Category: Countries & Regions

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Cyprus: The Operation Was a Success. Shame the Patient Died. | Some of it was true…

Pawelmorski (pseudonym for a london-based fund manager) gives this opinion of the EU ‘rescue’ of Cyprus :

How bad is the damage?

Bloody appalling…… Take a moment to realise the scale of what’s been done here. No human agency has achieved so much economic destruction in such a short time without the use of weapons. The combination of laying waste to the financial sector and tearing up the savings of thousands of residents means that Cyprus won’t return to current levels of output for a decade, a funeral pyre which bears comparison only with Greece. There are four shocks happening at once; the bog-standard austerity shock; the trauma of bank withdrawal controls; the wealth shock; and the structural shock of wiping out the financial sector. The bailout bill is certainly going to get a lot higher too, as a larger amount of debt is piled onto a smaller economy.

Read more at Cyprus: The Operation Was a Success. Shame the Patient Died. | Some of it was true….

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Exploding Australia’s nuclear delusion | Business Spectator

Geoff Russell writes:

France has been producing most of its electricity using nuclear power stations for an average carbon dioxide intensity of about 80 grams of CO2 per kilowatt hour (gm-CO2/kWh) for two decades. In that time, Australia’s electricity has just gotten dirtier, rising from 817 in 1990 to 841 gm-CO2/kWh in 2010.

….Switzerland and Sweden have been using a mix of hydro and nuclear to achieve even lower carbon dioxide intensity than France.

Read more at Exploding Australia's nuclear delusion | Business Spectator.

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March FOMC Meeting | Business Insider

The Committee continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

via March FOMC Meeting – Business Insider.

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Big trouble from little Cyprus – FT.com

I always enjoy Martin Wolf’s objectivity:

Many insist that any tax on deposits is theft. This is nonsense. Banks are not vaults. They are thinly capitalised asset managers that make a promise – to return depositors’ money on demand and at par – that cannot always be kept without the assistance of a solvent state. Anybody who lends to banks has to understand that. It is inconceivable that banking – a risk-taking financial business – can operate without exposure to loss of at least some classes of lenders. Otherwise, bank debt is government debt. No private business can be allowed to gamble with taxpayers’ money in this way. That is evident.

Read more at Big trouble from little Cyprus – FT.com.

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Reform universities by cutting their bureaucracies

Insight into the growth of bureaucracy in universities from The Conversation:

In earlier times, Oxford dons received all tuition revenue from their students and it’s been suggested that they paid between 15% and 20% for their rooms and administration. Subsequent central collection of tuition fees removed incentives for teachers to teach and led to the rise of the university bureaucracy.

Today, the bureaucracy is very large in Australian universities and only one third of university spending is allocated to academic salaries.

Across all the universities in Australia, the average proportion of full-time non-academic staff is 55%……….Australia is not alone as data for the United Kingdom shows a similar staffing profile with 48% classed as academics.

This is a fine example of Parkinson’s Law, first proposed by Cyril Northcote Parkinson in a light-hearted essay in The Economist in 1955:

Work expands so as to fill the time available for its completion.

Parkinson cited the British Colonial Office as an example: the number of staff continued to grow even when Britain had divested itself of most of its colonies. He explained the growth as due to two factors in a bureaucracy:

  1. An official wants to multiply subordinates, not rivals; and
  2. Officials make work for each other.

He noted that bureaucracies tended to grow by between 5% and 7% a year “irrespective of any variation in the amount of work (if any) to be done” — even if the amount of work is declining.

Read more at Reform Australian universities by cutting their bureaucracies .

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ASX 200: Testing support at 5000

The ASX 200 weakened towards the close and is testing medium-term support at 5000. Breakout below 4980 would warn of a correction. Declining 21-day Twiggs Money Flow, indicating medium-term selling pressure, makes this likely. The index is in a strong primary up-trend and a 5 or 10 percent correction would not alter this. It is merely a case of one step back then two steps forward.
ASX 200 Index

* Target calculation: 5000 + ( 5000 – 4500 ) = 5500

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Fed NGDP targeting would greatly increase global financial stability | Market Monetarist

Lars Christensen describes how NGDP targeting would help the global economy withstand shocks like another eurozone crisis:

Lets look at two different hypothetical US monetary policy settings. First what we could call an ‘adaptive’ monetary policy rule and second on a strict NGDP targeting rule.

‘Adaptive’ monetary policy – a recipe for disaster

By an adaptive monetary policy I mean a policy where the central bank will allow ‘outside’ factors to determine or at least greatly influence US monetary conditions and hence the Fed would not offset shocks to money velocity…..

In that sense under an ‘adaptive’ monetary policy the Fed is effective[ly] allowing external financial shocks to become a tightening of US monetary conditions. The consequence every time that this is happening is not only a negative shock to US economic activity, but also increased financial distress – as in 2008 and 2011.

NGDP targeting greatly increases global financial stability

If the Fed on the other hand pursues a strict NGDP level targeting regime the story is very different.

Lets again take the case of an European sovereign default. The shock again – initially – makes investors run for safe assets. That is causing the US dollar to strengthen, which is pushing down US money velocity (money demand is increasing relative to the money supply). However, as the Fed is operating a strict NGDP targeting regime it would ‘automatically’ offset the decrease in velocity by increasing the money base (and indirectly the money supply) to keep NGDP expectations ‘on track’. Under a futures based NGDP targeting regime this would be completely automatic and ‘market determined’.

Hence, a financial shock from an euro zone sovereign default would leave no major impact on US NGDP and therefore likely not on US prices and real economic activity…..

Read more at Fed NGDP targeting would greatly increase global financial stability | The Market Monetarist.

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Asia finds relief

Japan found relief from the overnight selling. Dow Jones Japan Index is back testing resistance at 70. Breakout would signal continuation of the primary advance.

Dow Jones Japan Index

Dow Jones Hong Kong Index is undergoing a correction but found support at yesterday’s low of 464.
Hang Seng Index

India is falling today. The Sensex is likely to re-test support at 18800. Breakout above 20200 would signal a primary advance to 21000*, but bearish divergence on 13-week Twiggs Money Flow continues to warn of selling pressure. Reversal below 19000 would warn of a correction to the primary trendline at 18000. Failure of 18800 would confirm.

Sensex Index

* Target calculation: 20 + ( 20 – 19 ) = 21

China is neutral Tuesday, but the Shanghai Composite broke support at 2250 on Monday, warning of a down-swing to primary support at 1950/2000.
Shanghai Composite Index

* Target calculation: 2450 + ( 2450 – 2250 ) = 2650

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S&P 500 and Europe: Likely to blow over

Question: Is the outcry in Europe going to tip the S&P 500 into a correction?

Answer: The outcome is uncertain. While there is a strong case for giving depositors and bondholders a haircut, the timing — so soon after an inconclusive Italian election — could not be worse. But let’s see what the market are saying….

Longish tail on the S&P 500 shows buying support at the close. Mild bearish divergence (mild because TMF has leveled out rather than falling sharply) on 21-day Twiggs Money Flow indicates medium-term selling pressure. We are likely to see retracement to the first line of support — at the previous high of 1525/1530 — but only breach of this level and the rising trendline would warn of a correction. Target for the current advance is 1600*.

S&P 500 Index

* Target calculation: 1525 + ( 1525 – 1475 ) = 1575

VIX Volatility Index remains low — near its 2005 lows at 0.10. Breakout above 0.20 would be a warn of rising uncertainty.
VIX Index
The FTSE 100 exhibits an even longer tail, but bearish divergence on 21-day Twiggs Money Flow also indicates medium-term selling pressure. Reversal below the latest rising trendline (6400) would warn of a correction, while breakout above 6550 would continue the advance to 6800*.
FTSE 100 Index

* Target calculation: 6400 + ( 6400 – 6000 ) = 6800

The DAX showed even greater resilience, closing back above 8000. Follow-through above 8100 would signal a fresh primary advance. Rising 21-day Twiggs Money Flow indicates medium-term buying pressure.
DAX Index

Conclusion

There is bound to be some turbulence but markets are showing resilience and the storm is likely to blow over.

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