ColinTwiggs, Author at the patient investor

March 25, 2013

Asia tentative

Dow Jones Japan Index was tentative Monday, the inside day indicating hesitancy. Recovery above 70.50 would signal continuation of the primary advance, while penetration of the rising trendline would warn of a correction.

Dow Jones Japan Index

Dow Jones Hong Kong Index met resistance at its former support level. The Hang Seng Index is testing medium-term support at 22000. Failure appears likely and would test primary support — and the rising trendline — at 21000.

The Shanghai Composite Index found support at 2250 for the third week in a row. Rising 13-week Twiggs Money Flow indicates buying pressure. Respect of support would be a bullish sign: a shallow trough followed by breakout above 2450 would signal a primary up-trend. Failure of support, while less likely, would test primary support at 1950/2000.
Shanghai Composite Index

* Target calculation: 2450 + ( 2450 – 2250 ) = 2650

India rallied Monday, but failure of support at 18800 would test the primary level at 18000. Declining 13-week Twiggs Money Flow continues to warn of selling pressure. Failure of 18000 would indicate a primary trend reversal.

Sensex Index

March 25, 2013

Europe: Under pressure

European stocks are under pressure, with Dow Jones Europe Index again likely to test support at 270. Failure would warn of a reversal, while breakout above 290 would signal a fresh advance. 13-Week Twiggs Momentum trough above zero would indicate continuation of the primary up-trend.
DAX Index

The FTSE 100 is retracing to test the lower border of the recent flag on the weekly chart. Breach would warn of a correction to test 6000. Respect is less likely, but breakout above 6550 would indicate an advance to 6800*.
FTSE 100 Index

* Target calculation: 6400 + ( 6400 – 6000 ) = 6800

European markets may be under pressure, but they have not buckled. Expect further tests of support, but so far the primary up-trend is not threatened.

March 25, 2013

S&P 500 tests 2007 high

The S&P 500 continues to find support above 1540 on the daily chart. Breakout above 1565 would signal another advance. A higher trough on 21-day Twiggs Money Flow would indicate medium-term buying pressure. Breach of the rising trendline is unlikely at present but would warn of a correction. Target for the current advance is 1600*.

S&P 500 Index

* Target calculation: 1530 + ( 1530 – 1485 ) = 1575

VIX Volatility Index remains near its 2005 lows at 0.10. This does not offer much reassurance as volatility can rapidly spike. Breakout above the quarterly high at 0.20 would be a warning sign.
VIX Index
Bellwether transport stock Fedex dipped below $100 after an earnings disappointment. Reversal below the rising trendline at $85 would warn that the broader economy is slowing.
Fedex
The Nasdaq 100 continues to struggle with resistance at 2800. Declining relative strength against the S&P 500 illustrates how blue chips are being favored over tech stocks. Bearish divergences on both 13-week Twiggs Momentum and 13-week Twiggs Money Flow warn of another correction. Reversal below the latest rising trendline would strengthen the signal. Follow-through above 2900 is unlikely at present, but would signal an advance to 3300*. Only breach of primary support at 2500 would signal a reversal.
Nasdaq 100 Index

* Target calculation: 2900 + ( 2900 – 2500 ) = 3300

While there are structural flaws in the US economy, the market is gaining momentum and the current advance shows no signs of ending.

March 24, 2013

For America, Decline is a Choice | The Diplomat

William C. Martel concludes his series, highlighting the lack of a cohesive US grand strategy, with this summary:

A strategic weakness with American foreign policy is the deep and enduring political polarization in Washington that complicates, and often paralyzes, U.S. policymaking. While the United States once conducted its foreign policy on a bipartisan basis, we now see divisions on virtually all issues. Washington’s failure to move beyond this polarized environment puts at risk its ability to act with one voice on foreign policy. Essentially, it puts at risk the entire enterprise of grand strategy because a deeply divided nation cannot implement its resources and interests effectively.

By definition, American grand strategy demands that policymakers and politicians take the long view. While it is an enduring challenge for policymakers in Washington to look beyond the next election, the nation has no choice. It must build a grand strategy that addresses how the United States deals with the future that extends beyond the coming months or years. Abroad, the nation must work with other states and institutions to shape the secure international order that all states desperately need. The alternative is a world marked by uncertainty, fear, and strife.

March 24, 2013

Cyprus: The Operation Was a Success. Shame the Patient Died. | Some of it was true…

Pawelmorski (pseudonym for a london-based fund manager) gives this opinion of the EU ‘rescue’ of Cyprus :

How bad is the damage?

Bloody appalling…… Take a moment to realise the scale of what’s been done here. No human agency has achieved so much economic destruction in such a short time without the use of weapons. The combination of laying waste to the financial sector and tearing up the savings of thousands of residents means that Cyprus won’t return to current levels of output for a decade, a funeral pyre which bears comparison only with Greece. There are four shocks happening at once; the bog-standard austerity shock; the trauma of bank withdrawal controls; the wealth shock; and the structural shock of wiping out the financial sector. The bailout bill is certainly going to get a lot higher too, as a larger amount of debt is piled onto a smaller economy.

March 22, 2013

Exploding Australia’s nuclear delusion | Business Spectator

Geoff Russell writes:

France has been producing most of its electricity using nuclear power stations for an average carbon dioxide intensity of about 80 grams of CO2 per kilowatt hour (gm-CO2/kWh) for two decades. In that time, Australia’s electricity has just gotten dirtier, rising from 817 in 1990 to 841 gm-CO2/kWh in 2010.

….Switzerland and Sweden have been using a mix of hydro and nuclear to achieve even lower carbon dioxide intensity than France.

March 22, 2013

The science of breast milk: Evolution is smart

Nicholas Day describes the astonishing findings of Katie Hinde, an assistant professor of human evolutionary biology at Harvard. Here is just one example:

….Hinde primarily studies the food and the signal elements of milk. “The signal is in the form of hormones that are exerting physiological effects in the infant,” she explains. “Infants have their own internal hormones, but they’re also getting hormones from their mother. They’re binding to receptors in the babies, and we’re just starting to understand what those effects are.”

Hinde works with rhesus macaques, and she’s tracked the effects of the hormone cortisol in their milk. Cortisol is often thought of as the stress hormone, but its function is far more varied, and Hinde has found that the amount and especially the variation of cortisol successfully predicts how the infant macaques go on to behave. It’s a stunning finding: The composition of early milk seems to mold infant temperament. But—and here’s the twist—the males were much more sensitive than the females. Roughly, the more cortisol, the more bold and exploratory the male rhesus macaques were.

March 21, 2013

ALP has spread Europe’s disease | The Australian

Greg Sheridan writes:

Europe’s present distress is our future. Everyone knows that part of Europe’s problem is excessive welfare. As Germany’s Chancellor Angela Merkel has remarked, Europe has 7 per cent of the world’s population, 25 per cent of global gross domestic product and 50 per cent of the world’s welfare payments.

March 20, 2013

Unintended consequences: Rewarding failure

Robert Shiller summarizes the arguments for raising taxes and increasing government spending at Project Syndicate:

……while that [austerity] approach to debt works well for a single household in trouble, it does not work well for an entire economy, for the spending cuts only worsen the problem. This is the paradox of thrift: belt-tightening causes people to lose their jobs, because other people are not buying what they produce, so their debt burden rises rather than falls.

There is a way out of this trap, but only if we tilt the discussion about how to lower the debt/GDP ratio away from austerity – higher taxes and lower spending – toward debt-friendly stimulus: increasing taxes even more and raising government expenditure in the same proportion. That way, the debt/GDP ratio declines because the denominator (economic output) increases, not because the numerator (the total the government has borrowed) declines.

What he does not consider, however, is the message we are sending to government. In much the same way as bailouts increase moral hazard — with too-big-to-fail institutions taking on bigger risks secure in the knowledge that the taxpayer will bail them out if the bets don’t pay off — we encourage bad behavior from politicians if we allow them to raise taxes and increase government spending every time they screw up the economy. Federal government spending in the US economy has grown from 12.5% of GDP in 1950 to nearly 25% of GDP today. Seems like they are getting the wrong message.

Federal Spending as % of GDP

That is like giving someone a promotion or a raise every time they mess up. When politicians fail, they need to get the right message — and not only at the next election. Cutting budgets when the economy is in recession is the right response, but how can we achieve this while saving the economy from a deflationary spiral?

The only way I can think of is to cut taxes and government expenditure, but encourage private investment in productive infrastructure through Treasury-backed low-interest or even interest-free development loans. These could be administered by an independently-elected infrastructure body with representatives from all parties. There are dangers, and the process would have to be closely monitored, but the risks are minor compared to rewarding failure.

March 20, 2013

The Power of Swarms Can Help Us Fight Cancer, Understand the Brain, and Predict the Future | Wired Science | Wired.com

Ed Yong reports on the latest advances in the study of collective behavior:

For more than a century people have tried to understand how individuals become unified groups. The hints were tantalizing—animals spontaneously generate the same formations that physicists observe in statistical models. There had to be underlying commonalities. The secrets of the swarm hinted at a whole new way of looking at the world.

But those secrets were hidden for decades. Science, in general, is a lot better at breaking complex things into tiny parts than it is at figuring out how tiny parts turn into complex things. When it came to figuring out collectives, nobody had the methods or the math.

Now, thanks to new observation technologies, powerful software, and statistical methods, the mechanics of collectives are being revealed. Indeed, enough physicists, biologists, and engineers have gotten involved that the science itself seems to be hitting a density-dependent shift. Without obvious leaders or an overarching plan, this collective of the collective-obsessed is finding that the rules that produce majestic cohesion out of local jostling turn up in everything from neurons to human beings. Behavior that seems impossibly complex can have disarmingly simple foundations. And the rules may explain everything from how cancer spreads to how the brain works and how armadas of robot-driven cars might someday navigate highways. The way individuals work together may actually be more important than the way they work alone.