Category: Countries & Regions

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Banks hold more risk than before GFC | Chris Joye

Chris Joye explains why risk-weighted capital ratios used by Australia’s major banks are misleading and why true leverage is more than 20 times tier 1 capital.

It was only after 2008 when regulators allowed the majors to slash risk-weightings on home loans from 50 per cent to 15 per cent today that we have seen their reported and purely academic tier one capital measured against these newly “risk-weighted” loan assets which shrunk in value spike from 6.7 per cent in December 2007 to 10.5 per cent in June 2014.

By arbitrarily boosting the risk-free share of major bank home loans from 50 per cent to 85 per cent via the regulatory artifice that is a risk-weighting, one gets the fictional jump in their tier one capital that everyone believes is real.

Tier 1 Capital to Gross Assets

Read more at Banks hold more risk than before GFC.

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Russians see war cost as their army invades

From Oleg Sukhov:

While previously Russia mostly sent fighters who had been formally discharged from the military or on official leave, earlier this week an invasion of eastern Ukraine by the regular Russian army began, making it much harder to hide the truth. …On Aug. 26 Ella Polyakova, head of the St. Petersburg Committee of Soldiers’ Mothers, said that hospitals in Rostov-on-Don and nearby regions were filled with injured soldiers.

Valentina Melnikova, head of the Union of the Committees of Soldiers’ Mothers, said on Aug. 27 that about 15,000 Russian soldiers, including both mercenaries and the regular army, were currently fighting in eastern Ukraine. She lambasted the authorities for hiding the truth and effectively denying assistance to the killed soldiers’ families, comparing it to similar situations during the Soviet invasion of Afghanistan and the first Chechen War.

On Aug. 27, the Stavropol Committee of Soldiers’ Mothers published a list of 400 killed and injured Russian troops.

These people are as much victims of an authoritarian Russian regime as the people of East Ukraine.

Read more at Russians see war cost as their army invades.

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Let’s be clear about this: Russia is invading Ukraine right now | Vox

From Max Fisher:

…There’s more behind this confusion than just careful diplomacy. Russian President Vladimir Putin learned a crucial lesson from Syrian leader Bashar al-Assad last year, when the latter got away with using chemical weapons against his own people.

That lesson is this: the Western world can set all the red lines it wants — don’t use chemical weapons, don’t invade sovereign countries — but if you cross that red line just a little bit at a time, inching across over weeks and months, rather than crossing it all at once, then Western publics and politicians will get red-line fatigue and lose interest by the time you’re across.

Read more at Let's be clear about this: Russia is invading Ukraine right now – Vox.

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Dollar surges, yields fall but gold hesitant

The Dollar Index continues its impressive advance. Expect resistance at the 2013 highs at 84.50. Reversal below 81.50 is most unlikely.

Dollar Index

* Target calculation: 81.50 – ( 81.50 – 79.00 ) = 84.00

The yield on ten-year Treasury Notes is retracing to test its new resistance level at 2.40/2.50 percent. The primary trend is down, with 13-week Twiggs Momentum holding below zero. Respect of resistance is highly likely and would confirm a decline to 2.00 percent*.

10-Year Treasury Yields

* Target calculation: 2.50 – ( 3.00 – 2.50 ) = 2.00

Gold

Gold continues in a narrow range, between $1280 and $1320/ounce, in the apex of the triangle. Both this and oscillation of 13-week Twiggs Momentum close to zero signal uncertainty. Expect further consolidation between $1250 and $1350 in the medium-term. Breakout from that band is likely to indicate future direction. Falling crude prices and low inflation favor a down-trend.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

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Crude and bulk commodities fall but nickel, aluminum rally

Crude oil prices are falling. Nymex Light Crude is testing primary support at $92/barrel and Brent Crude at $99/barrel. Breach of support would signal a down-trend.

Nymex WTI Crude

Commodity prices remain low, in line with sluggish world trade.

But that does not tell the full story.

Bulk commodity prices are falling as Chinese construction slows…

Bulk Commodities

…While copper prices recovered above 7000/tonne. Penetration of the declining trendline suggests that the down-trend is slowing. Breakout above 7400 would strengthen the signal.

Copper

And aluminum alloy…

Alumina

…and nickel show surprising strength, signaling an up-trend.

Nickel

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ASX finds support

The ASX 200 found short-term support at 5630 and continuation of the US rally would see a breakout above resistance at 5650. Follow-through above 5680 would confirm the advance, offering a target of 5850*. Completion of another 21-day Twiggs Money Flow trough above zero would strengthen the signal. Reversal below 5550 is unlikely, but would warn of a test of primary support at 5360/5380.

ASX 200

* Target calculation: 5650 + ( 5650 – 5450 ) = 5850

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

ASX 200

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Hang Seng leads Asian recovery

Hong Kong’s Hang Seng Index broke its 2010 high at 25000, confirming a primary advance and offering a target of 27000*. Rising 13-week Twiggs Money Flow signals continued buying pressure. Reversal below 24000 is unlikely, but would warn of a correction to the rising trendline.

Hang Seng Index

* Long-term target calculation: 24000 + ( 24000 – 21000 ) = 27000

China’s Shanghai Composite Index continues to test resistance at 2250. Breakout would confirm a primary up-trend. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Reversal below 2150 is unlikely, but would warn of another test of primary support at 1990/2000.

Shanghai Composite Index

* Target calculation: 2250 + ( 2250 – 2000 ) = 2500

India’s Sensex is retracing to test support at 26000. Respect would confirm the target of 27000*. Declining 13-week Twiggs Money Flow continues to warn of selling pressure. Respect of the zero line would indicate that buyers have taken control, while a fall below zero would warn of a correction. Penetration of the secondary trendline is unlikely, but would indicate a correction to the primary trendline.

Sensex

* Target calculation: 21000 + ( 21000 – 15000 ) = 27000

Japan’s Nikkei 225 index recovered above 15500, suggesting continuation of the advance. Expect resistance between 16000 and 16300. Declining 13-week Twiggs Money Flow warns of medium-term selling pressure, but respect of the zero line would indicate that buyers have taken control. Reversal below 14800 is unlikely, but would warn of a test of primary support at 14000.

Nikkei 225

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

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DAX surges

Germany’s DAX surged after a brief test of support at 9250/9300. Recovery of 21-Day Twiggs Money Flow above zero indicates short-term buying pressure. A trough above the zero line would reflect medium-term buying pressure. Expect resistance at 9700/9800.

DAX

* Target calculation: 9750 + ( 9750 – 9000 ) = 10500

Dow Jones Euro Stoxx 50 also surged, indicating a test of 3250 on the weekly chart. Completion of a 13-week Twiggs Money Flow trough above zero would indicate long-term buying pressure. Reversal below 3100 is unlikely, but would warn of another test of primary support.

Dow Jones Euro Stoxx 50

* Target calculation: 3150 + ( 3150 – 3000 ) = 3300

The Footsie faces strong resistance between 6750 and 7000, as illustrated on the quarterly chart. 13-Week Twiggs Money Flow oscillating above zero indicates a healthy up-trend, but this is a major psychological barrier to overcome. Breach of support at 6400/6500 is unlikely, but would warn of a reversal.

FTSE 100

* Target calculation: 700 + ( 7000 – 6000 ) = 8000

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Dow signals fresh advance

Dow Jones Industrial Average recovered above 17000, signaling a fresh advance. Follow-through above 17150 would confirm a target of 17500*. Leveling off of 21-day Twiggs Money Flow in recent days, however, indicates (short-term) resistance. Reversal below 16950 is unlikely, but would warn of a test of 16750.

Dow Jones Industrial Average

* Target calculation: 16500 + ( 16500 – 15500 ) = 17500

The S&P 500 is again testing resistance at 2000. Breakout would offer a target of 2250*. Recovery of 13-week Twiggs Money Flow above its recent (July 2014) high would confirm buying pressure. Reversal below 1950 is unlikely, but would warn of another test of (primary) support at 1900.

S&P 500

* Target calculation: 1500 + ( 1500 – 750 ) = 2250

Declining CBOE Volatility Index (VIX) readings suggest continuation of the bull market.

VIX Index

The Nasdaq 100 broke through the psychological level of 4000. Expect retracement to test the new support level. Respect is likely and would confirm another advance. Recovery of 13-week Twiggs Money Flow above its recent (July 2014) high would confirm buying pressure. Reversal below 4000 is unlikely but would warn of a test of support and the rising trendline at 3750.

NASDAQ 100

* Target calculation: 4000 + ( 4000 – 3750 ) = 4250

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