Author: Colin Twiggs

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EconoMonitor » All Feasts Must Come to an End: China’s Debt & Investment Fuelled Growth

Satyajit Das: New lending by Chinese banks in 2009 and 2010 was around 40% of GDP. New bank loans in 2009 and 2010 totalled around $1.1-1.4 trillion, an increase from $740 billion in 2008. Total outstanding loans in the economy have jumped by nearly 50 per cent over the past two years.

Around 90% of this lending was directed towards investment in building, plant, machinery and infrastructure by State Owned Enterprises (“SOE”). In 2010, China allocated over $2.6 trillion to investment expenditure – the highest proportion of GDP of any major economy in the world. According to the World Bank, almost all of China’s growth since 2008 has come from “government influenced expenditure”.

via EconoMonitor : EconoMonitor » All Feasts Must Come to an End: China’s Debt & Investment Fuelled Growth, Part 1.

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EconoMonitor » A Colossal Mistake of Historic Proportions: The “JOBS” Bill

Simon Johnson: Professor John Coates hit the nail on the head:

“While the various proposals being considered have been characterized as promoting jobs and economic growth by reducing regulatory burdens and costs, it is better to understand them as changing, in similar ways, the balance that existing securities laws and regulations have struck between the transaction costs of raising capital, on the one hand, and the combined costs of fraud risk and asymmetric and unverifiable information, on the other hand.”

In other words, you will be ripped off more. Knowing this, any smart investor will want to be better compensated for investing in a particular firm – this raises, not lowers, the cost of capital. The effect on job creation is likely to be negative, not positive.

via EconoMonitor : EconoMonitor » A Colossal Mistake of Historic Proportions: The “JOBS” Bill.

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Nouriel Roubini's Global EconoMonitor » Scary Oil

Nouriel Roubini: The last three global recessions (prior to 2008) were each caused by a geopolitical shock in the Middle East that led to a sharp spike in oil prices. The 1973 Yom Kippur War between Israel and the Arab states led to global stagflation (recession and inflation) in 1974-1975. The Iranian revolution in 1979 led to global stagflation in 1980-1982. And Iraq’s invasion of Kuwait in the summer of 1990 led to the global recession of 1990-1991.

Even the recent global recession, though triggered by a financial crisis, was exacerbated by spiking oil prices in 2008. With the barrel price reaching $145 in July of that year, oil-importing advanced economies and emerging markets alike faced a recessionary tipping point.

……..Oil is already well above $100/barrel, despite weak economic growth in advanced countries and many emerging markets. The fear premium might push prices significantly higher, even if no military conflict ultimately takes place, and could trigger a global recession if one does.

via EconoMonitor : Nouriel Roubini’s Global EconoMonitor » Scary Oil.

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Europe follows through

Dow Jones Europe Index followed through above Friday’s high of 262, confirming the breakout and signaling a primary advance to 310*. Rising 21-day Twiggs Momentum signals a strong trend. Immediate target for the breakout is 270, then expect further retracement to test the new (260) support level.

Dow Jones Europe Index

* Target calculation: 260 + ( 260 – 250 ) = 270;  260 + ( 260 – 210 ) = 310

The Hourly chart gives a more detailed perspective, with a sharp fall to test support at 260 followed by a surge through resistance at 262. 24-Hour Twiggs Momentum holding above zero reflects a healthy (secondary/medium-term) rally.

Dow Jones Europe Index Hourly Chart

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Selling pressure warns of correction

Medium-term selling pressure, signaled by bearish divergence on 21-day Twiggs Money Flow, continues to warn of a correction in US and Asia-Pacific markets. The Dow Jones TSM (formerly “Wilshire”) Asia-Pacific Index displays a bearish divergence since mid-February. Reversal below 1280 would confirm a correction.

Dow Jones TSM Asia-Pacific Index

Dow Jones Industrial Average shows a similar bearish divergence, though the latest down-turn was exaggerated by triple-witching hour [TW] on Friday. Reversal below 12750 would confirm a correction.

Dow Jones Industrial Average

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Australia: ASX 200

The ASX 200 continues in a narrow consolidation between 4300 and 4150, indicating uncertainty. Rising 13-week Twiggs Money Flow is a positive sign and recovery above 10% would suggest a primary up-trend. Breakout above 4300 would likewise suggest an up-trend, while follow-through above 4400 would confirm.

ASX 200 Index

* Target calculation: 4400 + ( 4400 – 3800 ) = 5000

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Hong Kong & China

Hong Kong’s Hang Seng Index is in a primary up-trend. Having retraced briefly, it appears to have found support at 21000. Recovery above 21500 would signal an advance to 22500*.

Hang Seng Index

* Target calculation: 20000 + ( 20000 – 17500 ) = 22500

The Shanghai Composite Index, however, remains in a primary down-trend. Breakout above 2500 would, however, suggest that the trend is weakening. Respect of support at 2300 would suggest reversal to a primary up-trend, while failure of support would warn of another decline.

Shanghai Composite Index

* Target calculation: 2100 – ( 2500 – 2100 ) = 1700

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Japan & South Korea

Japan’s Nikkei 225 Index broke through resistance at 10000. Follow-through above 10200 would indicate a further advance as signaled by sharply rising 13-week Twiggs Money Flow. The rally is becoming dangerously extended and a correction to test support would add stability.

Nikkei 225 Index

* Target calculation: 10000 + ( 10000 – 9000 ) = 11000

South Korea’s Seoul Composite Index is already in a primary up-trend. Respect of the zero line by 13-week Twiggs Money Flow again signals strong buying pressure. Follow-through above 2050 would signal an advance to 2200*.

Seoul Composite Index

* Target calculation: 1950 + ( 1950 – 1700 ) = 2200

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India & Singapore

The Sensex respected support at 17000. Recovery above 18000 would indicate a primary up-trend and follow-through above 18500 would confirm. Respect of zero by the latest trough on 13-week Twiggs Money Flow would further strengthen the signal. Target for the advance is 21000*.

BSE Sensex Index

* Target calculation: 18 + ( 18 – 15 ) = 21

The NSE Nifty shows a similar pattern. Follow-through above 5600 would offer a target of 6200*.

NSE Nifty Index

* Target calculation: 5400 + ( 5400 – 4600 ) = 6200

Singapore Straits Times Index is already in a primary up-trend, as signaled by 63-day Twiggs Momentum holding above zero. Recovery above 3000 confirms an advance to 3300*.

Singapore Straits Times Index

* Target calculation: 2900 + ( 2900 – 2500 ) = 3300

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Europe on the rise

Dow Jones Europe Index broke through 260 to signal a primary up-trend. Respect of the zero line by 13-week Twiggs Money Flow confirms strong buying pressure. Target for the advance is 310*.

Dow Jones Europe Index

* Target calculation: 260 + ( 260 – 210 ) = 310

Italy’s MIB Index reflects a similar pattern, signaling an advance to 21000*.

FTSE MIB Index

* Target calculation: 17000 + ( 17000 – 13000 ) = 21000

The FTSE 100 is already in a primary up-trend. A trough high above zero on 13-week Twiggs Money Flow indicates strong buying pressure and a likely breakout above resistance at 6100.

FTSE 100 Index

* Target calculation: 5700 + ( 5700 – 5000 ) = 6400

The DAX shows similar strong buying pressure and breakout above the 2011 high of 7500 is likely.

DAX Index

* Target calculation: 6400 + ( 6400 – 5400 ) = 7400

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