Disclaimer. After nearly 40 years managing money for some of the largest life offices and investment managers in the world, I think I have something to offer. These days I'm retired, and I can't by law give you advice. While I do make mistakes, I try hard to do my analysis thoroughly, and to make sure my data are correct (old habits die hard!) Also, don't ask me why I called it "Volewica". It's too late, now.

BTW, clicking on most charts will produce the original-sized, i.e., bigger version.

Sunday, January 26, 2014

A blip?

Click chart to get it at full size

US markets fell a couple of percent last week.  In the context of the last 25 years, the fall is barely visible on the long-term chart (which is, as it should be, plotted on a log scale).  Yes, the market's had a good run, yes, it's much pricier than it was, and yes, there are question marks about emerging market growth.  On the other hand, DM (developed market) growth is accelerating, and DM central banks are very unlikely to raise interest rates for many many months.

If the blue line (the 150 day moving average) turns down, I shall be very concerned, because that would be one (strong) signal that a new bear market is emerging.

Wednesday, January 22, 2014

The writing on the wall

The orange line shows what the expected the expected global temperature rise is if we had kept carbon emissions at 2000 levels. Of course, emissions have risen since then. 

O tempora, o mores.  [From Grog's Gamut]

Monday, January 20, 2014

The All Ordinaries Index longer term

When you're in the middle of a soggy market it's easy to forget the longer term performance.

Once again, on a log scale, so a percentage move at 2000 is the same distance on the chart as a percentage move at 5000, even though the number of "points" is not the same.  Also, as per usual,  click to get a bigger chart.

In 2007, the market went "too far" above its longer term trend, and therefore had to fall "too far" in 2008/2009

Yet the long term trend is clearly up.

More on US early release indicator

Here I've plotted the data  (the "early release index" and real GDP) relative to their moving trend (the OECD method).  Once again, no signs of an imminent slowdown.  Mind you, the trend for the last few years has been much slower than in the past, so that needs to be borne in mind when you interpret the chart.  Note how the early indicator leads on both downturns and upturns, though at lower turning points it's only a couple of months' lead.

Still, most intriguing.  As usual, clicking on the chart will give you a full sized version, which is much easier to read.

Friday, January 17, 2014

Early data index

There are some time series which are released very quickly after the month end for the previous month.

In the US these are the ISM (Institute of Supply Management) and the PMI indices and the labour force data.  I have combined these into an (unweighted) index which will show in a single statistic, available within a few days of the previous month's end, whether the previous month was weak or strong.   As you can see, if anything the slope of the line is increasing, after a slower ascent in the previous couple of years.

The shaded periods show US recessions.

Tuesday, January 14, 2014

It's just a jump to the right

The new so-called Liberal government has signalled its intent to revamp the the school syllabus to reflect the values and myths of the right (in Oz, the "Liberals" are right-wing, "Labor" pretends to be left-wing)

Broelman's take on it (The spelling mistake is deliberate. Cane Toad Tony talked about"the suppository of all wisdom" in a speech):

Monday, January 13, 2014

US December Labour Market Data

Some of the US labour market stats were "strong"; other "weak".  So what I did was create a labour market composite index of the labour market variables I consider key.

The chart below (click on it to get it full size; and apologies for its less-than-satisfactory readability --- I'm still working on the program which I wrote to create graphs and indices) shows the year on year % change in real GDP and my index.  Consider this a work in progress, which it (especially the plotting program) is.  The shaded areas show the periods of NBER-determined US recessions.  Note how the labour market index starts turning down before the recession and turns up slightly before or coincident with the beginning of recovery.  Key point: note that there are no signs of an impending downturn.

The chart below shows the same series for a shorter period. The conclusion is clear. Remember that GDP "data" tend to get revised a lot, especially for recent years.

Sunday, January 12, 2014

Europe recovery

Finally.  After a series of blunders by European policy-makers, Europe finally starts to recover.   Industrial production (IP) is now positive year on year.  And the rising PMI suggest that this will continue.

Mind you, the level of output is still a loooong way below its previous peak.

Saturday, January 11, 2014

Global recovery strengthens

The Markit PMI surveys are a good early guide to the behaviour of economies in the previous month.  This chart shows the weighted average of the PMIs for China, Japan, Europe and the US.

It's not all up: France and Russia, for example are slowing.  China and Brazil are stagnating.

Thursday, January 9, 2014


Cartoon from Anti-Capitalism
This article, "Capitalism is too good a name for neo-liberal ideology"  sums up some of the things  have been thinking more and more over the last couple of years.

Many of the leading lights of free-market (neo-liberal/neo-conservative) capitalism were asserting before the crash that the market had correctly valued property, shares, derivatives and other exotic products that the “moneymen” were engaged in trading in. They failed spectacularly to predict the 2008 crash, the second largest economic crisis in history, after the great depression.
 You would think, wouldn’t you, that those high priests of neo-liberal economics would now be contrite, admit that their models of the market and human behaviour are wrong, or at least are in need of serious modification. Not a bit of it, they just carry on regardless, as if the crash never happened.

(In fact, outside the US, the economic collapse in some places--Greece, Spain, Ireland--was as severe and traumatic as the US Great Depression)

The use of the word ‘free’ in free market is a misnomer and a more accurate phrase to encapsulate the ideology would be ‘privatizing profits for the too-big-to-fail corporations and socializing losses’. As for the word ‘liberal’, all it means is giving the super-rich the liberty to exploit people without due regard for their human rights, and to pay them poverty wages. 
Lest we forget, we the taxpayers have rescued the too-big-to-fail banks from the folly of their actions to the tune of hundreds of billions, only to see that money paid in bonuses to the very bosses who were the architects of the mess in the first place. Governments then had to cut their spending through austerity programmes that affect almost everyone — apart, that is, from those who caused the crash in the first place. 
The hardships and the misery of such cuts are particularly felt by the working poor, the disabled, and the vulnerable. Our young have paid a particularly heavy price through unemployment. The adverse effect of such unemployment on societies will cascade through future generations in the foreseeable future.

If a company is too big to fail, it is also too big to be left to its own devices.  If a bank is too big to fail, it needs to be regulated so that the risk of failure is low.  Just as they used to be before untrammelled free markets in finance became fashionable.

Ha-Joon Chang, a Cambridge University economist, in his book 23 things they don’t tell you about capitalism, emphasises his enthusiastic support of capitalism and frames his criticism of the free-market model with these words:
‘Being critical of free-market ideology is not the same as being against capitalism. Despite its problems and limitations, I believe that capitalism is still the best economic system that humanity has invented. My criticism is of a particular version of capitalism that has dominated the world in the last three decades, that is, free-market capitalism. This is not the only way to run capitalism, and certainly not the best, as the record of the last three decades shows.’
The neo-liberal consensus assumed that financial markets were efficient, self-regulating and rational, and that the vastly increased inequality of wealth which resulted from embracing free markets would have no political consequences.  They were wrong, badly wrong, on both counts, as the GFC showed.  More on  both subjects to come.

Wednesday, January 8, 2014

Treasury sell off

It's tempting to believe that if bonds are selling off, so should equities.  But it depends why they are being sold.  If, for example, they're being sold because the government is in strife, currency is fleeing the country, etc, then both markets should sell off together.  But if they are selling off because bond yields (remember, a rise in yield = a fall in price; the chart on the left shows the yield on 10 year US Treasury bonds) are reverting to "normal" because the risk of recession has diminished, then bonds may sell off while equities advance.

The ending of QE (quantitative easing) exacerbates this dynamic.  QE was introduced to prevent depression, which duly happened, and now that the economy is once again on a path of sustained growth, QE is no longer needed.  Since QE involved the Fed buying long-dated bonds, the phased withdrawal ("tapering") of this massive buyer has inevitably led to a bond sell off.

There is a risk for shares, and that is that the rise fixed rate mortgages as a response to the rise bond yields will cause the economy to slow, since housing is such a significant swing factor.  One to watch, for us and the Fed.

Sunday, January 5, 2014

Hottest year on record

Australia has just experienced its hottest year on record.

Here is cartoonist Peter Broelman's take on that.

You can see more of his work here.

Friday, January 3, 2014

No sign US is slowing

The PMI and ISM indices for December for the US remained at a reasonable level, not yet boom but very far from bust.

My guess is that QE will go on being "tapered" but that this won't have any effect on growth though bond yields are likely to continue to rise albeit more slowly than they have done over the last 8 or 9 months.  This will be a moderate headwind for the market (I mean the share market)  Though the US recovery is far from boom territory, the US bull market is very long in the tooth.  But until the Fed starts raising the Fed Funds target rate, which won't happen for many many months, the bull market will be intact.  All the same, it's had a good run.  Caution.

Ever cheaper solar power, part the second

My previous post showed a chart of the falling price of photo-voltaic (solar) cells.  This shows the same data, but plotted with a log scale, which helps you see the percentage moves more clearly.  I've added the forecast for 2014 (50 cents!) which I got here.  The cost per watt has fallen at 18% per annum for the last 10 years, and extending that trend forward will bring the cost down to roughly 40 cents by the end of 2015.

Note that this cost is the cost of the panel.  In other words, in 1977 a 1 kW panel cost $76, 670 and will by the end of this year cost just $500.  It is not the cost of the electricity generated.  With solar panels which require no maintenance and last 25 years, you have to take the hours and the angle of sunshine  and depreciation/interest charges to work out what that cost is.  As the cost of solar panels themselves falls, then solar power from photovoltaic cells will also fall, until it reaches what is called grid parity, where it's cheaper to add a solar system  than build a new power station.  In the whole of the southwest US, southern Europe, Japan, Southern China, Africa, South America and of course Australia,  PV electricity has already reached grid parity or will this year or next.  This is true even even at the much lower wholesale cost of electricity.  But the beauty of solar panels is that you can put some on your own roof.  Which means that you save yourself the retail cost, usually 2 -4 times higher than the wholesale price. This pretty much makes most of the world at grid parity or below, except for Canada and Northern Europe.

This website is helpful calculating how much you will save/make depending on where you live.  In the case of Oz, the price used in the calculation is close to the feed in tariff (8 c per kWh)  But the cost of electricity in Victoria is around 30 c/kWh, and to the extent you're saving yourself that, a one kW panel even including installation and inverter will pay for itself in 2 years.

What is clear is that for most of the world between, say, 45 N and S, electricity generated by PV cells either is or will soon be cheaper than coal-powered electricity.  Of course, there is the problem of "base load" (the power you need when the sun isn't shining) but wind power is also falling in cost as are batteries.  In fact a newly discovered electricity storage technique is "over two orders of magnitude"   (i.e., more than 100 times) as efficient as previous capacitors.   Of which more later.

Despite the climate change denialists and powerful coal and oil lobby groups, CO2 emissions will peak soon and start falling fast.  Oil and coal will become feedstocks for plastic.  And the world will go electric.

The best news I've had in ages.

[Update:  The European Community has forced Chinese PV panel exporters to set a minimum price on PV exports to the EC.  That has temporarily stabilised the price fall, so we less likely to see $500 per kW by the end of this year]

Thursday, January 2, 2014

Ever cheaper solar power

Solar power has fallen 99% in cost since 1977.  It is now at or very close to grid parity, i.e., plugging in new solar facilities into the grid is now as cheap as or cheaper than building a new power station.  At least between latitudes 45 N and S.  The projected 74 cents per watt turned out in fact to be 64 cents.  This chart should be drawn with a log scale, so you can see the slope properly.  For example, the cost has fallen from $3/watt to 64 cents since 2002, as steep a percentage fall as in its early years.  Also it's not clear whether this is the real (i.e., inflation adjusted) or nominal price.

For the first time, I am optimistic that something will be done about global warming, despite the rabid right (Tony Abbott: "climate change is crap") and the powerful coal and oil lobbies.

Read more here.

{When I get some time I'll try to read off the data from this chart and redraw it with a log scale}