Author: ColinTwiggs

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Europe crashes

Germany’s DAX Index is testing support at its 2010 low of 5400. 13-Week Twiggs Money Flow below zero warns of further selling pressure. Failure of support would offer a target of 4500*.

Germany DAX Index

* Target calculation: 5500 – ( 6500 – 5500 ) = 4500

France has fallen well past its 2010 low, testing support at 3000. 13-Week Twiggs Money Flow again warns of further selling pressure. Breach of 3000 would test the 2009 low of 2500.

France CAC-40 Index

* Target calculation: 3000 – ( 3700 – 3000 ) = 2300

Secondary markets are as badly affected. The Amsterdam AEX Index fell below its 2010 low, while 13-week Twiggs Money Flow below zero warns of selling pressure.

Netherlands Amsterdam AEX Index

* Target calculation: 300 – ( 340 – 300 ) = 260

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TSX 60 headed for long-term support

Canada’s TSX 60 Index is falling sharply, headed for medium-term support at 665, but long-term support at 650 is just below. Breakout below 650 would warn of another down-swing, with a target of 580*.

TSX 60 Index

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

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Nasdaq breaks support

The Nasdaq 100 broke support at 2050, warning of a down-swing to 1900*. Follow-through below last week’s low of 2040 would confirm. The latest peak on 21-day Twiggs Money Flow, barely breaking the zero line, indicates strong medium-term selling pressure.

Nasdaq 100 Index

* Target calculation: 2050 – ( 2200 – 2050 ) = 1900

The Dow is headed for a similar test: follow-through below 10600 would confirm a down-swing to 9600*. Higher volumes indicate the presence of buyers and failure of support would prove seller’s dominance.

Dow Jones Industrial Average

* Target calculation: 10800 – ( 12000 – 10800 ) = 9600

The S&P 500 is testing support at 1100 on the weekly chart. Failure would signal a test of 1000. 13-Week Twiggs Money Flow below zero warns of further selling pressure.

S&P 500 Index

* Target calculation: 1125 – ( 1250 – 1125 ) = 1000

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10-Year Treasury yields at new 50-year low

10-Year Treasury yields are testing support at 2.00 percent — a 50-year low. One thing is clear: Fed monetary policy has failed. Suppressing short-term interest rates has, in most cases, lifted the economy out of recession, but also set us up for an even bigger crash the next time round — requiring even more severe interest rate cuts. Long-term yields have been falling for 30 years. We are now clipping the tree tops — with short-term rates near zero and no gas in the tank to lift us over the next obstacle. A bond market revolt cannot be far off.

10-Year Treasury Note Yields $TNX

A “bond market revolt” is a general sell-off of Treasurys when bond-holders decide that rewards (yield) are not commesurate with the risk. We have already witnessed several bond-holder revolts in European markets. A rise in yields would raise the cost of rolling-over existing Treasury debt, ratcheting up the budget deficit even further. This is a threat that should not be ignored.

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Whack-a-Mole: IMF Not Impressed With China Bubble Management – WSJ

[IMF China mission chief Nigel] Chalk argues that China faces a potent cocktail of ingredients pushing house prices up:

  • High domestic savings, and limited opportunities to take cash offshore
  • Limited domestic savings options and bank deposit rates below the rate of inflation
  • No property tax or capital gains tax, which makes it cheap to buy and hold property
  • Rapid growth, high wages and urbanization, which mean real demand continues to grow

The government’s crackdown on high housing prices has had some success. But Chalk believes that the restrictions on speculators introduced so far treat the symptoms, not the causes, of the malaise.

via Whack-a-Mole: IMF Not Impressed With China Bubble Management – China Real Time Report – WSJ.

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New Economic Perspectives: ARE WE APPROACHING THE ENDGAME FOR THE EURO?

[The] core problem at the heart of the euro zone is NOT a problem of “Mediterranean profligacy”. Many people, particularly in Germany, express the view that the Italian, Greek or Portuguese governments (and by association their people) are to blame for this crisis – accessing cheap loans from Northern European banks, not paying enough taxes, not working hard enough, etc…..

One thing is clear from the remarks that continue to emanate from Europe’s main policy makers. They do not understand basic accounting identities.

…….The European Monetary Union bloc as a whole runs an approximately balanced current account with the rest of the world. Hence, within Euroland it is a zero-sum game: one nation’s current account surplus is offset by a deficit run by a neighbor. And given triple constraints — an inability to devalue the euro, a global downturn, and the most dominant partner within the bloc, Germany, committed to running its own trade surpluses — it seems quite unlikely that poor, suffering nations like Greece or Ireland could move toward a current account surplus and thereby help to reduce its own government “profligacy”.

via New Economic Perspectives: ARE WE APPROACHING THE ENDGAME FOR THE EURO?.

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Innovate or die – macrobusiness.com.au

Spence says it has not yet been fully recognised that the economic malaise is not just a cyclical downturn caused by excess debt, over-consumption, low interest rates and lax regulation, but part of a long-term structural change brought about by globalisation and technology, which are shifting the comparative advantage in a range of industries and services towards the developing world.

Europe, the US and other advanced economies must make long-term reforms to labour markets and boost productivity as well as encourage public and private sector investment in infrastructure, education, skills and training to remove growth constraints. Short-term fixes, such as Europe’s bailout packages and the US Federal Reserve’s promises of low interest rates for longer, can do little more than “kick the can down the road”, he says.

via Nobel laureate economist Michael Spence| as reported in Innovate or die – macrobusiness.com.au.

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In Praise of Timely, Blatant Incompetence | Mike Shedlock | Safehaven.com

Many are in shock that the S&P downgraded debt of the US from AAA. Not me. It was long overdue.

However, the S&P proved it was incompetent in the way it made the downgrade. Pray tell how can a rating agency make a $2 trillion error? The answer is obvious: sheer incompetence.

The irony is Moody’s and Fitch proved they are incompetent by not downgrading U.S. debt.

via In Praise of Timely, Blatant Incompetence | Mike Shedlock | Safehaven.com.

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30-Yr. Mortgage Rate: New Low

The average rate on a 30-year fixed mortgage has fallen to its lowest level on records dating to 1971. The rate on the most popular mortgage dipped to 4.15 percent from 4.32 percent a week ago, Freddie Mac said Thursday. Its previous low of 4.17 percent was reached in November.

The last time long-term rates were lower was in the 1950s, when 30-year loans weren’t widely available. Most long-term home loans lasted 20 or 25 years.

via DANIEL WAGNER 30-Yr. Mortgage Rate: New Low.

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