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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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.

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

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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

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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

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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*.
Straits Times Index

* 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

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Europe: Italy tests support while UK and Germany surge

Italy’s MIB index retreated from resistance at 18000 to re-test the key support level of 17000. Respect would confirm the primary up-trend with an initial target of 19000*. Rising 13-week Twiggs Money Flow indicates long-term buying pressure.

DAX Index

* Target calculation: 17000 + ( 17000 – 15000 ) = 19000

Germany’s DAX primary advance is approaching the 2007 high at 8000/8200.  Resistance is evident, with shorter candles over the last two months and 13-week Twiggs Money Flow declining from its 2012 peak. Expect a correction, but long-term buying pressure (signaled by rising 13-week Twiggs Money Flow) should see continuation of the primary up-trend.

DAX Index

* Target calculation: 7500 + ( 7500 – 7000 ) = 8000

The FTSE 100 broke through resistance at 6000 and is advancing toward its 2007 high of 6750*. Rising 13-week Twiggs Money Flow indicates long-term buying pressure, while the recent spike should see strong gains in February.

FTSE 100 Index

* Target calculation: 6000 + ( 6000 – 5250 ) = 6750

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Canada: TSX bull trap?

The TSX Composite retreated below 12800, indicating hesitancy on the part of investors. Expect retracement to test support at 12500. Failure of support would signal a bull trap. Long-term buying pressure remains strong, with rising 13-week Twiggs Money Flow; another trough above zero would confirm the primary up-trend. Recovery above 12800 would signal an advance to the 2011 high at 14300*.

TSX Composite Index

* Target calculation: 12800 + ( 12800 – 11300 ) = 14300

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S&P 500 buying pressure

The S&P 500 displays evidence of buying pressure on the daily chart, with brief retracement to test support at 1500 followed by a surge to a new 5-year high. Expect a test of the 2000/2007 highs at 1550/1565.

S&P 500 Index

Troughs above the zero line on 13-week  Twiggs Money Flow indicate longer-term buying pressure. Breakout is likely and would signal an advance to 1750*. Reversal below 1500, however, would warn of a widely predicted correction.
S&P 500 Index

* Target calculation: 1550 + ( 1550 – 1350 ) = 1750

Declining 63-day Twiggs Momentum on the Nasdaq 100, however, warns of a reversal. Respect of resistance at 2800 would strengthen the warning, while retreat below 2500 would complete a head and shoulders reversal. Follow-through above 2900 is less likely, but would confirm a bull market signal from the Dow/S&P 500.
S&P 500 Index

These are times for cautious optimism. Central banks are flooding markets with freshly printed money, driving up stock prices, but this could create a bull trap if corporate earnings, capital investment and employment fail to respond.

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China’s trade data for November disappoint

Zarathustra writes:

China’s export and import growth on a year-on-year basis were both worse than expected for November.

Export rose 2.9% in November compared with the same month last year, down from 11.6% yoy growth in October, and well below consensus estimate of 9.0% yoy, while import was flat compared to a year ago…..

See YOY chart at China’s trade data for November disappoint.

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The Global Leadership Vacuum: Europe Incapable, America Unwilling | SPIEGEL ONLINE

Gregor Peter Schmitz writes:

In 1998, then-Secretary of State Madeleine Albright called America the “indispensable nation.” But now, 15 years later, it is primarily an exhausted one, a global power in decline that has its gaze turned toward the domestic front rather than Afghanistan or the Middle East.

Read more at The Global Leadership Vacuum: Europe Incapable, America Unwilling – SPIEGEL ONLINE.

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A Putrid Smell Is Suddenly Emanating From European Banks | Business Insider

Wolf Richter writes:

A nauseating whiff came from Barclays Friday, when it leaked out that it has been under investigation by the Financial Services Authority and the Serious Fraud Office in Britain for illegal fundraising in 2008. Allegedly, the bank secretly loaned £5.3 billion (US $8.4 billion) to one of Qatar’s sovereign wealth funds, which then turned around and with great public fanfare pumped that money back into Barclays — a scheme to raise capital on paper to escape a government takeover during the financial crisis…..

Read more at A Putrid Smell Is Suddenly Emanating From European Banks – Business Insider.

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