Countries & Regions Archives - Page 138 of 381

November 4, 2014

DAX and Footsie weakness

Having signaled a primary down-trend with a break below 8900, Germany’s DAX recovered above 9000 to warn of a potential bear trap. After finding resistance at 9400, reversal below 8900 would confirm the down-trend, while follow-through above 9400 would suggest another test of 10000. 13-Week Twiggs Money Flow recovered above zero, but reversal (below) is likely and would indicate long-term selling pressure.

DAX

* Target calculation: 9000 – ( 10000 – 9000 ) = 8000

The Footsie found resistance at 6550. Reversal below 6200 would confirm a primary down-trend, while follow-through above 6550 would indicate another test of 6900. Oscillation of 13-week Twiggs Money Flow largely above zero, however, suggests long-term buying pressure.

FTSE 100

* Target calculation: 6500 – ( 6900 – 6500 ) = 6100

November 4, 2014

Canada: TSX 60 finds resistance

Canada’s TSX 60 rallied to 850 before finding resistance. Reversal below 820 would warn of a primary down-trend. Retreat of 13-week Twiggs Momentum below zero would strengthen the bear signal. Follow-through of the index above 865 is less likely, but would indicate another test of 900.

TSX 60

November 4, 2014

S&P 500 and Nasdaq retracement

The S&P 500 is likely to retrace to test the new support level at 2000. Respect would confirm a fresh advance with a target of 2150*. Rising 13-week Twiggs Money Flow indicates buying pressure. Reversal below 2000 is unlikely, but would warn of a bull trap (correction).

S&P 500

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

CBOE Volatility Index (VIX) at 14 continues to indicate low risk typical of a bull market.

VIX Index

The Nasdaq 100 is in a similar situation, having broken resistance at 4100. Retracement that respects support at 4000 would confirm a fresh advance, offering a target of 4500*. Recovery of 13-week Twiggs Money Flow above 35% would flag buying pressure.

Nasdaq 100

* Target calculation: 4100 + ( 4100 – 3700 ) = 4500

November 3, 2014

US Freight Transport Index

Looks like a robust recovery to me.

US Freight Transport Services Index

November 3, 2014

Increasing bank capital is in the interest of shareholders

Westpac CEO Gail Kelly warns that all Australians will have to carry the cost of making the financial system safer:

“Of course you can ever increase capital and become ever more safe, but that does come at a cost. The increasing of capital ends up having ultimately having a diminishing return in terms of safety, but the costs are real, capital is not free. Those costs will flow through to impact the economy more broadly, noticing and noting that banks are strong intermediaries within the Australian economy.”

What Gail fails to consider is that Australians already carry the cost of an unsafe banking system, with the broad economy contracting when banks suffer solvency or liquidity problems. And the taxpayer effectively stands as guarantor in the event of a failure.

I agree that capital comes at a cost — higher than the direct cost of deposit funding which capital would partially replace. But when one factors in the cost of the vast infrastructure required to attract and service those deposits, the margin narrows. Increasing the level of capital will also make banks safer and reduce the risk premium, further lowering the average cost of capital. And not only for equity: improved risk ratings will lower the cost of deposit-funding as well.

Banks with higher capital ratios also benefit from higher asset and loan growth according to studies conducted by the Bank for International Settlements.

Making the banking system safer is not only in the interests of the taxpayer, but also bank shareholders.

November 3, 2014

Europe’s Energy Essentials by Ana Palacio | Project Syndicate

Ana Palacio on Europe’s energy challenge:

Energy’s emergence as a focal point for European leaders makes sense, given that it lies at the confluence of the three existential threats facing the European Union: a revisionist Russia, the declining competitiveness of European businesses, and climate change.

….The most tangible element of the EU’s emerging energy-policy framework is the internal energy market, which, once completed, will allow for the unimpeded flow of energy and related investments throughout the EU. Such an integrated energy market would lead to significant savings – estimates go as high as €40 billion ($51 billion) annually by 2030 – thereby providing a much-needed competitiveness boost.

The internal energy market would enhance Europe’s energy security as well…. individual countries are often excessively dependent on a single source and, more dangerously, a single supplier: Russia. Unrestricted energy flows within the EU would mitigate the risks of supply disruptions or shocks.

November 1, 2014

Dow and S&P 500 make new highs

US stocks have reaffirmed their bull market
European stocks are recovering
China and Japan signal up-trends
ASX is rising

The new reporting season is under way and fund managers are now looking for opportunities rather than selling off under-performers.

Dow Jones Industrial Average made a new high, above 17300, signaling a primary advance. Reversal below 17000 and the rising trendline is most unlikely, but would warn of another correction. Target for the advance is 18000*.

Dow Jones Industrial Average

* Target calculation: 17000 + ( 17000 – 16000 ) = 18000

The S&P 500 similarly made a new high, signaling a fresh advance. Rising 13-week Twiggs Money Flow (above zero) indicates medium-term buying pressure. Target for the advance is 2150*. Reversal below 2000 and the rising trendline is unlikely, but would signal another correction.

S&P 500 Index

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

CBOE Volatility Index (VIX) at 14 indicates low risk typical of a bull market.

S&P 500 VIX

Dow Jones Euro Stoxx 50 continues to advance above its former primary support level at 3000. Long tails on the weekly candlesticks and recovery of 13-week Twiggs Money Flow above zero indicate buying pressure. Expect another test of 3300. Reversal below 3000 is less likely, but would signal a primary down-trend.

Dow Jones Euro Stoxx 50

* Target calculation: 3000 – ( 3300 – 3000 ) = 2700

China’s Shanghai Composite Index rallied above its recent high at 2400, confirming a primary up-trend. Target for the new advance is 2500*. and the rising trendline, warning of a correction. Rising 13-week Twiggs Money Flow trough (above zero) indicates medium-term buying pressure; completion of a trough high above zero would signal trend strength.

Shanghai Composite Index

* Target calculation: 2400 + ( 2400 – 2300 ) = 2500

Japan’s Nikkei 225 Index broke resistance at 16300, signaling an advance with a long-term target of 18000*. Reversal below 16000 is unlikely, but would warn of another correction.

Nikkei 225 Index

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

The ASX 200 is headed for a test of resistance at 5660. Brief retracement at 5440 and rising 21-day Twiggs Money Flow (above zero) both indicate medium-term buying pressure. Reversal below 5440 is unlikely, but would indicate a test of 5250. I have lowered the target to 6000* because of constant back-filling in recent months.

ASX 200

* Target calculation: 5650 + ( 5650 – 5300 ) = 6000

October 30, 2014

The Index of Cronyism by The Economist

Alejandro Chafuen discusses the impact of crony capitalism:

Unfortunately, much of the debate about cronyism is based on anecdotes and generalizations…..In the United States we have efforts, such as Subsidy Tracker, which give some idea of the problem. Subsidies feed cronyism. Known state subsidies to private business add up to $153 billion.

Subsidies are merely the tip of the iceberg. Artificial exchange rates and offshoring have cost millions of US manufacturing jobs.

The Economist has produced an Index of Cronyism which ranks Hong Kong as #1 and Russia #2 on the list. But it points out that the index is only a rough guide with three major shortcomings:

Not all cronies, especially politicians, disclose their wealth. So the fortune of Vladimir Putin, for example, is not included.
The index concentrates on vulnerable sectors and ignores other forms of subsidy outside these areas. And all companies in a sector, good or bad, are tarred with the same brush.
Only the wealth of billionaires is counted. There are many less-wealthy public servants and corporate officers who also benefit.

….More than a reason for criticism, “The Economist” and its Index of Cronyism should be a call for action and improvement. “If it Matters Measure It,” says the motto of the Fraser Institute. Cronyism matters. Measure it.

I wholeheartedly agree. Cronyism is a bigger threat to capitalism than (largely discredited) socialism. More work needs to be done to measure its economic and social cost.

October 30, 2014

Poland Prepares for Russian Invasion | The XX Committee

A top Polish MoD official, a man of “sober and strongly pro-American views” opines about Barack Obama and his national security staff:

“…You have no idea how many promises we’ve been given, even by the President himself, but there’s never any follow-up, it’s all talk. He thinks he’s on Oprah.” When I asked if he thought America would come to Poland’s aid in a crisis, he said laconically, “I’d flip a coin.”

October 30, 2014

Should Beijing raise subway fares? | Michael Pettis

Michael Pettis’ argues that not only are SOEs “destroying value in the aggregate on a huge scale” but misallocated investment is endemic in China.

I have to confess that the reason I started saying in 2006-07 that China was eventually going to replace 1980s Japan as the global archetype of investment misallocation was not because I had a lot of data proving my case. Overinvestment is almost impossible to prove until after the fact, especially when you consider the circularity of the data – the growth assumptions feed into the valuation of the investment, which then feeds back into the growth assumptions.

My reasons were much more “systemic”. I did not believe it was possible for any country not to experience significant wasted investment after so many years – more than a decade in this case – of the highest investment growth rate in the world funded by massive credit expansion at such incredibly low lending rates roughly one-third the nominal GDP growth rate, and 1-3 percentage points below the GDP deflator. Add more spicy ingredients to the stew – first, the very limited experience of Chinese bankers and regulators, and most of that in a one-way market, second, widespread moral hazard, third, weak corporate governance, fourth, very fuzzy data, and finally, no enforced system of accountability – and I found it impossible to doubt that investment was being dangerously misallocated.

He also dispels the counter-argument that “Western” models don’t apply to China and that “a very poor, low-capital-stock country far from the technological frontier like China” is able to absorb higher levels of investment.

In 2008 (Red Star) I compared China to a red star in astronomy:

Students of astronomy will tell you that a red star, far from indicating heat, is cooling appreciably. While its diameter may expand, its core is contracting and its temperature falling. Eventually it will either explode or shrink to become a dwarf star….

My warning of an imminent collapse may have been premature, but no economy can survive such high levels of investment misallocation without major upheaval. China risks following the boom-bust growth path of Japan and the Asian tigers in the 1980s and 1990s.