Japan’s Nikkei 225 Index broke resistance at 17500 while rising Money Flow indicates buying pressure. Target for the rally is the November 2015 high of 20000*.
* Target medium-term: 17500 + ( 17500 – 15000 ) = 20000
Shanghai Composite Index followed through after a brief consolidation at 3200, offering a target of 3400*. Expect retracement to test the new support level at 3100 but rising Money Flow suggests respect is likely.
* Target medium-term: 3100 + ( 3100 – 2800 ) = 3400
Shanghai Composite Index ran into resistance at 3200 after its recent breakout. Expect retracement to test the new support level at 3100. Respect would confirm the target of 3400* for the advance.
* Target medium-term: 3100 + ( 3100 – 2800 ) = 3400
[Kerr Neilson, the founder of $23 billion Platinum Asset Management] said China “absolutely smashes America” when measured by physical goods, producing more motor cars, eight times more steel and 10 times more cement.
“We’re just comatose. We have no idea, particularly in the West, what’s really changing. So we have all this debate, that’s the politicians’ hard sell. You can no longer make these silly promises and say ‘we’ve got to be more equitable’,” he said.
“Sure, it’s a great idea, but in fact the place we’re competing against, these other teams … they play a very hard game. It’s no good complaining about the referee.”
Source: Platinum’s Kerr Neilson slams ‘naive’ Western-centric view of the world
Shanghai Composite Index broke through resistance at 3100, signaling a primary up-trend. Rising Twiggs Money Flow confirms strong buying pressure. Target for the advance is 3400*.
* Target medium-term: 3100 + ( 3100 – 2800 ) = 3400
Forget private email servers and sex tapes. Forget men versus women. This election was decided on the following three issues:
1. Globalization.
Currency manipulation by emerging economies like China and consequent offshoring of blue-collar jobs has gutted the US manufacturing sector. Accumulation of $4 trillion of foreign reserves enabled China to suppress appreciation of the Yuan and maintain a competitive advantage against US manufacturers.
Container imports and exports at the Port of Los Angeles (FY 2016) highlight the problem. More than 57% of outbound containers are empty. Container shipping represents mainly manufactured goods, rather than bulk imports or exports, and the dearth of manufactured exports reflects the trade imbalance with Asia. Even the container statistic understates the problem as many outbound containers contained scrap metal and paper rather than manufactured goods, for processing in Asia.
Manufacturing job losses were tolerated by the political establishment, I suspect, largely because corporate profits were boosted greatly by offshoring jobs and low-cost imports. And corporations are the biggest political donors. Corporate profits as a percentage of GDP almost doubled over the last two decades.
2. Immigration
This is a similar issue to that highlighted by the UK/Brexit vote. Blue collar workers, losing jobs to globalization, felt threatened by high levels of immigration which, among other problems, stepped up competition for increasingly-scarce jobs.
3. Wall Street
Wall Street bankers with their million-dollar bonuses were blamed for the global financial crisis and collapse of the housing market, the primary store of wealth for middle-class families. While there is no doubt Wall Street had their snouts in the trough, the seeds of the GFC were laid years earlier when Bill Clinton repealed the Glass-Steagall Act with backing from a Republican congress. Failure to prosecute or otherwise punish even the worst offenders of the sub-prime mortgage debacle was seen by the public as collusion.
The Democrats in 2015 recognized that Hillary had been damaged by the private email server controversy and did their best to maneuver the election into a Trump-Clinton stand-off. Their view was that Hillary would be beaten by either Rubio or Kasich. Even the reviled Ted Cruz was seen as a threat. Hillary was seen as having the best chance against a flawed Trump who would struggle to unite the Republican party behind him.
Hillary Clinton was presented as the ‘safe’ candidate in the election, representing the status quo and stability. But that set her up for a fall as their strategy underestimated the anger of American voters and the risks they were prepared to take to bring about change.
While I am relieved that we can “close the history book on the Clintons”, to use Trump’s words, I viewed him as a lame-duck candidate, too flawed to hold the office of President. Fortunately there are many checks and balances in the US political system. It survived Nixon and should be able to survive this too. Especially if Trump takes a hands-off approach, along the lines of Reagan who was reputed to doze off in cabinet meetings. A lot will depend on his appointees and the next few months will be critical in setting the direction for his presidency. Expect financial markets to remain volatile until they have grown accustomed to the change. It could take a year or even longer.
By Houses and Holes on November 4, 2016:
Australian democracy is in very serious jeopardy. China is making great strides towards it and its intentions are not benevolent. It’s obvious in local, regional and global trends and if we do not do something soon to protect our freedoms they are going to be sold into the burgeoning Chinese empire, as well as political hegemony, by a corrupt oligarchy.
Some of you will tell me to take off my tin foil hat for writing this. To you I say ‘listen up’.
For the next few decades the global political economy will be a contest between post-cultural free moving capital and deeply cultural labour. This will mean ebbs and flows between investment and regulation in an overall trend towards de-globalisation.
As nation states rise from the past few decades of globalisation to protect their respective labour pools, there will be an increasing Balkanisation of trade and investment flows, particularly in terms of regions. One can foresee a time when a European trading bloc competes with American and Asian trading blocs as each’s respective hegemon – US, China and Germany – muscles out its sphere of influence.
In terms of the magnitude of these respective spheres, the biggest loser will be the United States as it is increasingly contested in North Asia. Europe may also lose as the eurozone either disintegrates or shrinks. China will win big.
Don’t get me wrong, I am not arguing that China will grow to rule the world, nor that the US will decline and fall. In fact, I expect US economic dominance to outlast China’s great leap forward owing to its immense sophistication, markets, research capability and excellent demographics. On the other hand, China faces an extremely difficult transition through the ‘middle income trap’ and terrible demographics.
Nonetheless, the sheer magnitude of these economies and powers mean that the great regional Balkanisation will transpire.
Thus Australia will find itself an object of contest within a region caught between respectively receding and advancing Super Powers. We are already seeing this very clearly in the shifts undertaken by both the Philippines and Malaysia. Both nations are led by highly dubious democratic leaders under intense pressure from a traditional US ally to come clean on corruption.
Yet both have instead turned to China to prop up their respective regimes with enormous investment deals that have come with fabulous reciprocal endorsements for Beijing, Manila and Kuala Lumpur. This while the US’s rather foolishly self-serving TPP dies on the shelf.
At the risk of stereotyping, these new Asian power relationships much more resemble a Confucian model that privileges patronage and filial bonds above the probity and meritocracy of democracy. China’s goals here are very obviously to undermine not just US influence but to empower local entities that are sympathetic to its interests. It may or not be an explicit goal to undermine democracies as well but if promoting local ‘strongmen’ does so then all the better!
Now turn to our local circumstances. Australia is the midst of a terms of trade boomlet engineered exclusively in Beijing. After decades of stupidly pro-cyclical policy-making Australia is now little more than a southern province of Chinese economic policy. With the flick of a pen in an obscure public service department, China delivers tens of billions to our shores in coal revenues and our monumental trade deficit evaporates overnight.
There is no other economy on earth that I know of that works with this dependence. We call it lucky. And it is. But it also comes with strings attached and they have been on display for a decade or more. Australian policy attitudes towards China have morphed steadily from a middle power engagement that included dialogues on human rights and democratic process to today’s pragmatic “do what you like boss” attitude.
I’m not writing to judge that. The kids of Tibet and Tienanmen are not Australian and there are limits to how much anyone can care about far flung folk. Especially when you’re offered a hundred billion dollar blindfold. Moreover, China needs Australian dirt to power its development so the power transmission is not all one way. The natural asymmetry of the political relationship is counter-balanced by the natural asymmetry of the economic one.
That’s the past. The future is very different indeed. China is going to need less and less dirt over time as it grows richer and more regionally powerful. And that’s where the recent events in the Philippines and Malaysia are a very important cautionary tale for Australian democracy. As we’ve seen, the next phase of Chinese development will be to throw off enormous sums of capital and people. Australia is happily gobbling up both at the moment to offset the declines in its dirt fortunes.
But this wave comes with much more explicit power compromises than we have already seen in action. The Sam Dastayari donations and rampaging property developer corruption scandals are the tip of the iceberg. Since then we’ve seen more and more Chinese bids for Australian strategic assets. This week we saw barely former trade minister Andrew Robb take a job advising the Landbridge Group, the owner of the Darwin Port. Landbridge is a shadowy firm involved in all sorts of stuff from chemicals to armed militias. It is widely considered to be beholden to Beijing in some way. At the very least the Darwin Port is the butt end of Beijing’s One Belt, One Road trade bloc monster. So here we have a trade minister out of the job for six months, a job that involved intimate consultation on the US’s competing regional trade deal, the TPP, tipping his intelligence directly into the Beijing trade bloc.
A less generous analyst might see this as some form of commercial treason. I will say that it is indicative of just how unprepared Australian parliaments are to address Chinese soft power influence in its manifold forms. Indeed, with the current crop of money-grubbing mock-libertarian ideologues in charge, we are a complete bloody pushover. Our checks and balances appear gossamer-thin in the executive. The intelligentsia is under assault from the Chinese student pipeline and pseudo-intellects like Bob Carr and his Chinese apologism. Nor can we rely on the media to hold any to account. Of the duopoly, Murdoch will give China the nod the moment the deal is good enough. Fairfax is dying and in its death throes has grabbed for a real estate lifeline that is itself China dependent.
It is not at all hard to imagine a circumstance like that that has engulfed the politics of the Philippines and Malaysia happening here. An Australian PM finds himself under siege and turns to Chinese patronage to bail him out. Explicitly or otherwise it will only take one desperate narcissist and Australia too will be welcomed into the waiting arms of Beijing patronage with all of its carrots and sticks determining precisely who wins and who loses Downunder. The following election would be fought between a candidate armed with hundreds of billions of dollars of firepower versus a guy promising recession.
So, I worry. I worry a lot, actually, that Australia is on the verge of giving away its most prized possession – its freedom – quietly in the dark for a few pieces of silver. To stop it we must move now, not tomorrow. We need:
- a big to cut the immigration intake and a rein the “citizenship exports sector”;
- an overhaul of the Chinese investment regime such that it be placed alongside the nation’s strategic objectives;
- a ban on foreign political donations (where is it?) and a Federal ICAC;
- a proper enforcement of rules governing foreign buying of real estate;
- a reboot of foreign policy that engages the US much more heavily in Asia.
Another couple of years of current policies and a few more Andrew Robbs and Aussie democracy as we know it is toast.
Reproduced with kind permission from Macrobusiness.
Bond spreads are an important indicator of risk in financial markets. When corporate bond yields are at a substantial premium to Treasury yields, that indicates higher default risk among large corporations. The graph below, from the RBA chart pack, shows the premium charged for AA-rated corporations compared to US Treasuries. Anything over 150 basis points (bps) indicates elevated risk. For lower-rated BBB corporations, a spread greater than 300 bps is cause for concern. At present, both credit spreads are trending lower, suggesting that financial risk is easing.
Australia displays a similar picture, with AA-rated spreads trending lower. BBB spreads are also falling but remain high at 200 bps relative to 150 bps in the US, reflecting Australia’s vulnerability to commodities and real estate (both here and in China).
Hong Kong’s Hang Seng Index is testing support at 23000. Breach would warn of a correction to test the long-term rising trendline. Declining Twiggs Money Flow indicates medium-term selling pressure. Breakout above 24000 is unlikely but would signal a fresh advance.
The Shanghai Composite Index is again testing resistance at 3100. Breakout is likely and would signal a fresh advance, offering a target of 3400.
Hong Kong’s Hang Seng Index is consolidating between 23000 and 24000. Decline of Twiggs Money Flow has slowed and a trough above zero would indicate long-term buying pressure. Breakout above 24000 would signal a fresh advance. Breach of support at 23000 is less likely but would warn of a correction to test the long-term rising trendline.
The Shanghai Composite Index made a flat saucer-shaped correction before again testing resistance at 3100. Breakout is now likely and would signal a fresh advance.
Steep decline on Twiggs Money Flow warns of strong selling pressure on Hong Kong’s Hang Seng Index. Breach of support at 23000 would warn of a correction to test the long-term rising trendline.
The Shanghai Composite Index continues to consolidate between 2800 and 3100.
