Category: Japan & Korea

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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….

Read more at Joseph E. Stiglitz makes the case for a return to industrial policy in developed and developing countries alike. – Project Syndicate.

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China’s Investment-Driven Growth “Miracle”

Worth Wray quotes Michael Pettis from his 2013 book, Avoiding the Fall: China’s Economic Restructuring, about the future path of China’s debt-laden economy:

Every country that has followed a consumption-repressing, investment-driven growth model like China’s has ended with an unsustainable debt burden caused by wasted debt-financed investment. This has always led to either a debt crisis or a lost decade of very low growth.

We couldn’t agree more. China is no different to Japan or Brazil. Investment-driven growth is only sustainable where investment earns a higher return than the long-term cost of servicing the debt. With diminishing returns on additional investment, returns dwindle and a debt/investment imbalance develops.

Keynesian thinking goes even further, however, suggesting that a fiscal deficit can be used to fund expenditure that does not earn a return, whether public fountains or school libraries. But that is short-term thinking, as Keynes indirectly acknowledged with his response “in the long run we are all dead.” In the long run, as with Japan, the government ends up with a huge pile of public debt and no income from investment assets with which to service the interest, let alone repay the principal.

The effect of a Chinese slow-down is likely to be similar to that of Japan in the early 1990s — just on a larger scale.

Read more at John Mauldin’s Thoughts from the Frontline: Can Central Planners Revive China’s Economic Miracle?

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Asia: India bullish but China weak

India’s Sensex found support at 24000. Recovery above 25000 would signal a fresh advance to 26000*. Breach of support is unlikely, but would warn of further correction. The primary trend is up and bearish divergence on 13-week Twiggs Money Flow indicates nothing more than medium-term selling pressure from the present correction.

Sensex

* Target calculation: 21000 + ( 21000 – 16000 ) = 26000

China’s Shanghai Composite Index continues to test primary support at 2000. Follow-through below 1990 would signal a decline to 1850*. Reversal of 13-week Twiggs Money Flow below zero signals medium-term selling pressure. Recovery above 2150 is unlikely, but would complete a triple-bottom reversal.

Shanghai Composite Index

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

Japan’s Nikkei 225 rebounded off primary support and is testing resistance at 15000. Follow-through above 15200 would signal another test of 16000. Recovery of 13-week Twiggs Money Flow above 20% would confirm long-term buying pressure. Reversal below 14000 is unlikely, but would signal a primary down-trend.

Nikkei 225

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China Japan threaten further decline

China’s Shanghai Composite Index is testing primary support at 2000. Follow-through below 1990 would signal a decline to 1850*. Reversal of 21-day Twiggs Money Flow below zero would signal medium-term selling pressure. Respect of primary support at 2000, however, would suggest another rally to 2150.

Shanghai Composite Index

* Long-term target calculation: 2000 – ( 2150 – 2000 ) = 1850

Japan’s Nikkei 225 is testing primary support at 14000. 21-Day Twiggs Money Flow below zero indicates medium-term selling pressure. Follow-through below 13900 would confirm a primary down-trend. Respect of primary support is unlikely, but would indicate a rally to 15000.

Nikkei 225

* Target calculation: 14000 – ( 15000 – 14000 ) = 13000

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India bullish while China, Japan remain weak

Sometimes monthly charts provide a clearer view of market direction by eliminating short-term noise.

India’s Sensex displays a primary advance, since breaking resistance at 21000, offering a long-term target of 26000*. Rising 13-week Twiggs Money Flow troughs above zero indicate strong buying pressure. Correction to test the rising trendline and support at 22000 should not be ruled out, but the primary trend is upward.

Sensex

* Target calculation: 21000 + ( 21000 – 16000 ) = 26000

The Shanghai Composite Index continues its gradual descent to a carefully managed soft-landing. Declining 13-week Twiggs Money Flow indicates selling pressure. Breach of primary support at 1980 would offer a target of 1750*.

Shanghai Composite Index

* Long-term target calculation: 2000 – ( 2250 – 2000 ) = 1750

Japan’s Nikkei 225 is testing primary support at 14000, while a large bearish divergence on 13-week Twiggs Money Flow warns of selling pressure. Breach of 14000 would confirm a primary down-trend. Recovery above 15000 and the descending trendline, however, would indicate another test of 16000*.

Nikkei 225

* Target calculation: 15000 + ( 15000 – 14000 ) = 16000

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India, China strengthen while Japan falters

Japan’s Nikkei 225 is testing primary support at 14000, while a large bearish divergence on 13-week Twiggs Money Flow warns of long-term selling pressure. Follow-through below 14000 would confirm a primary down-trend. Recovery above 15000 and the descending trendline is unlikely, but would indicate an advance to 16000*.

Nikkei 225

* Target calculation: 15000 + ( 15000 – 14000 ) = 16000

Bullish divergence (13-week Twiggs Money Flow) on the Shanghai Composite Index signals medium-term buying pressure. Breakout above 2180 would complete a double bottom reversal. Breach of primary support at 1980 is unlikely, but would offer a target of 1750*.

Shanghai Composite Index

* Long-term target calculation: 2000 – ( 2250 – 2000 ) = 1750

Indian exchanges were closed Monday. A long-term view of the Sensex displays a healthy up-trend, with 13-week Twiggs Money Flow trough above zero indicating buying pressure. Target for the latest advance is 23000*, but reversal below 22000 would warn of a correction to test the new support level at 21000.

Sensex

* Target calculation: 21500 + ( 21500 – 20000 ) = 23000

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Are we in a bull market?

A simple reflection of the weekly trend on major markets using Ichimoku Cloud. Candles above the cloud indicate an up-trend, below the cloud indicates a down-trend, while in the cloud reflects uncertainty. From West to East:
S&P 500
S&P 500
Footsie
FTSE 100
DAX
DAX
ASX 200
ASX 200
Nikkei 225 is testing primary support at 14000 and looks a bit weaker
Nikkei 225
While China is holding above primary support at 1950/2000 but shows no clear trend
Shanghai Composite

Overall, there is a strong case for a bull market.

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Asian stocks fall but ASX 200 resilient

The Asia-Pacific region reacted to Friday’s sell-off in US markets, with the Nikkei and Hang Seng currently down 1.5% and 1.2% respectively. The Shanghai exchange is closed for a public holiday, while India’s DJ15 is down 0.67%. The ASX 200, however, rallied towards the close, losing only 0.17%.

The monthly chart of Japan’s Nikkei 225 continues to display a large bearish divergence on 13-week Twiggs Money Flow, warning of long-term selling pressure. Reversal below 14000 would signal a primary down-trend. Recovery above 15000 is as likely, however, and would indicate another advance.

Nikkei 225

* Target calculation: 15000 + ( 15000 – 14000 ) = 16000

A monthly chart shows the Shanghai Composite Index on the flight path for a soft landing. Successive falls over the past 5 years have all exceeded the previous trough by roughly 200 points and this seems unlikely to change for the foreseeable future. The problem with a managed descent is that it is likely to endure for a lot longer than a short sharp crash. Breach of primary support at 1950 would therefore offer a target of 1800.

Shanghai Composite Index

Hong Kong’s Hang Seng Index on the other hand displays a large bullish ascending triangle. A 13-week Twiggs Money Flow trough at zero indicates buying pressure Breakout above 24000 would signal a primary advance. Reversal below the rising trendline is unlikely, but would warn of reversal to a primary down-trend.

Hang Seng Index

* Long-term target calculation: 24000 + ( 24000 – 17000 ) = 31000

India’s Sensex encountered resistance at 22500 and is likely to retrace to test 22000. Respect would signal an advance to 23000*. Bearish divergence on 13-week Twiggs Money Flow, however, warns of short/medium-term selling pressure. Reversal below 21500 is unlikely, but would indicate another correction.

Sensex

* Target calculation: 21500 + ( 21500 – 20000 ) = 23000

The ASX 200 proved surprisingly resilient, rallying toward the close. Rising 21-day Twiggs Money Flow indicates medium-term buying pressure, but expect strong resistance at 5450/5460. Breakout above 5450/5460 would signal an advance to 5600*. Respect of resistance or a false break, however, would warn of another test of support at 5300 and possibly a stronger correction. Primary support at 5050 does not at this stage appear threatened and the index remains in an up-trend.

ASX 200

* Target calculation: 5450 + ( 5450 – 5300 ) = 5600

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

ASX 200

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Asia: India bullish while China finds support

India’s Sensex retraced after encountering sellers at 22000, but Monday’s engulfing candle indicates support. Breakout above 22000 would signal an advance to 23000*. Reversal below 21300 is unlikely, but would warn of another correction. Momentum troughs above zero suggest a healthy primary up-trend.

Sensex

* Target calculation: 21500 + ( 21500 – 20000 ) = 23000

Japan’s Nikkei 225 is headed for another test of 14000 after a false break above 15000. Breach of support would signal a primary down-trend. Bearish divergence on 13-week Twiggs Money Flow continues to warn of selling pressure; reversal below zero would also indicate a primary down-trend.

Nikkei 225

* Target calculation: 14000 – ( 15000 – 14000 ) = 13000

China’s Shanghai Composite Index found support at 1990/2000. Follow-through above the rising trendline would indicate another bear rally. Bullish divergence on 21-day Twiggs Money Flow suggests medium-term buying pressure. Reversal below 1990 is unlikely at present, but would warn of a decline to 1850.

Shanghai Composite Index

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

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Japan: Hesitant recovery

The Nikkei 225 recovered above 15000, signaling another attempt at 16000. Retracement that respects the new support level would strengthen the signal. Completion of a 13-week Twiggs Money Flow trough above zero would indicate buying pressure, but bearish divergence flags long-term selling pressure and reversal below zero would warn of a primary down-trend — confirmed if support at 14000 is breached.

Nikkei 225

* Target calculation: 16000 + ( 16000 – 14000 ) = 18000

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