Leo Haviland provides clients with original, provocative, cutting-edge fundamental supply/demand and technical research on major financial marketplaces and trends. He also offers independent consulting and risk management advice.

Haviland’s expertise is macro. He focuses on the intertwining of equity, debt, currency, and commodity arenas, including the political players, regulatory approaches, social factors, and rhetoric that affect them. In a changing and dynamic global economy, Haviland’s mission remains constant – to give timely, value-added marketplace insights and foresights.

Leo Haviland has three decades of experience in the Wall Street trading environment. He has worked for Goldman Sachs, Sempra Energy Trading, and other institutions. In his research and sales career in stock, interest rate, foreign exchange, and commodity battlefields, he has dealt with numerous and diverse financial institutions and individuals. Haviland is a graduate of the University of Chicago (Phi Beta Kappa) and the Cornell Law School.


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DÉJÀ VU (ENCORE): US MARKETPLACE HISTORY © Leo Haviland October 4, 2015


Via its rhetoric and September 2015 managerial decision to delay a Fed Funds rate increase, the Federal Reserve has battled to halt the S+P 500’s decline relative to its May 2015 peak at around ten percent. Hints by the European Central Bank and Japanese policymakers regarding their potential willingness to embark on additional quantitative easing interrelate with this Fed quest. However, the International Monetary Fund head warns: “global growth will likely be weaker this year than last, with only a modest acceleration expected in 2016”; “we see global growth that is disappointing and uneven” (“Managing the Transition to a Healthier Global Economy”; 9/30/15). The World Trade Organization cut its 2015 forecast of global trade expansion from 3.3 percent to 2.8pc, lowering that for 2016 to 3.9pc from 4.0pc (9/30/15). The WTO says risks to this prediction are on the downside.


Worldwide economic growth probably will be feebler than the IMF expects. In today’s intertwined international economy, this overall economic weakness, which is not confined to emerging/developing nations, will help to undermine American GDP growth. The S+P 500 will remain volatile, but it probably will continue to decline, eventually breaking beneath its August 2015 low. The broad real trade-weighted United States dollar will stay relatively strong.


Marketplace history for US stocks and other financial domains obviously need not repeat itself, either in whole or in part. A slump in the S+P 500 of roughly twenty percent or more from its spring 2015 pinnacle nevertheless probably would inspire memories of 2007-09. After all, not only is the dollar strong, but also emerging marketplace stocks and commodities “in general” have collapsed over the past few years, and notably since second half 2014.


The strong US dollar, the substantial tumble in emerging stock marketplaces, and the crash in commodities in general reflect (confirm; encourage) global economic weakness (slowing growth). Overall debt levels as a percentage of nominal GDP in America (and many other places) remain elevated despite the economic recovery since 2009. The United States has made no progress in reducing its long run federal fiscal deficit problem. These trends are ominous bearish indicators for the S+P 500. What other variables currently or potentially confirm the probability of economic weakness in the US (and elsewhere)? Let’s focus on the US economic and political scene.


The broad real trade-weighted US dollar (“TWD”) established a major bottom at 80.5 in July 2011 (Federal Reserve, H.10; monthly average). By September 2015, it had run up to 97.9. Not only does September 2015 exceed March 2009’s 96.9 high, attained at the depths of the worldwide economic disaster (and alongside the S+P 500’s March 2009 major low at 667). The TWD’s 21.6 percent appreciation in its current bull move exceeds the 15.1pc TWD advance during from April 2008 to March 2009. Keep in mind that although the S+P 500’s major high in October 2007 at 1576 preceded April 2008’s TWD trough, its 5/19/08 final top at 1440 roughly coincided with that April 2008 TWD low.


Review Moody’s Baa index of corporate bonds (this signpost includes all industries, not just the industrial sector; average maturity 30 years, minimum maturity 20 years; Federal Reserve, H.15). Despite the Fed’s continued unwillingness to raise the Federal Funds rate, such yield repression in recent months has not prevented the modest yet rather steady rise in medium-grade US corporate debt yields. In addition, the yield spread between that corporate debt index and the 30 year US Treasury bond has widened. Although these rate moves have not shifted as dramatically as they did during the worldwide financial crisis, they likewise warn of (confirm) US (and global) economic weakness.


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Deja Vu (Encore)- US Marketplace History (10-4-15)



Not only have emerging marketplace growth rates slowed. Many sentinels fear the substantial fall in emerging marketplace equities and currencies has “reached crisis proportions”. (Financial Times, 9/8/15, p3; citing the Institute of International Finance). The World Bank’s chief economist warned the Federal Reserve risks creating “panic and turmoil” in emerging marketplaces if it raises rates in its September 2015 meeting (Financial Times, 9/9/15, p1). However, in today’s globalized economy, central bankers and other important regulators and politicians also fear insufficient growth in many advanced nations. They also worry about further substantial increases in the United States dollar and drops in stock benchmarks such as the S+P 500. Some probably dread that an international crisis akin to the 2007-09 one, even if much less devastating, is underway or may soon appear.

The verbal barrage recently unleashed since late August 2015 by key central bankers and their comrades displays their fears and goals regarding these financial fronts. In any case, their enthusiastic wordplay at times raises marketplace hopes significantly. Their windy talk perhaps for the near term will stabilize the dollar around its recent highs and stop benchmark stock marketplaces from substantially breaching the lows reached in the past few weeks.

However, the foundations of worldwide growth nevertheless remain shaky, despite about seven years of highly accommodative monetary policy by the Fed and its allies. In addition, substantial debt and leverage troubles still confront today’s intertwined global economy. Consequently, this magnificent rhetorical display aiming to boost real global economic growth, significantly alter currency patterns (reverse the dollar’s strength, or at least significantly slow its appreciation) and substantially rally (or at least successfully support) stocks probably will not achieve long-lasting success.


The sustained rally in the broad real trade-weighted US dollar since mid-2011, and particularly its recent climb slightly beyond March 2009’s crucial peak, has played a key part in encouraging (confirming) weakness in emerging marketplace stocks and commodities “in general”. The S+P 500’s slide since its 5/20/15 pinnacle indicates that its major trend probably will not diverge significantly from those of emerging equity marketplaces.

Focusing on the trials and tribulations of emerging/developing countries and their stock and foreign exchange playgrounds indeed helps analysis of other marketplaces around the globe. However, concentrating on and comparing exchange rates of “commodity currencies” offers additional notable insight into various interrelated financial marketplace trends. “Commodity currencies”, associated with countries with large amounts of commodity exports, are not restricted to emerging nations. Commodity exports are significant to the economies of advanced nations such as Australia, Canada, and Norway, so they likewise can be labeled as commodity currencies.

Paying attention to the currency trends of important emerging and advanced nation commodity exporters highlights the similar trends among them during the 2007-09 worldwide economic disaster era as well as nowadays. Such past and current collective effective exchange rate weakness contrasts with the robust strength of the trade-weighted US dollar. The feebleness both in 2007-09 and in recent times for the commodity currency group, as it involves both advanced and emerging marketplace domains, hints at global (not merely emerging marketplace) crisis. The exchange rates of many commodity exporters are at or near their lows achieved during 2008-09.

Thus noteworthy rallies, if any, in these commodity (exporter) currencies from their recent depths will tend to confirm (inspire) climbs in commodities “in general” and emerging (and advanced) nation stock marketplaces. Renewed deterioration of the effective exchange rates of the commodity currency fraternity “in general” probably will coincide with renewed (additional) firming of the US dollar. Such depreciation in the commodity currency camp likely will signal worsening of the current dangerous global economic situation and another round of declines in global stock marketplaces.

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Marketplace Twists and Shouts- as the World Turns (9-10-15)

WALL STREET MARKETPLACE VIOLENCE © Leo Haviland September 1, 2015

The long-running bull charge in the broad real trade-weighted United States dollar, and particularly its recent assault on major resistance established in March 2009, played a critical role not only in creating and sustaining emerging stock (and commodity) marketplace bear moves, but also in the recent bloody toppling of the once-mighty S+P 500 from its lofty May 2015 record peak. Interest rate levels and trends of course remain important to stock marketplace battlefields, but US dollar movements will maintain their substantial influence. The broad real trade-weighted dollar probably will remain relatively strong.


Moreover, the S+P 500’s decline since its 5/20/15 pinnacle at 2135 indicates that its major trend probably will no longer diverge as significantly from those of emerging equity marketplaces. Compare the pattern of the past few years, during which the S+P 500 exceeded its spring 2011 peak but emerging stock marketplaces in general (Morgan Stanley’s MSCI Emerging Stock Marketplace Index benchmark) did not. The S+P 500 probably will not surpass its May 2015 height by much (if at all); instead, it probably will continue to travel lower.


As “Shakin’ All Over: Marketplace Fears”; 8/13/15) noted: “Despite about seven years of highly accommodative monetary policies such as yield repression and money printing (and frequently bolstered by hefty deficit spending), the foundations of worldwide growth increasingly look shaky.” Substantial debt and leverage problems continue to confront today’s interconnected global economy. The Federal Reserve Board of course focuses on all sorts of domestic and international factors and their interrelations. However, nowadays the level and trend of the S+P 500 will continue to strongly influence its policy rhetoric and decisions.


What’s the bottom line? Reviewing these various US and diverse international stock marketplace scorecards together, spring 2015’s similar time for highs followed by significant price declines is noteworthy. This underlines the likely slowing of worldwide growth in general. It also shows that stock trend benchmarks for America are nowadays rather closely connected to those elsewhere, including emerging marketplaces. The similar timing of lows in August 2015 emphasizes that worldwide equities in general currently are “trading together”. Renewed roughly simultaneous retreats in emerging and advanced nation stock benchmarks would be an ominous sign to equity bulls and for world GDP growth rates.

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Wall Street Marketplace Violence (9-1-15)

SHAKIN’ ALL OVER: MARKETPLACE FEARS © Leo Haviland August 13, 2015

China’s recent shocking currency devaluation underscores not only that country’s ongoing growth slowdown, but also its leaders’ fears that real GDP expansion rates will ebb further. China of course is not the only emerging/developing nation nervous about insufficient output or even recessions. Trends in the broad real trade-weighted US dollar, emerging stock marketplaces, and commodities “in general” signal (confirm) slowing growth in both emerging and OECD economies. Moreover, recent pronouncements by the International Monetary Fund regarding the central bank policies of key advanced countries manifest widespread worries about growth in these well-developed territories. Despite about seven years of highly accommodative monetary policies such as yield repression and money printing (and frequently bolstered by hefty deficit spending), the foundations of worldwide growth increasingly look shaky.

China’s devaluation assists the long-running bull charge in the broad real trade-weighted US dollar (“TWD”). China represents about 21.3 percent of the TWD (Federal Reserve, H.10).


Are central banks and politicians always devoted to so-called “free markets”? To what extent do they restrict themselves from entering into and manipulating marketplaces?

In any case, the Federal Reserve, European Central Bank, Bank of Japan, and Bank of England have long been married (roughly seven years) to highly accommodative monetary policies. They do not seem to be in a rush to change them substantially anytime soon. The Fed’s apparent willingness to make a minor (gradual) boost in the Federal Funds rate in the near term is not a dramatic shift in its highly accommodative policy.

Inflation (and interest rate) and unemployment targets are not divorced from opinions regarding what constitutes sufficient (appropriate; desirable) real GDP growth levels and trends. An economic boom currently does not exist in the OECD in general. So if substantial “normalization” of monetary policy is not imminent among key advanced nations, then arguably central bankers believe that prospective growth GDP probably will remain rather feeble for at least the near term.


Former Federal Reserve Chairman Alan Greenspan coined the phrase, “irrational exuberance” (Speech, “The Challenge of Central Banking in a Democratic Society, 12/5/96). About two decades later, this financial guardian proclaimed (Bloomberg Television interview, 8/10/15): “I think we have a pending bond market bubble.” Of course, as in 1996, defining and identifying a bubble and predicting when (and why and how) it will pop and the consequences of such an event remains challenging.

Flights to quality can play a role in creating low interest rate yields, particularly in the safe haven government debt securities of countries such as the United States and Germany. However, sustained yield suppression by the Federal Reserve, the European Central Bank, and others, which motivates avid searches for yield (return) in assorted financial playgrounds (including stocks), surely encourages low interest rates in both government and many other debt arenas. Think of corporate bonds. In any case, suppose there is a bond price bubble (“too high” or “overvalued” bond prices; too depressed yields) in the United States. So presumably as various marketplaces interconnect in today’s global economy, if American bond prices are at bubble levels, then arguably prices in other realms, as in the S+P 500, some real estate sectors, or the art world (painting), consequently could be inflated.

Were the S+P 500, US real estate, and art at the end of the Goldilocks Era in 2007 rather lofty?

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Shakin' All Over- Marketplace Fears (8-13-15)