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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Here Comes the Dollar Wave Again | WSJ.com

Wall Street Journal opinion on the impact of QE3 on Asia:

If Asia stays true to form, the world is in for a bout of foreign-exchange interventions — some coordinated, some not — in a quest for stability. Yet these interventions will only encourage greater speculative flows, as some investors start betting on the next policy move. This would be America’s problem, too, given the growing number of American businesses trading with Asia that will grapple with a chaotic exchange-rate system…….

via Review & Outlook: Here Comes the Dollar Wave Again – WSJ.com.

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Washington Inc.

This extract is from a 2011 opinion I wrote titled Has democracy failed us or have we failed it?

Elections are an expensive business and no candidate is likely to achieve re-election without financial backers, making them especially vulnerable to outside influence. The finance industry alone made $63 million in campaign contributions to Federal Candidates during the 2010 electoral cycle, according to the Center for Responsive Politics. That will buy you a lot of influence on the Hill, but is merely the tip of the iceberg. Interest groups spent $3.5 billion in that year on lobbying Congress and federal agencies ($473 million from the finance sector). While that money does not flow directly to candidates it acts as an enticing career path/retirement plan for both Representatives and senior staffers.

The revolving door between Capitol Hill and the big lobbying firms parachutes former elected officials and staffers into jobs as lobbyists, consultants and strategists — while infiltrating their best and brightest into positions within government; a constant exchange of power, influence and money. More than 75 percent of the 363 former senators or representatives end up employed by lobbying firms, either as lobbyists or advisors.

Revolving doors continue to plague Washington and financial market regulators. Enforcing lengthy “restraint of trade” periods between the two roles would restrict this. Preventing politicians from joining lobbying firms for two to three years — and financial regulators from joining Wall Street for a similar period — would reduce the risk of “captive regulators”.

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A Hard Landing Down Under | The Big Picture

Andy Xie has a bearish outlook on China and believes 2013 could be a tough year for Australia:

The market went from not believing in China’s growth story a decade ago to extrapolating past performance into the infinite future……The year 2008 should have been the end of this boom cycle. China’s stimulus misled the market into believing otherwise…..The Australian economy is probably a bubble on top of China’s overinvestment bubble. The latter’s unwinding will sooner or later trigger the former to do so, too…..

via A Hard Landing Down Under | The Big Picture.

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Five steps to fix Wall Street

Some more thoughts on the five steps former FDIC chair Sheila Bair suggested to reform the financial system.

  1. Break up the “too big to fail” banks

    My take is that breaking up may be difficult to achieve politically, but raising capital ratios for banks above a certain threshold would discourage further growth and encourage splintering over time.

  2. Publicly commit to end bailouts

    Just because the bailouts were profitable isn’t a good reason to give Wall Street an indefinite option to “put” its losses to the Treasury and to taxpayers.

    As Joseph Stiglitz points out: the UK did a far better job of making shareholders and management suffer the consequences of their actions. Sweden in the early 1990s, similarly demanded large equity stakes in return for rescuing banks from the financial, leading some to raise capital through the markets rather than accept onerous bailout conditions.

  3. Cap leverage at large financial institutions

    I support Barry Ritholz’ call for a maximum leverage ratio of 10. That should include off-balance sheet and derivative exposure. Currently the Fed only requires a leverage ratio of 20 (5%) for well-capitalized banks — and that excludes off-balance-sheet assets.

  4. End speculation in the credit derivatives market

    Bair pointed out that we don’t get to buy fire insurance on someone else’s house, for a very good reason. How is speculating using credit derivatives any different?

    Again Ritholz makes a good suggestion: regulate credit default swaps (CDS) as insurance products, where buyers are required to demonstrate an insurable interest.

  5. End the revolving door between regulators and banks

    When regulators are conscious that, with one push of the door, they could end up working for the organizations they are today regulating – or vice versa – “it corrupts the mindset”

    A similar revolving door corrupts the relationship between politicians and lobbyists. Enforcing lengthy “restraint of trade” periods between the two roles would restrict this.

via 5 Steps Obama or Romney Must Take to Fix Wall Street.

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Australia: ASX 200 trend channel

The ASX 200 failed to hold on to early gains Monday. Reversal of 21-day Twiggs Money Flow below zero indicates medium-term selling pressure. Expect a test of the lower trend channel. Weakness in US or Asian markets could cause a breach of the 4400 support level, indicating a correction to 4000. Respect of support, however, would indicate a healthy up-trend — and an advance to 4900*.

ASX 200 Index

* Target calculation: 4450 + ( 4450 – 4000 ) = 4900

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Europe: Dax buying pressure

Germany’s Dax continues to test medium-term support at 7200. Respect of support would signal strong accumulation. 13-Week Twiggs Money Flow oscillating above zero indicates buying pressure. Breakout above 7600 would confirm a primary up-trend.

Dow Jones Europe Index

* Target calculation: 7000+ ( 7000 – 6000 ) = 8000

The FTSE 100 (daily chart) is testing support at 5740/5750. Long tails suggest short-term buying pressure but bearish divergence on 21-day Twiggs Money Flow warns of medium-term selling. Breach of support would signal a correction. Breakout above 6000/6100 is unlikely at present, but would offer a long-term target of 6750*.

FTSE 100 Index

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

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Canada: TSX Composite

The TSX Composite Index is consolidating between 12100 and 12800. Another 13-week Twiggs Money Flow trough above zero would signal a primary up-trend.  Breakout above 12500 would strengthen the signal, while follow-through above 12800 would confirm.

TSX Composite Index

* Target calculation: 12750 + ( 12750 – 11200 ) = 14300

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US: Signs a top is forming?

The S&P 500 continues to test support at 1400. Bearish divergence on 63-day Twiggs Momentum warns that a top may be forming. Breach of support would strengthen the signal. The market is currently enjoying the “honeymoon” period in the lead up to the election. Reality is likely to bite after the results are in, as the government deals with some tough choices — like how to create jobs while reducing the budget deficit.

S&P 500 Index
The Dow Jones Industrial Average is similarly testing support at 13000 on the weekly chart. Breach of support — and the primary trendline — would warn that a top is forming. A 13-week Twiggs Money Flow reversal below zero would indicate rising selling pressure, while a trough above the line would suggest another primary advance. Recovery above 13650 is unlikely at present but would confirm an advance.

Dow Jones Industrial Average

* Target calculation: 13000 + ( 13000 – 12000 ) = 14000

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The Keynesian Path to Fiscal Irresponsibility | Dwight R. Lee

With the ideological shift, supported by the intellectual acceptance of Keynes’s General Theory, politicians found themselves with an excuse to do what most had always wanted to do — take more money from the general public and transfer it to favored groups (or voting blocs). The benefits are invariably less than the costs, but they are visible, readily appreciated, and easily credited to politicians. Predictably, beginning in the 1930s federal spending began increasing as a share of GDP. It was about 4 percent of GDP in 1930, increased during the Great Depression and spiked to a historical high of about 47 percent during World War II. The federal government share of GDP then dropped to about 13 percent in 1948, reached a bumpy plateau in the early 1960s at slightly below to slightly above 20 percent that lasted for over 40 years, and then escalated rapidly in late 2008 to an estimated 25 percent in 2011……

The Keynesian Path to Fiscal Irresponsibility | Dwight R. Lee (pdf).

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Australia's cultural revolution

Benjamin Herscovitch writes:

“Any genuine liberal democracy will be multicultural: a commitment to liberal rights and freedoms is counterfeit unless it comes with a commitment to cultural diversity. Beyond a corruption of liberalism, the idea of a monolinguistic and monocultural Australia is only plausible if we deny who we are. Australia is Chinese, Indian and Vietnamese just as it is Irish, English and Italian. Multiculturalism is not a collective aspiration; it is not a policy that can be terminated. It is unapologetically an Australian reality.”

Be careful not to throw the baby out with the bath water. Australia’s strength lies in its core values, many of which stem from its Anglo-Celtic past. One of those strengths is an open society that has successfully integrated successive waves of immigrants into mainstream Australian culture. Our culture has been enriched by the experience.

A unified society requires a cohesive set of values to which everyone subscribes — no matter their ethnic background, language or religion. We should celebrate our ethnic and cultural diversity but not use multiculturalism as an excuse for failing to properly assimilate some minorities. We need to be tolerant of diversity but intolerant of anything that conflicts with our core values of fairness and tolerance. To act otherwise would be simply un-Australian.

A cultural revolution to celebrate | The Centre for Independent Studies.

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