US & Canada Archives - Page 139 of 169

March 24, 2012

Secondary correction, but watch Fedex

The weekly S&P 500 chart suggests retracement to the new support level at 1370. No major deviation on 13-week Twiggs Money Flow indicates this is merely a secondary correction. Respect of 1350 would signal a primary advance. Long-term target for the breakout is 1600*.

S&P 500 Index

* Target calculation: 1350 + ( 1350 – 1100 ) = 1600

Nasdaq 100 Index similarly displays a bearish divergence on 21-day Twiggs Money Flow but no major deviation on the 13-week indicator, suggesting a secondary correction to the long-term rising trendline.

Nasdaq 100 Index

* Target calculation: 2400 + ( 2400 – 2050 ) = 2750

Bellwether transport stock Fedex, however, displays a stronger bearish divergence, on 13-week Twiggs Money Flow. Failure of support at 88.00 would indicate reversal to a primary down-trend; follow-through below 86.00 would confirm. A Fedex down-trend would warn that economic activity is slowing.

Fedex

March 22, 2012

Playing Pyongyang's Games – WSJ.com

MICHAEL AUSLIN: It took barely two weeks for North Korea to play its old game of bait and switch, this time gutting the Feb. 29 “Leap Day Agreement” with the Obama administration that promised a moratorium on nuclear and missile testing. In an Ides of March announcement, Pyongyang revealed it would conduct a “satellite launch” on April 15, which coincides with the 100th anniversary of the birth of Kim Il Sung, founder of the North Korean regime.

….In a sense, the Obama administration has only itself to blame for this mess. For three years, it wisely avoided playing Pyongyang’s games. Unlike the Bush administration, which became increasingly desperate to patch holes in a flawed policy of making ever more concessions for little in return, the Obama team kept contact with former leader Kim Jong Il at a minimum, and refused to enter the Alice in Wonderland world of reaching agreement with the North only to face provocation and demands for more concessions.

via Michael Auslin: Playing Pyongyang's Games – WSJ.com.

March 22, 2012

"The American Recovery" by Mohamed A El-Erian | Project Syndicate

the economy is not yet in a position to handle the 4-5%-of-GDP “fiscal cliff” that is approaching as all of the hard political decisions that were postponed come into view at the end of this year. The prospect of a disorderly fiscal contraction needs to give way to a more rationally designed approach that avoids undermining the fragile recovery. To accomplish that, the political class must avoid the bickering that almost sent America back into recession in 2011, and that raised major questions about the quality of the country’s economic governance.

…..America’s full recovery is not yet guaranteed. A mix of steadfastness, caution, and good luck is needed for that to happen. And when it does, the country will be in a better position to repay its massive hospital bill.

via "The American Recovery" by Mohamed A El-Erian | Project Syndicate.

March 22, 2012

FedEx Pares Global GDP Outlook as Slowdown Damps Profit Forecast- Bloomberg

FedEx said express shipments declined both domestically and internationally because of “below-trend” growth. The operator of the world’s biggest cargo airline said it was parking an unspecified number of planes, paring flight hours and reviewing domestic capacity.

“We just don’t have a strong economy as we had hoped it would be a year ago,” Chief Financial Officer Alan Graf said on an earnings call. “The economic environment and the elasticity that we’re seeing on our premium services from the high-fuel costs” are weighing on this quarter’s earnings outlook.

via FedEx Pares Global GDP Outlook as Slowdown Damps Profit Forecast- Bloomberg.

March 22, 2012

Forex: Aussie, Loonie, Rand

Canada’s Loonie, buoyed by rising oil prices, is testing resistance at $1.01/$1.015. Narrow consolidation suggests an upward breakout and advance to the 2011 high of $1.06*. 63-Day Twiggs Momentum above zero also indicates a primary advance.

Canadian Dollar/USD

* Target calculation: 1.01 + ( 1.00 – 0.95 ) = 1.06

The Australian Dollar, dragged lower by weaker commodity prices, is testing medium-term support at $1.04 on the Weekly chart. Respect of the rising trendline is more likely and would indicate a breakout above the ascending triangle at $1.08. Long-term target for an advance would be $1.20 but that seems unachievable in the near-term. Breach of the rising trendline is less likely, but would warn of a correction back to $0.96; and reversal of 63-day Twiggs Momentum below zero would indicate a primary down-trend.

Australian Dollar

* Target calculation: 1.08 + ( 1.08 – 0.96 ) = 1.20

The Aussie Dollar breached support against the South African Rand at R8.00 on the Daily chart. Follow-through below R7.90 would confirm a correction to $7.60*. Breach of the long-term rising trendline, however, would warn of a primary down-trend.

AUD/South African Rand

* Target calculation: 8.05 – ( 8.45 – 8.05 ) = 7.60

March 21, 2012

US public debt growing at unsustainable rate

We often blame Fed monetary policy for the GFC, with interest rates at exceptionally low levels leading to “Greenspan’s bubble.” Treasury was just as culpable, however, with the massive 2004-2005 surge in public debt flooding the market with liquidity. The repeat in 2008-2011 was more justifiable: the spike in public debt was necessary to offset the sharp decline in private (non-financial) debt which would have caused a deflationary spiral. The effect was to smooth out the fall in total domestic debt (public and private) and create a relatively “soft” landing for the economy.

Government, Domestic and Private (Non-Financial) Debt Growth

Quick Glossary

Domestic debt is all local debt, both government and private sector

Non-financial excludes the financial sector from debt calculations as it largely acts as a conduit for other sectors.

Government debt includes federal, state and local government borrowing

Private debt is all Domestic debt other than Government. It includes both Corporate and Household debt.

Household debt is all debt owed by private households, as opposed to the corporate sector.

GDP is the market value of all final (excludes intermediate) goods and services produced within a country in a given year/quarter.

Nominal means before adjustment for inflation.

Government and Domestic Debt Growth compared to GDP

Public debt growth is slowing but needs to fall further in order to keep the economy on a sustainable path. A rough rule of thumb is that public debt should grow no faster than GDP — so that it does not outgrow the nation’s ability to repay. With public debt growing at 8.6% and GDP at a nominal rate of 4.1%, Treasury’s ability to repay — and its credit rating — is deteriorating. Reduction of public debt growth to a rate of no higher than 4.1% is necessary. Increases in tax collections as a percentage of GDP would alter this basic equation, but are highly unpopular and act as a disincentive to further GDP growth.

It should be evident from the above chart that GDP contracts when the rate of domestic debt growth slows. If domestic debt ever had to contract (below zero growth), you can imagine the impact that it would have on GDP. That is a debt-deflation spiral and should be avoided at all costs. So, although we would all like to see a sharp reduction in debt levels, there are limitations on how quickly this can be achieved — without smashing the economy into a brick wall.

We can also see that GDP growth for the past decade has been largely debt-fueled. Only recently has GDP growth surged above the growth rate of domestic debt, reflecting an increase in productivity. That is what we (not just the US) have to strive for: to widen the positive gap between GDP and domestic debt growth, while bringing public debt growth below the nominal rate of growth in GDP.

Reducing the rate of growth in public debt will not be easy, however, with private debt growing at a miserly 0.8% compared to domestic debt at 3.0%. The difference is made up by government debt, growing at a whopping 8.6%. Private capital expenditure, however, has in many cases been brought-forward to take advantage of accelerated tax write-offs and is likely to slow in the months ahead. Even worse is household debt which is contracting at an annual rate of 0.9%. So the medium-term outlook for private debt may be near-zero growth. And further slowing of public debt growth would court another recession.

Domestic, Household and Private (Non-Financial) Debt Growth

March 21, 2012

Container shipping: trade balance

The percentage of containers shipped empty from the Port of Los Angeles was 43.8% (or 1.1 million twenty-foot units) for the 8 months ending February 2012. Incoming containers received empty were a mere 3.6%. The net 40.2% of incoming containers returned empty to their port of destination reflects the trade disadvantage suffered by US manufacturers relative to their Asian competitors; primarily from artificial (suppressed) exchange rates, state subsidy of export industries and protectionism in local markets. While the figures remain high, they show a steady down-trend since 2006. But it will take another 12 years at the current rate of decline for traffic to reach parity, by which time many industries will have suffered irreparable harm.

Net Percentage of Empty Container Traffic Leaving the Port of Los Angeles

Shippers attempt to fill containers on their return journey, even at super-low rates, in order to offset the cost of completing the round-trip. Empty containers indicate failure to locate manufactured goods that can compete in export markets. This affects not only the shipper, but the entire economy. You see, those containers leaving the West Coast are not really empty. They contain something far more valuable than the goods being imported. They contain manufacturing jobs — and the infrastructure, skills and know-how to support them.

March 20, 2012

You can't borrow yourself out of debt: The Secret of Oz

“You can’t borrow yourself out of debt any more than drink yourself sober.”

http://www.youtube.com/watch?v=swkq2E8mswI

Bill Still on the on-going debt problem and the solution proposed by L. Frank Baum in the Wizard of Oz.

Comment:~ The solution proposed is not a magic bullet. Money printed by Treasury, whether in the form of banknotes (“scrip”) or tally sticks, is still Treasury debt; Treasury effectively borrows when the currency is issued in payment and settles when the notes are presented in payment of taxes. It also debases the currency, though not as fast as debt created by the banks. This video serves as a reminder that we still have not solved the global debt problem — merely postponed the inevitable by issuing further debt.

March 19, 2012

EconoMonitor » A Colossal Mistake of Historic Proportions: The “JOBS” Bill

Simon Johnson: Professor John Coates hit the nail on the head:

“While the various proposals being considered have been characterized as promoting jobs and economic growth by reducing regulatory burdens and costs, it is better to understand them as changing, in similar ways, the balance that existing securities laws and regulations have struck between the transaction costs of raising capital, on the one hand, and the combined costs of fraud risk and asymmetric and unverifiable information, on the other hand.”

In other words, you will be ripped off more. Knowing this, any smart investor will want to be better compensated for investing in a particular firm – this raises, not lowers, the cost of capital. The effect on job creation is likely to be negative, not positive.

via EconoMonitor : EconoMonitor » A Colossal Mistake of Historic Proportions: The “JOBS” Bill.

March 19, 2012

Nouriel Roubini's Global EconoMonitor » Scary Oil

Nouriel Roubini: The last three global recessions (prior to 2008) were each caused by a geopolitical shock in the Middle East that led to a sharp spike in oil prices. The 1973 Yom Kippur War between Israel and the Arab states led to global stagflation (recession and inflation) in 1974-1975. The Iranian revolution in 1979 led to global stagflation in 1980-1982. And Iraq’s invasion of Kuwait in the summer of 1990 led to the global recession of 1990-1991.

Even the recent global recession, though triggered by a financial crisis, was exacerbated by spiking oil prices in 2008. With the barrel price reaching $145 in July of that year, oil-importing advanced economies and emerging markets alike faced a recessionary tipping point.

……..Oil is already well above $100/barrel, despite weak economic growth in advanced countries and many emerging markets. The fear premium might push prices significantly higher, even if no military conflict ultimately takes place, and could trigger a global recession if one does.

via EconoMonitor : Nouriel Roubini’s Global EconoMonitor » Scary Oil.