Colin Twiggs, Author at the patient investor

December 7, 2012

Clinton’s Spending Cuts—Not His Tax Hikes—Worked

EDWARD MORRISSEY writes about Clinton-era nostalgia:

In his eight years as President, Clinton reduced federal spending to 18.2 percent of GDP from 22.1 percent, thanks in large part to a Republican-controlled Congress that forced the issue……. Barack Obama managed to hike it 3.5 points in just one term, with 3.2 points going to non-defense spending. Under Obama, federal spending now exceeds 25 percent of GDP, and his has been the biggest increase of any of his predecessors over the last 60 years – even for two-term Presidents.The real debate over deficits isn’t over whether to go back to Clinton-era tax rates. It’s how to get back to Clinton-era spending levels, and then create a tax system that will adequately fund it. The 18.2 percent level of federal spending is one piece of Clinton-era nostalgia worth recalling – as well as the bipartisanship that eventually produced it.

Nostalgists should also remember that the housing bubble started in this era — as did the internet boom — followed by the dot-com bust just as Clinton left office. This article is definitely worth reading.

via Clinton’s Spending Cuts—Not His Tax Hikes—Worked.

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.

December 6, 2012

Goldman predicts falling commodity prices

Matthew Boesler writes that Jeffrey Currie, Goldman Sachs Head of Commodity Research, in his investment outlook for 2013, says commodity prices may be done going up, but that doesn’t mean investors can’t still make money.

Currie’s explanation is this: sustained high prices over the past decade have caused producers to invest in new technologies that help them to harvest more commodities, because they can sell them in the current market for high prices. However, those new technologies have the effect of relieving long-term supply constraints, because the world will be able to use them to access previously unaccessable energy resources, shale oil being just one example.

If Currie is right, returns will be “generated more by the backwardation in the term structure and less by price appreciation”. That means that investors can profit from rolling current contracts into consecutively cheaper future contracts. But it also means a bear market in resources stocks as commodity prices fall.

via GOLDMAN: The 'Old Economy Renaissance' Is About To Offer Opportunities For Commodity Investors Not Seen Since The 1990s – Business Insider.

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.

December 6, 2012

Sterling threatens euro down-trend

Pound Sterling broke its long-term rising trendline against the euro and is testing support at €1.225 on the weekly chart. Retreat of 63-day Twiggs Momentum below zero warns of a primary down-trend. Breach of support would confirm. Respect of support is most unlikely, but would test €1.260 in the medium-term.

Pound Sterling

* Target calculation: 1.23 – ( 1.28 – 1.23 ) = 1.18

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.

December 6, 2012

Aussie Dollar bullish consolidation

The Aussie Dollar is consolidating in a narrow range below resistance at $1.05 — a bullish sign. Breakout would indicate a test of long-term resistance at $1.06. Rising 63-day Twiggs Momentum, above zero, indicates a primary up-trend. In the long-term, breakout above $1.06 would offer a target of $1.10* but the RBA may take measures to prevent further appreciation. Reversal below $1.04 and the rising trendline is unlikely, but would warn of a correction to test primary support at $1.015.

Aussie Dollar/USD

* Target calculation: 1.06 + ( 1.06 – 1.02 ) = 1.10

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.

December 5, 2012

How cancelling central banks’ holdings of government debt could be a useful thing | FT Alphaville

FT’s Kate Mackenzie writes: Morgan Stanley cross-asset strategist Gerard Minack says the remarkable thing about developed economy deleveraging is how little of it has happened:

The credit super-cycle ended four years ago, but leverage has hardly fallen in major economies: debt-to-GDP ratios remain historically high.

Minack says the problem is some of that deleveraging (particularly for households) is being tackled by saving more, but that won’t solve the problem, or at least not very quickly. This is because of what the borrowings were used to finance: mostly pre-existing assets (that were forecast to rise in value) rather than expenditure.

There is a simple reason why deleveraging is taking so long: governments are borrowing money (deficit-spending) to offset private sector deleveraging and avert a deflationary spiral. So overall (non-financial) debt to GDP ratios, which include government debt, are almost unchanged.

That is not necessarily a bad thing — unless you would prefer a 1930s-style 50% drop in GDP after a deflationary spiral. What can be destructive is funding government deficits from offshore because you eventually have to pay the money back. Far better to borrow from yourself — in other words your “independent” central bank. That way you never have to pay it back.

As for canceling central bank holdings of government debt. Why bother? Interest payments made on the debt go right back to the Treasury as central bank profit distributions. And why set a precedent? I doubt many would believe government promises that this was a once-off and would never be repeated…….until next time.

via How cancelling central banks’ holdings of government debt could be a useful thing | FT Alphaville.

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.

December 5, 2012

Weaker commodities threaten down-turn

Commodities remain weak despite the softer dollar, with the DJ-UBS Commodity Index hovering above support at 140 on the weekly chart. Breach of support would test the primary level at 125/126, warning of a global economic down-turn. Reversal of 63-day Twiggs Momentum below zero would also suggest a down-trend.

DJ-UBS Commodity Index

The gap between Nymex WTI Light Crude and ICE Brent Crude Middle East widened to $24/barrel as a result of tensions in the Middle East. 63-Day Twiggs Momentum holding below zero suggests a primary down-trend despite the weaker dollar.

Nymex WTI Light Crude

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.

December 5, 2012

Gold breaks $1700

Gold broke support at $1700 per ounce, indicating a test of primary support at $1675. Breakout would offer an initial target of $1600*, with a long-term target of the May 2012 low at $1525. Declining 63-day Twiggs Momentum indicates weakness but values above zero still reflect a primary up-trend and the weakening dollar suggests strong support.

Spot Gold

* Target calculation: 1675 – ( 1750 – 1675 ) = 1600

The Dollar Index broke medium-term support at 80 on the weekly chart while the dollar is approaching its September low against the euro. The 63-day Twiggs Momentum peak below zero indicates a primary down-trend — confirmed if primary support at 78.50 is broken. Recovery above 81.50 is most unlikely but would indicate an advance to 84.

US Dollar Index

* Target calculation: 78.5 – ( 81.5 – 78.5 ) = 75.5

The daily chart shows retracement to confirm resistance at 80.

US Dollar Index

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.

December 5, 2012

PSY Gangnam Style

Some kids in US 2nd Infantry Division stationed in South Korea have fun with Gangnam style

With thanks to Ryan.

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.

December 5, 2012

S&P 500 hesitant

Two doji candles on the S&P 500 daily chart indicate indecision. Fiscal cliff negotiations are unlikely to be resolved quickly and another test of primary support at 1350 seems inevitable. Failure of short-term support at 1400 is likely and would signal a test of primary support. While breakout above 1425 is unlikely it would test resistance at 1475. Reversal of 21-day Twiggs Money Flow below zero would indicate selling pressure, but a higher trough (above/below zero) would suggest continuation of the advance to 1475.

S&P 500 Index

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.

December 4, 2012

High-Speed Traders Profit at Expense of Ordinary Investors, a Study Says | NYTimes.com

NATHANIEL POPPER and CHRISTOPHER LEONARD write:

The chief economist at the Commodity Futures Trading Commission, Andrei Kirilenko, reports in a coming study that high-frequency traders make an average profit of as much as $5.05 each time they go up against small traders buying and selling one of the most widely used financial contracts [E-mini S&P 500 Futures].

via High-Speed Traders Profit at Expense of Ordinary Investors, a Study Says – NYTimes.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.