Australia & NZ Archives - Page 49 of 97

June 20, 2014

A good week for the S&P 500 but not the ASX

Summary:

Good week for US markets.
China continues to threaten further down-side.
The ASX 200, pulled in opposite directions, is range bound for the present.
Momentum strategies require persistence.

The S&P 500 broke through 1950 and is expected to test the next resistance level at 2000*. Rising 21-day Twiggs Money Flow signals medium-term buying pressure. Reversal below 1925 is unlikely at present but would warn of a correction.

S&P 500

* Target calculation: 1900 + ( 1900 – 1800 ) = 2000

The CBOE Volatility Index (VIX) continues its downward path, indicating low risk typical of a bull market.

S&P 500 VIX

The Shanghai Composite Index rebounded Friday after a tough week and continues to test primary support at 1990/2000. Breach of support would signal a decline to 1850*. 21-Day Twiggs Money Flow oscillating above zero indicates buying support; a fall below zero would suggest selling pressure. The primary trend is expected to continue its downward path, but this is a managed descent and an abrupt fall seems unlikely.

Shanghai Composite

* Target calculation: 2000 – ( 2150 – 2000 ) = 1850

After a strong surge on Thursday the ASX 200 retreated below 5450 on Friday, suggesting another test of support at 5400. Reversal of 21-day Twiggs Money Flow below zero indicates medium-term selling pressure. Breach of support is likely and would indicate a correction to 5300. Recovery above 5500 is unlikely at present, but the long-term trend remains upward.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800

Resist the urge to avoid discomfort

Momentum stocks have suffered a fair degree of turbulence since April, after a strong first quarter. Investors unfortunately have to endure periods like this, when the market appears hesitant or lacks direction, in much the same the same way as travelers can expect turbulence during an air flight. It is important is to resist the urge to avoid discomfort by exiting positions. Enduring uncomfortable parts of the journey are necessary if you want to reach your intended destination. Our research on both the ASX and S&P 500 has shown that attempting to time secondary movements in the markets does not enhance but erodes performance: the average (re-)entry price is higher than the average exit price after accounting for brokerage.

A basic rule of thumb in investing is that investors need to endure higher volatility in order to achieve higher returns. If your investment time frame is long-term, it is important to focus on the end result and not be overly concerned by weekly fluctuations.

June 16, 2014April 18, 2024

ASX 200 tests support

The ASX 200 is testing medium-term support at 5400. Long tails and recovery of 21-day Twiggs Money Flow above zero signal buying pressure. A close below 5400 would warn of a test of 5300, while recovery above 5460 would suggest another attempt at 5550.

ASX 200

* Target calculation: 5550 + ( 5550 – 5400 ) = 5700

While not as strong as North American markets, the weekly index has maintained a healthy distance above a green Ichimoku Cloud. There are no signs of a long-term trend reversal.

ASX 200

ASX 200 VIX is also holding at low levels indicative of a bull market.

ASX 200

June 12, 2014

ASX 200 weakens but Aussie dollar strengthens

Aussie dollar strengthens.
Stocks weaken.
But ASX 200 VIX continues to indicate a bull market.

The Aussie Dollar is testing resistance at $0.94. Consolidation in a narrow band suggests continuation of the rally towards $0.97/$0.98. Recovery of 13-week Twiggs Momentum above zero suggests a primary up-trend, but we may see the RBA intervene to prevent this. They may need to follow the RBNZ, introducing macro-prudential controls (e.g. setting a maximum 80% LVR percentage), to take the steam out of the housing market while lowering interest rates to weaken the currency.

Aussie Dollar

The ASX 200 respected resistance at 5500 and is headed for a test of medium-term support at 5400. Reversal of 21-day Twiggs Money Flow below zero warns of medium-term selling pressure and a correction. Breach of 5400 is likely and would test support at 5300 and the rising trendline. Respect of 5400 is unlikely, but would suggest another rally to 5550.

ASX 200

* Target calculation: 5550 + ( 5550 – 5400 ) = 5700

ASX 200 VIX below 12, however, continues to indicate low risk typical of a bull market.

ASX 200

June 9, 2014

Creating a Learning Society | Joseph Stiglitz | Project Syndicate

By Joseph Stiglitz:

The Nobel laureate economist Robert Solow noted some 60 years ago that rising incomes should largely be attributed not to capital accumulation, but to technological progress – to learning how to do things better. While some of the productivity increase reflects the impact of dramatic discoveries, much of it has been due to small, incremental changes. And, if that is the case, it makes sense to focus attention on how societies learn, and what can be done to promote learning – including learning how to learn.

Stiglitz also includes an observation particularly relevant to Australia, with its shrinking manufacturing sector.

The great economist Kenneth Arrow emphasized the importance of learning by doing. The only way to learn what is required for industrial growth, for example, is to have industry. And that may require ….ensuring that one’s exchange rate is competitive….

June 3, 2014

ASX 200 retreats

The ASX 200 closed below short-term support at 5500, warning of another test of support at 5400. Declining 21-day Twiggs Money Flow indicates short-term selling pressure. Breakout above 5550 is unlikely in the short-term, but would signal an advance to 5700*.

ASX 200

* Target calculation: 5550 + ( 5550 – 5400 ) = 5700

ASX 200 VIX below 12 indicates low risk typical of a bull market.

ASX 200

May 28, 2014

War on entitlements doesn’t extend to military | | MacroBusiness

By Leith van Onselen, with kind permission from Macrobusiness:

I have noted previously how the Coalition has ear-marked tens-of-billions of taxpayer dollars to local defence manufacturing, including a $10 billion to $15 billion-program for 1,000 locally produced armoured vehicles, and locally designed and built submarines for around $40 billion. It has also flagged a multibillion-dollar warship project that will be built locally.Today, The AFR has revealed that an $8 billion contract for local shipbuilder, ASC, to supply three air warfare destroyers for the Australian Navy is running two-and-a-half years late and more than $300 million over budget because the company has no experience in shipbuilding:

An audit released in March… warned there could be further cost blowouts and delays to come…

The 320-page audit found defective drawings supplied by Navantia and an inexperienced Australian shipyard workforce were a devastating combination leading to hull blocks not joining up, pipes, air conditioning systems and cabling requiring modification, doors not lining up and equipment being left off and expensive and costly rework.

Surely the above schmozzle casts serious doubts over the Government’s plan to build military hardware locally.

While I acknowledge that there is an argument to retain your own military hardware building capacity, at what cost? The Coalition’s hard line on industry assistance appears to be in stark contrast to its defence procurement policy. Australia could easily purchase proven, fit-for-purpose, military hardware from abroad at a fraction of the cost of developing similar technology locally, saving taxpayers billions in the process.

Once again, it is these sorts of inconsistencies that undermine the Government’s goal of “ending the age of entitlement”. While it slashes benefits to vulnerable sections of the community, it is allowing egregious lurks and subsidies to remain in others, which is undermines the Government’s calls for “shared sacrifice”, whilst also ensuring that the burden of adjustment is not broad-based, reducing its efficacy. As I’ve said before, a much clearer framework for these decisions is needed.

Past experience of Australian military hardware (e.g. Collin’s class submarines) is that locally built generally means over-priced and second-rate (….be kind). While that does not necessarily extend to armoured vehicles, naval vessels such as frigates, destroyers and submarines appear beyond present capabilities. Commissioning local development is no doubt intended to create jobs, but is at the expense of selling short our soldiers and sailors — equipping them with second-rate equipment in situations where it can mean the difference between life and death. Which is why military procurement, like the selection of infrastructure projects, should be above the political process.

May 22, 2014

Norway teaches Britain how to choke house booms without killing economy – Telegraph Blogs

Ambrose Evans-Pritchard reports the resounding success of Norway’s central bank in using macroprudential tools to take the steam out of a housing bubble:

if the Bank [BOE] wishes to contain credit, it should learn from Norway’s success. Instead of raising rates, it has used “macroprudential” tools. It cut the loan-to-value ceiling on mortgages from 90pc to 85pc. It forced the banks to raise to capital buffers further.

The Norges Bank has recommended a 1pc counter-cyclical buffer based on its view of what constitutes a safe level of credit growth.

Contrary to claims that these tools never work, they worked splendidly, as you can see from this chart today from HSBC’s David Bloom.

The RBNZ adopted similar measures and it is puzzling why the RBA, which faces an equal threat, is not doing the same.

May 20, 2014

Use land taxes to plug budget holes || Macrobusiness

Great post from Unconventional Economist (reproduced with kind permission from Macrobusiness) gets to the heart of the current budget stoush.
Land Taxes

Cross-posted from David Collyer at Prosper Australia

Sometimes, through the smoke and fireworks of the national debate a political commentator sees the path forward and points the way.

Today in the Australian Financial Review, Alan Mitchell takes a far-sighted approach to the crisis provoked by the Abbott government in its attempt to raise and broaden the GST.

The Liberal Party has long been host to the clearest thinkers on the federal system embedded in Australia’s Constitution. Malcolm Fraser tried to unravel the ‘Canberra taxes, States spend’ dilemma that divorces revenue raising from program responsibility.

Civic society demands taxes and spending be tightly linked for accountability and fair scrutiny. Transparency is an essential feature of good government.

The first Abbott/Hockey budget seeks to end $80 billion in federal transfers to the states for health and education. The game plan is to force the states to beg for a tax on food.

Mitchell has a better idea, based on the principle of subsidiarity. This directs that matters ought be handled by the smallest, lowest or least centralised competent authority. Central government should perform only those tasks which cannot be performed at a more immediate or local level. This includes taxation.

State governments have quality tax bases – they just choose to use bad taxes and blame distant mandarins in Canberra for their self-imposed weakness. Voters struggle to see which level of government is responsible for which stuff-up.

Mitchell:

“In fact, they have all the efficient tax bases they need to raise a very large share of the spending now financed by grants from Canberra.

“They just prefer not to use them. They would rather rely on federal money and complain about “vertical fiscal imbalance.”

“Vertical imbalance is largely a myth perpetuated by state politicians who would rather avoid the responsibility for raising their own taxes.

Good can come from this Abbott/Hockey confected crisis. The Premiers are under no obligation to follow Canberra’s lead and destroy their narrow political capital by assuming responsibility for raising and broadening the regressive GST.

The states could instead take up the reforms urged on them by every genuinely independent tax review in living memory.

“Residential land tax also should be revived, and the most convenient way to do that probably is for state governments to gradually transfer more responsibilities to local government.

“Local government land rates based on unimproved property values are an efficient form of land tax, and while no one would enjoy paying higher rates, increased community control of schools, for example, might be quite popular. The availability of reverse mortgages also makes it more feasible for governments to rely more on the taxation of residential land.

State governments are sovereign. They do have choices. Rather than submit to a very bad deal from Canberra, they can reform themselves – and make Prime Minister Abbott responsible for the political costs of good public policy.

May 20, 2014

Five drivers point to more Australian dollar falls | | MacroBusiness

Greg McKenna (House & Holes) at Macrobusiness explains why the Aussie Dollar is falling:

Recently I posted that MB’s five drivers model for the Australian dollar was pointing lower. The dollar broke lower last night and appears biased for more. The five drivers are:

interest rate differentials;

global and Australian growth (more recently this has become more nuanced for the Aussie to be more about Chinese growth);

investor sentiment and technicals; and

the US dollar

May 19, 2014

Where are the Budget alternatives? | | MacroBusiness

Hats off to Leith van Onselen for his perceptive comments on Australia’s current budget stoush:

The point is, it’s fine to oppose Budget savings if you can provide an alternative plan to cut expenditure and/or raise taxes. But simply opposing measures without providing alternatives, as has been done by the opposition parties, ignores the very real structural pressures facing the Budget from falling commodity prices and an ageing population….

Some low hanging fruit that could be targeted by the opposition parties as alternatives to budgetary reform could include closing Australia’s more egregious tax expenditures – including overly generous superannuation concessions (which mostly benefit the wealthy), quarantining negative gearing so that losses from an asset can only be claimed against income from that same asset, removing the capital gains discount on investments, and removing tax concessions on company cars – as well as abolishing Abbott’s paid parental leave scheme.

Reforms to these areas alone would save many billions of dollars and improve equity in the process.