Author: Colin Twiggs

Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He founded PVT Capital (AFSL number 546090), which provides income and growth strategies to wholesale clients. Colin also co-founded Incredible Charts and writes the popular Patient Investor newsletter. Using a top-down approach, Colin identifies macro trends in the global economy and then combines fundamental and technical analysis to evaluate opportunities in sectors that stand to benefit. 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.
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What to do about the US currency war | Alan Kohler | Business Spectator

Alan Kohler writes about the Fed’s quantitative easing strategy which is effectively debasing the US dollar:

Because it is trying to reduce the world’s reserve currency, the Fed is effectively giving other countries two choices: either allow your currencies to appreciate against the US dollar and thus make your economies less competitive and crunch your export industries, or print money with us and risk (or perhaps guarantee) inflation.

It is a Hobson’s Choice, and like most other countries’ central banks, the Reserve Bank of Australia doesn’t quite know what to do.

The strategy is also debasing the more than $2 trillion of US Treasuries held by China and Japan, placing these Asian exporters in an awkward position. Repatriating their investments would send the dollar plummeting against the yuan and the yen, reversing their export advantage maintained over the last two decades through capital account inflows into US Treasuries. Capital inflows were used to offset the current account outflows and prevented the yen and yuan from appreciating against the dollar. If the flows reverse, the US will enjoy an unfair trade advantage from an under-valued dollar.

Methinks those who predict a globally dominant China with continued growth rates of 7% to 8% are a mite premature. …….Possibly a century or two.

Read more at What to do about the US currency war | Alan Kohler | Commentary | Business Spectator.

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2013 Profit Margin Expectations | Business Insider

Sam Ro writes:

Overall, Wall Street’s strategists are bullish on stocks for 2013 for various reasons.

One reason worth taking a second look at is expanding corporate profit margins, which are already at historic highs.

A slew of experts like GMO’s Jeremy Grantham, SocGen’s Albert Edwards, LPL Financial’s Jeff Kleintop, and John Hussman think these margins are unsustainable.

But the equity analysts and the companies they cover disagree……..

That is the medium-term outlook, but one has to question whether low effective tax rates and low interest rates are sustainable in the long-term. A weaker dollar has also boosted the conversion of offshore earnings but that is a one-off gain unless the dollar continues to weaken.

Read more at 2013 Profit Margin Expectations – Business Insider.

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Google Revenues Sheltered in No-Tax Bermuda Soar to $10 Billion | Bloomberg

Jesse Drucker writes:

Google Inc. (GOOG) avoided about $2 billion in worldwide income taxes in 2011 by shifting $9.8 billion in revenues into a Bermuda shell company, almost double the total from three years before, filings show……

Read more at Google Revenues Sheltered in No-Tax Bermuda Soar to $10 Billion – Bloomberg.

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Pettis: Australia should be pessimistic | MacroBusiness

Michael Pettis writes about the latest Australian government White Paper Australia in the Asian Century that projects an average 7% GDP growth rate for China between 2012 and 2025:

This seems to put the Australian government among the most optimistic in the market when it comes to long-term growth expectations for China. I have always assumed that government projections should generally be on the pessimistic side to prepare for unexpected negative shocks (positive shocks can take care of themselves), but apparently not. I am glad to say that my own conversations with Australian government officials lead me to believe that this White Paper may represent the official view of the government, but it does not represent the private views of all Australian government officials…….

Read more at Pettis: Australia should be pessimistic | MacroBusiness.

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Portuguese drug policy shows that decriminalisation can work, but only with other policies. | EUROPP

Alex Stevens writes on decriminalizing drug use:

International analysis, both by the European Monitoring Centre for Drugs and Drug Addiction (EMCDDA) and in my book Drugs, Crime and Public Health suggests there is little correlation between the level of punishment for drug offences and the rate of drug use or drug problems. The EMCDDA looked at levels of drug use in countries which had increased or decreased penalties for cannabis possession. It found no evidence that increasing penalties reduces use, or that reducing penalties increases it. I looked at the prevalence of drug use across a range of countries. I found no link between the enforcement of drug laws and levels of use.

I did find a suggestive correlation between one of the most harmful forms of drug use, by injection, and the generosity of the welfare state…… Countries with lower levels of pensions, sick pay and unemployment benefit tend to have higher rates of injecting drug use. The USA, for example, has a minimal welfare state and very tough punishments for drug offences. It still has the highest prison population in the world, with nearly half a million people imprisoned for drug offences. But it has internationally high levels of drug use, high rates of drug related deaths, and excessive rates of HIV among injecting drug users.

So to argue that criminal penalties (or their reduction) are the answer to drug problems is to miss the point.

Read his article here Portuguese drug policy shows that decriminalisation can work, but only with other policies. | EUROPP.

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IS STATE INTERVENTION IN THE ECONOMY INEVITABLE? | CIS

Peter Boettke teaches economics at George Mason University. He writes that ongoing economic woes demand drastic reduction in state intervention into free markets:

The great expansion of trade and technology in the twentieth and twenty-first centuries has produced a level of material wealth that enabled the cost of government intervention to be offset, and remain largely hidden to many observers. This possibility is not a new phenomenon. Adam Smith pointed out long ago that the power of self-interest exercised in the market economy is so strong that it can overcome a ‘hundred impertinent obstructions with which the folly of human laws too often encumbers its operations.’ But it is important to stress that the great material progress realised over the past 100 years was not caused by the expansion of state invention into the economy but in spite of those interventions. And the tipping point is when the number of ‘impertinent obstructions’ grow from hundreds to thousands so that the market economy can no longer hide the costs of the folly of human laws.

It is important to distinguish between state intervention in the free market and state regulation of free markets. Regulation is essential for orderly functioning of the market place. Compare the early days of stock exchanges to the benefits of current regulation regarding insider trading, market manipulation and stock flotation. State intervention, on the other hand, is disruptive to the orderly functioning of markets — distorting price signals which can lead to massive imbalances. The most obvious recent example of state intervention is the Fed suppression of interest rates in the early 2000s which led to a massive property bubble and global financial crisis in 2008.

Read the entire article at IS STATE INTERVENTION IN THE ECONOMY INEVITABLE? | CIS.

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We warmed to Gough, even as his grand design crumbled

Amanda Vanstone, former Howard government minister, writes on the 40th anniversary of Gough Whitlam’s government.

For a surprisingly long period there was no effective cabinet, then unsatisfactory cabinet process. It was nothing short of economic chaos, a disaster. It was a reminder to everyone that you can have all the great ideas you want about a better world, but if you do not keep the economy on track your government will fall apart.

via We warmed to Gough, even as his grand design crumbled.

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Libération: "Return of the Mummy"

“Le Retour de la momie” — headline on the cover of left wing French newspaper Libération, heralding Silvio Berlusconi’s bid to seek re-election as Italian prime minister.

See the cover on Business Insider | French Newspaper Headline Sums Up European Reaction To Berlusconi’s Return.

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Phoney recovery?

First signs of recovery after a recession are normally rising earnings, initially from corporate cost-cutting but followed up with rising revenues.

With massive central bank pump priming — referred to by Mark Mobius here — this time may be different. Flows of new money from central bank balance sheet expansion are likely to find their way into the stock market — and even the housing market — driving up prices. But consumption is lagging with slow growth in employment and average wages. With lackluster sales growth, earnings are likely to remain sluggish. Which means inflated stock market valuations and high price-earnings ratios as stocks are driven into over-bought territory. Not a solid foundation for a sustained recovery but another rung up the ladder of risk.

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Mobius: No global recession on the cards

Franklin Templeton’s Mark Mobius sees central bank balance sheet expansion as saving the global economy from recession in 2013.

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