Author: 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.
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Canada: TSX Composite retreat

The TSX Composite retreat below 12200 on the daily chart indicates another test of medium-term support at 12000. The rally remains intact as long as support holds. Failure would re-test primary support at 11750/11800, while recovery above 12200 would test resistance at 12500. Rising 63-day Twiggs Momentum suggests a primary up-trend. Breakout would signal an advance to 13250*.

TSX Composite Index

* Target calculation: 12500 + ( 12500 – 11750 ) = 13250

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Falling momentum on US indices

The S&P 500 weekly chart continues to warn of a primary down-trend, with bearish divergence on 63-day Twiggs Momentum. Reversal of TMO below zero would strengthen the signal. Hardening of positions in fiscal cliff negotiations makes another test of primary support at 1350 seem inevitable. Breakout above 1425 would test resistance at 1475, but declining momentum suggests advance above 1475 is unlikely.

S&P 500 Index

Dow Jones Industrial Average also indicates falling momentum, with breach of the rising trendline. Respect of resistance at 13300 would re-test primary support at 12500. Reversal of 13-week Twiggs Money Flow below zero would indicate rising selling pressure.

Dow Jones Industrial Average

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Noam Chomsky: “Europe’s policies make sense only on one assumption: that the goal is to try and undermine and unravel the welfare state.” | EUROPP

Noam Chomsky in an interview with EUROPP editors Stuart A Brown and Chris Gilson:

Europe’s policies [austerity during a recession] make sense only on one assumption: that the goal is to try and undermine and unravel the welfare state. And that’s almost been said. Mario Draghi, the President of the European Central Bank, had an interview with the Wall Street Journal where he said that the social contract in Europe is dead. He wasn’t advocating it, he was describing it, but that’s essentially what the policies lead to…….

Chomsky has the cart before the horse. Collapse of welfare states in Europe led to austerity — not the other way round. Joe Hockey had a slightly different take on events in Europe in his April address to the Institute of Economic Affairs:

The Age of Entitlement is over. We should not take this as cause for despair. It is our market based economies which have forced this change on unwilling participants. What we have seen is that the market is mandating policy changes that common sense and years of lectures from small government advocates have failed to achieve.

Reduction of trade barriers and shrinking of the technological advantage enjoyed by developed nations will lead to the inevitable demise of the social contract. Free competition demands efficiency. Countries cannot remain competitive while carrying burdens imposed by a welfare state.

via Five minutes with Noam Chomsky – “Europe’s policies make sense only on one assumption: that the goal is to try and undermine and unravel the welfare state.” | EUROPP.

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‘Doomsday’ For The Fiscal Cliff? | ABC News

Republicans are considering a “Doomsday Plan” if fiscal cliff talks fail. The ABC’s Jon Karl reports:

It’s quite simple: House Republicans would allow a vote on extending the Bush middle class tax cuts (the bill passed in August by the Senate) and offer the president nothing more – no extension of the debt ceiling, nothing on unemployment, nothing on closing loopholes. Congress would recess for the holidays and the president would face a big battle early in the year over the debt ceiling.

Two senior Republican elected officials say this Doomsday Plan is becoming the most likely scenario. A top GOP House leadership aide confirms the plan is under consideration, but says Speaker Boehner has made no decision on whether to pursue it.

Under one variation of the plan, House Republicans would allow a vote on extending only the middle class tax cuts and Republicans, to express disapproval at the failure to extend all tax cuts, would vote “present” on the bill, allowing it to pass entirely on Democratic votes.

By doing this, Republicans avoid taking blame for tax increases on 98 percent of income tax payers. As one senior Republican in Congress told me, “You don’t take a hostage you aren’t willing to shoot.”

This is a time for mending bridges damaged during the election. The ability of the President to unify rather than polarize the two sides of the house will be tested in the next few weeks. Let us hope that he measures up.

via ‘Doomsday’ For The Fiscal Cliff? (The Note) – ABC News.

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Obama Theatrics, Obama Reality – Business Insider

Wendy McElroy writes that we should ignore the distraction of President Obama’s flowery speeches and focus on the under-the-radar actions of regulatory agencies and regulatory czars appointed — FDR-style — directly by the president.

A Nov. 19 article in the National Review opened, “On Friday, the Environmental Protection Agency rejected petitions from the governors of Georgia, Texas, Arkansas, Delaware, Maryland, New Mexico, and North Carolina to suspend the biofuel-blending requirements established by the federal Renewable Fuel Standard (RFS) program.”

The petition asked for relief from the program’s requirement to convert corn crops into ethanol. National Review explained, “The 2012 target is to blend 13.2 billion gallons of biofuel into our gasoline, a quantity that ratchets up to 13.8 billion gallons in 2013. This year, about 4.7 billion bushels, or 40% of the nation’s corn crop, will be consumed by ethanol manufacturing.” The petitioning states are economically reeling from “the worst drought in 50 years,” and the EPA czar has the power to waive the program’s requirement. She chose not to.

via Obama Theatrics, Obama Reality – Business Insider.

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Fiscal Cliff Is Just a Speed Bump on the Road to a Real Crisis | International Liberty

Dan Mitchell writes in the New York Post:

A lot of people get upset about the national debt, which is somewhere between $11 trillion and $16 trillion, depending on whether you include money the government owes itself. Those are big numbers — but if you add up the amount of money that the government is promising to spend for entitlement programs in the future and compare that figure to the amount of revenue that the government projects it will collect for those programs, the cumulative shortfall is more than $100 trillion. And that’s after adjusting for inflation. Some politicians claim this huge, baked-into-the-cake expansion of government isn’t a problem, because we can raise taxes. But that’s exactly what Europe’s welfare states tried — and it didn’t work. Simply stated, even huge tax hikes won’t stem the flow of red ink in the long run if government keeps growing faster than the private economy. This is the fiscal problem that demands attention. Absent real entitlement reform, such as block-granting Medicaid to the states, the burden of government spending will consume ever-larger shares of our economic output with each passing year.

via Explaining in the New York Post that the Fiscal Cliff Is Just a Speed Bump on the Road to a Real Crisis « International Liberty.

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China: Uncertain foundations – FT.com

Simon Rabinovitch at FT writes:

Shadow banking is flourishing in China, helping to make non-bank institutions as big a source of credit as banks themselves since July – something that has never happened before. Chinese bankers, leading rating agencies and the International Monetary Fund have all warned about risks from the surge in loosely regulated lending, with some even pointing to parallels with developed economies before the global financial crisis. But the Chinese government itself has taken a permissive stance.

Highly regulated banks restricted lending to property developers following concerns over a real estate bubble. But regulators turned a blind eye to unregulated shadow lenders who borrow short — normally no more than 3 months — and lend long. They may believe this will sustain economic growth while protecting banks from risky lending. The thinly capitalized sector, however, is at risk from defaults and a consequent liquidity crisis which could spread to the banking sector.

via Uncertain foundations – FT.com.

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IMF: Australia's banks need more capital

The IMF identifies risks to Australia’s banking system:

  • Residential mortgages are banks’ single largest asset, and a combination of high household debt and elevated house prices increases the risk in this portfolio.
  • Banks rely on funding from outside the country, and with the crisis in Europe and the global economy suffering, these funding sources are volatile.
  • Four major banks dominate the banking system, and they share many similarities that can be a cause of risk spreading from one to another in the event of a crisis.

……The four major banks are systemically important which means difficulties in any one of them would have severe repercussions for the financial system and the economy. A higher minimum capital requirement would provide a bigger cushion against potential losses.

Capital ratios may under-state capital requirements through risk-weighting assets. Past performance is not always a good predictor of the future. I prefer FDIC director Thomas Hoenig’s unweighted comparison of tangible assets to tangible equity.

via IMF Survey: Australia’s Banks Sturdy, Closely Connected.

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Ten companies most of S&P 500 Earnings Growth | The Big Picture

Barry Ritholz quotes Adam Parker at Morgan Stanley:

….88% of the S&P500 earnings growth for 2012 came from just 10 firms.

Makes you question whether earnings are sustainable — especially when the four biggest are Apple, AIG, Goldman Sachs, and Bank of America.

via 4 Companies Provided Half of SPX 2012 Earnings Growth | The Big Picture.

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Even without U.S. cliff, world economy teeters | Reuters

Pedro Nicolaci da Costa at Reuters writes:

In the United States, the economy faces growing challenges even without the ongoing political wrangling…….

The coming week brings a slew of reports expected to show the U.S. economy struggling. Data on Friday will likely show employment growth slowed to just 100,000 jobs last month from 171,000 in October, according to a Reuters poll of economists.

U.S. manufacturing data this week is also likely to suggest a fourth-quarter slowdown is at hand.

via Even without U.S. cliff, world economy teeters | Reuters.

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