Germany’s DAX is testing support at 10500. Declining Twiggs Money Flow warns of selling pressure. Follow-through below recent lows would warn of a correction to the rising long-term trendline.
* Target calculation: 10500 + ( 10500 – 9500 ) = 11500
India: Sensex threatens correction
India’s Sensex broke below its trend channel, and is testing support at 27600. Breach would signal a correction. Bearish divergence on Twiggs Money Flow warns of long-term selling pressure. Breakout below 27600 is likely and would warn of a test of 26000.
Obama’s Wrong: The New Cold War’s Only Just Begun | The Daily Beast
Michael Weiss writes: “From propaganda to missile deployments, Russian leader Vladimir Putin is testing Obama’s resolve—while claiming to be America’s victim”…..
Putin has demanded, as the price for restoring at least the first frozen accord, that Washington end all sanctions against Russian officials; pay reparations for any losses sustained from those sanctions as well as retaliatory ones imposed by Russia against U.S. entities; cancel the Magnitsky Act, a landmark human rights law passed in 2012 aimed at penalizing corrupt and murderous Russian officials; reduce NATO personnel forces to levels they were as of 2000; and essentially rewrite the original radioactive disposal deal so America bears the brunt of the responsibility for it.
In response to what was, even by Putin’s standards, a risible attempt at extortion, the Russian opposition’s Leonid Volkov wrote on Facebook: “He should have asked for Alaska back, eternal youth, Elon Musk and a ticket to Disneyland.”
….what a turn for Obama, who has spent the last eight years insisting that the “Cold War is over” only to spend the eve of his departure witnessing its renascence.
The response should be to talk softly and continue polishing that big stick.
Source: Barack Obama’s Wrong: The New Cold War’s Only Just Begun – The Daily Beast
Australia & Canada’s experience with equal weighted indices
Correction to my earlier post. Equal-weighted indices don’t always outperform cap-weighted indices, as with the S&P 500. Australia’s ASX 100 Equal Weighted Index underperformed the cap-weighted ASX 100, recording annual growth of 3.79% (EWI) compared to 5.28% for the ASX 100 on a total return basis over the last 10 years.
Canada’s TSX 60 Equal Weighted Index, on the other hand, mimics the S&P 500. Equal Weight achieved an returns of 6.17% over the last 10 years compared to 5.33% for the cap-weighted index.
I will investigate further why Australia bucks the trend but I suspect the banks play a major role. The ASX 300 Banks Index substantially outperforms the broad ASX 300 Index.
Active managers and Index funds: How to avoid the pitfalls and get the best of both worlds
From James Kirby at The Australian:
Australia’s big fund managers are now openly bagging index funds and exchange traded funds (ETFs)….Keep away from index funds and ETFs, they cry, the market is too tough for investors to blindly follow an index-style fund when returns are as modest as we have seen in recent times….
But rather than flinging mud back at the active managers…. the passive brigade has instead made two killer moves.
The first move is to reveal quite plainly how the active managers are performing — and they are performing dismally.
The second move is to continually cut prices — or fees — to the point that active managers look very expensive indeed.
Dow Jones’ Indices versus Active Australia Scorecard:
Australian General Equity (Large-Cap) Funds
59.7% underperformed the S&P/ASX 200 Index over one year
69.2% underperformed the benchmark in a five-year period
International Equity General
80.7% underperformed the S&P Developed ex-Australia Large Cap Index in a one-year period
91.9% underperformed the benchmark in a five-year period
I have two major concerns with index funds:
First, index funds reward size, not performance. The bigger a corporation grows, and the bigger its weighting in the index, the more stock an index fund will buy. Over time the index is likely to grow increasingly dominated by a herd of dinosaurs — earning low returns on a large asset pool and unable/unlikely to adapt to change — headed for extinction.
Second, active fund managers perform a valuable role for the entire market, conducting in-depth research of industries, visiting companies and evaluating prospects and performance. Their resulting purchases and sales inform the entire market as to prospective value and under-pin long-term market value. Increasing dominance of passive index funds erodes this capability and will hasten the growth of my first concern.
An easy way to counter the first concern is to invest in equal-weighted index funds. These do not reward size, instead investing an equal amount in each stock in the index instead of weighting by market capitalization.
Apart from eliminating the size bias, the equal-weighted index has another major advantage. It out-performs cap-weighted indices by a sizable margin. The graph below shows the S&P 500 Equal-Weighted Index achieved an annual performance of 8.53% compared to 7.03% for the regular S&P 500 Index, over the last 10 years.
The only way to address the second concern is to keep a sizable part of your portfolio with active managers. Don’t blindly follow performance — last year’s winners are often this year’s losers — but follow managers with reasonable fees and proven long-term ability to outperform the index.
China: David versus Goliath
Hong Kong’s Hang Seng Index respected its new support level at 23000, confirming the primary up-trend. Follow-through above 24000 would offer a target of 26000*.
The Shanghai Composite Index, on the other hand, continues to wander aimlessly between 2800 and 3100.
With China’s one-country-two-systems we have a clear long-term comparison between the two systems: a centrally-planned, authoritarian and increasingly nationalistic Goliath and a more democratic, outward-looking, free-market David in Hong Kong. My money is on the little guy.
India’s Sensex hesitates
India’s Sensex broke below its trend channel, warning of a correction. The short inverted hammer (or gravestone) signals indecision. But bearish divergence on Twiggs Money Flow warns of long-term selling pressure. Breakout below 27600 is expected and would warn of a test of 26000.
ASX 200 stalls
Two short weekly candlesticks suggest the ASX 200 rally has stalled at 5500. Bearish divergence on Twiggs Money Flow warns of selling pressure. Reversal below the lower trend channel would warn of a test of primary support at 5000/5100. Breakout above 5600 is unlikely.
The ASX 300 Banks Index is testing resistance at 8000. Declining Twiggs Money Flow still warns of selling pressure. Breakout above 8000 would signal a primary up-trend but I would be cautious and wait for retracement to respect the new support level. There are some good fundamental reasons, like the real estate/apartment bubble, that suggest a reversal would be premature.
US private investment dwindles
Private investment is declining as a percentage of GDP. Not a good sign when you consider that a similar decline preceded previous recessions.
Click graph to view full-size image.
Also a concern, when private credit is rising as a percentage of GDP while investment is falling. Crossover of the two lines would indicate that the private sector is borrowing more than it is investing. That is not likely to end well.
Why Putin will fail | UPI.com
From Harlan Ullman:
Frozen conflicts are not in Russia’s long-term interest. Of course, while the short-term aim of preventing Georgia and Ukraine from joining NATO because of contested borders is working, the long-term economic damage done to Russia will prove politically destructive. Putin certainly is riding a political tiger. However, he has no clear exit strategy for safely dismounting this dangerous beast. That is a fundamental predicament….
What should the United States do? First, common sense and not confrontation is the best means to exploit Putin’s political weaknesses. By threatening Russia, his public will rally around Putin. This does not mean granting concessions. It means being smart not petulant. It also means shifting NATO’s strategy to local defense based on a “porcupine” posture with emphasis on Stinger-like anti-air and Javelin anti-vehicle missiles all reinforced by alliance capabilities to blunt Russian cyber, propaganda, intimidation and other non-conventional forms of war.
Second, the United States needs to dial back on belligerent rhetoric. By all means plan for “full spectrum war.” But do not use a PR bullhorn to announce what is being done. Teddy Roosevelt applies — speak softly but carry a big stick….
Source: Why Russian President Vladimir Putin will fail – UPI.com