Canada’s TSX 60 marches on towards its target of the 2008 high at 900. Rising troughs on 13-week Twiggs Money Flow signal strong buying pressure. Reversal below support at 845 is unlikely.
Why US hard power failed in Iraq and elsewhere | Bill Moyers
Outstanding. Military historian Andrew Bacevich sums up the stupidity of US foreign policy and how repeated failures could be rectified. He exposes the “duplicity of ideologues” on calls for intervention in Iraq and discusses the moral responsibility to the people of Iraq. What can be done to alleviate the suffering of the people in Iraq? “There is remarkably little discussion as to cost if you want to bomb someone, but we suddenly become acutely cost-conscious if there is a proposal to assist them.”
Dick Cheney [at 06:00] in 1993, answering a question on the first Gulf war, predicted what would happen if Iraq was invaded: “…Once you take down Saddam Hussein’s government in Iraq, then what are you going to put in its place? If you take down the central government in Iraq, you could easily see pieces of Iraq fly off…..it’s a quagmire.”
Projection of hard power by the US has not solved global problems over the last 50 years. In fact it has exacerbated problems in the Middle East. Soft power is far more effective. But it needs a change of mind-set on the part of the US. Don’t get me wrong. You still need Teddy Roosevelt’s “big stick” as a deterrent, but soft power — engineers, doctors and school teachers — are far more effective at winning people over to your world-view than B52s and unmanned drones.
The inequality debate | Thomas Piketty and Ryan Bourne IEA
The inequality debate: Thomas Piketty and Ryan Bourne, of the Institute of Economic Affairs.
http://vimeo.com/98715433
One mistake Piketty makes: he uses a marginal tax rate of 80% in the US in the 1920s and 1930s on incomes over $1 million to justify higher taxes on incomes over $1 million today. This fails to consider inflation. Adjusted for the CPI, an income of $1m in 1920 equates to an income of $12m today.
High marginal tax rates in the 1920s in the US were introduced to pay back war debt from WWI. They had the opposite effect of that intended and reduced tax collections. Treasury secretary Andrew Mellon subsequently increased tax collections by reducing maximum tax rates, with the famous quip: “73% of nothing is nothing.”
The inequality debate | Richard Epstein
Professor Richard Epstein on the inequality debate and related issues in the US.
http://vimeo.com/98678656
Financial Reform Rising | Perspectives | BillMoyers.com
Simon Johnson describes how support for financial reforms is rising despite banks fighting tooth and nail to restrict changes to the current status quo.
In the early and mid-2000s, US officials allowed large financial institutions to take on big risks – being persuaded that the people running those firms knew what they were doing. In particular, important parts of our financial system became highly leveraged, in the sense that they took out debts that were very large relative to their shareholder equity. At that time, on average, the world’s largest banks had equity worth only around two percent of their total balance sheets. As asset values went up, so did bonuses – financial executives are typically paid based on their “return on equity,” unadjusted for risk. When house prices turned down and related losses mounted, these small amounts of shareholder equity – the core of what is known as capital in the banking world – were quickly wiped out for the most highly leveraged firms.
The logical next step would have been a set of reforms to prevent big financial firms from ever becoming so highly leveraged again…..Not surprisingly, the big banks and their allies fought back against any reasonable reforms that would limit their leverage and their ability to take big risks. The Dodd-Frank reforms passed by Congress in summer 2010 were, as a result, disappointing.
Increasing bank capital requirements and limiting the types of activities that FDIC-insured banks can engage in are in everyone’s best interest. Even in the long-term interest of banks. But unfortunately bankers are focused on their short-term bonuses and not the long-term stability of the financial system.
Read more at Financial Reform Rising | Perspectives | BillMoyers.com.
A good week for the S&P 500 but not the ASX
Summary:
- Good week for US markets.
- China continues to threaten further down-side.
- The ASX 200, pulled in opposite directions, is range bound for the present.
- Momentum strategies require persistence.
The S&P 500 broke through 1950 and is expected to test the next resistance level at 2000*. Rising 21-day Twiggs Money Flow signals medium-term buying pressure. Reversal below 1925 is unlikely at present but would warn of a correction.
* Target calculation: 1900 + ( 1900 – 1800 ) = 2000
The CBOE Volatility Index (VIX) continues its downward path, indicating low risk typical of a bull market.
The Shanghai Composite Index rebounded Friday after a tough week and continues to test primary support at 1990/2000. Breach of support would signal a decline to 1850*. 21-Day Twiggs Money Flow oscillating above zero indicates buying support; a fall below zero would suggest selling pressure. The primary trend is expected to continue its downward path, but this is a managed descent and an abrupt fall seems unlikely.
* Target calculation: 2000 – ( 2150 – 2000 ) = 1850
After a strong surge on Thursday the ASX 200 retreated below 5450 on Friday, suggesting another test of support at 5400. Reversal of 21-day Twiggs Money Flow below zero indicates medium-term selling pressure. Breach of support is likely and would indicate a correction to 5300. Recovery above 5500 is unlikely at present, but the long-term trend remains upward.
* Target calculation: 5400 + ( 5400 – 5000 ) = 5800
Resist the urge to avoid discomfort
Momentum stocks have suffered a fair degree of turbulence since April, after a strong first quarter. Investors unfortunately have to endure periods like this, when the market appears hesitant or lacks direction, in much the same the same way as travelers can expect turbulence during an air flight. It is important is to resist the urge to avoid discomfort by exiting positions. Enduring uncomfortable parts of the journey are necessary if you want to reach your intended destination. Our research on both the ASX and S&P 500 has shown that attempting to time secondary movements in the markets does not enhance but erodes performance: the average (re-)entry price is higher than the average exit price after accounting for brokerage.
A basic rule of thumb in investing is that investors need to endure higher volatility in order to achieve higher returns. If your investment time frame is long-term, it is important to focus on the end result and not be overly concerned by weekly fluctuations.
Robert Shiller: CAPE should not be used for market timing
From an interview with Robert Shiller in January 2013:
Blodget: ….one frustration a lot of people have with the cyclically adjusted P/E and others is that it’s not particularly helpful for the timing mechanism, do you think it’s good to use as a sort of projected 10-year return, where when P/Es are high the return tends to be low, and vice versa?
Shiller: John Campbell, who’s now a professor at Harvard, and I presented our findings first to the Federal Reserve Board in 1996, and we had a regression, showing how the P/E ratio predicts returns. And we had scatter diagrams, showing 10-year subsequent returns against the CAPE, what we call the cyclically adjusted price earnings ratio. And that had a pretty good fit. So I think the bottom line that we were giving – and maybe we didn’t stress or emphasize it enough – was that it’s continual. It’s not a timing mechanism, it doesn’t tell you — and I had the same mistake in my mind, to some extent — Wait until it goes all the way down to a P/E of 7, or something.
Blodget: Right, perfectly safe, so then you can buy.
Shiller: But actually, the lesson there is that if you combine that with a good market diversification algorithm, the important thing is that you never get completely in or completely out of stocks. The lower CAPE is, as it gradually gets lower, you gradually move more and more in. So taking that lesson now, CAPE is high, but it’s not super high. I think it looks like stocks should be a substantial part of a portfolio.
Read more at Robert Shiller On Stocks – Business Insider.
Canada: TSX 60 Ichimoku trend
Canada’s TSX 60 again shows a strong trend, trading high above a strong green cloud, with no recent crosses of blue (Tenkan) below the red (Kijun) line. Expect a test of the 2008 high at 900. Reversal below support at 830 is unlikely.
S&P 500: Strong Ichimoku trend
Today we take a look at long-term trend strength in North American markets using a great trend tool, Ichimoku Cloud, with weekly charts. Ichimoku is only available on the latest beta version of Incredible Charts (Help >> Upgrade To Latest Beta Version), but will soon be released with Incredible Charts 7.0.
Ichimoku offers a number of trend signals:
- The trend is upward when price is above the Cloud (and downward when price is below).
- A green cloud indicates an up-trend, while a red cloud indicates a down-trend.
- Long trades are taken when the blue line crosses above the red. In strong trends, blue may hold above red for extended periods.
The S&P 500 encountered resistance and is consolidating below its target of 1950*. The trend above a green cloud is further strengthened by the blue (Tenkan) holding above the red (Kijun) for an extended period. Continuation of the up-trend is likely and breakout above 1950 would signal an advance to 2000.
* Target calculation: 1850 + ( 1850 – 1750 ) = 1950
Dow Jones Industrial Average displays a similar strong trend with few blue (Tenkan) dips below the red (Kijun) line. Breakout above resistance at 17000 would signal an advance to 17500*. Reversal below 16500 is unlikely, but would warn of another correction.
* Target calculation: 16500 + ( 16500 – 15500 ) = 17500
The Nasdaq 100 recovery of blue (Tenkan) above the red (Kijun) line offers a fresh entry signal. Resistance at 3800 is unlikely to hold and follow-through would confirm the target of 4000* for the advance. Reversal below 3700 is unlikely, but would warn of another correction.
* Target calculation: 3700 + ( 3700 – 3400 ) = 4000
Another indication of trend strength is the CBOE Volatility Index (VIX), currently trading at levels last seen in 2005/2006, which indicates low risk typical of a bull market.
Canada: TSX 60 targets 900
A monthly chart shows Canada’s TSX 60 headed for its 2008 high of 900 after breaking resistance at 820. Bearish divergence on 13-week Twiggs Money Flow appears secondary, in line with the medium-term consolidation, but a further decline would warn of a correction. Reversal below support at 830 and the rising trendline is unlikely, but would indicate that the primary trend is slowing.
