Colin Twiggs, Author at the patient investor

December 14, 2012March 22, 2021

Belgium ranked as the 3rd most productive country in the world?

Belgium scores highly on international productivity rankings, which compare GDP (converted to USD after adjusting for purchasing power parity) to hours worked by the workforce. But results can be deceiving. Amcham Belgium writes:

Although Belgium has a high productivity score, it might not be all good news. Firstly, the results could be influenced by the fact that only 34.5% of its employable population aged 55 to 65 are actually working ……… Secondly, Belgian salaries are on average 11% higher than those of neighboring countries (the Netherlands, Germany and France)…..

Belgium may rank high on GDP per hour worked but slips down the rankings when measured on GDP per capita because of its low labor participation rate which imposes a high social cost on the country. That is why it is important not to use just one measure when assessing productivity.
Read more at Belgium ranked as the 3rd most productive country in the world.

Colin Twiggs

Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.

December 14, 2012

Labor productivity can be misleading

We are frequently bombarded with labor productivity statistics such as output per hour worked and unit labor costs — normally accompanied by political hand-wringing exhorting us to improve productivity — but how accurate are these statistics and what do they mean?

First let’s look at GDP per capita. This should tell us how well we are doing compared to our neighbors. Norway and Singapore lead the pack, ahead of the US, while Australia is comfortably in the middle.

Measuring in Purchasing Power Parity (PPP) adjusts for comparative price levels in different countries. Australia and Norway are most expensive, with relative price indices (PPP/exchange rate) of 1.61 and 1.58 respectively; while Singapore (0.83), Czech Republic (0.80) and South Korea (0.74) are cheapest.

Demographics such as an aging population or high birth rates, however, may distort per capita figures.

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Norway also leads when it comes to GDP per hour worked — which should alert us that productivity of resource-rich economies such as Norway and Australia may be inflated by profits earned from extraction (mining, oil and gas). Ireland surprisingly beats the US, while Singapore slips to near bottom of the table when measured by hours worked.

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Workers in Singapore and South Korea work far longer hours than most other OECD countries, while those in powerhouse Germany work even less than their counterparts in France.

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But hours worked can also give a distorted view of employee welfare. Compare the 3 or 4 hours that workers in Sydney, London or New York may spend commuting to and from work each day to a Korean assembly worker who lives in a housing estate adjacent to the assembly plant. If we compare GDP (adjusted for PPP) to employed persons, rather than hours worked, we get a slightly different picture. The real surprise is again Ireland, ranking third behind Norway and the US — and well ahead of Australia, Germany and the UK.

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What do we learn from this? It pays to live in a resource-rich country such as Norway (or Australia). It also pays to work clever — high-tech manufacturing like Germany and Ireland — rather than hard. Combine this with a low-tax jurisdiction — such as Singapore or Ireland — and you can become a world-beater.

Labor productivity

Labor productivity is measured as Output / Input

Where Output is the total of goods and services produced, normally measured by GDP.

And Input is the time, effort and skills of the workforce, measured either as:

total hours worked by the workforce; or

total number of employees.

Via OECD: Labour Productivity Indicators | Rebecca Freeman

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

December 13, 2012

EU Deal Reached on Bank Supervisor | WSJ.com

GABRIELE STEINHAUSER And LAURENCE NORMAN at WSJ write:

European Union finance ministers reached a landmark deal early Thursday that would bring many of the continent’s banks under a single supervisor, in what governments hope will be a major step toward resolving their three-year-old debt crisis. Ministers said the European Central Bank would start policing the most important and vulnerable banks in the euro zone and other countries that choose to join the new supervisory regime next year. Once it takes over, the ECB will be able to force banks to raise their capital buffers and even shut down unsafe lenders.

This is an important step, centralizing banking control in Brussels. Though there is bound to be dissent amongst member states as to capital buffers and unsafe lending practices.
Read more at EU Deal Reached on Bank Supervisor – WSJ.com.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

December 12, 2012

WPR Article | Strategic Horizons: U.S. Must Change Its Thinking on Conflict in Asia

Steven Metz writes on China’s growing air-sea battle capability (or “high-intensity, regional military operations, including anti-access and area denial (A2AD) operations” in defense-analyst-speak):

Military capability is only part of the equation: China also has the motivation to use its growing military power. It has long-standing and unresolved territorial disputes with a number of Asia-Pacific nations. It remains dependent on imported energy and has shown a willingness to flex its muscle to protect access to its sources. And most of all, China seems determined to replace the United States as the dominant power in the Asia-Pacific region. To do this, it must negate U.S. military power and fill the ensuing vacuum with its own.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

December 12, 2012

Risk Seen in Fed Bond Buying | WSJ.com

KRISTINA PETERSON at WSJ writes:

The Federal Reserve should stop buying bonds, even as the central bank is poised to purchase more, according to a narrow majority of economists in a new survey by The Wall Street Journal……”It’s distorting market prices and creating problems in the future,” said John Silvia, chief economist at Wells Fargo Securities, who said the Fed’s bond-buying was making long-term Treasurys too expensive without significantly easing problems in the labor market. “The Fed needs to back away and let interest rates rise just a little bit,” he said.

If past performance is anything to go by, Fed quantitative easing (or bond buying) is ineffectual in lifting the employment rate. And the lower that they drive bond yields, the greater the backlash when yields eventually rise. Yields are likely to spike up rapidly as bond-holders attempt to offload positions in order to avoid massive capital losses.

via Risk Seen in Fed Bond Buying – WSJ.com.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

December 12, 2012

New Research from Finland’s Central Bank Confirms that Government Spending Is Causing Stagnation in Europe | International Liberty

Dan Mitchell reports on new research from the Bank of Finland:

Europe suffers from a growth slowdown. The GDP growth in Europe has lagged behind the GDP growth in the US and has been far worse than the GDP growth in the NIC countries, particularly China… However, what is the reason for slow or rapid economic growth? …In many respects, the labour market plays the key role in the economy because it determines both the use of the labour input and the level of overall competitiveness of a nation. Obviously, the functioning of the labour market is not independent of the public sector. A large government is almost inevitably associated with a large tax wedge, and the functioning of the labour market appears to be critically dependent on the size of the tax wedge. It may be fair to say that the harmful consequences of a high tax wedge are exceptionally well and unambiguously documented in the literature. …On the basis of the estimates derived in this study, the following guide for growth policies appears to be warranted: …Do not over-expand the welfare state. Larger governments are associated with slower growth rates.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

December 12, 2012

Fed’s numerical thresholds are a bad idea

The Fed effectively tied its monetary policy to a balloon bobbing in the wind. Pedro da Costa writes on Reuters:

The Federal Reserve on Wednesday took the unprecedented step of tying its low rate policy directly to unemployment, saying it will keep rates near rock bottom until the jobless rate falls to 6.5 percent. That’s as long as inflation, the other key parameter of policy, does not exceed 2.5 percent.

Both unemployment and inflation are moving targets. Unemployment primarily because results are highly dependent on the participation rate: disheartened job seekers who give up looking for work are excluded from unemployment figures. Likewise, inflation measures are highly subjective. Weightings require constant adjustment because of advances in technology and changes in consumption patterns, while cost of housing estimates, which make up 39 percent of core CPI, seem to have little connection with reality. Scott Sumner points out:

The problem seems to be that, according to the Bureau of Labor Statistics, housing prices did not fall. On the contrary, their data shows housing prices actually rising between mid-2008 and mid-2009, despite one of the greatest housing market crashes in history. And prices did not rise only in nominal terms; they rose in relative terms as well, that is, faster than the overall core CPI. If we take the longer view, the Bureau of Labor Statistics finds that house prices have risen about 8 percent over the past six years, whereas the famous Case-Shiller house price index shows them falling by nearly 35 percent…..

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

December 12, 2012

Ray Dalio Explains The Rare Set Of Circumstances That's Making Him Bearish On Markets | Business Insider

Joe Weisenthal reports on hedge fund guru Ray Dalio’s outlook:

His novel set of circumstances he sees is an economy that faces austerity (due to the Fiscal Cliff, etc.) coupled with a Fed that’s mostly blown its bazooka, and can’t get much more juice out of QE.

Yields can’t go down anymore.

Austerity is coming.

Economy is running out of steam.

QE is losing its efficacy.

Rate turn probably finally coming late in 2013.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

December 12, 2012

Dangers of quantiative easing may be political more than technical

Glenn Stevens, governor of the Reserve Bank of Australia, in an address to the Bank of Thailand today commented on the dangers facing central bank monetary policy:

For the major countries a further dimension to what is happening is the blurring of the distinction between monetary and fiscal policy. Granted, central banks are not directly purchasing government debt at issue. But the size of secondary market purchases, and the share of the debt stock held by some central banks, are sufficiently large that it can only be concluded that central bank purchases are materially alleviating the market constraint on government borrowing. At the very least this is lowering debt service costs, and it may also condition how quickly fiscal deficits need to be reduced. There is nothing necessarily wrong with that in circumstances of deficient private demand with low inflation or the threat of deflation. In fact it could be argued that fiscal and monetary policies might actually be jointly more effective in raising both short and long-term growth in those countries if central bank funding could be made to lead directly to actual public final spending – say directed towards infrastructure with a positive and long-lasting social return – as opposed to relying on indirect effects on private spending.

The problem will be the exit from these policies, and the restoration of the distinction between fiscal and monetary policy with the appropriate disciplines. The problem isn’t a technical one: the central banks will be able to design appropriate technical modalities for reversing quantitative easing when needed. The real issue is more likely to be that ending a lengthy period of guaranteed cheap funding for governments may prove politically difficult. There is history to suggest so. It is no surprise that some worry that we are heading some way back towards the world of the 1920s to 1960s where central banks were ‘captured’ by the Government of the day.

via RBA: Speech-Challenges for Central Banking.

Hat tip to Walter Kurtz at Business Insider.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

December 12, 2012

Carney broaches dumping inflation target | FT.com

Claire Jones reports that Mark Carney says central banks should consider scrapping inflation targets and target nominal GDP instead — allowing more aggressive measures during a down-turn.

[Mark Carney, next governor of the Bank of England] suggested that a nominal GDP target, where a central bank sets monetary policy based on both inflation and growth, would do more to boost economic output. “For example, adopting a nominal GDP-level target could in many respects be more powerful than employing thresholds under flexible inflation targeting,” he said.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.