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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For Superfast Stock Traders, a Way to Jump Ahead in Line – WSJ.com

By SCOTT PATTERSON and JENNY STRASBURG

Haim Bodek was a Wall Street insider at Goldman Sachs and UBS before launching his own [high-frequency] trading firm.

Mr. Bodek approached the Securities and Exchange Commission last year alleging that stock exchanges, in a race for more revenue, had worked with rapid-fire trading firms to give them an unfair edge over everyday investors.

He became convinced exchanges were providing such an edge after he says he was offered one himself when he ran a high-speed trading firm—a way to place orders that can be filled ahead of others placed earlier. The key: a kind of order called “Hide Not Slide”………

via For Superfast Stock Traders, a Way to Jump Ahead in Line – WSJ.com.

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How to keep markets safe in the era of high-speed trading | Chicago Fed

By Carol Clark

With the chance of an order passing though controls at so many levels, how can things go wrong? One possibility Chicago Fed researchers found is that most of the trading firms interviewed that build their own trading systems apply fewer pre-trade checks to some trading strategies than others. Trading firms explained that they do this in order to reduce latency.

Another area of concern is that some firms do not have stringent processes for the development, testing, and deployment of code used in their trading algorithms. For example, a few trading firms interviewed said they deploy new trading strategies quickly by tweaking old code and placing it into production in a matter of minutes. In fact, one firm interviewed had two incidents of out-of-control algorithms. To address the first occurrence, the firm added additional pre-trade risk checks. The second out-of-control algorithm was caused by a software bug that was introduced as a result of someone fixing the error code that caused the first situation.

The study also found that erroneous orders may not be stopped by some clearing BDs/FCMs because they are relying solely on risk controls set by the exchange. As noted earlier, however, risk controls at the exchange may be structured in such a way that they do not stop all erroneous orders.

via Chicago Fed Letter (PDF)

BD = broker-dealer

FCM = futures commission merchant

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Japan Eases Monetary Policy in Surprise Move – WSJ.com

By MEGUMI FUJIKAWA And TATSUO ITO

TOKYO—The Bank of Japan took surprisingly strong steps to further ease its monetary policy on Wednesday, following similar steps by the Federal Reserve, as it tries to tackle entrenched deflation, an export-sapping strong yen and the impact of slowing global growth.

The central bank’s policy board decided at the end of a two-day meeting to increase the size of its asset-purchase program—the main tool for monetary easing with near-zero interest rates—to ¥80 trillion ($1.01 trillion) from ¥70 trillion.

via Japan Eases Monetary Policy in Surprise Move – WSJ.com.

Competitive devaluations, started by the ECB and followed by the Fed, PBOC and BOJ. Let the fun begin!

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Australia: ASX 200 rising

Short bars on the S&P 500 retracement are a bullish sign, respect of short-term support at 1450 would suggest a strong advance.

The ASX 200 is strengthening in sympathy, despite poor performance of Chinese markets.  Breakout above 4400 would strengthen the primary up-trend signal, from rising 63-day Twiggs Momentum. Follow-through above 4450 would confirm.

ASX 200 Index

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

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Asia Update

Dow Jones China index is retracing to test primary support at 245. Declining 63-day Twiggs Momentum, below zero, continues to indicate a primary down-trend. Failure of support would offer a target of 200*.

Dow Jones China Broad Index

* Target calculation: 250 – ( 300 – 250 ) = 200

Hong Kong’s Hang Seng penetrated the descending trendline at 22000, indicating an advance to 22000. Recovery of 63-day Twiggs Momentum above zero suggests a primary up-trend. Breakout above 22000 would confirm.

Hang Seng Index

India’s Sensex broke through 18500, confirming the primary up-trend. The trough above zero on 13-week Twiggs Money Flow indicates buying pressure. Expect retracement to test the new support level.

Sensex Index

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

Singapore’s Straits Times Index respected support at 3000. Rising 63-day Twiggs Momentum, above zero, indicates a primary up-trend.  Follow-through above 3100 would indicate an advance to 3300*.

Singapore Straits Times Index

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

Japan’s Nikkei 225 is testing resistance at 9200. Breakout would signal a primary advance to 10200. Recovery of 13-week Twiggs Money Flow above zero indicates rising buying pressure.

Nikkei 225 Index

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

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Job Creators in Chief | Global Macro Monitor

By Global Macro Monitor

Let us begin by saying we don’t like the title of this post and believe it is misleading.

The President cannot, in our opinion, directly create permanent jobs in the private sector. Of course, he can hire federal workers and/or direct taxpayer funds to, say, defense or infrastructure projects, which creates, though temporary, a derived demand for labor. More important, however, is the administration’s policies that incentivize private sector hiring through creating an environment that empowers businesses and entrepreneurs and gives them confidence to expand capacity.

….In the short term, however, quantitative easing and negative real interest rates can generate asset bubbles, which can affect the real economy and hiring. But the experience of the collapse of two major bubbles in just a little over a decade illustrates there is always pay back and the monetary induced artificial boom will eventually turn to bust.

via Global Macro Monitor | Monitoring the Global Economy.

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“This is No Way to Run a Government!” – Gates | The Fiscal Times

By JOSH BOAK

Nothing has stumped Gates [former Secretary of Defense and CIA director Bob Gates — who served eight of the last nine presidents], who oversaw the $700 billion military budget until last year, quite like the country’s current Congressional gridlock and the government’s ineffective efforts to stop runaway deficit spending.

“We’ve lost the ability to execute even the most basic functions of government,” he said.

via “This is No Way to Run a Government!” – Gates | The Fiscal Times.

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Why is China afraid of the Louisiana Purchase? | Foreign Policy

By Joshua Keating

The buying and selling of territory between states is a lot less common than it was in the days when European powers held vast overseas empires and there was significantly more terra nullius to be claimed….

On the other hand, given how many territorial disputes China is involved in at the moment, a study of how these conflicts have been resolved peacably in the past might not be a terrible idea.

via Why is China afraid of the Louisiana Purchase? | FP Passport.

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Dangerous Waters | Foreign Policy

BY STEPHANIE KLEINE-AHLBRANDT

The wave of anti-Japanese protests that swept across dozens of cities in China this weekend, prompted by Tokyo’s purchase of three disputed islands, has obscured a potentially more worrying development that risks drawing the two countries into a larger conflict: China’s adoption of a legal framework empowering it to expel foreign vessels in disputed waters in the East China Sea.

……More frequent Chinese patrols in the area, along with the Japanese Coast Guard continuing to patrol near the islands, raises the risk of maritime clashes higher than it has ever been. Although the two countries have dealt with past run-ins — such as when the Japanese Coast Guard arrested a Chinese skipper in 2010 after his boat collided with a Japanese vessel — and succeeded in cooling tensions, the current situation is of a different order. That act could be attributed to an overzealous Chinese fisherman. But now, a skirmish between official law enforcement vessels in the current context could prove irresolvable.

via Dangerous Waters – By Stephanie Kleine-Ahlbrandt | Foreign Policy.

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