Colin Twiggs, Author at the patient investor

March 22, 2012

Playing Pyongyang's Games – WSJ.com

MICHAEL AUSLIN: It took barely two weeks for North Korea to play its old game of bait and switch, this time gutting the Feb. 29 “Leap Day Agreement” with the Obama administration that promised a moratorium on nuclear and missile testing. In an Ides of March announcement, Pyongyang revealed it would conduct a “satellite launch” on April 15, which coincides with the 100th anniversary of the birth of Kim Il Sung, founder of the North Korean regime.

….In a sense, the Obama administration has only itself to blame for this mess. For three years, it wisely avoided playing Pyongyang’s games. Unlike the Bush administration, which became increasingly desperate to patch holes in a flawed policy of making ever more concessions for little in return, the Obama team kept contact with former leader Kim Jong Il at a minimum, and refused to enter the Alice in Wonderland world of reaching agreement with the North only to face provocation and demands for more concessions.

via Michael Auslin: Playing Pyongyang's Games – WSJ.com.

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 22, 2012

Beijing On Edge Amid Coup Rumors – CNBC

Jamil Anderlini: Jon Huntsman, a former Republican presidential hopeful and US ambassador to China who met Mr Bo [Xilai, Communist Party chief of Chongqing] a number of times, said his demise revealed serious rifts among the top leadership of the country.

“The splits in the standing committee [over reform] are as pronounced now as they were during the [1989] Tiananmen Square period,” Mr Huntsman said. “Politics in China is a rough and tumble business. This is an open and public evidence of this and what happens behind the velvet curtain that the world never sees.”

via Beijing On Edge Amid Coup Rumors – Asia Business News – CNBC.

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 22, 2012

Bo’s Ides of March « Patrick Chovanec

Patrick Chovanec: Top Party leaders, regardless of political philosophy, had come to dislike Bo [Xilai], not as a person per se — by all accounts, Bo is an extraordinarily charming man — but as a political persona, at least in his Chongqing incarnation, for three reasons:

First, they were offended by his courting of the media and his vigorous self-promotion, which showed a lack of appropriate deference and humility to established power channels and ways of resolving competition. Second, they felt threatened, because few of them were equipped to compete on this basis, if that’s what it took. Third, they were alarmed by Bo’s tactic of “mobilizing the masses” in ways that explicitly invoked the Cultural Revolution, which called up deep-seated fears that populist fervor could be used as a weapon against rival leaders within the Party — as indeed happened during the Cultural Revolution, to horrific results.

via Bo’s Ides of March « Patrick Chovanec.

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 22, 2012

"The American Recovery" by Mohamed A El-Erian | Project Syndicate

the economy is not yet in a position to handle the 4-5%-of-GDP “fiscal cliff” that is approaching as all of the hard political decisions that were postponed come into view at the end of this year. The prospect of a disorderly fiscal contraction needs to give way to a more rationally designed approach that avoids undermining the fragile recovery. To accomplish that, the political class must avoid the bickering that almost sent America back into recession in 2011, and that raised major questions about the quality of the country’s economic governance.

…..America’s full recovery is not yet guaranteed. A mix of steadfastness, caution, and good luck is needed for that to happen. And when it does, the country will be in a better position to repay its massive hospital bill.

via "The American Recovery" by Mohamed A El-Erian | Project Syndicate.

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 22, 2012

FedEx Pares Global GDP Outlook as Slowdown Damps Profit Forecast- Bloomberg

FedEx said express shipments declined both domestically and internationally because of “below-trend” growth. The operator of the world’s biggest cargo airline said it was parking an unspecified number of planes, paring flight hours and reviewing domestic capacity.

“We just don’t have a strong economy as we had hoped it would be a year ago,” Chief Financial Officer Alan Graf said on an earnings call. “The economic environment and the elasticity that we’re seeing on our premium services from the high-fuel costs” are weighing on this quarter’s earnings outlook.

via FedEx Pares Global GDP Outlook as Slowdown Damps Profit Forecast- Bloomberg.

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 22, 2012

Forex: Euro, Pound & Yen

The Euro is undecided about its recent show of strength and is likely to re-test medium-term support at $1.30. Failure of $1.30 would complete a head and shoulders pattern, visible on the Daily chart (shoulders at $1.33), testing primary support at $1.26. But recovery above $1.33 remains as likely and would signal another test of $1.35.

Euro/USD

Pound Sterling is testing resistance at $1.60 and recovery of 63-day Twiggs Momentum above zero would indicate a primary up-trend. Confirmation would only come, however, from breakout above $1.62.

Pound Sterling/USD

The Greenback is retracing to find support after a strong advance against the Yen over the last 6 weeks. Respect of support at ¥80 would confirm a healthy primary up-trend.

USD/Japanese Yen

* Target calculation: 80 + ( 80 – 75 ) = 85

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 22, 2012

Forex: Aussie, Loonie, Rand

Canada’s Loonie, buoyed by rising oil prices, is testing resistance at $1.01/$1.015. Narrow consolidation suggests an upward breakout and advance to the 2011 high of $1.06*. 63-Day Twiggs Momentum above zero also indicates a primary advance.

Canadian Dollar/USD

* Target calculation: 1.01 + ( 1.00 – 0.95 ) = 1.06

The Australian Dollar, dragged lower by weaker commodity prices, is testing medium-term support at $1.04 on the Weekly chart. Respect of the rising trendline is more likely and would indicate a breakout above the ascending triangle at $1.08. Long-term target for an advance would be $1.20 but that seems unachievable in the near-term. Breach of the rising trendline is less likely, but would warn of a correction back to $0.96; and reversal of 63-day Twiggs Momentum below zero would indicate a primary down-trend.

Australian Dollar

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

The Aussie Dollar breached support against the South African Rand at R8.00 on the Daily chart. Follow-through below R7.90 would confirm a correction to $7.60*. Breach of the long-term rising trendline, however, would warn of a primary down-trend.

AUD/South African Rand

* Target calculation: 8.05 – ( 8.45 – 8.05 ) = 7.60

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 22, 2012

Crude & Commodities

Crude oil is rising because of tensions over Iran, but commodities lag far behind, hurt by a stronger dollar and weak global demand. Brent crude is testing resistance at $125/$126 per barrel on the Weekly chart. Narrow consolidation is a bullish sign. Breakout would signal an advance to $150*.

ICE Brent Crude Afternoon Markers

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

The broader CRB Commodities Index, which includes 33 percent petroleum products, is testing medium-term support at 310. Failure would signal a test of primary support at 295, while respect would indicate a primary up-trend with an initial target of 355*.

CRB Commodities Index

* Target calculation: 325 + ( 325 – 295 ) = 355

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 22, 2012

Gold correction continues

Spot gold found short-term support at $1640/ounce but is likely to continue its correction to test primary support at $1500. Reversal of 63-day Twiggs Momentum below zero, for the second time, threatens an iceberg top which would signal a primary down-trend. Breach of primary support at $1500 remains unlikely, but would signal a decline to $1200*.

Spot Gold

* Target calculation: 1700 – ( 1800 – 1700 ) = 1600; 1500 – ( 1800 – 1500 ) = 1200

The US Dollar continues in a primary up-trend, the Weekly chart showing the Dollar Index headed for another test of support at 78.00. Failure would warn that the trend is weakening, while respect would signal another attempt at 82.00

US Dollar Index

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

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 21, 2012

US public debt growing at unsustainable rate

We often blame Fed monetary policy for the GFC, with interest rates at exceptionally low levels leading to “Greenspan’s bubble.” Treasury was just as culpable, however, with the massive 2004-2005 surge in public debt flooding the market with liquidity. The repeat in 2008-2011 was more justifiable: the spike in public debt was necessary to offset the sharp decline in private (non-financial) debt which would have caused a deflationary spiral. The effect was to smooth out the fall in total domestic debt (public and private) and create a relatively “soft” landing for the economy.

Government, Domestic and Private (Non-Financial) Debt Growth

Quick Glossary

Domestic debt is all local debt, both government and private sector

Non-financial excludes the financial sector from debt calculations as it largely acts as a conduit for other sectors.

Government debt includes federal, state and local government borrowing

Private debt is all Domestic debt other than Government. It includes both Corporate and Household debt.

Household debt is all debt owed by private households, as opposed to the corporate sector.

GDP is the market value of all final (excludes intermediate) goods and services produced within a country in a given year/quarter.

Nominal means before adjustment for inflation.

Government and Domestic Debt Growth compared to GDP

Public debt growth is slowing but needs to fall further in order to keep the economy on a sustainable path. A rough rule of thumb is that public debt should grow no faster than GDP — so that it does not outgrow the nation’s ability to repay. With public debt growing at 8.6% and GDP at a nominal rate of 4.1%, Treasury’s ability to repay — and its credit rating — is deteriorating. Reduction of public debt growth to a rate of no higher than 4.1% is necessary. Increases in tax collections as a percentage of GDP would alter this basic equation, but are highly unpopular and act as a disincentive to further GDP growth.

It should be evident from the above chart that GDP contracts when the rate of domestic debt growth slows. If domestic debt ever had to contract (below zero growth), you can imagine the impact that it would have on GDP. That is a debt-deflation spiral and should be avoided at all costs. So, although we would all like to see a sharp reduction in debt levels, there are limitations on how quickly this can be achieved — without smashing the economy into a brick wall.

We can also see that GDP growth for the past decade has been largely debt-fueled. Only recently has GDP growth surged above the growth rate of domestic debt, reflecting an increase in productivity. That is what we (not just the US) have to strive for: to widen the positive gap between GDP and domestic debt growth, while bringing public debt growth below the nominal rate of growth in GDP.

Reducing the rate of growth in public debt will not be easy, however, with private debt growing at a miserly 0.8% compared to domestic debt at 3.0%. The difference is made up by government debt, growing at a whopping 8.6%. Private capital expenditure, however, has in many cases been brought-forward to take advantage of accelerated tax write-offs and is likely to slow in the months ahead. Even worse is household debt which is contracting at an annual rate of 0.9%. So the medium-term outlook for private debt may be near-zero growth. And further slowing of public debt growth would court another recession.

Domestic, Household and Private (Non-Financial) Debt Growth

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.