Scottish Independence | Cato @ Liberty

From David Boaz:

Some scholars argue that the Act of Union in 1707 made the Scots part of a larger and more advanced nation and opened the way to the Scottish Enlightenment of David Hume, Adam Smith, and other scholars. And perhaps those modern ideas and the connection with England made possible the achievements of the inventor James Watt, the architect Robert Adam, the road builder John MacAdam, the bridge builder Thomas Telford and later Scots such as Alexander Graham Bell and Andrew Carnegie.

But whatever the benefits of union might have been in 1707, surely they have been realized by now. And alas, the land of Adam Smith has become one of the poorest and most socialist parts of Great Britain…

Read more at Scottish Independence | Cato @ Liberty.

Euro, Yen plunge against Dollar

The Euro broke support at $1.33, signaling a further decline against the Dollar with a target of $1.30*. Falling 13-week Twiggs Momentum, below zero, warns of a strong down-trend. Recovery above $1.35 is most unlikely, but would suggest that the down-trend is slowing.

Euro/USD

* Target calculation: 1.35 – ( 1.40 – 1.35 ) = 1.30

The recent rally of the Euro against the Russian ruble has faltered. An economic contraction and rising tensions over Eastern Ukraine both contributed. The Euro remains in an up-trend and recovery above RUB 49 would suggest another attempt at the previous high of RUB 51. But failure of support at RUB 46 would signal a primary down-trend. 13-Week Twiggs Momentum oscillating close to zero reflects current uncertainty.

Euro/Rouble

Vladimir Putin is attempting to exploit fault lines in the US/European alliance, targeting the powerful European farming and motor industry lobbies. Unauthorized incursions into Ukrainian territory by his white-painted “aid convoy” are another example, where the infringement is so apparently inoffensive that Angela Merkel will find it difficult to convince her European allies to escalate sanctions further. Failure to react will merely embolden Putin to conduct further minor infringements in defiance of the EU, confident in their response, until the Ukraine suffers “death by a thousand cuts”.

Putin

Only if the US/EU adopt an aggressive escalation, as suggested here on Defence & Freedom, are they likely to contain Russian aggression.

“…a defensive and reactionary game plan makes one predictable. The very existence of a crisis should be understood as a hint that someone used this predictability to predict the outcome of a produced crisis — and arrived at the conclusion that it’s a good idea. Aka failure of deterrence.”

Japan

As with the Euro, the Japanese Yen is also weakening against the Dollar. The Greenback broke resistance at ¥103.50, signaling a rally to test the 2013 high. Follow-through above ¥104 would confirm. Rising 13-week Twiggs Momentum above zero strengthens the signal. Reversal below ¥103 is unlikely, but would warn of another test of primary support at ¥101.

USD/JPY

Australia

The Aussie Dollar, however, is holding its own — ranging between $0.92 and $0.95 against the US Dollar. The narrow band and 13-week Twiggs Momentum holding above zero both suggest continuation of the up-trend. Breakout above $0.95 would suggest a target of $0.97. Reversal below $0.92 is unlikely at present, but would warn of a decline to the band of support between $0.87 and $0.89.

Aussie Dollar

The ASX 200, retracing slightly from resistance at 5650, is also influenced by strong foreign investment flows. Indications are predominantly bullish, including 21-day Twiggs Money Flow forming troughs above zero. Follow-through above 5660 would signal another advance, with a medium-term target of 5850. Reversal above 5550 is unlikely, but would warn of another test of primary support.

ASX 200

* Target calculation: 5650 + ( 5650 – 5450 ) = 5850

Aggressive defence | Defence and Freedom

From defence_and_freedom@gmx.de:

Imagine an unfolding crisis, and your government has confidence in its expectations for what’s going to happen next. Couldn’t a couple aggressive*, unexpected actions ruin the opposing sides’ plans, crush their timetable, make their political calculations obsolete, destroy their confidence in their ability to predict your government’s reactions and to predict the costs of the crisis?

Couldn’t such a disruption make a quite acceptable diplomatic settlement more likely? — I’m all for peace and free love and stuff**, but I distrust the notion that escalation is always a bad thing. An escalation to ruin some aggressor’s day may be the right thing to do. To have and obey a defensive and reactionary game plan makes one predictable. The very existence of a crisis should be understood as a hint that someone used this predictability to predict the outcome of a produced crisis – and arrived at the conclusion that it’s a good idea.
A.k.a. failure of deterrence.

* “aggressive”, NOT “aggression against a peaceful country
** Similarly, I don’t think “war as last resort” makes much sense.

Read more at Defence and Freedom: Aggressive defence.

Tom Devine: Why I now say yes to independence for Scotland

Tom Devine, Scotland’s most celebrated historian of recent years, reveals why he now intends to vote in favor of independence on September 18:

I come from a Labour background that includes my grandfather, mother and father and I was very much anti-independence at the start of the campaign. For me, the catalyst for change has been how threadbare the union has become since the early 1980s and linked to that is the transformation of Scotland. I wouldn’t have voted for this in the Scotland of the 1970s or 80s. It’s the Scotland that has evolved since the late 80s and 90s that is fuelling my yes vote. It now seems to me to be in a fit condition to run a successful economy. There is a list of reasons for this.

There has been a Scottish parliament which has demonstrated competent government and that parliament has also indicated, by the electoral response to it, that the Scottish people seem to be wedded to a social democratic agenda and the kind of political values which sustained and were embedded in the welfare state of the 1950s. In fact, you could argue that it is the Scots who have tried to preserve the idea of Britishness in terms of state support and intervention, and that it is England that has chosen to go on a separate journey since the 1980s.

There has been an enormous increase in a sense of Scottishness and pride in Scottish identity which has itself been sustained by an explosion in Scottish writing and creative arts since the 1980s, especially in relation to my own subject. We now have a proper modern history of Scotland which we didn’t have until as late as the 1970s and 1980s. We now have a clear national narrative sustained by objective and rigorous academic research. In 1964, one of my great predecessors Professor Hargreaves said that the history of modern Scotland is less studied than the history of Yorkshire.

There has also been a silent transformation of the Scottish economy. As late as early 1980s it was not sustainable owing to the continuing domination of the dinosaur heavy industries. The problem there was simply that labour costs not be sustained in an emerging global economy where goods and machines could be made cheaper elsewhere. Of course the process could have been managed much more sensitively and more thoughtfully by a Labour government, instead it was the radical surgery of Thatcherism and Toryism that had its way. What we have now – and this has been the case since the mid-1990s and de-industrialisation – is a diversified economy in which heavy industry, light manufacturing, the electronics sector, tourism, financial services have come together. And the vibrant public sector is important in terms of employment. We now have a resilient economic system.

We also have considerable reserves of one of the most important things for an independent state and that is power; power through the assets of oil and also through the potential of wind energy. Scotland is disproportionately endowed with these, compared to almost all other European countries. So, in other words, because of this economic transformation, which has undoubtedly led to social dislocation for many communities – and let’s not forget that – we now have an economy that can sustain itself in a resilient way in world markets.

I support his decision, but am concerned that Devine doesn’t seem to realize that Scotland has a thriving and vibrant economy precisely because it has moved away from the welfare state policies of the 1950s and 60s. Oil will obviously play a part, but Scotland has no future as an independent nation unless it follows the Irish model of an open economy, encouraging global industries to locate there. Nothing would discourage global industry faster than a glimpse of 1960s-style British Labour policies.

Read more at Tom Devine: why I now say yes to independence for Scotland.

Putin antics fail to impress markets

For all his macho posturing, Vladimir Putin has demonstrated an inability to move financial markets with his antics in Eastern Ukraine. His latest incursion towards Luhansk, with white-painted military trucks bearing aid to the rebel-held city, unchecked by the Red Cross, passed barely noticed. Instead markets are intently focused on nuances from a 68-year old Jewish mum at Jackson Hole, who also happens to chair the Federal Reserve.

I would have loved to call Janet Yellen a “grandmother”, but son Robert Akerlof — himself a PhD in Economics — does not claim any offspring on his CV. The apple doesn’t fall far from the tree. Husband, George Akerlof, is a Nobel prize-winning economist and professor emeritus at University of California, Berkeley.

The image below highlights the differences between the Fed and the ECB:

The Fed’s more stimulatory approach has paid dividends in terms of economic growth and employment while inflation expectations remain muted. The inflation breakeven rate — 10-year Treasury yield minus the yield on equivalent inflation-indexed securities — continues to range between 2.0% and 2.50%.

Inflation breakeven rate

The ECB’s more austere approach, on the other hand, has caused a world of pain.

Market update

  • S&P 500 tests 2000.
  • VIX continues to indicate a bull market.
  • DAX hesitant rally.
  • China bullish.
  • ASX 200 faces strong resistance.

The S&P 500 hesitated after making a new high on Thursday, but there was no dramatic fall in response to news from Eastern Ukraine. Expect retracement towards 1950, followed by another test of 2000. 21-Day Twiggs Money Flow is likely to re-test the zero line, but respect would indicate strong buying pressure. Breach of support at 1900, warning of a reversal, remains unlikely.

S&P 500

* Target calculation: 1500 + ( 1500 – 750 ) = 2250

Declining CBOE Volatility Index (VIX) indicates low risk, typical of a bull market.

S&P 500 VIX

Germany’s DAX rallied above 9300 on the weekly chart, but 13-week Twiggs Money Flow warns of continued selling pressure. Reversal below support at 8900/9000 would warn of a primary down-trend.

DAX

* Target calculation: 9000 – ( 10000 – 9000 ) = 8000

Shanghai Composite Index is testing resistance at 2250. Breakout would confirm a primary up-trend, signaling an advance to 2500*. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Respect of resistance, however, would suggest further consolidation.

Shanghai Composite Index

* Target calculation: 2250 + ( 2250 – 2000 ) = 2500

Tall wicks on ASX 200 daily candles indicate strong resistance at 5650. Respect would suggest retracement to 5550, while follow-through would be a strong bull signal, suggesting an advance to 5850*. Another 21-day Twiggs Money Flow trough above zero would indicate long-term buying pressure. Reversal below 5450 is unlikely, but would warn of a test of primary support.

ASX 200

* Target calculation: 5650 + ( 5650 – 5450 ) = 5850

DAX and Footsie test resistance

Germany’s DAX respected primary support at 9000, but the subsequent rally met resistance at 9250/9300. Failure to break through would warn of another test of primary support. 21-Day Twiggs Money Flow below zero indicates selling pressure. Breach of 8900 would signal a primary down-trend, while recovery above 9300 would suggest a rally to 9750.

DAX

* Target calculation: 9750 + ( 9750 – 9000 ) = 10500

The Footsie is testing resistance at 6750. Breakout would indicate a rally to 6900. 13-Week Twiggs Money Flow oscillating above zero indicates a healthy up-trend. Reversal below 6650 is less likely, but would warn of a correction to 6400/6500.

FTSE 100

* Target calculation: 6900 + ( 6900 – 6500 ) = 7300

The Joseph Cycle: 7 Fat years and 7 lean years

George Dorgan writes:

Since both the positive and the negative phases of a financial cycles take around seven years, financial cycles are sometimes called “Joseph cycle“, from the biblical prophet Joseph that speaks of seven good and seven bad years. The financial cycle connected to expectations about real estate prices, is also called credit cycle…..After the bust of dot com bubble in 2001, the Fed lowered interest rates. Credit was easily available and private debt strongly increased. Government debt remained relatively stable.

Only in few countries like Germany, Japan or Switzerland people were far more cautious, because they had seen a real estate bubble bust in the 1990s. The leveraging phase finally ended in 2011, in China and in some other emerging markets…..

We think that the reduction of debt will continue to be the main driver of global economies during the next Joseph cycle, in the next seven years. After the US lowered debt levels until 2011/2012 it is now time for Europe except Germany and Switzerland and Emerging Markets….

Read more at Debt, the Joseph Cycle Determinant between 2011 and 2017 -SNBCHF.COM.

S&P 500 recovers but Europe remains weak

  • Europe continues to test support.
  • S&P 500 recovers.
  • VIX continues to indicate a bull market.
  • China bullish.
  • ASX 200 recovers.

Dow Jones Europe Index continues to test its primary trendline and support at 315/325. 13-Week Twiggs Momentum below zero warns of a primary down-trend. Breach of primary support at 315 would confirm.

Dow Jones Europe Index

The S&P 500 recovered above 1950, suggesting another test of resistance at 2000. Recovery of 13-week Twiggs Money Flow above its July high would suggest that buyers have taken control. Reversal below 1900 is unlikely, but would warn that the primary trend is slowing.

S&P 500

* Target calculation: 1500 + ( 1500 – 750 ) = 2250

CBOE Volatility Index (VIX) remains low, suggesting a bull market.

S&P 500 VIX

Dow Jones Shanghai Index is testing resistance at 295. Breakout would confirm a primary up-trend. Respect of resistance, however, would indicate further consolidation.

Dow Jones Shanghai Index

ASX 200 recovery above 5550 also suggests another advance. Respect of zero by 13-week Twiggs Money Flow would strengthen the signal. Reversal below 5450 is unlikely, but would warn of another test of primary support.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800

DAX support holds

Germany’s DAX respected primary support at 9000. Follow-through above last week’s high at 9250 would suggest another attempt at 9750. Recovery of 13-week Twiggs Money Flow above zero would strengthen the signal. Breach of primary support at 8900/9000, however, would signal a primary down-trend.

DAX

* Target calculation: 9750 + ( 9750 – 9000 ) = 10500

European Depression | Business Insider

Joe Weisenthal quotes Carl Weinberg of High Frequency Economics:

For Euroland, the big picture is that the economy is in its seventh year of depression. On our estimate of a 0.7% contraction in the second quarter, GDP was still 3.2% lower than it was in the first quarter of 2008, when the depression began. Euroland’s economy actually contracted in the first quarter of this year when you exclude Germany’s unexpected surge to a 3.3% annualized rate of growth. Only people who were misled by Markit’s untested and unproven PMIs believed that such growth was real and sustainable. Our estimate of second quarter GDP for the Euro Zone includes a contraction of Germany’s economy at a 2% annualized rate, reversing the windfall in the unexplained and inexplicable first quarter spurt. If our forecast proves correct, average GDP growth for Germany in the first half of 2014 will work out to 0.7% at an annualized rate, clearly less than potential but very much in line with the experience over the last few years. Our estimate for France’s economy is a more horrible contraction of 1.1% for the quarter, or 4.3% at an annualized rate.

The European Central Bank (ECB) has been shrinking its balance sheet since 2012 while the Fed has been expanding. Not hard to figure out why the Monetary Union (EMU) is undergoing a contraction.

ECB Total Assets

Especially when private (nonfinancial) credit is contracting.

Euro Area Private Nonfinancial Credit from Banks

Read more at European Depression – Business Insider.