An ex-ambassador in Beijing: Master of ping-ping diplomacy | The Economist

“Here we know there’s a reason why someone’s pinged for corruption or someone’s not pinged for corruption and usually there’s something sits behind it, so when there’s an anti-corruption campaign in Guangdong or Shenzhen, then it’s a fair bet that that’s somehow tied to elite politics, because why ping Person A and not B? And I think that is the context in which law is practiced here,” [Geoff Raby, who from 2007 until this summer served as Australian ambassador to China] said. “There is rule by law here…But there’s no rule of law. There’s nothing that sits above the political processes of the [top leadership].”

…….“We have never seen in world history, with Nazi Germany perhaps to one side, a global economic power that has stood so far apart from the international norms of social and political organisation, so it’s something different. It really, really is different,” Mr Raby said. He later assured me that when he uses this line in speeches, he throws in a mention of Nazi Germany to pre-empt the nitpickers of history, not as a point of comparison to China. That would be rather undiplomatic indeed.

via An ex-ambassador in Beijing: Master of ping-ping diplomacy | The Economist.

Forex update: Euro breaks support

The euro broke through primary support at $1.32, warning of another primary decline with a target of $1.22*. Declining 63-day Twiggs Momentum indicates a strong primary down-trend.
Euro

* Target calculation: 1.32 – ( 1.42 – 1.32 ) = 1.22

Pound Sterling is testing primary support at $1.54, while 63-day Twiggs Momentum is below zero. Failure of support would signal a primary decline to $1.46.

Pound Sterling

* Target calculation: 1.54 – ( 1.62 – 1.54 ) = 1.46

The Aussie Dollar retreated below parity, indicating another test of medium term support at $0.97. Failure would test primary support at $0.94/$0.95. Respect of the zero line by 63-day Twiggs Momentum indicates a continuing primary down-trend. Weakening commodity prices, especially coal and iron ore, should strengthen the down-trend.

Australian Dollar

* Target calculation: 0.97 – ( 1.03 – 0.97 ) = 0.91

The Canadian Loonie is headed for a test of primary support at $0.94/$0.95. 63-Day Twiggs Momentum holding below zero suggests a continuing primary down-trend.

Canadian Dollar

* Target calculation: 0.95 – ( 1.00 – 0.95 ) = 0.90

A monthly chart of the Greenback against the Yen shows strong bullish divergence on 63-day Twiggs Momentum, suggesting reversal of the primary down-trend. Breakout above ¥80 and the descending trendline would confirm the signal.

Japanese Yen

The US Dollar continues in a strong up-trend against both the South African Rand and Brazilian Real, helped by falling commodity prices. Breakout above R8.60 would signal a further advance to R9.20.

South African Rand and Brazilian Real

* Target calculation: 8.60 + ( 8.60 – 8.00 ) = 9.20

Private sector debt growth warns of anemic recovery

The cause of current anemic GDP growth is evident from the recently-released Z1 Flow of Funds report. GDP recovery from 2008/2009 is accompanied by only a modest rise in Domestic (Non-Financial) Debt — which is now constraining further growth.

Domestic (Non-Financial) Debt Growth Compared To GDP

Domestic (Non-Financial) Debt is made up of Government Debt and Private (Non-Financial) Debt — which can be further broken down into Household and Corporate debt. The Financial sector is excluded as it mainly acts as a conduit, channeling debt to other sectors of the economy. We can see below that Private (Non-Financial) Debt contraction was far greater than overall Domestic (Non-Financial) Debt. What saved the economy was a sharp spike in Government Debt in 2009, offsetting the fall. The massive fiscal deficit may have left a public debt hangover, but failure to offset the contraction in private borrowing would have had more serious consequences: a GDP collapse similar to the 1930s.

Index

Resumption of corporate borrowing has dragged Private (Non-Financial) Debt growth into positive territory but growth remains anemic and households continue to de-leverage. Cessation of government borrowing would cause a fall in overall Domestic (Non-Financial) Debt growth to near zero and a sharp fall in GDP. The economy needs to be gradually weaned off stimulus spending in order to minimize disruption to growth. And not before Private sector borrowing recovers. We need a clear deficit-reduction plan, over 5 to 10 years, in order to restore corporate sector confidence and encourage new capital investment.

The only alternative is further quantitative easing (QE3), where continuous deficits are funded by borrowing from the Fed. But that poses a whole new set of problems — and could lead us back to square #1.

Westpac bulletin: Consumer sentiment falls

Westpac Melbourne Institute Index of Consumer Sentiment fell by 8.3% in December…….

Risk aversion increased markedly in this survey. When asked about “the wisest place for savings” 26.6% of respondents nominated “pay down debt”. That was an increase from 18.7% in September. Since we started measuring that component in 1997 there has only been one higher measure, in March 2010. Only 6.6% of respondents nominated equities – the lowest percentage since 1993; while the 14% nominating real estate was, apart from 2008, the lowest since the survey began in 1974.

Comment: ~ Equities at their lowest level since 1993 is a great contrarian indicator. There is still risk of further downside, so too early to invest at present, but this will be a good number to watch in 2012.

Australia: The safe haven – macrobusiness.com.au

Yields on the 10-year Commonwealth bond hit a record intraday low of 3.78 percentage points yesterday…….CPI inflation for the September quarter was still running at 3.5%. That means investors are close to giving the Australian government money for free.

On top of that….. Investors seem happy to park their money with the Australian government despite the large risk that the dollar will take a serious tumble (though of course they are themselves mitigating that risk somewhat through their own purchases). If investors are separately hedging, which, frankly, they’re mad if they’re not, that will add further cost to the transaction, enough surely, to push the return negative.

via Australia: The safe haven – macrobusiness.com.au | macrobusiness.com.au.

Dow warns of correction

Dow Jones Industrial Average reversed below short-term support at 12000. Bearish divergence on 21-day Twiggs Money Flow warns of medium-term selling pressure — and a correction to test primary support at 10600. Reversal (of TMF) below zero and follow-through (of DJIA) below 11900 would strengthen the signal.

Dow Jones Industrial Average

India holds

The SENSEX is testing primary support but has so far (Tuesday 12:30 p.m.) held above 15800. Breakout would signal a primary decline to 14000*. The peak below zero on 13-week Twiggs Money Flow warns of strong selling pressure.

BSE SENSEX Index

* Target calculation: 16 – ( 18 – 16 ) = 14

Shanghai follows through

Yesterday, the Shanghai Composite Index broke through primary support at 2300. Today the index followed through, falling to 2260. Dow Jones Shanghai Index shows a similar fall below 280. The weekly chart shows an earlier break in August below primary support at 330, leading to a re-test of the 2010 low at 280. Now primary support at 280 has failed, signaling a decline to 240*. Declining 63-day Twiggs Momentum, below zero, warns of a strong primary down-trend.

Dow Jones Shanghai Index

* Target calculation: 280 – ( 320 – 280 ) = 240

ASX 200 tests resistance

The ASX 200 rallied on news of EU progress and is headed for resistance at 4350. Breakout would offer a target of 4850* but weakness in China makes this unlikely.

ASX 200 Index

* Target calculation: 4350 + ( 4350 – 3850 ) = 4850

On the long-term (quarterly) chart it is clear that we are still in bear territory. Only breakout above 5000 would reverse the trend.

ASX 200 Index Quarterly

Shanghai breaks primary support

The Shanghai Composite index broke primary support at 2300 Monday, signaling a decline to 2100*. Follow-through on Tuesday would strengthen the signal. The sharp fall on 13-week Twiggs Money Flow warns of strong selling pressure.

Shanghai Composite Index

* Target calculation: 2300 – ( 2500 – 2300 ) = 2100

Hong Kong’s Hang Seng Index held above 18500 Monday, but another test of medium-term support at 17500 is likely.

Hang Seng Index