Colin Twiggs, Author at the patient investor

March 21, 2012

Container shipping: trade balance

The percentage of containers shipped empty from the Port of Los Angeles was 43.8% (or 1.1 million twenty-foot units) for the 8 months ending February 2012. Incoming containers received empty were a mere 3.6%. The net 40.2% of incoming containers returned empty to their port of destination reflects the trade disadvantage suffered by US manufacturers relative to their Asian competitors; primarily from artificial (suppressed) exchange rates, state subsidy of export industries and protectionism in local markets. While the figures remain high, they show a steady down-trend since 2006. But it will take another 12 years at the current rate of decline for traffic to reach parity, by which time many industries will have suffered irreparable harm.

Net Percentage of Empty Container Traffic Leaving the Port of Los Angeles

Shippers attempt to fill containers on their return journey, even at super-low rates, in order to offset the cost of completing the round-trip. Empty containers indicate failure to locate manufactured goods that can compete in export markets. This affects not only the shipper, but the entire economy. You see, those containers leaving the West Coast are not really empty. They contain something far more valuable than the goods being imported. They contain manufacturing jobs — and the infrastructure, skills and know-how to support them.

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.

March 20, 2012

You can't borrow yourself out of debt: The Secret of Oz

“You can’t borrow yourself out of debt any more than drink yourself sober.”

http://www.youtube.com/watch?v=swkq2E8mswI

Bill Still on the on-going debt problem and the solution proposed by L. Frank Baum in the Wizard of Oz.

Comment:~ The solution proposed is not a magic bullet. Money printed by Treasury, whether in the form of banknotes (“scrip”) or tally sticks, is still Treasury debt; Treasury effectively borrows when the currency is issued in payment and settles when the notes are presented in payment of taxes. It also debases the currency, though not as fast as debt created by the banks. This video serves as a reminder that we still have not solved the global debt problem — merely postponed the inevitable by issuing further debt.

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.

March 20, 2012

BHP: China Iron Ore Demand 'Flattening Out' – WSJ.com

STEPHEN BELL: China’s demand for iron ore is ‘flattening out’, a senior executive at BHP Billiton Ltd. said Tuesday.

Demand growth for the commodity used to make steel will drop “to single digits if it is not already there,” Ian Ashby told a press conference in Perth.

via BHP: China Iron Ore Demand 'Flattening Out' – WSJ.com.

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.

March 19, 2012

RBA gambles on China – MacroBusiness

Glenn Stevens: Those at home [Australia] see this as well. As consumers, they have responded to the higher exchange rate with record levels of international travel. As producers, however, they also see, with increasing clarity, that the rise in the relative price of natural resources amounts to a global and epochal shift, which carries important implications for economic structure in Australia, as it does everywhere else. Some sectors of the economy will grow in importance as they invest and employ to take advantage of higher prices. Other sectors will get relatively smaller, particularly in the traded sector, as they face relatively lower prices for their products and competition for inputs from the stronger sectors. The exchange rate response to this shift in fundamentals is sending very clearly the signal to shift the industry mix, though this would occur at any exchange rate. The shift in relative prices is a shift in global prices that is more or less invariant to the level of the Australian dollar…..

Delusional Economics: And there is the China gamble laid bare for all to see. It is true that in relative pricing terms Australia’s income has increased but, as the Governor alludes to, the prices we are paying for cheaper imports is a hollowing out of some industries and a corresponding restructuring of the labour force. By not intervening via monetary and/or fiscal policy in the capital flows associated with the commodities boom the government and the RBA have made it clear that a restructure of the economy will be the outcome.

However, as I have pointed out in my analysis of Europe , and Mr Stevens goes on to say later in the speech, structural change is difficult and expensive. By allowing the economy to restructure in this way we are making a one-way bet on China. That is, if we’ve got it wrong on Beijing, we are in seriously deep trouble because there is no Plan B.

via RBA gambles on China – 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.

March 19, 2012

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.

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.

March 19, 2012

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.

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.

March 19, 2012

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.

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.

March 19, 2012

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

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.

March 19, 2012

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

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.

March 18, 2012

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

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.