ColinTwiggs, Author at the patient investor

November 28, 2011

Canberra is fighting the last war – macrobusiness.com.au

As we know, the Western world has passed an historic moment when credit driven growth is no longer viable. We are in the early years of a decades long deleveraging. And, as we know from the sectoral balances of macroeconomics, an economy can only grow through the expansion of the external sector or by expanding credit in either the government or private sectors. Is it useful, therefore, to be comparing Treasury’s triumphant victory over the seventies bogies of wage breakouts and inflation via a tradable goods destroying currency appreciation when the world is now set on a course in which the ONLY economic growth that has lasting value in this new milieu is that driven by expansion in the external sector?

For me the answer is absolutely not.

Treasury is busy fighting the last war. The new war is for export revenues to drive investment and growth to offset the enormous debt stocks that exist in the public and private sectors of Western economies, including Australia. That’s why destroying parts of your tradable goods sector in order to make room for other tradable goods is about as sensible as cutting off a leg so that you’ve lost weight. Sure you have, but now you just gonna sit there and eat.

via Canberra is fighting the last war – macrobusiness.com.au | macrobusiness.com.au.

November 28, 2011

$707,568,901,000,000: How (And Why) Banks Increased Total Outstanding Derivatives By A Record $107 Trillion In 6 Months | ZeroHedge

In the first 6 months of 2011, the total outstanding notional [amount] of all derivatives rose from $601 trillion at December 31, 2010 to $708 trillion at June 30, 2011. A $107 trillion increase in notional in half a year. Needless to say this is the biggest increase in history. So why did the notional increase by such an incomprehensible amount? Simple: based on some widely accepted (and very much wrong) definitions of gross market value (not to be confused with gross notional), the value of outstanding derivatives actually declined in the first half of the year from $21.3 trillion to $19.5 trillion (a number still 33% greater than US GDP). Which means that in order to satisfy what likely threatened to become a self-feeding margin call as the (previously) $600 trillion derivatives market collapsed on itself, banks had to sell more, more, more derivatives in order to collect recurring and/or upfront premia and to pad their books with GAAP-endorsed delusions of future derivative based cash flows.

via $707,568,901,000,000: How (And Why) Banks Increased Total Outstanding Derivatives By A Record $107 Trillion In 6 Months | ZeroHedge.

November 28, 2011

Asia rallies

Asia rallied Monday on encouraging signs from Europe, with the Nikkei 225 testing 8300, the Seoul Composite (KOSPI) jumping to 1815, and Hang Seng above 18000. But a look at the quarterly chart of the Nikkei shows a long-term, bearish divergence on 63-day Twiggs Momentum, while the index is headed for a test of key support at 7000/7500. Unless we see a break above the descending trendline, the trend remains downward.

Nikkei 225 Index

South Korea’s Seoul Composite index is headed for another test of 1650 according to the weekly chart. 63-Day Twiggs Momentum oscillating well below zero indicates a strong primary down-trend. Failure of support would offer a target of 1350*.

KOSPI Index

* Target calculation: 1650 – ( 1950 – 1650 ) = 1350

Hong Kong’s Hang Seng index recovered above 18000 Monday but the long-term trend remains downward. Steeply descending 63-day Twiggs Momentum warns of a strong primary down-trend.

Hang Seng Index

* Target calculation: 16 – ( 20 – 16 ) = 12

The Shanghai Composite index did not share the enthusiasm of other Asian markets, testing support at 2375. Reversal of 13-week Twiggs Money Flow below zero warns of rising selling pressure. Failure of support at 2300 would offer a target of 2050*.

Shanghai Composite Index

* Target calculation: 2300 – ( 2550 – 2300 ) = 2050

November 28, 2011

India warns of primary decline, Singapore may follow

India’s SENSEX broke through support at 15800/16000, signaling a primary decline to 14000*. Reversal of 13-week Twiggs Money Flow below zero confirms strong selling pressure. The index later recovered above 16000 Monday; we will have to wait to see whether the new support level holds.

BSE SENSEX Index

* Target calculation: 16 – ( 18 – 16 ) =14

The monthly chart shows Singapore’s Straits Times Index headed for a test of primary support at 2500. Long-term bearish divergence on 63-day Twiggs Momentum indicates a primary down-trend. Failure of support would signal a primary decline to 2100*.

Straits Times Index

* Target calculation: 2500 – ( 2900 – 2500 ) = 2100

November 28, 2011

Australia rallies

The ASX 200 rallied off support at 4000, headed for a test of medium-term resistance at 4150 — and the descending trendline. 21-Day Twiggs Money Flow remains below zero and respect of the zero line would warn of strong medium-term selling pressure. In the longer term, breach of primary support at 3850 would signal a primary decline to 3350*.

ASX 200 Index

* Target calculation: 3850 – ( 4350 – 3850 ) = 3350

November 28, 2011

Europe weakens

A monthly chart of Dow Jones Europe shows the index testing primary support at 210. A peak below zero on 63-day Twiggs Momentum indicates a strong primary down-trend. Failure of support would offer a medium-term target of 160*.

Dow Jones Europe Index

* Target calculation: 210 – ( 260 – 210 ) = 160

Italy’s MIB Index is headed for another test of primary support at 13000 on the weekly chart. Respect of the descending trendline suggests another primary decline. Reversal of 13-week Twiggs Money Flow below zero would also warn of rising selling pressure. And breach of primary support would signal a decline to 9000*.

Italian MIB Index

* Target calculation: 13 – ( 17 – 13 ) = 9

The UK’s FTSE 100 index is also headed for a test of primary support at 4800. 63-Day Twiggs Momentum peaking below zero indicates a strong primary down-trend. Failure of primary support would offer a target of 4000*.

FTSE 100 Index

* Target calculation: 4800 – ( 5600 – 4800 ) = 4000

November 28, 2011

Canada: TSX 60 respects trendline

Canada’s TSX 60 index is testing medium-term support at 650. Respect of the descending trendline and 63-day Twiggs Momentum oscillating below zero both suggest another decline. Failure of primary support at 625 would offer a target of 580*.

TSX 60 Index

* Target calculation: 650 – ( 720 – 650 ) = 580

November 28, 2011

S&P 500 breaks 1200

The S&P 500 index broke medium-term support at 1200 and is headed for a test of the primary level at 1100. Failure would offer a target of 900*. The 63-day Twiggs Momentum peak below zero warns of a primary down-trend.

S&P 500 Index

* Target calculation: 1100 – ( 1300 – 1100 ) = 900

NASDAQ 100 index is similarly headed for the band of primary support between 2000 and 2050. Bearish divergence on 13-week Twiggs Money Flow warns of strong selling pressure. failure of support would signal a primary decline to 1600*.

Nasdaq 100 Index

* Target calculation: 2000 – ( 2400 – 2000 ) = 1600

Dow Jones Industrial Average monthly chart shows the index testing medium-term support at 11000. The 63-day Twiggs Momentum peak below zero again warns of a primary down-trend. Breach of support would test the primary level at 10400; and failure of that level would remove any doubt regarding a bear market.

Dow Jones Industrial Average

* Target calculation: 10400 – ( 12300 – 10400 ) = 8500

November 27, 2011

Perils of ignoring Europe’s lessons – P.M.

DAVID MURRAY: The lending system for housing has resulted in a house price which is higher than it should be and part of the net foreign liabilities that are higher than they should be.

I believe that will be worked through by a stabilisation of house prices and steady increase in incomes and hopefully that’s the outcome but based on a price to income test, house prices in Australia are higher than they should be.

The regulations in the banking sector significantly promoted that outcome because the risk weight on housing is very low, so the gearing for housing is high. Historically the write-off rate’s been low. People believe that will last forever, which is always a worry. And this is purely with the benefit of hindsight, particularly on my part.

via PM – Perils of ignoring Europe’s lessons 24/11/2011.

November 27, 2011

U.K. Seeks to Revive Growth – WSJ.com

[Treasury chief George Osborne] will also announce an extra £30 billion in new money to be spent on infrastructure such as railways, roads, classrooms and broadband connections, said a person familiar with the matter. Of this, £20 billion will be provided by pension funds. The Treasury has signed a memorandum of understanding with the National Association of Pension Funds to provide this cash. Another £5 billion will come out of savings in other government departments and be spent over the next four years. The other £5 billion will be spent after 2015, but plans will be set out now.

via U.K. Seeks to Revive Growth – WSJ.com.