Colin Twiggs, Author at the patient investor

December 17, 2012

Asia: China rally

China’s Shanghai Composite Index is testing resistance at 2150. While a large correction — signaled by breakout above 2150 — is not a reliable reversal signal, it does indicate that a bottom is forming. Bullish divergence on 63-day Twiggs Momentum also suggests a reversal. But only a higher trough followed by a new high on the index chart would confirm.

Shanghai Composite Index

India’s Sensex is consolidating in a narrow range below 19500. Breakout is likely and would indicate an advance to 20000*. Oscillation of 13-week Twiggs Money Flow above zero indicates long-term buying pressure, but bearish divergence warns of medium-term resistance. Reversal below 19000 is unlikely but would warn that the advance is losing momentum.

Sensex Index

* Target calculation: 19 + ( 19 – 18 ) = 20

Japan’s Nikkei 225 Index is advancing to resistance at 10000/10200*. Rising 63-day Twiggs Momentum indicates buying pressure; look for a trough above zero to confirm.

Nikkei 225 Index

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

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 17, 2012

DAX breakout

DAX follow-through above 7600 would confirm its earlier (7500) breakout signal for a primary advance. One concern: 13-week Twiggs Money Flow is lagging. This may be due to resistance at the 2011 high, but a lower TMO peak would warn of a reversal.

DAX Index

* Target calculation: 7500 + ( 7500 – 7000 ) = 8000

The FTSE 100 is testing long-term resistance at 6000/6100 but 13-week Twiggs Money Flow, again lagging, warns of selling pressure. Respect of resistance would re-test support at 5600, while breakout would offer an initial target of 6400; long-term 6750*.

FTSE 100 Index

* Target calculation: 6000 + ( 6000 – 5250 ) = 6750

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 16, 2012

Canada: TSX Composite approaches 12500

The TSX Composite continues to range between 11200 and 12800, but 13-week Twiggs Money Flow oscillating above zero reflects long-term buying pressure. Breakout above 12500 would signal a primary advance, while follow-through above 12800 would confirm, offering a target of 14000*.

TSX Composite Index

* Target calculation: 12500 + ( 12500 – 11000 ) = 14000

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 16, 2012

S&P 500 retraces

The S&P 500 is retracing to test medium-term support at 1400 on the daily chart. Respect would signal an advance to 1475, while failure would indicate a test of primary support at 1350. Reversal of 21-day Twiggs Money Flow below zero would warn of selling pressure, but a higher trough (above/below zero) would suggest continuation of the advance to 1475.

S&P 500 Index

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 15, 2012

Australia: Negative gearing and its impact on the housing market | RP Data Research Blog

Cameron Kusher extends the following argument in favor of negative gearing:

Many in favour of removing negative gearing from property say that it should occur due to the fact that housing is an unproductive asset class. My argument is that given that housing provides shelter, if investors don’t purchase these assets, it would then be the responsibility of the Government to provide this shelter. Ultimately, that would mean that anyone that pays taxes would be funding housing for those who can’t afford it themselves.

What happened to individuals being responsible for their own housing? A large part of rental demand is due to poor housing affordability. If we made housing more affordable, the rental market would shrink.

Kusher highlights that in September 1985 the government quarantined negative gearing interest expenses on new transactions.

The reason why negative gearing was reinstated in September 1987 was that it was proclaimed that rents rose sharply on the back of a fall in housing market investment.

The following chart shows that rental growth accelerated between September 1985 and September 1987:

But no explanation is given for the earlier peak in rental growth rates — 13% in 1982 — prior to restrictions on negative gearing.

And what is not mentioned is that interest rates were rising. Standard variable bank mortgage rates peaked at 15.5% in 1986/1987. That would account for any decline in new housing investment, even though this is not evident from investor finance commitments.

via Negative gearing and its impact on the housing market | RP Data Research Blog.

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 14, 2012

The Alarming Corruption of the Think Tanks

Bruce Bartlett writes:

Rather than being institutions for scholarship and research, often employing people with advanced degrees in specialized fields, think tanks are becoming more like lobbying and public relations companies. Increasingly, their output involves advertising and grassroots political operations rather than books and studies. They are also becoming more closely allied with political parties and members of Congress, to whom they have become virtual adjuncts.

Historically, think tanks like the Brookings Institution were universities without teaching. Indeed, Brookings was originally established as a university and it still has a dot-edu web address. Its goal was to bridge the gap between academia and the policymaking establishment.

In the 1970s, this model began to change with the founding of the Heritage Foundation. Unlike Brookings, Heritage was not especially interested in research; its goal was to directly influence policy, especially on Capitol Hill……

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 14, 2012March 22, 2021

Productivity: Ireland leads the way

Ireland now leads the United States in labor productivity as measured by GDP (converted to USD after adjusting for purchasing power parity) to hours worked by the workforce. Mark Cassidy writes on Ireland’s strong productivity growth during the 1990s:

Strong productivity growth during this period was largely driven by substantial foreign direct investment inflows from the United States and sectoral change in industry — i.e. a continuing shift of capital and labour from agriculture and relatively low productivity manufacturing towards high-technology sectors including chemicals and ICT sectors — and was facilitated by macro and micro-economic reforms implemented since the late 1980s, favourable exchange rate and international economic developments, increased European integration and the availability of a young, relatively well-educated workforce.

Two factors stand out:

Ireland joined the euro-zone on its official launch in January 1999;
The Irish government is committed to a 12.5% corporate tax regime, among the lowest in Europe.

Removal of trade barriers and favorable tax rates attracted large investment in high-tech manufacturing, primarily from the United States.

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 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

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 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.

Index

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.

Index

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.

Index

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.

Index

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.