ColinTwiggs, Author at the patient investor

July 22, 2015

Japan Escalates Its Standoff With China in the South China Sea | VICE News

By Jennifer Peters
July 22, 2015 | 8:45 am

Japan has put its foot down — at least in writing — over China’s attempts to assert greater control of the South China Sea.

….Japan isn’t the only one pushing back against China’s expansion in the region. The Philippines is taking China to court over territorial claims to the South China Sea, with top Filipino officials appearing at The Hague to argue their case before a United Nations arbitral tribunal. China has called it a “political provocation.”

“The Chinese take kind of a Leninist approach to these things,” [Kelley Currie, a senior fellow with the Project 2049 Institute] said. “They probe with the bayonet until they hit steel, and then they’ll stop. When they start to see that people are serious about pushing back, then they will back off a bit.”

July 22, 2015

Cold wind blows for crude oil producers

Long-term June 2017 Nymex Light Crude futures (CLM2017) broke support at $60/barrel, offering a target of $54/barrel*.

Nymex WTI Light Crude June 2017 Futures

* Target calculation: 60 – ( 66 – 60 ) = 54

In the short-term, September 2015 futures (CLU15) are testing support at their March low of $50/barrel. Breach is likely, given the long-term down-trend, and would offer a target of $40/barrel*.

Nymex Light Crude September 2015 Futures CLU15

* Target calculation: 50 – ( 60 – 50 ) = 40

Declining prices will hurt the Energy sector in the short/medium-term, but the benefit to the broader economy will outweigh this in the longer term. Lower fuel prices will especially benefit the Transport sector. Highly industrialized exporters like Germany, Japan, China and the broader EU, will also benefit. While oil exporters like Russia, Iran, the Middle East, Nigeria, Angola, Venezuela, and to a lesser extent Norway, face hard times ahead.

July 22, 2015

War is politics by other means…Putin’s goals are political

From Brian Whitmore at RFERL:

….War is politics by other means and the Kremlin’s goals in Donbas are ultimately political.

Vladimir Putin may have once dreamed of seizing all of what his propagandists call Novorossia — the strip of land from Kharkiv to Odesa — and establishing a land bridge to Crimea.

But that’s off the table now and he is clearly not interested in annexing the war-ravaged and economically devastated enclaves his separatists currently hold.

“The Kremlin, for its part, is losing interest in the armed conflict it helped create: It wants to move on from military interference in Ukraine to quieter political destabilization,” political commentator Leonid Bershidsky wrote in Bloomberg View.

….If you want to see Ukraine’s future under this scenario, just look at Bosnia.

July 21, 2015

“We should be ashamed”…Isis could have been ‘nipped in the bud’ four years ago

The rise of extremist terror group Islamic State (Isis) could have been avoided if the UK began attacks on Syrian President Bashar al-Assad in 2013, according to two former defence chiefs.

“It’s a great shame, something that we should be ashamed of, that we could have nipped this problem in the bud four years ago, but failed to do so,” said Lord David Richards, a former general and the UK’s chief of defence staff from 2011 to 2013 under Prime Minister David Cameron.

“….if anything encouraged Isis at that point, it was that decision,” said Lord George Robertson, Nato secretary general from 1999 to 2004, and UK defence secretary from 1997 to 1999. “It was that fact of a failure of will on the part of the Western powers,” he added, that also encouraged Russian President Vladimir Putin to invade Crimea in 2013.

….”We are our own worst enemy. We simply ignore problems,” said Robertson, who urged the UK’s politicians to do more to convince the public why the government needs to take military action. “Unless people are convinced there are things worth fighting for, then we’ll be in trouble….”

Reminds me of:

“All that is necessary for evil to triumph is for good men to do nothing.” ~ from the film adaptation of Tolstoy’s War and Peace.

Often misattributed to Edmund Burke who wrote: “When bad men combine, the good must associate; else they will fall one by one, an unpitied sacrifice in a contemptible struggle.”

July 21, 2015

Gold headed for $600 or $700?

Gold broke long-term support at $1140/ounce, offering a medium-term target of $1000*. Peaks at zero on 13-week Twiggs Momentum indicate a strong primary down-trend.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

What is the long-term target?

Gold fell from a long-term high around $1800 before encountering strong support at $1200. Breakout below this lengthy, mid-point consolidation suggests that the precious metal is likely to experience another decline of similar magnitude to the first. These patterns are normally symmetrical, which would present an end target of $600 per ounce. That is $1200 – ($1800 – $1200) = $600.

$600 may seem outlandish, given the strength of recent support, but not when one adjusts the gold price by the consumer price index (CPI). Then it appears that yellow metal still has some way to fall.

Gold over CPI

Nothing is certain in this world (except death and taxes) and there are many fundamentals (like central banks) that may intervene. Also, there is a strong support level at the 2008 low of $700 per ounce.

Spot Gold

I would attach a 50% probability to gold reaching $700 in the next few years and a bit less, say 30%, to gold reaching $600.

July 20, 2015

APRA confirms further capital adequacy measures

From Robin Christie:

The Australian Prudential Regulation Authority (APRA) has confirmed that the country’s largest banks will face increased capital adequacy requirements for residential mortgage exposures – and hasn’t ruled out further rises.

The regulator made it clear yesterday that the new rules would be an interim measure based on the Financial System Inquiry’s (FSI) recommendations – and that it was keenly awaiting guidance from the Basel Committee on Banking Supervision before making any further changes.

The new measures, which come into effect on 1 July 2016, mandate that authorised deposit-taking institutions (ADIs) that are accredited to use the internal ratings-based (IRB) approach to credit risk must increase their average risk weight on Australian residential mortgage exposures to at least 25 per cent. According to APRA, the current average risk weight figure sits at around 16 per cent….

This is a welcome first step. Increases in bank capital will improve economic stability. Even at 25 percent, however, a capital ratio of 10% would mean that banks are holding 2.5 percent capital against residential mortgages. Further increases over time will be necessary.

July 19, 2015

Why negative gearing is not a fair tax policy

Interesting view from Antony Ting, Associate Professor at University of Sydney:

Is negative gearing in accordance with well-established tax rules? A fundamental principle in the tax law is that a taxpayer should be able to deduct expenses only if the expenses have been incurred to generate assessable income.

This is why an employee can only deduct expenses that are sufficiently related to work. For example, a funeral director at tropical Queensland would be able to deduct the cost of his black jacket (but not his black trousers) because the ATO believes that no rational person – except a funeral director – would wear a black jacket in such a hot place.

Should mortgage interest on an investment property be deductible? Investment properties generate two kinds of income: rental income and capital gains (if any). As capital gains on investment property can enjoy a 50% tax discount if the property has been held for at least a year, strictly speaking only 50% of the interest expenses related to the capital gain should be deductible.

……Many countries resolve this issue by quarantining losses on investment properties. It means that losses generated from negative gearing cannot be used to offset against other sources of income, for example, salaries or business income. Instead, the losses can be carried forward to future years to offset against income from the investment properties.

Quarantining losses seems fairer than limiting deductibility of losses to the 50% discount normally available on capital gains. But the situation gets more complicated when the property is sold. Can accumulated losses never be deducted against gains on other assets or should they be offset against any capital gain made on disposal of the property? And if the result is a net capital loss should this be allowed to be offset against gains on other properties? We need a system that is fundamentally fair.

July 17, 2015

Gold crashes through primary support

Gold broke primary support at $1140/ounce, signaling a decline to the target of $1000*. 13-Week Twiggs Momentum peaks below zero have been warning of this for some time.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

Major producer Barrick Gold also broke primary support, at $10, strengthening the bear signal for gold. Similar peaks below zero on 13-week Twiggs Momentum warn of a primary down-trend. Breach of support offers a target of $6.50*.

Barrick Gold

* Target calculation: 10 – ( 13.50 – 10.00 ) = 6.50

July 17, 2015

Gold crashes through primary support

Gold broke primary support at $1140/ounce, signaling a decline to the target of $1000*. 13-Week Twiggs Momentum peaks below zero have been warning of this for some time.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

Barrick Gold

* Target calculation: 10 – ( 13.50 – 10.00 ) = 6.50

July 16, 2015

China’s Debt-to-GDP Ratio Just Climbed to a Record High – Bloomberg Business

From Ye Xie and Belinda Cao at Bloomberg:

While China’s economic expansion beat analysts’ forecasts in the second quarter, the country’s debt levels increased at an even faster pace.

Outstanding loans for companies and households stood at a record 207 percent of gross domestic product at the end of June, up from 125 percent in 2008, data compiled by Bloomberg show.