Colin Twiggs, Author at the patient investor

February 5, 2013

Did Securitization Lead to Riskier Corporate Lending? – Liberty Street Economics

João Santos writes:

There’s ample evidence that securitization led mortgage lenders to take more risk, thereby contributing to a large increase in mortgage delinquencies during the financial crisis. In this post, I discuss evidence from a recent research study I undertook with Vitaly Bord suggesting that securitization also led to riskier corporate lending. We show that during the boom years of securitization, corporate loans that banks securitized at loan origination underperformed similar, unsecuritized loans originated by the same banks. Additionally, we report evidence suggesting that the performance gap reflects looser underwriting standards applied by banks to loans they securitize.

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.

February 5, 2013

CBO Sees Rising U.S. Debt, Economic Rebound in 2014 | WSJ.com

DAMIAN PALETTA at WSJ writes:

Economic growth and recent legislation have cut the federal budget deficit in half in the past four years, but federal debt will still hit historic levels if more isn’t done, the Congressional Budget Office said Tuesday in the annual update of its budget and economic forecast.

The CBO said it expected economic growth to be sluggish in 2013, in part because of a sharp drop in government spending, but it sees a better economy in 2014 as the recovery takes hold.

via CBO Sees Rising U.S. Debt, Economic Rebound in 2014 – 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.

February 5, 2013

Nana Rolland: North Korean Pawn in a Chinese Chess Game – WSJ.com

NANA ROLLAND at WSJ writes:

While it steps up its own provocative actions, including recurrent intrusions into Japanese waters and airspace around the disputed islands, China exhorts the U.S. to restrain its “troublemaking” Japanese friends. The implied linkage is clear: As Beijing tries to forestall North Korean brinksmanship, it expects Washington to do the same.

We have seen this gambit before. In 2003, when Beijing feared that Taiwanese president Chen Shui-bian might be inching toward independence, it called on Washington to bring him to heel. In return, it agreed to host multiparty negotiations to persuade Pyongyang to abandon its nuclear-weapons programs.

Beijing got the better end of that deal…..

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.

February 5, 2013

Chinese Firms Shrug at Rising Debt | WSJ.com

DINNY MCMAHON And COLUM MURPHY at WSJ write:

Analysts at Standard Chartered PLC estimate that Chinese corporate debt was equivalent to 128% of gross domestic product by the end of 2012, up from 101% at the end of 2009. In a 2011 research paper, economists at the Bank for International Settlements found that when a country’s corporate debt exceeds 90%, it becomes a drag on 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.

February 5, 2013

EconoMonitor » Australia’s Economic Outlook—The Nauru Option?

Satyajit Das writes:

In a 29 November 2010 speech entitled The Challenge of Prosperity, RBA Governor sought to illustrate the combined effects of the gains of the appreciating terms of trade position and the A$ strength in the following terms: “In 2005 a shipload of iron ore was worth the same as around 2,200 flat screen televisions In 2010, the same shipload was worth around 22,000 flat screen TVs”. In a Freudian slip, the RBA Governor identified a fundamental issue with Australia’s economic model.

Australia may have substantially wasted the proceeds of its mineral booms, with the proceeds channelled into consumption. The nations did not channel enough into strategic long term investments or develop a new industrial base. According to one study, the commodity boom increased government revenues between 2002 and 2008 by around A$180 billion of which A$36 billion was used to repay public debt, A$69 billion was placed into the Future Fund (to meet the cost of public sector superannuation liabilities) and $75 billion was transferred to households in the form of tax cuts and payments.

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.

February 5, 2013

Immigrants in Switzerland are far more likely to have their application for citizenship rejected if the decision is made using a referendum. | EUROPP

When immigrants in Switzerland apply for citizenship, the decision is made in the municipality where they reside. While in some parts of Switzerland these decisions are made by elected representatives, in other municipalities individual applications are subject to a public referendum. Dominik Hangartner and Jens Hainmueller assess the impact of direct democracy on citizenship applications, finding that far fewer applications are accepted when a referendum is used. The applicant’s country of origin is the most important factor in determining success, with applicants from Turkey and the former Yugoslavia over ten times more likely to be rejected than those from other countries, such as Italy.

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.

February 5, 2013

The eurozone’s struggling economies are increasingly selling citizenship to raise much needed capital. | EUROPP

How far should countries go to encourage foreign investment? Jelena Dzankic writes that in a time of economic crisis, some countries in Europe are now seeking investment in exchange for citizenship. Assessing recent developments in Bulgaria, Hungary, Portugal and Ireland, she argues that despite the obvious financial benefits to such policies, they are not without risks. They may raise the potential for tax evasion and security issues, and could also reduce the relationship between the individual and the state to that of a business contract.

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.

February 5, 2013

Why QE is not working

Lars Christensen, Chief Analyst at Danske Bank, quotes David Beckworth in this lengthy but excellent 2011 paper on Market Monetarism — The Second Monetarist Counter-revolution:

“…..Declines in the money multiplier and velocity have both been pulling down nominal GDP. The decline in the money multiplier reflects: (1) the problems in the banking system that have led to a decline in financial intermediation as well as (2) the interest the Fed is paying on excess bank reserves. The decline in the velocity is presumably the result of an increase in real money demand created by the uncertainty surrounding the recession. This figure also shows that the Federal Reserve has been significantly increasing the monetary base, which should, all else equal, put upward pressure on nominal spending. However, all else is not equal as the movements in the money multiplier and the monetary base appear to mostly offset each other. Therefore, it seems that on balance it has been the fall in velocity (i.e. the increase in real money demand) that has driven the collapse in nominal spending.”

Beckworth continues:

“[the] sharp decline in velocity appears to be the main contributor to the collapse in nominal spending in late 2008 and early 2009 as changes in the monetary base and the money multiplier largely offset each other. It is striking that the largest run-ups in the monetary base occurred in the same quarters (2008:Q3, 2008:Q4) as the largest drops in the money multiplier. If the Fed’s payment on excess reserves were the main reason for the decline in the money multiplier and if the Fed used this new tool in order to allow for massive credit easing (i.e. buying up troubled assets and bringing down spreads) without inflation emerging, then the Fed’s timing was impeccable. Unfortunately, though, it appears the Fed was so focused on preventing its credit easing programme from destabilising the money supply that it overlooked, or least underestimated, developments with real money demand (i.e. velocity). As a consequence, nominal spending crashed.”

Christensen concludes:

Subsequent events have clearly proven Beckworth right and it is very likely that had the Federal Reserve not introduced interest on excess reserves then the monetary shocks would have been significantly smaller.

From Market Monetarism – The Second Monetarist Counter-revolution

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.

February 3, 2013

ASX 200 approaches key resistance level

The ASX 200 is retracing today to test short-term support at 4900 but medium-term buying pressure — as indicated by 21-day Twiggs Money Flow troughs above zero — suggests a test of 5000.

ASX 200 Index

Rising 63-day Twiggs Momentum suggests continuation of the primary up-trend. Breakout above 5000 would offer a long-term target of 6000*.

ASX 200 Index

* Target calculation: 5000 + ( 5000 – 4000 ) = 6000

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.

February 3, 2013

Asia rallies

China’s Shanghai Composite Index is headed for a test of resistance at 2500. Crossover of 63-day Twiggs Momentum above zero — and breach of the declining trendline — suggest a primary up-trend. Breakout above 2500 would strengthen the signal. But only a higher trough followed by a new high on the index chart would confirm.

Shanghai Composite Index

India’s Sensex retreated below 20000, while declining 13-week Twiggs Money Flow indicates medium-term selling pressure. Expect a correction to test support at 19000 but long-term buying pressure should ensure that the up-trend continues.

Sensex Index

* Target calculation: 19 + ( 19 – 18 ) = 20

Singapore’s Straits Times Index is testing resistance at 3300. Rising 63-day Twiggs Momentum suggests continuation of the primary up-trend. Breakout would signal an advance to 3900*.

* Target calculation: 3300 + ( 3300 – 2700 ) = 3900

Japan’s Nikkei 225 Index is headed for its 2010 high at 11500. A spike in 13-week Twiggs Money Flow indicates strong buying pressure. Breakout is likely and would suggest a primary advance to 14500*.

Nikkei 225 Index

* Target calculation: 11000 + ( 11000 – 8000 ) = 14000

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.