Author: Colin Twiggs

Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He founded PVT Capital (AFSL number 546090), which provides income and growth strategies to wholesale clients. Colin also co-founded Incredible Charts and writes the popular Patient Investor newsletter. Using a top-down approach, Colin identifies macro trends in the global economy and then combines fundamental and technical analysis to evaluate opportunities in sectors that stand to benefit. 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.
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Europe: FTSE and European markets rising

The FTSE 100 broke out from its rising flag on the weekly chart and is headed for a test of resistance between 6800* (the high from 2007) and 7000 (from 1999). Rising 13-week Twiggs Momentum indicates strong buying pressure.

FTSE 100 Index

* Target calculation: 6400 + ( 6400 – 6000 ) = 6800

Italy’s MIB Index found support at 15500. Respect of zero by 13-week  Twiggs Money Flow would suggest another primary advance. Recovery above 17000 would confirm. Reversal below 15000, however, would warn of a primary down-trend.
FTSE MIB Index
Spain’s Madrid General Index displays buying pressure with rising 13-week Twiggs Money Flow. Breakout above 900 would signal a primary advance to 1000*.
Madrid General Index

* Target calculation: 900 + ( 900 – 800 ) = 1000

Germany’s DAX rallied to test resistance at the 2007 high of 8000. Bearish divergence on 13-week Twiggs Money Flow still warns of selling pressure but breakout above 8000 would overcome this. Reversal below 7500 would indicate a correction to test the rising trendline — rather than a primary trend reversal.

DAX Index
The quarterly chart shows strong resistance between 8000 and 8200. Breakout would offer a long-term target of 10000*.
DAX Index

* Target calculation: 7500 + ( 7500 – 5000 ) = 10000

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What is Modern Monetary Theory, or “MMT”? | naked capitalism

Dale Pierce makes this comment when discussing make-work programs in his introduction to Modern Monetary Theory:

Whether the job-guarantee program makes fighter planes or wind turbines makes no economic difference – the workers employed by it will spend their wages on the same things other workers buy.

What he fails to consider is that wind turbines make an on-going contribution to GDP — from the electricity that they generate — while creating jobs at zero cost to the taxpayer to maintain the turbines. Fighter jets when built, on the other hand, make no further contribution to GDP growth and are a continual drain on the taxpayer’s purse for running and maintenance costs. While I support government or public/private infrastructure programs, we have to ensure that the investment is in productive assets that contribute to GDP and enhance future growth. Otherwise we may as well pay people to dig holes in the ground and then pay others to fill them in — at least the on-going maintenance costs would be low.
Read more at What is Modern Monetary Theory, or “MMT”? « naked capitalism.

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Australia: Net international investment position worse than Italy

Wikipedia provide a ranking of countries net international investment position, as a % of GDP, from highest to lowest.

Top of the list are the usual suspects:

Country Date NIIP as % of GDP
Hong Kong 2009 353
Singapore 2010 224
Republic of China 2010 153
Switzerland 2010 136
Norway 2010 96

But Australia and New Zealand are in the wrong sort of company at the bottom of the list.

Country Date NIIP as % of GDP
Poland 2010 -63
Australia 2011 -64
Slovakia 2010 -66
Estonia 2010 -71
Spain 2010 -87
New Zealand 2009 -90
Greece 2010 -93
Ireland 2009 -98
Portugal 2009 -108

Interestingly, Italy’s 2010 net international investment position is only -24%.

Source: Wikipedia: Net international investment position

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S&P 500 tests 2007 high

Dow Jones Industrial Average has broken through its previous high at 14,000. Long-term (13-week) Twiggs Money Flow oscillating above zero indicates strong buying pressure.
S&P 500 Index
Bellwether transport stock Fedex breakout above $100 signals rising economic activity.
Fedex

The S&P 500 is testing its 2007 high at 1550. Rising 13-week Twiggs Money Flow indicates strong buying pressure. Reversal below the latest trendline is unlikely at present but would warn of a correction. Target for the current advance is 1600*.

S&P 500 Index

* Target calculation: 1475 + ( 1475 – 1350 ) = 1600

VIX Volatility Index is headed for its 2005 lows at 0.10. While this coincided with the start of a ($SPX) bull market in 1995, it also occurred just before the peak in 2007; so does not offer much reassurance. Breakout above the quarterly high at 0.20 would be a warning sign.
VIX Index
The Nasdaq 100 broke resistance at 2800 despite bearish divergences on both 13-week Twiggs Momentum and 13-week Twiggs Money Flow. Reversal below the latest rising trendline would warn of a correction, while follow-through above 2900 would signal an advance to 3300*. Only breach of primary support at 2500 would signal a reversal.
Nasdaq 100 Index

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

Rising debt indicates consumers are once again spending. While there are still structural flaws in the US economy, the market is gaining momentum and the current advance shows no signs of ending.

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Investing: Growth and the markets | The Economist

Buttonwood of The Economist quotes Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School:

….take the records of 83 countries from 1972 to 2009 (the most comprehensive set available) and rank them by GDP growth over the previous five years. Investing each year in the countries with the highest economic growth over the preceding five years earned an annual return of 18.4%, but investing in the lowest-growth countries returned 25.1%.

Read more at Investing: Growth and the markets | The Economist.

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Philip Maymin, Why Financial Regulation is Doomed to Fail | Library of Economics and Liberty

Philip Maymin highlights a problem with volatility:

…..securities with historically low volatility tended to have almost twice as much subsequent risk, while those with historically high volatility tended to have almost half as much subsequent risk. For both the riskiest and least risky securities, therefore, historical risk is a statistical illusion.

He further points out that regulation encourages banks to act in concert, increasing systemic risk, while deposit insurance reduces the level of self-imposed discipline among banks.

Read more at Philip Maymin, Why Financial Regulation is Doomed to Fail | Library of Economics and Liberty.

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Australia: SMSF – a matter of self-interest

Reece Agland, senior policy adviser at the Institute of Public Accountants, compares the performance of self-managed super funds to retail and industry funds:

Let’s look at the facts. For the three most recent years where performance has been measured SMSFs out performed both retail and industry funds. The average operating cost of an SMSF fell from 0.72% of assets in 2007 down to 0.57% in 2009 – less than average costs for either industry or retail funds1. With average assets of over $888,000 in 2009/10 (up from $475,000 in 2003/4) they exceed the average assets per member compared to other types of funds. Their rate of non-compliance at 2% is at around the same for other superannuation funds and the number of funds that fail in any one year is very small.

Read more at Publicaccountant: SMSF – a matter of self-interest

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Milton Friedman – The Free Lunch myth [video]

Milton Friedman, recipient of the 1976 Nobel Prize for Economic Science, was one of the most recognizable and influential proponents of liberty and markets in the 20th century, and the leader of the Chicago School of economics. Here he gives his views on the myth of the free lunch.

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Milton Friedman: The foundations of freedom [video]

Nobel Laureate Dr. Milton Friedman gives his thoughts on the importance of maintaining the foundations of freedom, in 2009.

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Forex: Aussie consolidates above primary support while Euro weakens

The euro is testing medium-term support at $1.30. Breach of the rising trendline against the greenback already warns of trend weakness; failure of $1.30 would test primary support at $1.25. Reversal of 63-day Twiggs Momentum below zero would warn of a primary down-trend, while a trough above zero would suggest another advance, with a target of $1.42*.
Aussie Dollar/USD

* Target calculation: 1.36 + ( 1.36 – 1.30 ) = 1.42

Pound sterling broke long-term support at $1.53 against the greenback, offering a target of $1.43*. Fall of 63-day Twiggs Momentum below 2011 lows strengthens the signal.
Aussie Dollar/USD

* Target calculation: 1.53 – ( 1.63 – 1.53 ) = 1.43

The Aussie Dollar is consolidating between $1.02 and $1.03 after respecting primary support at $1.015. Breakout above $1.03 and the declining trendline would suggest a rally to $1.06. Reversal below $1.02 would warn that primary support is again under threat. Narrow fluctuation of 63-day Twiggs Momentum around zero suggests a ranging market.

Aussie Dollar/USD

The Canadian Loonie is headed for a test of primary support at $0.96. Breach of support would offer a long-term target of $0.90*, but respect is just as likely and would signal a rally to $1.06.
Aussie Dollar/USD

* Target calculation: 0.96 – ( 1.02 – 0.96 ) = 0.90

The US dollar has broken its long-term declining trendline against the Japanese Yen, suggesting that the 30-year decline is over and the greenback likely to appreciate for some time. Advance to ¥100 is likely to be followed by a correction to test new support at ¥90 before breakout to test the 2007 high around ¥120*.
Aussie Dollar/USD

* Target calculation: 100 – ( 100 – 80 ) = 120

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