Author: 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.
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Not Exactly a Miracle, but U.S. Debt Levels Are Falling – Floyd Norris – NYTimes.com

Floyd Norris: To get some idea of what needs to be done now — and what the result will be — the McKinsey institute points to two incidents in the early 1990s that got little attention at the time in the United States. Those were the bursting of real estate bubbles in Sweden and Finland. Details differ, but in each country there were two distinct phases of deleveraging.

“In the first,” the McKinsey institute said in an analysis published early this year, “households, corporations and financial institutions reduce debt significantly over several years, while economic growth is negative or minimal and government debt rises.” That is certainly what has happened in the United States.

The second phase is the good part, the institute said. “Growth rebounds and government debt is reduced gradually over several years.”

In this country, the deleveraging process has some way to go, with many foreclosures still pending, but it is at least possible that economic growth is beginning to accelerate. It is clear that the United States has made a lot more progress in cutting consumer debt than has been made in either Britain or Spain, two other countries that suffered from falling real estate prices.

via Not Exactly a Miracle, but U.S. Debt Levels Are Falling – Floyd Norris – NYTimes.com.

Comment:~ Before we congratulate ourselves on escaping from the clutches of the Great Recession, let’s not forget that government debt is growing at an unsustainable rate of $1.2 trillion/year. That is likely to slow sharply after November elections, causing a “double-dip” contraction. The deleveraging process has only just begun.

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Reserve Bank Governor greets Clarke and Dawe ~ ABC 7.30

Glenn Stevens, Governor of the Reserve Bank of Australia, meets Clarke and Dawe and responds to criticism from union leader Paul Howes.

BRYAN DAWE: Mr Howes says the Reserve Bank has the wrong interest rate policy and fears for job in industry.

JOHN CLARKE: Does he? Does he say why?

BRYAN DAWE: He says the cost of Australian goods are too high.

JOHN CLARKE: Is the term “cost of labour” used at any point in his no-doubt-penetrating analysis of what the adults are thinking about in the other room?…..

via 7.30 – ABC.

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Forex: Canadian Loonie and Aussie Dollar

Canada’s Loonie continues its narrow consolidation, having withstood falling crude oil prices over the last two weeks. 63-Day Twiggs Momentum holding above zero indicates a primary up-trend. Breakout above $1.01 would signal a primary advance to the 2011 high of $1.06*. Failure of support at $0.995 is less likely but would warn of a correction to primary support at $0.95.

Canadian Loonie

* Target calculation: 1.01 + ( 1.01 – 0.96 ) = 1.06

Weaker commodity prices are dragging the Aussie Dollar lower. On the weekly chart we can see the Aussie testing medium-term support at $1.02. Respect of the zero line by 63-day Twiggs Momentum suggest a strong up-trend. In the longer term, breakout above $1.085 would offer a target of $1.20*.

Aussie Dollar

* Target calculation: 1.08 + ( 1.08 – 0.96 ) = 1.20

On the daily chart, the Aussie Dollar is testing resistance at $1.045. Breach of its descending trendline indicates that the correction has weakened. Recovery above $1.045 would indicate the start of a fresh advance to test the 2012 high of $1.085.

Aussie Dollar

The Aussie Dollar is also retracing for another test of support against the South African Rand — at R7.90/R8.00. Momentum has fallen sharply and failure of support would warn of a correction to the long-term ascending trendline, around R7.50.

Aussie Dollar/South African Rand

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Forex: Euro, Pound Sterling and Yen

The Euro is consolidating above support at $1.30. Failure would test  primary support at $1.26. A 63-day Twiggs Momentum peak below zero would indicate continuation of the primary down-trend. In the long term, failure of $1.26 would signal a decline to the 2010 low of $1.19/$1.20*.

Euro

* Target calculation: 1.26 – ( 1.34 – 1.26 ) = 1.18

Pound Sterling is consolidating below resistance at $1.60. Upward breakout would indicate an advance to the 2011 high of $1.67 — confirmed if resistance at  $1.62 is penetrated — while failure of short-term support at $1.58 would warn of another test of primary support at $1.53. 63-Day Twiggs Momentum above zero indicates a primary up-trend; but this would only be confirmed by breakout above $1.62.

Pound Sterling

The US Dollar is testing support at ¥80, against the Japanese Yen. Respect is likely and recovery above ¥82 would indicate a fresh primary advance.  Penetration of resistance at ¥84 would confirm the primary up-trend already signaled by 63-day Twiggs Momentum above zero.

Japanese Yen

* Target calculation: 85 + ( 85 – 80 ) = 90

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Crude oil and commodities correction

Brent Crude is headed for a test of medium-term support at $115/barrel. Respect would confirm the strong primary up-trend; strengthened if 63-day Twiggs Momentum forms a trough above the zero line. Breakout above $126 would offer a target of $150/barrel*.

ICE Brent Afternoon Markers

* Target calculation: 125 + ( 125 – 100 ) = 150

The broader CRB Commodities Index broke its long-term rising trendline and is headed for a test of primary support at 295 . Failure would signal a decline to 265*. The 63-day Twiggs Momentum peak below the zero line already indicates continuation of the primary down-trend.

CRB Commodities Index

* Target calculation: 295 – ( 325 – 295 ) = 265

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Gold, Silver and the Dollar

The Dollar Index met strong resistance at 80.00 and is likely to re-test support at 78.00. Upward breakout would signal continuation of the primary up-trend, while failure of support would warn of reversal to a down-trend. In the longer term, breakout above 82.00 would offer a target of 86.00*. Respect of the zero line by 63-day Twiggs Momentum would reinforce the primary up-trend, while breach would indicate a primary down-trend.

US Dollar Index

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

Gold continues to test the long-term trendline at $1600/ounce. 63-Day Twiggs Momentum oscillating around the zero line highlights uncertainty. Failure of support at $1600 would warn that the decade-long up-trend is weakening, while breach of primary support at $1500 would confirm. Recovery above $1700, however, would indicate another test of $1800, suggesting the start of a new up-trend. Breakout above $1800 would confirm, offering a target of $2000/ounce*.

Spot Gold

* Target calculation: 1800 + ( 1800 – 1600 ) = 2000; 1500 – (1800 – 1500 ) = 1200

The Gold Bugs Index, representing un-hedged gold stocks, is already in a primary down-trend, suggesting that spot prices are likely to follow. Peaks below zero on 63-day Twiggs Momentum also indicate a strong down-trend.

Gold Bugs Index

Spot silver is also in a primary down-trend, having encountered strong resistance at $36/ounce. A medium-term descending triangle warns of further weakness. Failure of primary support at $26 would indicate a decline to $20*.

Silver

* Target calculation: 27.50 – (35 – 27.50 ) = 20

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End of the Age of Entitlement | Joe Hockey

THE END OF THE AGE OF ENTITLEMENT

JOE HOCKEY’S SPEECH TO THE INSTITUTE OF ECONOMIC AFFAIRS, LONDON

…Let me put it to you this way: The Age of Entitlement is over.

We should not take this as cause for despair. It is our market based economies which have forced this change on unwilling participants.

What we have seen is that the market is mandating policy changes that common sense and years of lectures from small government advocates have failed to achieve.

via The Age of Entitlement | Institute of Economic Affairs.

Hat tip to Houses and Holes

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Trading Volatility, How to Beat the Stock Market at its Own Game :: The Market Oracle

A 2011 study from DALBAR, a Boston-based research firm, shows that investors achieved a mere 41.9% of the S&P 500’s performance over the 20 years ended December 31, 2010.

In other words, investors left 58.1% on the table.

The DALBAR study also shows that the average investor achieved only 3.8% a year versus the 9.1% annualized returns of the S&P 500 because they tended to jump in and out of the markets at the worst possible moments.

Adding insult to financial injury, Berkeley Finance Professor Terrance Odean’s analysis of more than 10,000 retail brokerage accounts shows that the stocks investors sell tend to outperform the ones they buy.

In fact, Odean found that winning stocks went on to gain an average of 3.4 percentage points more in the year after they were sold than the losers to which investors clung.

via Trading Volatility, How to Beat the Stock Market at its Own Game :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website.

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Sowing Seeds of the Next Major Crisis – WSJ News Hub

Francesco Guerrera: “Prolonged intervention by the authorities is creating fundamental distortions in the financial markets. They are in my view going to create the next crisis.”

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John Mauldin: Hoisington Q1 Review and Outlook

John Mauldin: Lacy Hunt kicks things off with a bang in Hoisington’s Quarterly Review and Outlook, this week’s Outside the Box:

“The standard of living of the average American continues to fall.”

The reason, in a word: debt. Lacy explains what happens:
“Efforts by fiscal and monetary authorities to sustain growth by further debt accumulation may produce some short-term benefit. Sadly, these interludes fade quickly as the debt becomes more destabilizing. The net result of increased indebtedness then becomes the opposite of what policymakers intend when they promote economic growth by either borrowing funds for increased government expenditures or encourage consumers to borrow with artificial and temporary incentives.”

In other words, you can’t get to real, sustained growth of an economy by growing debt after a certain point — one that, sadly, we have already reached.

John Mauldin: Hoisington Q1 Review and Outlook.

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