Colin Twiggs, Author at the patient investor

October 31, 2012

Global QE

Observation made by Philip Lowe, RBA Deputy Governor:

Since mid 2008, four of the world’s major central banks – the Federal Reserve, the ECB, the Bank of Japan and the Bank of England – have all expanded their balance sheets very significantly, and further increases have been announced in a couple of cases. In total, the assets of these four central banks have already increased by the equivalent of around $US5 trillion, or around 15 per cent of the combined GDP of the relevant economies. We have not seen this type of planned simultaneous very large expansion of central bank balance sheets before. So in that sense, it is very unusual, and its implications are not yet fully understood……

via RBA: Australia and the World.

October 30, 2012

The Candlemakers' Petition

I was reminded of this amusing satire by Frederic Bastiat:

To the Honourable Members of the Chamber of Deputies.
(Open letter to the French Parliament originally published in 1845)

Gentlemen:
You are on the right track. You reject abstract theories and have little regard for abundance and low prices. You concern yourselves mainly with the fate of the producer. You wish to free him from foreign competition, that is, to reserve the domestic market for domestic industry…….

We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion, particularly because he has for that haughty island a respect that he does not show for us.

We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights, and blinds — in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat…….

Bastiat goes on to argue that such an action would raise prices, boost French industry and create new jobs — arguments put forward by many politicians for increasing protectionism — while ignoring the huge burden to the consumer.

Hat tip to Matthew Yglesias. Read the full petition at bastiat.org.

October 30, 2012

Hurricane Sandy [time lapse animation]

The power of nature.

[gigya src=’http://www.reuters.com/resources_v2/flash/video_embed.swf?videoId=238739605&edition=BETAUS’ type=’application/x-shockwave-flash’ allowfullscreen=’true’ allowScriptAccess=’always’ width=’460′ height=’259′ wmode=’transparent’]

October 30, 2012

Dirty money cost China $3.8 trillion | Reuters

By Stella Dawson

China has lost $3.79 trillion over the past decade in money smuggled out of the country, a massive amount that could weaken its economy and create instability, according to a new report. And the outflow — much of it from corruption, crime or tax evasion — is accelerating. China lost $472 billion in 2011, equivalent to 8.3 percent of its gross domestic product…..

via Dirty money cost China $3.8 trillion 2000-2011: report | Reuters.

October 30, 2012

Unsaving the U.S. economy | MacroScope

Gabriel Burin writes that the U.S. savings rate sank last month to its lowest since November.

“Households were only able to boost consumption in the third quarter by dipping into their savings,” said Paul Dales, senior U.S. economist at Capital Economics, after the Commerce Department release. “Faced with the prospect of major tax hikes in the New Year, however, they will soon become more cautious”……..

via Unsaving the U.S. economy | MacroScope.

October 30, 2012

Chinese TV Host Says Regime Nearly Bankrupt | Epoch Times

A sobering assessment of China’s economy reported by Matthew Robertson:

Larry Lang, chair professor of Finance at the Chinese University of Hong Kong, said in a lecture that he didn’t think was being recorded that the Chinese regime is in a serious economic crisis — on the brink of bankruptcy.

The youtube audio requires translation:

Robertson summarizes Lang’s assessment into five key points:

The regime’s debt sits at about 36 trillion yuan (US$5.68 trillion).
The real inflation rate is 16 percent, not 6.2 percent as claimed.
There is serious excess capacity in the economy, and private consumption is only 30 percent of economic activity.
Published GDP of 9 percent is also fabricated. According to Lang, GDP has contracted 10 percent.
Taxes are too high. Last year, direct and indirect taxes on businesses amounted to 70 percent of earnings…..

via Chinese TV Host Says Regime Nearly Bankrupt | Business & Economy | China | Epoch Times.

October 30, 2012

What’s the use of economics? | Alan Kirman | vox

This column by Alan Kirman highlights the problem with macroeconomics today:

The simple question that was raised during a recent conference organised by Diane Coyle at the Bank of England was to what extent has – or should – the teaching of economics be modified in the light of the current economic crisis? The simple answer is that the economics profession is unlikely to change. Why would economists be willing to give up much of their human capital, painstakingly nurtured for over two centuries?

…….rather than making steady progress towards explaining economic phenomena professional economists have been locked into a narrow vision of the economy. We constantly make more and more sophisticated models within that vision until, as Bob Solow put it, “the uninitiated peasant is left wondering what planet he or she is on” (Solow 2006).

via What’s the use of economics? | vox.

October 30, 2012

Motivating people, getting beyond money | McKinsey

Interesting opinion piece by Martin Dewhurst, Matthew Guthridge, and Elizabeth Mohr (NOVEMBER 2009):

Numerous studies have concluded that for people with satisfactory salaries, some non-financial motivators are more effective than extra cash in building long-term employee engagement in most sectors, job functions, and business contexts. Many financial rewards mainly generate short-term boosts of energy, which can have damaging unintended consequences…..

via Motivating people, getting beyond money – McKinsey Quarterly – Organization – Talent.

October 30, 2012

Australia: Stocks may be fully priced

Christopher Joye from the AFR suggests that Australia’s sharemarket may be “fully priced”:

New analysis from UBS poses an interesting puzzle: we have yet to see ASX earnings per share recover to pre-crisis levels. Top-rated UBS strategists Matthew Johnson and Andrew Lilley find that “aggregate equity market data shows declining earnings and weakening corporate balance sheets” in 2012…..

via Sting in inflation surprise.

October 29, 2012

Asia: China & Japan weak, India & HK bullish

China’s Shanghai Composite Index respected resistance at 2150 and the descending trendline, indicating another down-swing. Breach of support at 2000 would confirm. Reversal of 63-day Twiggs Momentum below its rising trendline would strengthen the bear signal.

Shanghai Composite Index

* Target calculation: 2150 – ( 2500 – 2150 ) = 1800

Rising 13-week Twiggs Money Flow indicates buying pressure on Hong Kong’s Hang Seng Index. Breakout above 22000 would indicate a primary advance with a long-term target of 26000*.

Hang Seng Index

* Target calculation: 22 + ( 22 – 18 ) = 26

India’s Sensex continues to test its new support level at 18500. Recovery above 19000 would confirm the primary up-trend, while breach of support at 18000 would warn of a test of primary support at 16500. Rising 63-day Twiggs Momentum favors a primary advance.

Sensex Index

* Target calculation: 18.5 + ( 18.5 – 16.0 ) = 21.0

Singapore’s Straits Times Index is in a weak up-trend, consolidating below 3100. Breach of support at 3000 would test the lower edge of the trend channel. Reversal of 63-day Twiggs Momentum below zero would suggest further consolidation, while a fall below -5% would indicate a primary down-trend.

Straits Times Index

Japan’s Nikkei 225 is testing resistance at 9200. Breakout would indicate a rally to 10200. Oscillation of 63-day Twiggs Momentum below zero, however, continues to indicate a down-trend. Respect of 9200 would indicate another test of primary support at 8500.

Nikkei 225 Index

* Target calculation: 9200 + ( 9200 – 8200 ) = 10200

South Korea’s Seoul Composite index is testing support at 1900. Breach would warn of a correction to primary support at 1750. Reversal of 63-day Twiggs Momentum below zero would strengthen the bear signal.

Seoul Composite Index