Economy Archives - Page 93 of 133 - the patient investor

February 5, 2013

Liberty and Property | Matt Zwolinski | Libertarianism.org

Interesting discussion from Matt Zwolinski on the conflict between individual freedom and property rights, the two basics tenets of Libertarianism:

A property right in land is a right to control access to that land. It is a “right to say ‘No’.” But if all land is privately owned, and all landowners have a right to say “No” to all non-landowners, then non-landowners are not equally free with landowners. They exist in a state of dependence. Like feudal serfs or the most abject slaves, they live only by the consent of those in command……

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.

February 5, 2013

Did Securitization Lead to Riskier Corporate Lending? – Liberty Street Economics

João Santos writes:

There’s ample evidence that securitization led mortgage lenders to take more risk, thereby contributing to a large increase in mortgage delinquencies during the financial crisis. In this post, I discuss evidence from a recent research study I undertook with Vitaly Bord suggesting that securitization also led to riskier corporate lending. We show that during the boom years of securitization, corporate loans that banks securitized at loan origination underperformed similar, unsecuritized loans originated by the same banks. Additionally, we report evidence suggesting that the performance gap reflects looser underwriting standards applied by banks to loans they securitize.

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.

February 5, 2013

CBO Sees Rising U.S. Debt, Economic Rebound in 2014 | WSJ.com

DAMIAN PALETTA at WSJ writes:

Economic growth and recent legislation have cut the federal budget deficit in half in the past four years, but federal debt will still hit historic levels if more isn’t done, the Congressional Budget Office said Tuesday in the annual update of its budget and economic forecast.

The CBO said it expected economic growth to be sluggish in 2013, in part because of a sharp drop in government spending, but it sees a better economy in 2014 as the recovery takes hold.

via CBO Sees Rising U.S. Debt, Economic Rebound in 2014 – 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.

February 5, 2013

EconoMonitor » Australia’s Economic Outlook—The Nauru Option?

Satyajit Das writes:

In a 29 November 2010 speech entitled The Challenge of Prosperity, RBA Governor sought to illustrate the combined effects of the gains of the appreciating terms of trade position and the A$ strength in the following terms: “In 2005 a shipload of iron ore was worth the same as around 2,200 flat screen televisions In 2010, the same shipload was worth around 22,000 flat screen TVs”. In a Freudian slip, the RBA Governor identified a fundamental issue with Australia’s economic model.

Australia may have substantially wasted the proceeds of its mineral booms, with the proceeds channelled into consumption. The nations did not channel enough into strategic long term investments or develop a new industrial base. According to one study, the commodity boom increased government revenues between 2002 and 2008 by around A$180 billion of which A$36 billion was used to repay public debt, A$69 billion was placed into the Future Fund (to meet the cost of public sector superannuation liabilities) and $75 billion was transferred to households in the form of tax cuts and payments.

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.

February 5, 2013

Why QE is not working

Lars Christensen, Chief Analyst at Danske Bank, quotes David Beckworth in this lengthy but excellent 2011 paper on Market Monetarism — The Second Monetarist Counter-revolution:

“…..Declines in the money multiplier and velocity have both been pulling down nominal GDP. The decline in the money multiplier reflects: (1) the problems in the banking system that have led to a decline in financial intermediation as well as (2) the interest the Fed is paying on excess bank reserves. The decline in the velocity is presumably the result of an increase in real money demand created by the uncertainty surrounding the recession. This figure also shows that the Federal Reserve has been significantly increasing the monetary base, which should, all else equal, put upward pressure on nominal spending. However, all else is not equal as the movements in the money multiplier and the monetary base appear to mostly offset each other. Therefore, it seems that on balance it has been the fall in velocity (i.e. the increase in real money demand) that has driven the collapse in nominal spending.”

Beckworth continues:

“[the] sharp decline in velocity appears to be the main contributor to the collapse in nominal spending in late 2008 and early 2009 as changes in the monetary base and the money multiplier largely offset each other. It is striking that the largest run-ups in the monetary base occurred in the same quarters (2008:Q3, 2008:Q4) as the largest drops in the money multiplier. If the Fed’s payment on excess reserves were the main reason for the decline in the money multiplier and if the Fed used this new tool in order to allow for massive credit easing (i.e. buying up troubled assets and bringing down spreads) without inflation emerging, then the Fed’s timing was impeccable. Unfortunately, though, it appears the Fed was so focused on preventing its credit easing programme from destabilising the money supply that it overlooked, or least underestimated, developments with real money demand (i.e. velocity). As a consequence, nominal spending crashed.”

Christensen concludes:

Subsequent events have clearly proven Beckworth right and it is very likely that had the Federal Reserve not introduced interest on excess reserves then the monetary shocks would have been significantly smaller.

From Market Monetarism – The Second Monetarist Counter-revolution

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.

February 3, 2013

S&P 500 buying pressure

The S&P 500 displays evidence of buying pressure on the daily chart, with brief retracement to test support at 1500 followed by a surge to a new 5-year high. Expect a test of the 2000/2007 highs at 1550/1565.

S&P 500 Index

Troughs above the zero line on 13-week Twiggs Money Flow indicate longer-term buying pressure. Breakout is likely and would signal an advance to 1750*. Reversal below 1500, however, would warn of a widely predicted correction.
S&P 500 Index

* Target calculation: 1550 + ( 1550 – 1350 ) = 1750

Declining 63-day Twiggs Momentum on the Nasdaq 100, however, warns of a reversal. Respect of resistance at 2800 would strengthen the warning, while retreat below 2500 would complete a head and shoulders reversal. Follow-through above 2900 is less likely, but would confirm a bull market signal from the Dow/S&P 500.
S&P 500 Index

These are times for cautious optimism. Central banks are flooding markets with freshly printed money, driving up stock prices, but this could create a bull trap if corporate earnings, capital investment and employment fail to respond.

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.

February 3, 2013

A Putrid Smell Is Suddenly Emanating From European Banks | Business Insider

Wolf Richter writes:

A nauseating whiff came from Barclays Friday, when it leaked out that it has been under investigation by the Financial Services Authority and the Serious Fraud Office in Britain for illegal fundraising in 2008. Allegedly, the bank secretly loaned £5.3 billion (US $8.4 billion) to one of Qatar’s sovereign wealth funds, which then turned around and with great public fanfare pumped that money back into Barclays — a scheme to raise capital on paper to escape a government takeover during the financial crisis…..

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.

January 30, 2013

Federal Reserve FOMC statement | Press Release

…..Although strains in global financial markets have eased somewhat, the Committee continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month……

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal……

Read the complete statement at FRB: Press Release–Federal Reserve issues FOMC statement–January 30, 2013.

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.

January 30, 2013

History Of Federal Reserve Tightening | Business Insider

Matthew Boesler writes:

Deutsche Bank Chief U.S. Equity Strategist David Bianco says, “Don’t fear interest rate normalization.” That’s the title of one of his recent research notes, which takes a deep dive into what happened to markets each of the 15 times the Fed has embarked on policy tightening since 1965. Bianco writes, “DB economists and rate strategists forecast an unchanged Fed Funds rate until 2014. However, they forecast a 3.0% 10yr Treasury yield at 2013 end. When QE ends it will likely be akin to early-cycle Fed tightening and the uptick in long-term yields will represent a cyclical rise in rates, both of which are bullish.”

Chart analysis of previous tightening cycles at History Of Federal Reserve Tightening – Business Insider.

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.

January 28, 2013

Cosco Expects Large 2012 Loss | WSJ.com

Colum Murphy at WSJ writes:

SHANGHAI—China Cosco Holdings Co., the country’s largest shipping company by fleet size, said it expects to report a large net loss for 2012, marking the second year of losses in a row and an imminent downgrading of the status of its yuan-denominated A shares by the Shanghai Stock Exchange. State-controlled Cosco, whose businesses include container and dry-bulk shipping as well as port operations, said Friday the expected loss would be the result of a weak container shipping market and high fuel costs.

Weak container shipping reflects poor manufactured exports.

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.