Category: UK & Europe

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The Scottish Question Has Not Been Answered

Peter Geoghegan writes on the impact of further devolution in Scotland:

At present, England has no devolved legislature similar to Scotland’s. Instead, all laws for England are made at Westminster. Consequently, non-English MPs often vote on issues that only affect England. Any change to this policy would likely be fiercely resisted, particularly by Labour which has a large contingent of Scottish and Welsh MPs.

Labour, ironically, could be the biggest loser in Scotland’s referendum. It has traditionally been the party of central Scotland — of the post-industrial towns and villages that ring Glasgow and Edinburgh and hold much of the country’s 5 million people. In Glasgow, there was long been a saying that you could shave a monkey and get it elected on the Labour ticket. But in the referendum, almost 40 percent of Labour voters chose independence….

Read more at The Scottish Question Has Not Been Answered.

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Market turbulence

A Coincident Economic Activity Index above 0.2 indicates the US recovery is on track. Produced by the Philadelphia Fed, the index includes four indicators: nonfarm payroll employment, the unemployment rate, average hours worked in manufacturing, and wages and salaries. Bellwether stock Fedex also suggests rising economic activity.

Coincident Economic Activity Index

But contraction of the ECB balance sheet by € 1 Trillion over the last two years has pitched Europe back into recession.

Weakness in Europe and Asia has the capacity to retard performance of US stocks despite the domestic recovery.

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Trouble in the East

Expect a continued arm wrestle between Russia and the West over influence in the Ukraine. Russians obviously view their shrinking sphere of influence as a threat to future security. But Vladimir Putin’s actions in Georgia, Moldova, Crimea and the Ukraine — straight from the KGB playbook — are the biggest threat to their security.

A war-weary US and pacifist Europe may be slow to react, but their capacity when provoked to subdue any threat from the East, through their combined economic might, is immense. One should not be fooled by Putin’s macho posturing. He is playing a very weak hand.

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S&P 500 broadening wedge

  • We are at the September quarter-end and can expect stock weakness to continue into October
  • The Dollar is rising
  • Gold and crude oil are falling
  • European stocks are bearish
  • Asian stocks are bearish despite China showing strength
  • US stocks reflect a bull market

Dow Jones Europe Index is testing primary support at 320. Breach would signal a down-trend. Follow-through below 315 would confirm. Penetration of the rising trendline and 13-week Twiggs Momentum peak below zero both strengthen the bear signal.

Dow Jones Europe Index

* Target calculation: 320 – ( 340 – 320 ) = 300

Dow Jones Asia Index broke primary support at 3200 despite bullishness on the Hang Seng and Shanghai Composite. Expect a test of support at 3000 (at the rising trendline). Reversal of 13-week Twiggs Momentum below zero would further strengthen the bear signal. Follow-through below 3000 would confirm a primary down-trend.

Dow Jones Asia Index

* Target calculation: 3100 + ( 3100 – 2800 ) = 3400

Shanghai Composite Index, however, continues to test resistance at 2350. Breakout would confirm a primary up-trend. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure.

Shanghai Composite Index

Bear in mind that Dow Asia and Dow Europe are priced in USD and reflect strength in the US Dollar as well as weakness in local markets — though the two are closely connected.

The S&P 500 is consolidating around the 2000 level in a broadening wedge formation. Do not be surprised if the index rallies early next week, to test medium-term resistance at 2020. Fund managers are normally willing to support the market at quarter-end and lock in quarterly performance bonuses. But this is likely to be followed by weakness in October as they sell off non-performing stocks and increase cash holdings until new opportunities present themselves. Breakout below the broadening wedge — and penetration of both support at 1950 and the (secondary) rising trendline — would warn of a correction. A large volume spike from triple-witching hour on September 19th, however, has exaggerated weakness on Twiggs Money Flow. Breakout above 2020 would signal a fresh advance.

S&P 500

* Target calculation: 2000 + ( 2000 – 1900 ) = 2100

CBOE Volatility Index (VIX) remains in the low range (below 20) typical of a bull market.

S&P 500 VIX

The ASX 200 is testing support at 5300/5350. Penetration of the rising trendline warns of a correction to 5000. Declining 13-week Twiggs Money Flow, below zero, after a long-term bearish divergence, also signals weakness. Breach of 5300 would confirm a test of 5000. Recovery above 5550 is unlikely, but would suggest another test of 5650.

ASX 200

* Target calculation: 5650 + ( 5650 – 5350 ) = 5950

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How Laissez-Faire Made Sweden Rich | Libertarianism.org

From Johan Norberg:

…But in one century, everything was changed. Sweden had the fastest economic and social development that its people had ever experienced, and one of the fastest the world had ever seen. Between 1850 and 1950 the average Swedish income multiplied eightfold, while population doubled. Infant mortality fell from 15 to 2 per cent, and average life expectancy rose an incredible 28 years. A poor peasant nation had become one of the world’s richest countries.

…And so Sweden—a small country of nine million inhabitants in the north of Europe—became a source of inspiration for people around the world who believe in government-led development and distribution.

But there is something wrong with this interpretation. In 1950, when Sweden was known worldwide as the great success story, taxes in Sweden were lower and the public sector smaller than in the rest of Europe and the United States.

Read more at How Laissez-Faire Made Sweden Rich | Libertarianism.org.

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The risks in a galvanized Nato | Business New Europe

From Mark Galeotti, Professor of Global Affairs at New York University:

…Of course, Nato still has a role, not least to ensure there is no temptation for rather more robust pressure from Moscow on Europe. But to think that it can or even should try to respond to the full range of challenges of the new age of conflict is foolish — and even dangerous.

First of all, the task of inoculating bordering states from potential Russian mischief — whether stirring up disgruntled minorities, subtle destabilization or unsubtle economic pressure — is more properly handled by other agencies. National governments, obviously, need to pay more attention to what, in military terms, would be called “target hardening.” Those minorities need to be integrated, due diligence should identify flanking Russian buyouts, political finance regulated. The trouble is that this means not just taking action now that Russia looks problematic, but sustaining it — turning away potential investment, alienating a neighbor and so on — even when things look quieter.

Of course, the EU could also play a positive role here, but to date the EU’s capacity to mobilize and maintain this kind of action is also questionable. But the second serious concern is that the more Nato eases itself comfortably back into its role as the defender of the West from the Russian hordes, the more it consolidates the current dangerous and zero-sum confrontation. It also plays to a nationalist, even xenophobic constituency within the Russian elite, especially strongly represented within the security agencies and the Orthodox Church, who actually appreciate any opportunity to cut themselves off from the West and its dangerously infectious notions of egalitarianism, transparency and rule of law. This faction is currently in the ascendant, but it need not be so, especially given the evident concerns of many within the Russian business community at the prospect of being locked away from the West.

This is the challenge. Nato patently still has a role. But it is far too blunt an instrument to be able to deal with the range of subtle, deniable or downright devious tactics Russia would deploy. Instead, the West will have to develop new, more appropriate defenses — and try to avoid playing into the hands of the ultra-nationalist wing in the Kremlin happy to find excuses to see their country surrounded and beleaguered.

Read more at STOLYPIN: The risks in a galvanized Nato | Business New Europe.

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Europe finds resistance

Germany’s DAX is testing resistance at 9800. Breakout would signal another advance, while follow-through above 10000 would confirm. Bearish divergence on 13-week Twiggs Money Flow followed by a dip below zero, however, warns of long-term selling pressure. Reversal below 9600 would warn of another test of primary support at 9000/8900.

DAX

Dow Jones Euro Stoxx 50 is testing resistance at its recent high of 3300. Breakout would suggest an advance to 3600*, but bearish divergence on 13-week Twiggs Momentum (and Twiggs Money Flow) warns that sellers dominate. Reversal below 3200 would indicate another test of primary support at 2975/3000.

Dow Jones Euro Stoxx 50

The Footsie is testing medium-term support at 6750. Breach would warn of another test of primary support at 6400/6500. Oscillation of 13-week Twiggs Money Flow above zero, however, continues to warn of long-term buying pressure. Breakout above long-term resistance at 6900 would signal a primary advance.

FTSE 100

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

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Margaret Thatcher: Statecraft

For my part, I favour an approach to statecraft that embraces principles, as long as it is not stifled by them;
and I prefer such principles to be accompanied by steel along with good intentions.

~ Margaret Thatcher, Statecraft: Strategies for a Changing World (2002)

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Piketty’s Missing Rentiers by Jeffrey Frankel | Project Syndicate

From Jeffrey Frankel:

It is true that capital’s share of income interest, dividends, and capital gains rose gradually in major rich countries during the period 1975-2007, while labor’s share wages and salaries fell, a trend that would support Piketty’s hypothesis if it continued…..

But interest rates have been at all-time lows in recent years – virtually zero. And the claim that in the long run the interest rate must be substantially greater than the economic growth rate is absolutely central to Piketty’s book.

That said, Piketty’s vision is focused squarely on the truly long run….Three century-long movements constitute the essence of the book: a rise in inequality in the nineteenth century, a fall in inequality in the twentieth century, and a predicted return to historically high inequality in the twenty-first century.

To me Piketty started with a preconceived idea and selected data to support this. He seems to ignore the impact of industrialization in the 19th century and technological advances in the late 20th century as sources of wealth creation, as well as access to low-cost labor through globalization during the latter period which has eroded manufacturing jobs and real wages.

Read more at Piketty’s Missing Rentiers by Jeffrey Frankel – Project Syndicate.

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