Colin Twiggs, Author at the patient investor

November 14, 2012

Back to Basics: A Better Alternative to Basel Capital Rules | Thomas M. Hoenig

FDIC Director Thomas Hoenig calls for a simple capital ratio of Tangible Equity/Tangible Assets instead of the complex measures proposed by Basel III. Using Tier 1 capital measured according to Basel III standards overstates tangible equity capital by about 40 percent and using risk-weighted assets makes capital adequacy ratios even more subjective.

Prior to the founding of the Federal Reserve System in 1913 and the Federal Deposit Insurance Corporation in 1933, bank equity levels were primarily market driven. In this period the U.S. banking industry’s ratio of tangible equity to assets ranged between 13 and 16 percent, regardless of bank size……..

[Basel capital standards] led to a systematic decline in bank capital levels. Between 1999 and 2007, for example, the industry’s tangible equity to tangible asset ratio declined from 5.2 percent to 3.8 percent, and for the 10 largest banking firms it was only 2.8 percent in 2007. More incredible still is the fact that these 10 largest firms’ total risk-based capital ratio remained relatively high at around 11 percent, achieved by shrinking assets using ever more favorable risk weights to adjust the regulatory balance sheet.

via FDIC: Speeches & Testimony – 9/14/2012.

Hat tip to Barry Ritholz.

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.

November 13, 2012

Larry Elder | Is the US becoming a food stamp nation?

Larry Kudlow interviews Larry Elder: Is there a future for free markets?

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“We are at the point where almost 50 percent of voters can go into that voting booth and pull the lever to vote themselves a raise….”

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.

November 13, 2012

Richard Fisher | Politicians need to get their act together

Texas Fed President, Richard Fisher believes fiscal authorities need to get their act together. “There is a limit to what we can do. We can’t have a Buzz Lightyear monetary policy: to infinity and beyond.”

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Fisher’s frustration with Washington is hard to miss:

“We have to completely reboot tax policy. We need to completely reboot spending policy……..This is all about job creation…..We have to build confidence in the business community, who are the job creators. And until we give them some clarity, they are just going to hold back. If we have temporary fixes to the fiscal cliff this just pushes out the envelope of indecision…… Just get the job done. Give the business community and those who employ people — the private sector — a sense of direction and confidence. Right now they know nothing. They don’t know what their taxes are going to be. They don’t know what spending patterns are going to be. They don’t know what the costs of these massive regulatory initiatives are going to be…. No business can plan right now…..”

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.

November 13, 2012

Australia: Not fiscal cliff — fiscal flab

Jessica Irvine writes that Australia is faced with an aging population and spiraling health costs, but a free-spending government will leave us unprepared.

Two veteran Budget forecasting groups, Deloitte Access Economics and Macroeconomics, have in recent days delivered their verdict on Mr Swan’s mid-year Budget update: It’s codswallop. The Federal Budget is not in surplus by $1.1 billion this year but in deficit by $4.2 billion, according to Deloitte, and $7 billion, according to Macroeconomics…..

via We're afflicted with the same fiscal flab most governments struggle with | thetelegraph.com.au.

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.

November 13, 2012

President Obama Has Drawn A Dangerous Line In The Sand – Business Insider

Bruce Krating’s analysis of the fiscal cliff stoush:

The headlines make it seem like B&O are ready to work together, and achieve the necessary compromises to avoid falling off a cliff. I think the press has it wrong. We’re headed into a bitter fight; in part, because the President has drawn a very dangerous line in the sand…..

via President Obama's Has Drawn A Dangerous Line In The Sand – 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.

November 13, 2012

Jan Hatzius Connects All the Dots | Business Insider

Important insight from Jan Hatzius at Goldman Sachs, reported by Cullen Roche:

The US private sector continues to run a large financial surplus of 5.5% of GDP, more than 3 percentage points above the historical average. This is the flip side of the deleveraging of private sector balance sheet. We expect a normalization in this surplus over the next few years to provide a boost to real GDP growth. This is the key reason why we see US economic growth picking up gradually in the course of 2013 and into 2014, despite the near-term downside risks from the increase in fiscal restraint……..

via Jan Hatzius Connects All the Dots – 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.

November 13, 2012

Stopping the Runaway Train: The Case for Privatizing Amtrak | Randal O'Toole | Cato Institute

Interesting analysis by Randal O’Toole on the future of Amtrak:

When Congress created Amtrak in 1970, passenger-rail advocates hoped that it would become an efficient and attractive mode of travel. More than 40 years of Amtrak operations have disappointed them, as Amtrak has become the highest-cost mode of intercity travel and remains an insignificant player in the nation’s transportation system. Nationally, average Amtrak fares are more than twice as much, per passenger mile, as airfares. Despite these high fares, per-passenger-mile subsidies to Amtrak are nearly nine times as much as subsidies to airlines, and more than 20 times as much as subsidies to driving. When fares and subsidies are combined, Amtrak’s costs per passenger mile are nearly four times as great as airline costs…….

via Stopping the Runaway Train: The Case for Privatizing Amtrak | Randal O’Toole | Cato Institute: Policy Analysis.

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.

November 13, 2012

Asia: India strong, China & Japan weaken

India’s Sensex continues to hold above 18500, suggesting a healthy up-trend. Rising troughs above zero on 13-week Twiggs Money Flow indicate buying pressure. Breakout above 19000 would signal an advance to 21000*.

Sensex Index

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

Singapore’s Straits Times Index continues to test support at 3000. Breach of 2950 would test the lower trend channel, while breakout above 3100 would indicate an advance to 3300*. Oscillation of 63-day Twiggs Momentum around zero would reflect a ranging market.

Singapore Straits Times Index

* Target calculation: 3000 + ( 3000 – 2700 ) = 3300

Japan’s Nikkei 225 is headed for another test of medium-term support at 8450 after latest economic numbers warn of a contraction. Failure would test primary support at 8200. Oscillation of 13-week Twiggs Money Flow largely below zero indicates selling pressure. Breach of 8200 would signal a decline to 7200*.

Nikkei 225 Index

* Target calculation: 8200 – ( 9200 – 8200 ) = 7200

South Korea’s Seoul Composite Index is testing medium-term support at 1880 but rising 13-week Twiggs Money Flow reflects buying pressure. Recovery above 1960 would test this year’s high at 2060.

Seoul Composite Index

China’s Dow Jones Shanghai Index is testing primary support at 250. Breakout would offer a target of 225*. Oscillation of 63-day Twiggs Momentum below zero reflects a primary down-trend.

Dow Jones Shanghai Index

* Target calculation: 250 – ( 275 – 250 ) = 225

Rising 13-week Twiggs Money Flow above zero indicates strong buying pressure on the Hang Seng Index. Breakout above 22000 would signal an advance to 24000*. A test of the rising trendline is still a possibility, but a correction that respects support at 20000 would still reflect a healthy up-trend.

Hang Seng Index

* Target calculation: 22 + ( 22 – 20 ) = 24

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.

November 13, 2012

China – Hong Kong divergence

Divergence between the Shanghai Composite Index and Hong Kong’s Hang Seng Index is apparent over the last 12 months, with Hong Kong rebounding while Shanghai weakens.

Shanghai Composite Index and Hong Kong's Hang Seng Index

With no major changes in the HKDCNY exchange rate, to me this reflects political and economic instability on the mainland.

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.