Colin Twiggs, Author at the patient investor

July 26, 2012

Terms of trade taking a hammering | | MacroBusiness

As predicted, coking coal is now breaking down in sympathy with iron ore. …..That’s 10% in two weeks. Thermal coal is down 10% in two months. Ore is now down over 20% in two months. These three commodities make up 50% of the [Australian] terms of trade.

via Terms of trade taking a hammering | | MacroBusiness.

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.

July 26, 2012

Dollar and gold strengthen

The US Dollar Index broke resistance at 83.50, signaling continuation of the primary advance to the 2010 high at 88.50, with an interim target of 86.00*. 63-Day Twiggs Momentum oscillating above zero reinforces the up-trend.

US Dollar Index

* Target calculation: 82 + ( 82 – 78 ) = 86

Spot Gold shows strong support at $1530 per ounce and penetration of the descending trendline now suggests that a bottom is forming — possibly in anticipation of further QE by the Fed. 63-Day Twiggs Momentum below zero continues to warn of a primary down-trend, while recovery above zero would confirm that a bottom is forming. Breakout below primary support at $1530 would offer a target of $1300*; recovery above $1640 would indicate a new up-trend.

Spot Gold

* Target calculation: 1550 – ( 1800 – 1550 ) = 1300

Spot Silver is weaker and continues to test primary support at $26 per ounce. Failure would offer a target of $16*.

Spot Silver

* Target calculation: 26 – ( 36 – 26 ) = 16

The CRB Commodities Index is testing its descending trendline. Breakout would warn that the down-trend is ending, but reversal below 295 would suggest another test of 265. The S&P 500 is likely to follow commodities lower.

CRB Commodities Index

* Target calculation: 265 – ( 305 – 265 ) = 225

Brent Crude has already penetrated its descending trendline, suggesting that a bottom is forming, but 63-day Twiggs Momentum continues to indicate a primary down-trend. A peak below zero would signal a primary decline to $75 per barrel*.

Brent Crude and Nymex WTI Light Crude

* Target calculation: 100 – ( 125 – 100 ) = 75

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.

July 25, 2012

McDonald’s Sees Downbeat Consumers World-Wide – Real Time Economics – WSJ

“This is one the first times where we have seen it [consumer confidence issues] in a much broader-based perspective. It’s a little bit more than a European cold.” CFO Peter Bensen added, “The magnitude of the issues in Europe are having ripple effects around the world,” hurting consumer confidence and causing fewer people to eat out.

via McDonald’s Sees Downbeat Consumers World-Wide – Real Time Economics – WSJ.

Comment:~ McDonald’s are a worldwide barometer of consumer spending. When they report a broad decline in sales, we should expect an economic down-turn.

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.

July 25, 2012

Benoît Cœuré: Short-term crisis management and long-term vision – how Europe responds to the crisis

Interesting to get a view from within the ECB as to the state of the euro-zone crisis.

Benoît Coeuré, Member of the Executive Board of the European Central Bank:
On 29 June, the Euro Summit took a further series of steps to strengthen crisis management. They agreed that loans to Spain as part of its bank recapitalisation programme would not have a senior status, removing a key concern for investors about the programme and their continued purchases of Spanish government debt. They committed themselves to use the full range of EFSF and ESM instruments in a flexible and efficient manner. And most importantly, they decided that the ESM should have the ability to recapitalise banks directly, once a single supervisory mechanism is in place involving the ECB. These are all very significant developments. Let me elaborate.

First, the possibility for direct bank recapitalisation by the ESM is crucial to break the vicious circle between banks and their sovereigns that is at the heart of the crisis. It would allow for banks to be stabilised without increasing the debt level of the sovereign, thereby avoiding further damage to sovereign debt markets and banks’ balance sheets. This would move the euro area closer to the type of financial union we see in federations like the U.S. or Switzerland, where banking sector problems are dealt with at the federal level and have no implications on the finances of the federated units…..

via Bank for International Settlements >> Benoît Cœuré: Short-term crisis management and long-term vision – how Europe responds to the crisis.

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.

July 24, 2012

Christian Noyer: Monetizing public debt

Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the BIS: Some central banks have developed large-scale public debt acquisition programmes. They have done so for reasons relating to immediate macroeconomic stabilisation… to go beyond the zero-interest rate limit. The Eurosystem as well intervened on a much smaller scale when malfunctioning debt markets prevented the effective transmission of monetary policy impulses. There is not a single central bank that is seriously considering the monetisation of deficits with the more or less declared intention of reducing the weight of debt via inflation. In my view, this notion is nothing more than a financial analyst’s fantasy.

via Christian Noyer: Public and private debt – imbalances of global savings.
Comment:~ No central bank has declared an intention to monetize public debt (or deficits) — reducing public debt via inflation — but without a viable alternative how many will end up there? Gary Shilling points out that “competitive quantitative easing by central banks is now the order of the day.” The Bank of Japan last year “expanded its balance sheet by 11 percent, while the Federal Reserve’s increased 19 percent, the European Central Bank’s rose 36 percent and the Swiss National Bank’s grew 33 percent.” Japan, after 20 years of stagnation and with net public debt at 113% of GDP, illustrates the predicament facing many developed countries. If there was a plan B they would have tried it by 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.

July 24, 2012

Christian Noyer: Public and private debt – imbalances of global savings

Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the BIS: My first remark….. In advanced countries, the average public debt to GNP ratio is 100%. In emerging countries, the figure is 30%. This is a very wide gap, and it represents one of the global economy’s largest imbalances. And one of the least mentioned. It also represents a complete reversal of the situation compared with just over twenty years ago…..
Second remark, global demand is still fairly concentrated on the advanced countries. Not only is their debt higher, but their savings (as a ratio of GNP) are lower. The G7 countries alone still account for 56% of global consumption. The problem is clear. How can we hope to raise our level of consumption if we need to reduce our level of debt and increase our savings? And if the advanced countries’ consumption stops growing, what will happen to global economic growth and particularly that of emerging countries with entirely export-oriented economies?

via Christian Noyer: Public and private debt – imbalances of global savings.

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.

July 24, 2012

Falling Treasury yields: Money is flowing out of stocks

Retracement of 10-Year Treasury yields respected the new resistance level after breaking support at 1.45 percent, signaling a decline to 1.20 percent*. There has been little change in Fed holdings over the past week that could distort bond flows. Declining yields reflect investors leaving stocks for the safety of bonds and warn of a stock market correction. Recovery above 1.70 percent is most unlikely– without QE3 — but would suggest another stock market rally.

10-Year Treasury Yields

* Target calculation: 1.45 – ( 1.70 – 1.45 ) = 1.20

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.

July 24, 2012

Free steak knives with your boom! | | MacroBusiness

Houses and Holes: Thermal coal is already at a price that is uneconomic for many mines and if iron ore were to settle in the $110 region, which is my call, then the margins for many an iron ore hopeful are looking suddenly thin too. If this keeps up for a few months then the next phase of the boom for Australia is pulled capex.

via Free steak knives with your boom! | | MacroBusiness.

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.

July 23, 2012

7-23 – The Housing “Supply” I See | Hanson Advisers

Bottom line: In order to permanently de-lever this housing market something must be done to address the 20 to 30 million homeowners in a negative or “effective” (lacking the equity to pay a Realtor 6% and put 20% down on a new house) negative equity position; with 2nd liens; and without the credit needed to qualify for a new vintage loan. That’s because repeat buyers are the “durable” demand cohort; not first-timer buyers and “investors” who come and go with the stimulus wind like we saw in 2010 and will again in the second half of this year.

via 7-23 – The Housing “Supply” I See | Hanson Advisers.

Hat tip to Barry Ritholz

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.

July 23, 2012

Hong Kong & China

The Hang Seng dropped 3 percent Monday, testing medium-term support at 19000. Failure of support would warn of a decline to 16000*. 63-Day Twiggs Momentum below zero already suggests a primary down-trend. Breach of primary support at 18000 would confirm.

Hang Seng Index

* Target calculation: 18000 – ( 20000 – 18000 ) = 16000

With the Shanghai Composite in a primary down-trend, all we need is for the Shenzhen Index to break support at 880 to complete the trifecta. A peak below zero on 63-day Twiggs Momentum already warns of a primary down-trend.

Shenzhen Composite Index

* Target calculation: 900 – ( 1000 – 900 ) = 800

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.