……a large country with a huge structural current account surplus does not just export products. It also exports bankruptcy and unemployment, particularly if the counterpart capital flow consists of short-term debt.
~ Martin Wolf
Read more at Germany’s strange parallel universe – FT.com.
European markets continue to display healthy primary up-trends with the exception of the FTSE 100 which warns of selling pressure.
Germany’s DAX broke through medium-term resistance at 8500, offering a medium-term target of 9000* and a long-term target of 9500*. Reversal below 8000 is unlikely, but would warn of another test of primary support at 7500.
* Target calculation: 8500 + ( 8500 – 8000 ) = 9000 ; 8500 + ( 8500 – 7500 ) = 9500
France’s CAC-40 is testing resistance at its 2011 high of 4200. Retracement to short-term support at 4100 is likely. Respect of support would be a bullish sign, while breakout above 4200 would offer an immediate target of 4300* and a long-term target of 4500*. Reversal below 3900 is unlikely but would warn of a bull trap.
* Target calculation: 4100 + ( 4100 – 3900 ) = 4300 ; 4050 + ( 4050 – 3600 ) = 4500
Spain’s Madrid General Index followed through above 900, but is now retracing to test the new support level. Respect would confirm a long-term advance to 1050* (960* in the medium-term). Rising 13-week Twiggs Money Flow indicates buying pressure. Reversal below 840 is unlikely, but would warn of a bull trap.
* Target calculation: 900 + ( 900 – 750 ) = 1050 ; 900 + ( 900 – 840 ) = 960
Italy’s MIB Index is testing resistance at 18000. Retracement to support at 17500 is likely, but respect would be bullish. Breakout above 18000 would offer an immediate target of 18500 and a long-term target of 20000*. Reversal below 16500 is most unlikely, but would warn of a bull trap.
* Target calculation: 17500 + ( 17500 – 15000 ) = 20000
Bearish divergence on the FTSE 100 (13-week Twiggs Money Flow) warns of strong selling pressure. Reversal below 6400 would warn of a primary down-trend, confirmed if the rising trendline is broken. Reversal of TMF below zero would strengthen the signal. Breakout above 6750 is unlikely, but would signal a medium-term advance to the 1999 high of 7000.
Bellwether transport stock Fedex displays a healthy primary up-trend on the monthly chart, suggesting that economic activity is improving. Bearish divergence on 13-week Twiggs Money Flow warns of selling pressure at the 2007 high of $120; reversal below zero would indicate a reversal, while a trough above the zero line would signal a primary up-trend. Breakout above $120 would offer a target of $130*.
* Target calculation: 120 + ( 120 – 110 ) = 130
In a paper to Catholic Health Conference Australia, Jeremy Sammut highlights the need for revision of Australia’s national health care system.
….health spending already consumes a third of the NSW budget….. and if health spending continues to grow at current rates, health will consume the entire NSW budget in 20 years time.
Providing free services encourages over-use and, with limited budgets, restricts access to essential services for the most needy. Sammut suggests a shift to self-funding for minor expenditure, with state assistance for chronic or catastrophic needs.
As the increasingly unaffordable United States private health system demonstrates, it is impossible to insure people for all health services without over-use causing a cost and premium spiral. In a private system, moral hazard creates un-affordability; in a free public insurance system like Medicare it causes arbitrary and unethical rationing.
Public and private health systems are both plagued by the problem of ‘first dollar insurance’ – the expectation among consumers that private or public insurance should entitle them to receive treatment entirely paid for by a third-party payer no matter how small the cost or condition.
By contrast, a soundly constructed insurance system should not insure people for all services. Instead, individuals should be required to self insure for minor health needs and expenses. Third party insurance should be reserved to enable people to share exceptional risk involving major health problems, and thus should only cover a minimum package of high-cost treatments for complex chronic and catastrophic conditions. And personal responsibility, consumer sovereignty, and price signals should also feature by using front-end deductibles and copayments to control costs and deter unnecessary use of marginal and discretionary services and trivial claims.
What we also need is for public and private hospitals to compete on an equal footing for the taxpayer’s health care dollar. This system has been successfully implemented in the Lombardy region of Italy, with excellent results. Margherita Stancati at WSJ online reports:
Lombardy, by contrast, has increased its quality standards, set its own reimbursement rates and, most important, put public and private hospitals on an equal footing by making each equally eligible for public funds. If a hospital meets the quality standards and charges the accepted reimbursement rate, it qualifies. Patients are free to choose between state-run and publicly funded private hospitals at no extra cost. Their co-pay is the same in either case. As a result, public and many private hospitals in Lombardy compete directly for patients and funds.
…..Around 30% of hospital care in Lombardy is private now — more than anywhere else in Italy. And service in both the private and public sector has improved.
Read Jeremy Sammut’s presentation at Saving Medicare: The Case for Market-Based Health Reform | Jeremy Sammut.
The Enlightened Economist reviews Joe Studwell’s book, How Asia Works: Success and Failure in the World’s Most Dynamic Region. He highlights three key steps:
Read more at Learning economic lessons from Asia | The Enlightened Economist.
Joshua R. Hendrickson suggests that paying interest on excess reserves at the Fed reduces the effectiveness of monetary policy. Money paid to purchase Treasuries finds its way back to the Fed in the form of excess reserves. Here is the abstract from his paper:
Over the last several years, the Federal Reserve has conducted a series of large scale asset purchases. The effectiveness of these purchases is dependent on the monetary transmission mechanism. Federal Reserve chairman Ben Bernanke has argued that large scale assets purchase are effective because they induce portfolio reallocations that ultimately lead to changes in economic activity. Despite these claims, a large fraction of the expansion of the monetary base is held as excess reserves by commercial banks. Concurrent with the large scale asset purchases, the Federal Reserve began paying interest on reserves and enacted changes in its Payment System Risk policy that have effectively made reserves and interest-bearing assets perfect substitutes. This paper demonstrates that these policy changes have had statistically and economically significant effects on the demand for reserves and simply that the effectiveness of conventional monetary policy has been significantly weakened.
Read the entire paper at Interest on Reserves, Settlement, and the Effectiveness of Monetary Policy |
Joshua R. Hendrickson.
Canada’s TSX Composite index also displays tall shadows on last week’s candle, indicating short-term selling pressure. Follow-through below 12700 would suggest another test of primary support at 12400. Reversal of 13-week Twiggs Money Flow below zero would warn of long-term selling pressure, while a trough above the zero line would again suggest a primary up-trend. Breakout above 12900 is unlikely at present, but would confirm.
* Target calculation: 12900 + ( 12900 – 11900 ) = 13900
Dow Jones Industrial Average tall shadow (or wick) on last week’s candle warns of short-term selling pressure — echoing the long-term bearish divergence on 13-week Twiggs Money Flow. Reversal below 14800 would confirm a primary down-trend. Breakout above 15660 is unlikely, but would signal a fresh advance.
However, VIX below 15 continues to suggest a bull market.
I have more faith in the calculation of the S&P 500 index — which displays a milder bearish divergence. While reversal below 1630 would signal a reversal, it would not penetrate the long-term rising trendline; only breach of 1530 would be cause for serious alarm. Respect of support at 1630, on the other hand, would be bullish, suggesting an advance to 1850.
* Target calculation: 1700 + ( 1700 – 1550 ) = 1850
The too-big-to-fail problem for banks is greater today than it was in 2008. Since then, the largest U.S. banks have become much larger. On March 31, 2012, the debt of JPMorgan Chase was valued at $2.13 trillion and that of Bank of America Corp. at $1.95 trillion, more than three times the debt of Lehman Brothers Holdings Inc. The debt of the five largest U.S. banks totals about $8 trillion. These figures would be even larger under European accounting rules.
By Anat Admati & Martin Hellwig
Read more at Emperors of Banking Have No Clothes – Bloomberg.
On a hill overlooking the Susquehanna River, two big wind turbines crank out electricity for Kroger Co.’s KR +0.02% Turkey Hill Dairy in rural Lancaster County, Pa., allowing it to save 25% on its power bill for the past two years.
….From big-box retailers to high-tech manufacturers, more companies across the country are producing their own power. Since 2006, the number of electricity-generation units at commercial and industrial sites has more than quadrupled to roughly 40,000 from about 10,000, according to federal statistics.
By REBECCA SMITH and CASSANDRA SWEET
Read more at Companies Unplug From the Electric Grid, Delivering a Jolt to Utilities – WSJ.com.
