ColinTwiggs, Author at the patient investor

April 21, 2013

Forex: Euro finds support while Sterling, Aussie and Loonie fall

The euro respected primary support at $1.26 on the monthly chart. Follow-through above $1.32 would indicate another test of $1.37, while breakout above $1.37 would signal a primary advance to $1.50. A trough above zero on 13-week Twiggs Momentum would reinforce this. Reversal below $1.26, however, would signal a down-swing to $1.20.

Euro/USD

* Target calculation: 1.35 + ( 1.35 – 1.20 ) = 1.50

Pound sterling respected resistance at $1.53 against the dollar, confirming a down-swing to $1.43*. Declining 13-week Twiggs Momentum, below its 2011 lows, strengthens the signal.

Sterling/USD

* Target calculation: 1.53 – ( 1.63 – 1.53 ) = 1.43

The Aussie Dollar fell sharply, headed or a test of primary support at $1.015. Narrow fluctuation of 63-day Twiggs Momentum around zero suggests a ranging market. Respect of support would suggest another rally to test $1.06.

Aussie Dollar/USD

Canada’s Loonie respected resistance at $0.99 against the greenback. The primary trend is down and breakout below $0.97 would indicate another decline, while breach of $0.96 would strengthen the signal. Respect of $0.96, however, would suggest an advance back to the 2012 high of $1.03; strengthened if resistance at $0.99 is broken.

Canadian Dollar/USD

The greenback is testing resistance at ¥100 against the Japanese Yen. The 30-year down-trend of the dollar is over. Breakout above ¥100 is likely, after brief consolidation/retracement, and would suggest an advance to the 2007 high at ¥125*.

USD/JPY

* Target calculation: 100 – ( 100 – 75 ) = 125

The Fed, ECB and BOJ are all printing money and debasing their currencies. It is a case of which boat is sinking the fastest, and the US dollar, although taking on water, being viewed as relatively safe. The fall of gold reveals the market view that the Fed is likely to tail off quantitative easing in the next 6 to 12 months.

April 21, 2013

Richard Koo: Quantitative and Qualitative Easing

Richard Koo in his latest report makes that the point that central banks in the US and UK have not cured their economies of deflationary pressures, they have merely kicked the can down the road:

Central bank officials in the US and the UK claim quantitative easing has been a success because it prevented a Japan-like deflation. But as I noted in my last report (2 April 2013), the rate of Japanese wage growth four to five years after the bubble collapsed was roughly equal to the levels now being observed in the US. Deflation took root in Japan only after 1997, when the nation fell off the fiscal cliff following the Hashimoto administration’s ill-fated experiment with fiscal consolidation. That was seven to eight years after the bubble burst.

April 20, 2013

“Fragile by design” – the political causes of banking crisis | The Market Monetarist

Lars Christensen discusses a soon-to-be-released book by Charles Calomiris and Stephen Haber: “Fragile by Design: Banking Crises, Scarce Credit,and Political Bargains.”

Calomiris and Haber conclude that the root cause of banking crisis has to be found in what political institutions different countries have. Said in another way the main cause banking crisis is one of “political design”…….The differences between USA and Canada seem to be particularly interesting……..since 1840 the US have had 14 banking crisis, while Canada have had none and this despite the fact that credit has been as abundant in Canada as in the US.

April 19, 2013

Fixing the Banking System for Good

I believe we have a crisis of values that is extremely deep…. because the regulations and legal structures need reform. I meet a lot of these people [from] Wall street on a regular basis. I’m going to put it very bluntly: I regard the moral environment as pathological…… I have never seen anything like it. These people are out to make billions of dollars and nothing should stop them from that. They have no responsibility to pay taxes. They have no responsibility to their clients. They have no responsibility to ….counterparties in transactions. They are tough, greedy, aggressive and feel absolutely out of control…… They have gamed the system to a remarkable extent. And they have a docile president, a docile White House and a docile regulatory system that absolutely can’t find its voice. It’s terrified of these companies……

Professor Jeffrey Sachs of Columbia University speaking at the “Fixing the Banking System for Good” conference on April 17, 2013.

http://youtu.be/7VOWnnEphjI

April 19, 2013

Why Macroeconomics Doesn’t Work Very Well | Business Insider Australia

Noah Smith’s conclusion sums up the state of macroeconomics:

After the financial crisis, a bunch of people realised how little macroeconomists do know. I think people are now slowly realising just how little macroeconomists can know. There is a difference.

April 18, 2013

Gold: Will it bounce?

“Never try to catch a falling safe” warn the pundits …. “Wait for it to bounce.”

So far we have not seen much bounce. After finding short-term support at $1320 on the 2-hourly chart, gold rallied to $1400 before retreating to test $1360. The long tail at $1360 indicates buying pressure and we should see another test of $1400. Breakout would indicate a rally to $1440*, but bear market rallies are notoriously unreliable and prudent traders are likely to avoid. Reversal below $1360 is likely and would warn of another down-swing.

Spot Gold

* Target calculation: 1400 + ( 1400 – 1360 ) = 1440

On the monthly chart we can see that $1300* is the obvious support level, but the severity of the fall indicates this is a bear market and will take time to recover. Breach of $1300 would signal another decline, with the next major support level at the 2008 high of $1000.

Spot Gold

* Target calculation: 1550 – ( 1800 – 1550 ) = 1300

I am still bullish on gold in the long-term. We face a decade of easy monetary policy from central banks, with competing devaluations as each nation struggles to recover at the expense of the other. I would recommend this WSJ interview with PIMCO CEO Mohamed El-Erian for its realistic long-term outlook.

Dollar Index

There has been no major strengthening of the Dollar, which one would expect if gold fell because of downward revision of the market’s inflation outlook. Breakout above resistance at 84.00 would signal an advance to 89.00/90.00, but there is still much work to be done.

Dollar Index

Crude Oil

Crude oil prices fell sharply, signaling a primary down-trend. Interestingly, Brent Crude broke its primary support level at $106/barrel on April 8th, 4 days ahead of gold. Nymex WTI followed the next week and will soon be testing support at $84/barrel. Falling crude prices are a healthy long-term sign for the economy, but indicate medium-term weakness with weak demand anticipated in the year ahead.

Brent Crude and Nymex Crude

Commodities

Dow Jones-UBS Commodity Index fell sharply in response to gold and oil. Divergence from the S&P 500 looks even more extreme and stock prices are likely to fall.

Commodities

Slowing growth in China — the major driver of global commodity prices in recent years — is part of the problem, but aggressive action by Japan is also destabilizing global markets.

Commodities

April 16, 2013

Dramatic fall on S&P 500 – April 16th

Apologies. I deleted this April 16th post by accident.

The S&P 500 fell 220 basis points (2.2%) on Monday, blamed variously on disappointing growth figures from China, the fall in gold, and the Boston Marathon tragedy. I still suspect that the primary cause is the tectonic shift last week by the Bank of Japan.

“Where is the fall?” you may ask, when viewing the chart below. That is what I enjoy about monthly charts: they place daily moves in perspective. Breach of support at 1540 would indicate a small secondary correction, while breakout below 1490 would signal a correction back to the primary trendline. But the primary trend remains up. Only a fall through 1350 would suggest a reversal.

S&P 500 Index

April 16, 2013

Pimco’s El-Erian: Markets Trading at ‘Very Artificial Levels’ | WSJ

Steven Russolillo at WSJ reports:

Actions by central bankers across the globe are propping up asset prices to artificial levels that are potentially putting investors at risk, Pimco CEO Mohamed El-Erian said in an interview with the Wall Street Journal.

“Investors should recognize that in virtually every single market segment, we are trading at very artificial levels,” El-Erian told WSJ’s Francesco Guerrera. “It’s true for bonds, it’s true for equities. It’s true across the board.”

This reinforces my long-term bullish outlook for gold. Central banks are unlikely to cease their easy money policies any time soon. What we are currently witnessing is the opposite, with the Bank of Japan going ‘nuclear’ in an attempt to kill persistent deflation that has dogged them for over two decades.

I strongly recommend that you watch the video interview at Pimco’s El-Erian: Markets Trading at ‘Very Artificial Levels’ – MoneyBeat – WSJ.

April 16, 2013

Asia: Japan rises as gold falls

Japan’s Nikkei 225 index is in a strong primary up-trend as the BOJ commences asset purchases on a massive scale. This is a tectonic shift in the market. Larry Edelson (as quoted by Barry Ritholz) has the most convincing explanation of the sharp fall in gold:

The wicked and aggressive devaluation of the Japanese yen is setting off a massive stampede OUT of gold and into cash and other assets…….Why are the Japanese dumping gold, especially when their currency is being devalued? It’s simple. The fall in the Japanese yen caused the price of gold in yen to spike sharply higher. So Japanese investors are cashing in their profits.

…and buying stocks.

Nikkei 225 Index

* Target calculation: 11500 + ( 11500 – 8500 ) = 14500

India’s Sensex corrected to support at 18000; breakout would warn that momentum is failing and a test of primary support at 16000 likely. Bearish divergence on 13-week Twiggs Money Flow warns of a (primary trend) reversal.

Sensex Index

China’s Shanghai Composite Index is testing medium-term support at 2150. Rising 13-week Twiggs Momentum suggests a bottom is forming, but that does not rule out another test of primary support at 1950/2000. Respect of 2150, however, with breach of the descending trendline, would be a bullish sign suggesting an inverse head-and-shoulders reversal.

Shanghai Composite Index