Category: Countries & Regions

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Rate cuts: Short-term benefit, long-term pain

Shane Oliver at AMP recently tweeted:

Why rate cuts help household spending: 1/ Aust hholds have approx $750bn in deposits but $1700bn in debt….

…so a 1% rate cuts makes depositors $7.5bn worse off, but borrowers $17bn better off. The net gain for households is $9.5b !

Reason #2 as to why rate cuts help. Depositors r less likely to change spending on rate changes than borrowers (families with mortgage)

He is right that rate cuts stimulate household spending, but that is not the only consideration. Rate cuts also stimulate borrowing and expansion of the money supply — leading to asset bubbles and inflation. They further force savers/investors to take greater risks in the scramble for yield, leaving them exposed if the bubble collapses. If only we could let market forces of credit supply and demand determine the rate — and resist the urge to tinker.

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Canada: TSX buying pressure

Long tails on the TSX Composite weekly chart indicate medium-term buying pressure. Breakout above 12800 would signal a fresh advance, while follow-through above 12900 would confirm. Reversal below 12600 is unlikely but would warn of a correction. Rising troughs on 13-week Twiggs Money Flow indicate long-term buying pressure and a primary advance. The long-term target would be 15000*.

TSX Composite Index

* Target calculation: 13000 + ( 13000 – 11000 ) = 15000

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S&P 500 and Nasdaq selling pressure

The S&P 500 is oscillating between 1485 and 1530. I avoided using the word “consolidating” because that implies a degree of calm. Far from it. Bearish divergence on 21-day Twiggs Money Flow continues to warn of medium-term selling pressure. Reversal below 1485 and the rising trendline would indicate a correction. Breakout above 1530 is less likely but would offer a target of 1575*.

S&P 500 Index

* Target calculation: 1530 + ( 1530 – 1485 ) = 1575

On the monthly chart we can see that a correction below the secondary trendline would target primary support and the primary trendline between 1350 and 1400. A 63-day Twiggs Momentum trough above zero would indicate continuation of the up-trend, while retreat below zero would suggest a primary reversal.
S&P 500 Index
The VIX Volatility Index remains close to recent lows at 0.15. This does not provide much long-term reassurance: the VIX was at similar levels in May 2008. Breakout above the recent high at 0.20 would be a warning sign.
VIX Index
The Nasdaq 100 displays a bearish divergence on both 63-day Twiggs Momentum and long-term (13-week) Twiggs Money Flow. Reversal below the rising trendline would strengthen the signal. While breach of primary support at 2500 would signal a reversal.
Nasdaq 100 Index

* Target calculation: 2500 – ( 2900 – 2500 ) = 2100

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John Howard interview: Assault weapons are a public safety issue not a left/right issue [video]

John Howard, the conservative former prime minister of Australia, says that pro-gun advocates in the United States are wrong to oppose an assault weapons ban like the one he pushed for after a 1996 mass shooting because public safety is not a “liberal/conservative issue.”

Howard told CNN’s Fareed Zakaria that he felt “horror and shock” after a gunman killed 35 people in Tasmania on April 28, 1996.

Many within his own party opposed the newly-elected PM when he proposed a ban on private ownership of assault weapons in Australia. But statistics since then have proved him right. According to CNN, in the 18 years leading up to 1996 there were 13 gun massacres in Australia; since 1996 when the law was passed there has not been a single incident.

Published on 17 Feb 2013

P.S. Gun ownership is an emotive issue in the US. We encourage open considered debate but believe that nothing is gained by people “shouting” at each other. Any emotive posts of that ilk will end up in the trash can.

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In support of land taxes

Thanks to Alex Fletcher who submitted this as a comment:

From a purist point of view I believe Geolibertarianism is the moral philosophy that should guide taxation:-

“Geolibertarians are advocates of geoism, which is the position that all natural resources – most importantly land – are common assets to which all individuals have an equal right to access; therefore, individuals must pay rent to the community if they claim land as their private property. Rent need not be paid for the mere use of land, but only for the right to exclude others from that land, and for the protection of one’s title by government. They simultaneously agree with the libertarian position that each individual has an exclusive right to the fruits of his or her labor as their private property, as opposed to this product being owned collectively by society or the community, and that ‘one’s labor, wages, and the products of labor’ should not be taxed.”

In reality though it is about what is practically possible. The Henry review [in Australia] aimed for four bases – personal income, business income, consumption and economic rents of natural resources and land. At present land tax has a much smaller role than the other three.

Any change to increase the proportion of total taxation from LVT can only be achieved slowly and with much opposition. The ACT proposal to change existing property taxes and stamp duty to an annual LVT is the best start one can hope for. The plan is such that if a landowner really wants to keep stamp duty instead of an annual fee they can virtually do so. There was an article in The Drum about it.

I believe GST is more efficient than income tax and in that context may be better. However if, as geonomics asserts, the main contributor to unemployment is that land is priced out of reach, increasing the GST and broadening the base without a broad-based LVT as well, would not abolish unemployment and so would increase hardship for the very poor.

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Matt Busigin On Peak Capitalism | Business Insider

Joe Weisenthal presents the following two charts to illustrate how government is coping with falling manufacturing wages:

You’ve probably seen this chart many times, which shows wages declining as a percent of GDP over the last few decades.

Wages as a share of GDP

But things look a tad different when you look at wages PLUS government transfer payments (predominantly entitlement programs) as a share of GDP.

Wages plus entitlements as a share of GDP

What the writer fails to recognize is that lifting government welfare payments is not a solution. It is part of the problem. Increasing transfer payments encourages welfare dependancy and hinders the adaptive process that allows capitalism to adjust to new challenges.

Eventually the tail begins to wag the dog, with welfare dependents voting themselves increases. Economic stagnation evolves into economic deterioration, hindering new capital formation with excessive red tape and a rising welfare burden.

…..The road to hell is paved with good intentions.
via Matt Busigin On Peak Capitalism – Business Insider.

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Australia: Interview with Hawke & Howard

Ray Martin’s interview with former PM’s Bob Hawke and John Howard, November 2012

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Number for the month is 178,171

The number of containers (TEUs) that arrived loaded but were returned empty from the Port of Los Angeles during January 2013 is 178171*. That is 53 percent of all inbound containers are returned empty.

As I have said before, those containers are not really empty:

Shippers attempt to fill containers on their return journey, even at super-low rates, in order to offset the cost of completing the round-trip. Empty containers indicate failure to locate manufactured goods that can compete in these export markets. This affects not only the shipper, but the entire economy. Those containers leaving the West Coast are not really empty. They contain something far more valuable than the goods being imported. They contain manufacturing jobs — and the infrastructure, skills and know-how to support them.

In 2011, when President Obama announced his jobs program, empty outbound containers were running at 48 percent.

* 337,428 loaded inbound minus 159,257 loaded outbound

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US & Asia: Contrasting economic activity

While Fedex broke through long-term resistance at $100, signaling rising activity in North America….
Fedex
The Harpex index of container shipping (charter) rates, primarily for movement of finished goods, is close to its 2009 low. There is no indication of a resurgence in exports between Asia and the West.
Harpex Container Index

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The Sequester Will Be Good for the Economy | Cato Institute

Jeffrey Miron argues that we should use cost-benefit analysis to evaluate government expenditure:

…even if transfers help stimulate consumer spending, their net effect on the economy is unclear. This implies that whether the sequester will harm or help the economy depends on whether cost-benefit considerations can justify the existing level of government expenditure. And on this question, the answer is clear. Across all categories, federal expenditure is far greater than necessary to achieve the legitimate goals of government intervention.

Read more at The Sequester Will Be Good for the Economy | Cato Institute.

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