Economy Archives - Page 89 of 133 - the patient investor

March 12, 2013

What is Modern Monetary Theory, or “MMT”? | naked capitalism

Dale Pierce makes this comment when discussing make-work programs in his introduction to Modern Monetary Theory:

Whether the job-guarantee program makes fighter planes or wind turbines makes no economic difference – the workers employed by it will spend their wages on the same things other workers buy.

What he fails to consider is that wind turbines make an on-going contribution to GDP — from the electricity that they generate — while creating jobs at zero cost to the taxpayer to maintain the turbines. Fighter jets when built, on the other hand, make no further contribution to GDP growth and are a continual drain on the taxpayer’s purse for running and maintenance costs. While I support government or public/private infrastructure programs, we have to ensure that the investment is in productive assets that contribute to GDP and enhance future growth. Otherwise we may as well pay people to dig holes in the ground and then pay others to fill them in — at least the on-going maintenance costs would be low.
Read more at What is Modern Monetary Theory, or “MMT”? « naked capitalism.

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.

March 12, 2013

Australia: Net international investment position worse than Italy

Wikipedia provide a ranking of countries net international investment position, as a % of GDP, from highest to lowest.

Top of the list are the usual suspects:

Country	Date	NIIP as % of GDP
Hong Kong	2009	353
Singapore	2010	224
Republic of China	2010	153
Switzerland	2010	136
Norway	2010	96

But Australia and New Zealand are in the wrong sort of company at the bottom of the list.

Country	Date	NIIP as % of GDP
Poland	2010	-63
Australia	2011	-64
Slovakia	2010	-66
Estonia	2010	-71
Spain	2010	-87
New Zealand	2009	-90
Greece	2010	-93
Ireland	2009	-98
Portugal	2009	-108

Interestingly, Italy’s 2010 net international investment position is only -24%.

Source: Wikipedia: Net international investment position

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.

March 11, 2013

S&P 500 tests 2007 high

Dow Jones Industrial Average has broken through its previous high at 14,000. Long-term (13-week) Twiggs Money Flow oscillating above zero indicates strong buying pressure.
S&P 500 Index
Bellwether transport stock Fedex breakout above $100 signals rising economic activity.
Fedex

The S&P 500 is testing its 2007 high at 1550. Rising 13-week Twiggs Money Flow indicates strong buying pressure. Reversal below the latest trendline is unlikely at present but would warn of a correction. Target for the current advance is 1600*.

S&P 500 Index

* Target calculation: 1475 + ( 1475 – 1350 ) = 1600

VIX Volatility Index is headed for its 2005 lows at 0.10. While this coincided with the start of a ($SPX) bull market in 1995, it also occurred just before the peak in 2007; so does not offer much reassurance. Breakout above the quarterly high at 0.20 would be a warning sign.
VIX Index
The Nasdaq 100 broke resistance at 2800 despite bearish divergences on both 13-week Twiggs Momentum and 13-week Twiggs Money Flow. Reversal below the latest rising trendline would warn of a correction, while follow-through above 2900 would signal an advance to 3300*. Only breach of primary support at 2500 would signal a reversal.
Nasdaq 100 Index

* Target calculation: 2900 + ( 2900 – 2500 ) = 3300

Rising debt indicates consumers are once again spending. While there are still structural flaws in the US economy, the market is gaining momentum and the current advance shows no signs of ending.

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.

March 10, 2013

Investing: Growth and the markets | The Economist

Buttonwood of The Economist quotes Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School:

….take the records of 83 countries from 1972 to 2009 (the most comprehensive set available) and rank them by GDP growth over the previous five years. Investing each year in the countries with the highest economic growth over the preceding five years earned an annual return of 18.4%, but investing in the lowest-growth countries returned 25.1%.

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.

March 10, 2013

Philip Maymin, Why Financial Regulation is Doomed to Fail | Library of Economics and Liberty

Philip Maymin highlights a problem with volatility:

…..securities with historically low volatility tended to have almost twice as much subsequent risk, while those with historically high volatility tended to have almost half as much subsequent risk. For both the riskiest and least risky securities, therefore, historical risk is a statistical illusion.

He further points out that regulation encourages banks to act in concert, increasing systemic risk, while deposit insurance reduces the level of self-imposed discipline among banks.

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.

March 8, 2013

Milton Friedman – The Free Lunch myth [video]

Milton Friedman, recipient of the 1976 Nobel Prize for Economic Science, was one of the most recognizable and influential proponents of liberty and markets in the 20th century, and the leader of the Chicago School of economics. Here he gives his views on the myth of the free lunch.

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.

March 8, 2013

Milton Friedman: The foundations of freedom [video]

Nobel Laureate Dr. Milton Friedman gives his thoughts on the importance of maintaining the foundations of freedom, in 2009.

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.

March 8, 2013

Far from being a disaster, the results of the Italian election could be a turning point for Italy and the Eurozone. | EUROPP

Jonathan Hopkin argues that austerity has failed to produce results in Southern Europe and calls for European leaders to reconsider their approach:

…..perhaps the most important result of the election is that it will likely prove to be a turning point in the way in which the European Union deals with the debt crisis in the South. As was the case in Greece, the attempt to impose technocratic rule on a debtor nation to implement austerity and reform has been a political and economic disaster…… The Monti experiment produced no clear economic gains and has been decisively rejected at the polls. It would be reckless in the extreme of Europe’s leaders not to reconsider their approach.

via Far from being a disaster, the results of the Italian election could be a turning point for Italy and the Eurozone. | EUROPP.

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.

March 8, 2013

Quantitative easing does not address the fundamental problems underpinning struggling western economies. | EUROPP

John Doukas questions the benefits of quantitative easing:

…excessive money supply fails to increase real economic activity because it raises the labour cost while it lowers the cost of capital. Depressing yields at home, as a result of quantitative easing, in an open economy setting, leads yield-seeking investors into higher-risk investments such as emerging markets.

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.

March 7, 2013

Australia: Highest cost of living

Purchasing power parities (PPPs), exchange rates, and relative prices, by country, 2011

At 1.61, Australia has higher relative prices than Norway, Denmark, Sweden and Japan (listed in descending order). 61% higher than the US and 48% higher than the UK.

Index

Source: BLS

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.