We need to penalize currency manipulators like China (Japan before them) for buying US Treasurys to suppress their exchange rate.
Job sharing is not a long-term solution, but it does enable unemployed workers to retain skills that would otherwise be lost.

July 1, 2014

Ukraine should sell its gas pipeline to stabilize the region

From OilPrice.com

Gas supply, and the threat to that supply for Europe, is what has forced Russia to move aggressively on multiple fronts to defeat Ukraine in its efforts to modernize and westernize its economy, its future, and its way of life.

So, how to start the liberalization process? Ukraine has argued that its gas transportation system is a strategic asset. Business-minded people take issue with this interpretation, which ignores the commercial potential of the pipeline system. Now that we have come full circle in a long-brewing Ukraine-Russia gas war, perhaps the pipeline should be considered “strategic” — if not in the way the Ukrainian authorities have long understood. The pipeline system, worth $20 to $30 billion, can indeed play a strategic and tactical role in resolving Ukraine’s crisis with Russia, but only if it’s sold off.

Ukraine should sell 50 to 75 percent of it for cash to a consortium involving the EU, U.S. and Russia and operated by a U.S. business enterprise, preferably based in Houston. This can only happen if Russia agrees to remove troops and other proxies in eastern Ukraine and then works with Ukraine to secure the border and cease all low-intensity conflict efforts, including on the ground, and in cyberspace and the trade arena….

July 1, 2014

EconoMonitor » China, Not Piketty, Explains ‘Confused Signals’ in U.S. Asset Prices

From Benn Steil & Dinah Walker:

As for bond prices, China’s central bank holds the key.After more than three years of steady appreciation, the RMB has declined over 3% this year – erasing the past year’s rise. Driven by the Chinese government’s desire to re-juice failing economic growth, RMB depreciation has naturally been accompanied by an increase in China’s foreign exchange reserves.China usually allocates about 40 percent of its foreign exchange reserves to Treasuries; so far this year, however, its official holdings of Treasuries have actually declined. What explains this? Given that China comes under pressure from the U.S. Treasury and Congress whenever it appears to be pushing down its currency, China is almost certainly disguising its Treasury purchases by holding them in Belgium.