Twitter test
Posted on 6 February 2010 | No responses
Datadiary.com.au is alive
Posted on 5 February 2010 | No responses
It may be a little rough around the edges as yet…but now time for a cuppa.
Click here to visit Datadiary.com.au – the new home of economic and market analysis with an Australian bent.
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New year resolutions
Posted on 13 January 2010 | No responses
Back from holidays and there are going to be some changes around here…
The training wheels are coming off, with the result that the economic commentary content of this blog will now be published on the site Datadiary.com.au. It’s under development so the shift to new premises will be undertaken over the next couple of weeks.
This will enable PazzoMundo.com to do what God originally intended for it…
Best new year wishes to all.
Surfing the meme – top five financial cliches for 2009
Posted on 18 December 2009 | No responses
Just got time for a little reflection – through the lenses of our favourite memes. Honorable mentions go to ‘Carry Trade‘ and the ‘New Normal‘ – but the winners of the top financial cliches of 2009 are…
#5 ‘Internal devaluation‘ – the cliche that got away. Never really had the zing to make it in the real world I guess. Still I give it marks for the deft bureaucratic manner in which it sanitised the debacle in Latvia. Vive la internal devaluation!
#4 ‘Green Shoots‘ – Kermit might have had difficulty being green, but the reinvigoration of ‘green shoots’ was a masterstroke by the British network ITV in January 2009. Pretty soon we were all seeing green (or brown for the colour challenged amongst us).
#3 ‘Moral Hazard‘ – 2009 was the year that marked the first deification of an individual as a living moral hazard – Congratulations Zen Ben. Moral hazard has the longest history of all our cliches (starting out life in the 1600’s where it was used in insurance circles to refer to fraudulent behaviour by the insured). While there have recently been valiant attempts to resurrect it as a pointed criticism – seems like the beneficiaries of taxpayer largesse interpret it more like a speed bump – something to be gingerly navigated so as to not damage the high performance suspension.
#2 ‘Unpredecented’ – the only thing certain about this term is that its use this year was unprecedented. As Gore Vidal suggested, we are living in the United States of Amnesia. When we outsource our memory to a microchip, everything is going to feel, well, unprecedented.
And the winner is…
#1 ‘Banker’s bleavage’ – a nasty irritation to the crest of the buttocks caused by stuffing overly crisp dollar bills down one’s trousers. Also known as Bernanke bleavage burn.
For advice on how to treat banker’s bleavage click here.
(Okay ‘banker’s bleavage’ isn’t a cliche – I made it up – still it’s important to give back just a little to the Googleverse.)
World trade – recovery and then what?
Posted on 18 December 2009 | No responses
World trade continues to recover from the drubbing it took earlier in the year – following is the big picture from the WTO
Running through the export and import data by country – USD denominated volumes continued to rise across the board into October (visit the WTO site – World of Warcraft should be worried).
No surprise that the same overall shape is evident in the Baltic Dry Index and Dow transports.
The BDI has lead the consistently lead $TRAN over the last 12 months. With the transports making new highs recently (seemingly confirming the highs in the broader indices), what then to make of the recent pullback in the BDI? World trade made some sort of near term peak?
The correction is coming…and so is Christmas
Posted on 17 December 2009 | No responses
Iron Cuticles here with some final thoughts for 2009 (coming to you through the intemperate haze of a summer flu).
The Australian equities market is at a crossroads – trading in a ever narrower range and refusing to capitulate (as I’d been expecting right about now). Unfortunately, arguments can be made for both another fling higher and a more substantial correction.
The bulls can simply point to the fact that we remain in an uptrend. The recent consolidation suggests a break of ~4800 would target a swift move to 5100-5200. Certainly the slow stochastics have retraced to a point that would support the case that this was wave 4 and the final push higher is in the wings.
For a deeper test, need to break the most recent low around 4600, which would take us through the March uptrend and give rise to a great deal of hand wringing and flatulence. Supporting this view is the crossover of the weekly MACD and the fact that momentum continues to trend lower and has broken to new lows for the move since March.
Interesting that this same pattern is being mapped out in the AUDUSD – except that here the Aussie has broken its March uptrend line.
The carry trade is wavering. Further strength in the USD could lead to unwinding of risk positions across the spectrum. For the moment, commodities are hanging tough – consider the chart of the ASX200 materials sector (XMJ):
If we are to have a move lower, this sector needs to join in cause, as with weakness in the financial’s continuing, it has been the metals sector holding our market up. In fact, could be argued that it will be financials that underwrite a surge higher, as they may be due for a bounce as they approach various moving averages and that damned nicketty March uptrend:
Staples, consumer discretionary and property are also all looking weak – so on balance still favour the downside from here which is why I remain small short. Just that with Christmas upon us, we have turkeys to stuff and ducks to confit – lack of interest might just dictate that this market goes absolutely nowhere.
Leading indicators – as buy/sell indicators for the equities markets
Posted on 14 December 2009 | 1 response
The OECD composite leading indicators for October were released late last week – they too seem to be confirming that the rate of the recovery has peaked:
The aggregate CLI for the OECD countries plus Brazil, China, India, Indonesia, the Russian Federation and South Africa continues to move higher just at a slower pace. (Note that the CLI’s are principally driven by changes in monthly reported industrial production.)
So to the concept that the leading indicators will signal when equities are scheduled for a correction (credit to Albert Edwards of SocGen via Zero Hedge). The inference from the analysis was that with the ECRI and US Conference Board starting to slow, they are flashing a warning signal for equities.
Okay, but then got to thinking about the difference between the growth rate peaking and an actual decline in the leading indicators. As Albert pointed out – the time to sell in Japan was when the leading indicators turned down. They haven’t turned down – they are still going up – just that the slope of their ascent has tapered off. Here is the SocGen leading indicator mapped against the Nikkei:
So to check the difference between the two measures following is the performance of the Nikkei mapped against the OECD’s composite leading indicator for Japan over the last 20 years both in absolute terms and as against the percentage change in the indicator:
Now I’ve only highlighted those 9 times when the CLI actually tipped into negative territory. As a simple measure of the statement “sell when the leading indicator turns down”, if you had done so you would have be in the money 5 out of 9 times three months later (for an average gain of 1613 points) and 7 out of 9 times six months later (for an average gain of 2131 points).
Using that same metric, if you had instead sold when the growth rate turned down, the result was 5/9 (+198 points) and 6/9 (+1479 points). (I assumed three consecutive months of declines to confirm the ‘turn’.)
Without trying to over engineer this, a general conclusion was that selling when the growth rate turned down tended to be early. While on average selling when the CLI went negative resulted in an entry ~640 points lower than when the growth rate turned (with some notably wild swings around the average), the former outperformed both in the 3 month and 6 month time frames.
Conclusion
Still like the theory, particularly given the view that a self-sustaining recovery is about as likely as Australia winning the world cup (or for that matter the US). Just that it might be wise to temper enthusiasm for the recent slowdown in growth as a sell signal.
Albert Edwards – on seeing trees in forests
Posted on 10 December 2009 | 1 response
One of those Eureka moments – thankfully without the tour of the museum au natural – following is quote from Albert Edwards (lifted from Zero Hedge).
“The secret of making money in Japan was to remember to exit just as most investors had become convinced of a self-sustaining recovery”
There you have it – a trading strategy for these times:
- Buy when the government steps up
- Sell when the government steps away
The logic is sound. The odds of a self-sustaining recovery occurring anytime soon are long indeed. The global economy is reliant on government intervention of one form or another. Paper mache may be good at covering up the cracks in the short term, and the likes of the clone army are paid to sell its virtues, but ultimately a whole lot of dollar bills held together by flour and water can’t stop the urge to deleverage. (To be fair, I may just be hearing what I want to hear – The Royal Nonesuch – a blueprint for recovery – came to the same conclusion.)
Albert Edwards suggests the time to sell is when the leading indicators turn down – he looks to the ECRI and the US Conference Board.
One point to note, these charts map the rate of change in the leading indicators. So while the leading indicators themselves are still tracking higher – their momentum is starting to lag.
This approach also makes intuitive sense – as the government withdraws its support, the real economy starts to asset its authority. If the recovery cannot stand on its own legs, the weakness should show up in the leading indicators.
Compare and contrast to the November release (for September) of the OECD composite leading indicator:
Be interesting to see what the October squiggles are doing – they come out tomorrow. Pity these leading indicators are published with such a lag…
Australia’s trade deficit – are commodity exports fading?
Posted on 9 December 2009 | No responses
When we last looked at how the commodity sector was tracking, there was a general sense of optimism as conveyed in their end of year reporting (see article from 27 October). On the face of it, the trade data released today by the Australian Bureau of Statistics doesn’t seem to confirm this optimism.
Big picture – Australia’s trade deficit rose in seasonally adjusted terms from $1.85bn in September to $2.38bn in October. While a relatively strong domestic economy has been continuing to suck in the imports, our export sector has been flagging.
So what is going on? Well, it appears that the price compression that has been underway in the commodity sector continues unabated – particularly in those big ticket exports – iron ore and coal. Consider the following chart of the Implicit price deflators:
Export (and import prices) continued their downward trend. Now maybe this can partly be explained by the strength in the AUD, but there seems to be more to it than that. Have a look at the export and import price indices:
And the explanation from the ABS as to the drop in export prices:
The Export Price Index decreased by 9.6% in the September quarter 2009. The decrease was driven mainly by falls in prices received for coal, coke and briquettes (-34.2%) and metalliferous ores and metal scrap (-12.1%), as well as the appreciation of the Australian dollar against all major trading currencies. These falls were partly offset by rises in prices received for non-ferrous metals (+16.1%) and petroleum, petroleum products and related materials (+5.4%). Through the year to September quarter 2009, the Export Price Index decreased by 20.7%, the largest annual decrease since the current series began in September quarter 1974.
Postscript – we have mentioned previously that the AUD was starting to look a little green around the gills. As always, Kevin’s Market Blog has succinctly analysed the prevailing trend in his blog today (see here). The global carry trade about to be unwound perhaps?
The tyranny of real time
Posted on 8 December 2009 | 2 responses
A model for the Stockholm library (from the Long Now)
Globalisation and virtualisation have initiated a world time that prefigures a new kind of tyranny…Tomorrow, our history will be played out in the universal time of the instantaneous.
So warned Paul Virilio in uncharacteristically lucid terms for a French philosopher. Watching this talk from the CEO of Akamai (thanks to Dean over at Fusion Investing), it seems that we are about to make the next great leap forward.
What is intrinsically wrong with ‘real time’?
We are just not designed for it. Our machines might operate in nano-seconds, but even our most instinctive reflexes, the literal blink of an eye, require multiples thereof. With real time let loose on our waking selves, we are robbed of our ability to reflect. And reflection is one of those attributes that sets us apart from our peers on the evolutionary tree.
If you feel rushed in your day then consider what this contribution from Blackberry is really trying to say:
Why is Blackberry essential for my business? I can do more in less time…it goes on…On average Blackberry users recover an hour of downtime a workday
Now tell me what the hell is ‘downtime’?
Information dyssentry – where information passes straight through us as a stained and smelly liquid – is not what I want for my children. Yet perhaps that is why I can see that the transhuman is so absolutely necessary. Our offspring will manage the tyranny of real time with the aid of devices that we ancients would find truly abhorrent, but through this will retain the ability to reflect and to enjoy the sensual aspects of a fragrant meal and warm bed. Just maybe?