ASX 200 meets resistance

The ASX 200 is testing resistance at 5200. Breakout would signal an advance to 5400*. Reversal below 5100 is unlikely but would warn of a bull trap.  As would reversal of 21-day Twiggs Money Flow below zero.
ASX 200 Index

* Target calculation: 5150 + ( 5150 – 4900 ) = 5400

The Energy Sector XEJ recently completed an inverted head and shoulders reversal over six weeks, signaling an advance to 137. Bullish divergence on 13-week Twiggs Money Flow indicates long-term buying pressure. Breakout above 137 would offer a long-term target around 150*.
ASX 50 Index

* Target calculation: 135 + ( 135 – 120 ) = 150

Are Australian banks really sound?

Business Spectator reports:

In a statement APRA chairman John Laker said that, in implementing the Basel III liquidity reforms, the authority’s objectives were to improve its ability to assess and monitor ADIs’ liquidity risk and strengthen the resilience of the Australian banking system.

“APRA believes ADIs are well-placed to meet the new liquidity requirements on the original timetable and doing so will send a strong message about the soundness of the Australian banking system,” he said.

If you repeat misinformation often enough, people will believe it is true. Australian banks face two risks: liquidity risk and solvency risk. Addressing liquidity risk does not address solvency risk. Australian banks report risk-weighted capital ratios which are misleading if not downright dangerous. Risk-weighting encourages banks to concentrate exposure in areas historically perceived as low risk, such as residential mortgages. When all banks are over-weight the same asset, the risk profile changes — as Eurozone banks discovered with government bonds.

If we remove risk-weighting, as proposed in the US Brown-Vitter bill, the four majors in Australia would have capital ratios of 3 to 4 percent. Not much of a capital buffer in these uncertain times.

Urban sprawl isn’t to blame: unsustainable cities are the product of growth fetish

By Brendan Gleeson, University of Melbourne

In a recent article on The Conversation Robert Nelson argues we are all morally culpable for unsustainable urban sprawl. He goes on to suggest we fix this by taking advantage of opportunities for higher density development in sparsely populated inner suburbs.

But his argument is based on a false opposition: mounting evidence shows that high density development in inner areas performs very poorly in terms of resource consumption and greenhouse emissions. The idea that outer suburbs are inherently less sustainable than inner ones doesn’t bear scrutiny.

The key question is not where we accommodate growth; it’s our slavish pursuit of growth itself.

Urban accumulation

The metro fringe is expected to accommodate 40% of our national population increase in the next 15 or so years. Australia has for some time been experiencing record population growth, cheered on by business lobbies, and rationalised by the expertise they buy. Not all of it is corporate conception, or undesirable: the fertility spike and commitment to a humane migration program are also contributors.

The urban sustainability crisis betrays not bad consumption patterns but the awesome success of accumulation. Our cities express the ceaseless economic expansion imperative and its politico-cultural expression, which Clive Hamilton has memorably described as the “growth fetish”.

We have sprawl in every possible physical form – from low density suburbia to the vertical sprawl produced by market driven compaction. It is a fallacy to describe the latter as sustainable.

The existing urban footprint simply cannot absorb the human increase. It is a physical, social and political impossibility. And the underlying imperative of accumulation will drive excessive urban expansion in its various forms.

Risky business

The physical form of cities and suburbs has little influence on overproduction and its social and ecological consequences.

We are, as Nelson correctly implies, in the tightening grip of a species crisis. As the German sociologist Ulrich Beck describes it, we live in a World at Risk – from climate warming, resource depletion, economic default, and social breakdown. The ecological crisis may be the gravest of these as it appears to be moving with wild speed and threatens to upend the planetary order entirely. But it cannot be divorced from the other calamities which all derive from a human modernity that, as Beck states, is devouring itself.

The looming human catastrophe is not a moral crisis or a consequence of ethical failure. It is the product of a political economy that has defined, if not always exclusively, the process of modernisation through the past five or so centuries. The long haul of capitalist accumulation has brought us to the abyss of species threat.

It is wrong to explain this historical process in moral terms. This merely distracts attention from the role of capitalism as a driver of growth. As the philosopher Slavoj Žižek put it recently, “The point of emphasising morality is to prevent the critique of capitalism”.

Capitalism is a force for ceaseless accumulation driven by valorisation (value creating value). It is hard-wired to expansion, and can never be reconceived or reformed as a “steady state” economic order. It expands or it dies.

And therein lays its marvellous, terrifying power. It is a human order set in epic contest with the natural order, scaling ever upwards the heights of risk. One day it will reach the precipice of possibility and a structural transformation will ensue. Humanity will survive this, as it has all other historical transformations, but we do not know what new social dispensation will be possible in its wake.

Weathering the storm

It is simply impossible to dramatically change the urban form in the timescales of looming climate and resource emergencies. Absent war or massive calamity, cities resist sudden change. We cannot design our way out of a crisis generated by the underlying political economy that has driven modernisation for centuries.

However, good planning and design are vital to the project of making our cities as safe and resilient as possible. Elsewhere I have urged us to reconceive cities as lifeboats that will carry an increasingly urbanised humanity through the storms that lie inevitably in our path.

It is only fair that we break from our long habit of malign neglect and cut the outer suburbs an appropriate share of national resources. The investment should be in a massive suburban overhaul to realise the latent environmental potential of the low density form. In quest for resilience, households should be assisted towards self-sufficiency in water, energy and food production.

Paul Mees’ important Australian book, Transport for Suburbia, shows decisively that good public transport is possible in the low density form. We must lament the intellectual and political idiocy that has convinced us that it cannot be made to work in the suburbs.

The outer suburbs simply aren’t the source of our mounting environmental problems. And neither is social delinquency a helpful way of thinking about what is a long run failing of the market economy. We have to prepare the lifeboats for what lies ahead.

Brendan Gleeson does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

The Conversation

This article was originally published at The Conversation.
Read the original article.

Colin Twiggs:

I agree with Brendan Gleeson’s defense of suburbia, but what concerns me is the focus on sustainability in terms of energy usage and a critique of the economic system. No doubt these are important, but I would like to see more attention given to the health dangers of high-density living, both physical and psychological — from the impact on childhood obesity to feelings of isolation, increased aggression and pathological behavior in inner city environments. Biologists as far back as Konrad Lorenz (Civilized Man’s Eight Deadly Sins) have warned of the dangers of over-crowding and their impact on aggression levels.

Lorenz also warned of the ‘avalanche’ effect of positive feedback from technological development and how this could create an environment where humans struggle to cope. Prof. Gleeson I believe is trying to make a similar point when he refers to a ‘growth fetish’.

Capitalism is a force for ceaseless accumulation …… It is hard-wired to expansion, and can never be reconceived or reformed as a “steady state” economic order. It expands or it dies.

To lay the blame for this ceaseless expansion at the foot of Capitalism is I believe misguided. Capitalism covers the full spectrum from intense competition in cities like New York to peaceful co-existence in rural communities such as Pennsylvania or the Outer-Hebrides. And we find a similar spectrum in Communist or Socialist societies. The underlying cause of the malaise appears to be the impact of high-density living — no matter what economic system — and the consequent breakdown of the individual’s sense of community and belonging. A study (can anyone recall the name?) done in Australia several years ago found that Australians living in small to medium-sized towns (10,000 to 50,000) enjoyed greater psychological well-being than their city or rural counter-parts. These towns seem to offer balance between community (belonging) and the spectrum of opportunities only normally available to larger communities. More effort should be made to identify the underlying causes of that well-being and attempt to replicate the benefits in both rural and city environments. Economic and energy efficiency are important, but first and foremost we need to create cities that are healthy to live in — from both a physical and psychological aspect.

How Bureaucrats and Politicians Conspire to Rip Off Taxpayers | International Liberty

Dan Mitchell discusses a new National Bureau of Economic Research working paper entitled “Shrouded Costs of Government: The Political Economy of State and Local Public Pensions.”

….The politicians give the bureaucrats excessive compensation. But they make it difficult for taxpayers to figure out how they’re getting robbed by concentrating a big share of the excess in harder-to-measure fringe benefits.

Another advantage of that approach, by the way, is that the bill for all the retiree benefits doesn’t come due until some point in the future, by which time the politicians who put taxpayers on the hook often have retired or moved on to some other position.

Generous benefits for government employees are a neat way for politicians to avoid accountability. They do not appear in the budget and are a hidden liability of the government. For a start we need to prevent politicians from creating unfunded future liabilities not just for government employee benefits, but for Social Security, Medicare and Medicaid funding. At present these are a hidden iceberg as they do not appear on the government balance sheet. It is too easy for politicians to kick the can down the road, failing to address any future funding shortfall. These unfunded future liabilities should be reflected on the balance sheet in order to improve accountability. If the actual liability is uncertain, then actuarial estimates can be used — in much the same way as used by insurance companies.

Read more at How Bureaucrats and Politicians Conspire to Rip Off Taxpayers | International Liberty.

Gold and commodities fall as bonds rise

Gold is testing short-term support at $1450. Breach would be likely to penetrate the rising trendline, indicating another test of primary support at $1320. Reversal below $1400 would warn of a further down-swing. Breach of $1320 would confirm, with the next major support level at the 2008 high of $1000.

Spot Gold

* Target calculation: 1550 – ( 1800 – 1550 ) = 1300

The Gold Bugs Index, representing un-hedged gold stocks, is falling rapidly. The index behaves like a leveraged gold instrument. Fixed costs of extraction make miners extremely sensitive to relatively small fluctuations in the gold price — which is why many miners hedge. The index is headed for a test of its 2008 low, which equated to a spot price of $700/ounce. I am not predicting that gold will fall below its cost of production, variously estimated at between $900 and $1150 per ounce, but expect further weakness.
Gold Bugs Index
My bullish outlook for gold is fading (into the future) as deflationary pressures faced by central banks grow.

Treasury Yields

Money continues to flow into bonds — reflecting a lower inflation outlook — and further outflows from gold are likely. Ten-year treasury yields broke support at 1.70% — prior to 2012 the lowest level in the 200 year history of the US Treasury — and a test of the all-time low at 1.40% is likely.

Dollar Index

Crude Oil

Brent Crude is headed for a re-test of its former support level at $106/barrel. Respect is likely and would offer a target of $92*. Nymex WTI recovered above $90/barrel, but further weakness is expected. Reversal below $90 would warn of a swing to the lower trend channel around $84 . Falling crude prices are a healthy long-term sign for the economy, but indicate falling demand and medium-term weakness.

Brent Crude and Nymex Crude

* Target calculation: 99 – ( 106 – 99 ) = 92

Peter Glover and Michael Economides in The Coming Arab Winter write:

Within just a few years of it taking off, the US shale gas and oil industry is enabling America to become increasingly self-sufficient with imports from the Middle East greatly reduced. The US is closing in on eclipsing Saudi energy production capacity. The 2012 edition of the IEA’s World Energy Outlook says America will surpass Saudi as the world’s biggest oil producer by 2020; such is the rate of current US oil development it could well be before then.

According to one recent report, the dramatic expansion of US production could push global spare oil capacity to exceed 8 million barrels per day. At that point OPEC could lose its ability to set or influence prices and global oil prices could drop sharply. While that would take a heavy toll on many Western energy producers, it would prove disastrous for OPEC’s member states.

The peak oil myth is discredited. Expect long-term weakness in crude prices as the US, China, Australia and elsewhere ratchet up shale gas production.

Commodities

Commodity prices continue to diverge from stocks, with the Dow Jones – UBS Commodity Index headed for primary support at 125. Breach would warn of a decline to the 2008 low of 100. Declining 13-week Twiggs Momentum, below zero, warns of a down-trend; reversal below the 2012 low of -15% would strengthen the signal. Stock prices are precariously high in relation to commodities. Recovery of US housing is unlikely to drive a massive construction boom as there must still be significant over-supply of existing units.

Dow Jones UBS Commodities Index

Australia: Why The Stock Market Has Been Bulletproof To Bad Economic News | Business Insider

Sam Ro quotes Gerard Minack in Business Insider:

To summarize: 1) we’ve seen this before, 2) we think the slowdown is temporary, 3) we think significant weakness will trigger stimulus, and 4) we think fiscal austerity is now less likely.

Still, Minack is pretty sure this resilience can’t hold for too much longer.

Read more at Why The Stock Market Has Been Bulletproof To The Bad Economic News | Business Insider Australia.

Asia: Singapore breakout, ASX 200 selling pressure

Singapore’s Straits Times Index broke long-term resistance at 3300, signaling an advance to the 2007 high of 3900*. Troughs above zero on 13-week Twiggs Momentum strengthen the signal.
DJ Shanghai Index

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

India’s Sensex followed through above resistance at 19000. Breach of the descending trendline would indicate a primary advance to 22000*. 13-week Twiggs Money Flow below zero, however, signals selling pressure and reversal below 19000 would warn of another test of primary support at 18000.
BSE Sensex Index

* Target calculation: 20000 + ( 20000 – 18000 ) = 22000

China’s Shanghai Composite is again testing medium-term support at 2150. Failure of support would warn of a decline to test primary support at 1950/2000. Reversal above 2250, however, would penetrate the descending trendline, indicating another test of 2500.
Shanghai Composite Index

Japan’s Nikkei 225 continues to climb, with a steeply rising 13-week Twiggs Money Flow indicating strong buying pressure. Target for the advance is 15000*.
Nikkei 225 Index

* Target calculation: 11500 + ( 11500 – 8000 ) = 15000

The ASX 200 is testing resistance at 5150. Breakout would offer a target of 5400*, but bearish divergence on 13-week Twiggs Money Flow warns of selling pressure. Failure of support at 4900 would signal a reversal.
ASX 200 Index

* Target calculation: 5150 + ( 5150 – 4900 ) = 5400

Forex: Aussie consolidates while Sterling surprises

The euro is consolidating between $1.30 and $1.32. Upward breakout is more likely and would test the high of $1.37. Reversal below $1.30 would warn of another decline, to around $1.24*. In the long-term, breakout above $1.37 would signal a primary advance to $1.50. A 13-week Twiggs Momentum trough at the zero line would reinforce this.

Euro/USD

* Target calculation: 1.28 – ( 1.32 – 1.28 ) = 1.24

Pound sterling surprised with a reversal above resistance at $1.53. Follow-through above $1.54 would suggest an advance to around $1.58, while retreat below $1.52 would signal a down-swing to $1.43*. Declining 13-week Twiggs Momentum, below its 2011 lows, strengthens the bear signal.

Sterling/USD

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

The Aussie Dollar rallied off primary support at $1.015. Narrow fluctuation of 63-day Twiggs Momentum around zero suggests a ranging market. Respect of support suggests another test of $1.06.

Aussie Dollar/USD

Canada’s Loonie found support above $0.97 against the greenback, suggesting another test of $0.99. Breach of the rising trendline, however, would indicate another down-swing.

Canadian Dollar/USD

The greenback is testing resistance at ¥100 against the Japanese Yen. The 30-year down-trend of the dollar is over. Breakout above ¥100 is likely, and would suggest an advance to the 2007 high at ¥125*.

USD/JPY

* Target calculation: 100 – ( 100 – 75 ) = 125

The Fed, ECB and BOJ are all printing money and debasing their currencies. The US dollar, although taking on water, is viewed as the safest — because it is sinking slower than the others. There are signs the Fed is likely to slow quantitative easing in the next 6 to 12 months.

ASX 200 correction over

The ASX 200 rallied strongly after breaking resistance at 5020. Breach of  the March high at 5150 is likely and would signal an advance to 5400*. A 21-day Twiggs Money Flow peak below zero would warn of strong selling pressure.
ASX 200 Index

* Target calculation: 5150 + ( 5150 – 4900 ) = 5400

The monthly chart offers a long-term target of 6000*.
ASX 50 Index

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