US & Canada Archives - Page 127 of 173

September 14, 2012

Forex: Euro, Pound Sterling, Canadian Loonie, Australian Dollar and Japanese Yen

The Euro broke out above its trend channel and resistance at $1.2750 on the daily chart to signal a primary up-trend. Recovery of 63-day Twiggs Momentum above zero confirms. Target for the advance is the 2012 high of $1.35*.

Euro/USD

* Target calculation: 1.275 + ( 1.275 – 1.20 ) = 1.35

Pound Sterling is correcting to support around €1.22 against the Euro. Breach of the rising trendline would warn that a top is forming, while retreat of 63-day Twiggs Momentum below zero would indicate a primary down-trend.

Pound Sterling/Euro

Canada’s Loonie is retracing to test the new support level after breaking above resistance against the greenback at $1.02. Breakout confirms the primary up-trend indicated by long-term bullish divergence on 63-day Twiggs Momentum. Target for the advance is $1.08*.

Canadian Loonie/Aussie Dollar

* Target calculation: 1.02 +( 1.02 – 0.96 ) = 1.08

The Aussie Dollar is testing resistance at $1.06 against the greenback. The 63-day Twiggs Momentum trough above zero signals a primary up-trend. Breakout above $1.06 would confirm. Expect resistance at $1.075/$1.08, but target for an advance would be $1.10*.

Aussie Dollar/USD

* Target calculation: 1.06 + ( 1.06 – 1.02 ) = 1.10

I commented a few days ago that apart from a bad case of Dutch Disease — where capital inflows and increased revenues from resources projects drive up the exchange rate and harm other export industries — the Australian dollar is at risk of developing “Swiss Disease” — where flight to a safe haven currency also drives up the exchange rate, destroying local export industries. Professor Warwick McKibbin has a point:

“When a portfolio shift into Australian currency is observed, the exchange rate change should be completely offset so the shock only affects the money markets rather than the real economy. If the shock cannot be observed precisely then the central bank should “lean against the wind”, that is intervene to slow down the extent of appreciation of the exchange rate.”

The RBA should be selling dollars to protect local export industries from rapid appreciation of the currency.

The Aussie Dollar is headed for resistance at ¥83.50 against the Japanese Yen. Recovery of 63-Day Twiggs Momentum above zero indicates a primary up-trend. Breakout would signal an advance to ¥88*.

Aussie Dollar/Japanese Yen

* Target calculation: 84 + ( 84 – 80 ) = 88

Colin Twiggs

Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.

September 14, 2012

NYSE to Pay $5 Million Penalty to SEC – WSJ.com

By CHAD BRAY

NYSE Euronext NYX +2.23% agreed to pay a $5 million penalty to settle allegations by the Securities and Exchange Commission that technology issues at the New York Stock Exchange gave some customers an “improper head start” on trading information. The case marks the first time the SEC has ever brought a case that resulted in a monetary penalty against an exchange.

via NYSE to Pay $5 Million Penalty to SEC – WSJ.com.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

September 14, 2012

Tony Robbins | The National Debt and Federal Budget Deficit Deconstructed

The $15 trillion U.S. national debt — how big is it really? And what can we do about the enormous federal budget deficit?

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

September 13, 2012

The impact of QE3

Expect stocks and commodities to rally – especially gold.

The S&P 500 followed through above 1440, confirming the primary advance to 1560*.

Index

* Target calculation: 1420 + ( 1420 – 1280 ) = 1560

Spot gold broke through short-term resistance at 175, headed for a test of $1800/ounce*.

Index

* Target calculation: 1650 + ( 1650 – 1500 ) = 1800

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

September 13, 2012

Fed to Buy More Bonds in Bid to Spur Economy – WSJ.com

By KRISTINA PETERSON, JON HILSENRATH and MICHAEL S. DERBY:

After months of careful signaling, the Fed’s policy-making committee said it would buy $40 billion each month of agency mortgage-backed securities on an open-ended basis and said it could extend those purchases and buy additional assets if the job market doesn’t improve.

“If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved,” the Federal Open Market Committee said in a statement issued at the end of its two-day meeting.

via Fed to Buy More Bonds in Bid to Spur Economy – WSJ.com.

I guess I was wrong about the Fed holding off until after the election.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

September 13, 2012

Household Income Falls to Lowest Point Since 1995

By YUVAL ROSENBERG, The Fiscal Times:

Median household incomes adjusted for inflation fell 1.5 percent to $50,054. That’s 8.1 percent lower than it had been in 2007, the year before the recession, and almost 9 percent lower than the peak income level reached in 1999. The last time median household income was lower was 1995 – meaning it’s been a lost decade and a half for Americans looking to get ahead.

The gross domestic product has gone from $7.4 trillion to $15.1 trillion in current-dollar terms over that time, suggesting that families have fallen behind even as the economy has expanded.

via Household Income Falls to Lowest Point Since 1995.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

September 12, 2012

Conversation with Bridgewater Associates' Ray Dalio | Credit Writedowns

The video below is an in-depth full hour-long segment and well worth watching. Notice that Dalio sees the credit accelerator as a key component adding to aggregate demand and the key component that creates instability in that demand. Unlike traditional econometric models that do not use the debt and credit stock as a consideration for a flow variable like spending, yet again we see that someone who anticipated the crisis does.

via Credit Writedowns

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

September 12, 2012

Sowell: Obama uses 'tax the rich' rhetoric to hoodwink voters | The Columbian

According to the Internal Revenue Service, more than 2.7 million people earn $250,000 a year or more — and fewer than one-tenth of them earn a million dollars or more. So more than nine-tenths of the people who would be hit with the higher taxes supposedly aimed at “millionaires and billionaires” are neither. “Bait-and-switch” advertising is exactly what President Obama is doing with his proposed tax increases on “millionaires and billionaires.”

It gets worse when you look at the potential economic consequences of the tax rate increases being proposed. The small proportion of the people targeted for Obama’s higher tax rates who are in fact millionaires and billionaires have the least likelihood of actually paying the higher tax rates. People with annual incomes in the millions or billions of dollars can live pretty high on the hog on a fraction of their income, leaving them with plenty of money to invest. And they can invest it in ways that keep it away from the tax collectors.

via Sowell: Obama uses 'tax the rich' rhetoric to hoodwink voters | The Columbian.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

September 12, 2012

Raising taxes: 73% of nothing is nothing

President Francois Hollande recently increased the top income tax rate in France to 75 percent — for incomes in excess of €1 million. This is part of a wider trend with President Obama targeting the wealthy in his election campaign, promising to raise taxes on incomes in excess of $1 million. Shifting the tax burden onto the wealthy might be clever politics, but does it make economic sense? To gauge the effectiveness of this strategy we need to study tax rates and their effect on incomes in the 1920s and 1930s.

By the end of the First World War, Federal government debt had soared to $25.5 billion, from $3 billion in 1915. Income taxes were raised to repay public debt: 60 percent on incomes greater than $100,000 and a top rate of 73 percent on incomes over $1 million. When Andrew Mellon was appointed Treasury Secretary in 1921, he inherited an economy in sharp recession. Falling GDP and declining income tax receipts led Mellon to observe that “73% of nothing is nothing”. He understood that high income taxes discourage entrepreneurs, leading to lower incomes and lower tax receipts — what we now refer to as the Laffer curve. By 1925, under President Coolidge, Mellon had slashed income taxes to a top rate of 25 percent — on incomes greater than $100,000. The economy boomed, tax collections recovered despite lower rates, and Treasury returned budget surpluses throughout the 1920s.

US Income Taxes and GDP 1920 to 1940

Interestingly, Veronique de Rugy points out that taxes paid by those with incomes over $100,000 more than doubled by the end of the decade.

US Income Tax Rates and Tax Receipts in the 1920s

Andrew Mellon was a wealthy banker and investor: in the mid-1920s he was the third highest taxpayer in the US. His strategy of cutting income tax rates may appear self-interested, but showed an understanding of how taxes can stimulate or impede economic growth, and succeeded in rescuing the economy from prolonged recession in the 1920s.

A decade later, President Herbert Hoover spent liberally on infrastructure programs in an attempt to shock the economy out of recession following the 1929 Wall Street crash. By 1932 Hoover and Mellon raised income taxes to rein in the growing deficit. Tax on incomes greater than $100,000 was increased to 56 percent and the top rate lifted to 63 percent — on incomes over $1 million.

The budget deficit continued to grow. Higher tax rates were maintained throughout the 1930s, under FDR, but failed to achieve their stated aim and may have contributed to the severity of the Great Depression.

US Income Taxes and Budget Surplus 1920 to 1940

GDP rose steeply after 1934. Income tax receipts recovered to pre-crash levels but declined again after 1937, when President Roosevelt introduced payroll taxes. Increased taxes reduced the fiscal deficit but caused a double-dip recession: GDP contracted, income tax receipts fell and the deficit grew.

US Income Taxes and GDP 1920 to 1940

Comparing the 1920s to the 1930s it is evident that Barack Obama and Francois Hollande threaten to repeat the mistakes of the 1930s. Increasing taxes in the middle of a recession does not reduce the deficit. It merely prolongs the recession.

Sources:
Cato Institute: 1920s Income Tax Cuts Sparked Economic Growth and Raised Federal Revenues by Veronique de Rugy
National Debt History
Wikipedia: Andrew W Mellon
Wikipedia: Laffer Curve
The Politically Incorrect Guide to the Great Depression and the New Deal by Robert Murphy

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

September 11, 2012

Harry S Dent: Why the Fed will fail

Harry Dent is always entertaining to listen to, but is he right about the link between demographics and inflation?

There is simply no way the Fed can win the battle it’s currently waging against deflation, because there are 76 million Baby Boomers who increasingly want to save, not spend. Old people don’t buy houses! At the top of the housing boom in recent years, we had the typical upper-‐middle-‐class family living in a 4,000-‐square-‐foot McMansion. About ten years from now, what will they do? They’ll downsize to a 2,000-‐ square-‐foot townhouse. What do they need all those bedrooms for? The kids are gone. They don’t visit anymore. Ten years after that, where are they? They’re in 200-‐square-‐foot nursing home. Ten years later, where are they? They’re in a 20-‐square-‐foot grave plot. That’s the future of real estate. That’s why real estate has not bounced in Japan after 21 years. That’s why it won’t bounce here in the US either. For every young couple that gets married, has babies, and buys a house, there’s an older couple moving into a nursing home or dying.

In my opinion there is a clear link between credit growth and inflation: the faster credit grows, the faster the money supply grows, and the higher the rate of inflation. Demographics are one of the factors that drive credit growth, but they are not the only factor. Interest rates are just as important: when interest rates are low we tend to save less and borrow more. And jobs, as the Fed discovered, are also important: if you haven’t got a job, you can’t borrow from the bank even when interest rates are low.

At present I would guess that jobs are the biggest constraint on credit growth. Later, interest rates will rise when employment recovers — as the Fed attempts to take some of the heat out of the economy. Only then may demographics become the major restriction on credit growth, with older households down-sizing outnumbering younger households up-sizing. But that is by no means definite: solving the jobs crisis alone could take decades!

Harry dent quoted from John Mauldin | A Decade of Volatility: Demographics, Debt, and Deflation (application/pdf Object).

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.