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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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)

US NATURAL GAS: ON THE ROAD © Leo Haviland August 2, 2015

The probable avenue for the United States natural gas marketplace (NYMEX nearest futures continuation basis) for the next several months is a range between 2.15 and 3.40. The major bear trend that followed 2/24/14’s major peak at 6.493 attained a key bottom with 4/27/15’s 2.443 low. Was this a major low? Perhaps, but prices probably will challenge that level again and perhaps modestly break it over the next several months.

But why? After all, assuming normal weather, current and anticipated upcoming natural gas days coverage through winter 2015-16 tend to support prices, particularly in the context of NYMEX natural gas prices well under 4.00. Historical analysis indicates the bear trend from February 2014 to April 2015 travelled sufficiently far in price and duration terms to justify a shift to a neutral to bullish outlook. Also, the last prior major low, 1.902 on 4/19/12, likewise occurred in calendar April. Many key bottoms have occurred around contract expiration. In addition, many significant marketplace trend changes in natural gas (and petroleum) roughly coincide with very elevated net long or short noncommercial positions. From the historical perspective, the net noncommercial short position was very large around the time of April 2015’s low; the net noncommercial length likewise was substantial around the time of the February 2014 peak.

Natural gas prices often travel substantially independently of both petroleum (and commodities “in general”) and so-called “international” or “financial” factors. However, especially since mid-to-late June 2014 and into calendar 2015, bearish natural gas price movements have intertwined with those in the petroleum complex and the bull move in the broad real trade-weighted US dollar. The retreats since their spring 2015 highs in the commodities complex in general and petroleum in particular fit with similar slumps in natural gas. Petroleum likely will remain weak and the US dollar will remain strong for the near term, which will be bearish factors for American natural gas prices.

Quite a few marketplace observers believe the US natural gas marketplace will have massive inventories at the end of calendar 2016 build season (end October). This bearish perspective also weighs on prices. Although such oversupply probably will not occur (assume normal weather), such views are not unreasonable.

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US Natural Gas- On the Road (8-2-15)


However, it can be helpful in assessing risks regarding and making marketplace bets on one or more financial marketplaces by taking a subjective look at (and comparing) their given percentage price moves in historical perspective.


Between mid-April and mid-June 2015, an assortment of major stock marketplace benchmarks around the globe attained important highs. From these tops, the slumps have varied in percentage terms.

Of course these playgrounds are diverse; supply/demand considerations regarding each of them are not necessarily identical or even closely similar. Also, for any given stock marketplace, head coaches, players, and those on the sidelines create a great number of competing perspectives and pronounce diverse opinions regarding past, current, and future price levels and trends for a battlefield such as the S+P 500. In establishing and managing their actual marketplace wagers, these observers likewise display a panorama of positions regarding the relationship of a particular stock marketplace to particular economic variables, including other stock, interest rate, currency, and commodity domains.

Nevertheless, in today’s interdependent global economy, this relatively close timing linkage since spring 2015 between the S+P 500 and many other stock signposts probably warns that further declines in them probably (and roughly) will occur together from the timing standpoint. “Marketplace Party Tantrums” (6/15/15) stated: “The S+P 500’s long and monumental bull march following the dreary final days of the global economic disaster (major low 3/6/09 at 667) may persist, but it currently looks rather tired and seems to be ending.”


For predicting (and explaining) price action and trends and other marketplace phenomena, appraising and playing the odds often requires judging probabilities regarding the statements and actions of relevant marketplace participants. Focus on the S+P 500. Suppose the S+P 500 continues to slump from 5/20/15’s all-time high of 2135. Obviously the Fed will look at more than US stocks in making policy decisions. But what do the Fed’s actions since the advent of the worldwide financial crisis in 2007, and in light of its probable view regarding current and near term economic conditions, suggest this guardian will do if faced by this equity downturn?

A five percent tumble from the S+P 500’s May 2015 peak to around 2028 probably would not prompt Fed easing action. A ten percent slide to about 1922 probably would significantly upset the bullish stock crew (especially investors), producing widespread cries for help. The 10pc fall likely would induce heartwarming Fed wordplay aiming to steady prices, and it probably would delay the Fed’s plan to take any next upward step in the Federal Funds rate. It is a close call as to whether a ten percent loss in US stocks would change Fed policy more significantly than this. However, the Fed might move more dramatically (such as via another round of quantitative easing) if it also seriously feared economic weakness in America and around the globe.

A decline of around 20 percent or more in the S+P 500 to around 1708 or lower probably would confirm a “tantrum” in stocks. In stocks, a sustained 20pc fall satisfies many definitions of a bear trend. Most audiences (particularly in America) label bearish stock trends as “bad”. Most stock bulls (especially the praiseworthy “investment” teams and their devoted friends) would be angry at or terrified by such substantial price plummeting. Thus a majority of US stock investors and other fans of rising stock prices surely would want significant steps taken to stop the fall and restart the S+P 500’s marathon bull trend. Many politicians would be fearful, the financial media loud and agitated. This turmoil and talk probably would stretch beyond America.

In any case, suppose around a 20pc stock fall occurred, and that it looked likely to be sustained. Such widespread fears and demands, given the Fed’s devoted allegiance to and pursuit of its statutory mandate, probably would inspire frantic Fed action to rescue and rally the stock marketplace. The greater the fall beneath 20pc, the more determined the Fed’s efforts will become. Their actions at some point could include another round of quantitative easing.

Nowadays, would Fed intervention after stocks declined 20 percent (or more) succeed? Much depends on whether success means merely stopping the decline, or if it implies sending prices near to or higher than the prior peak. The Fed since the major low in March 2009 indeed has succeeded in arresting declines of approximately that amount in 2010 (17.1pc) and 2011 (21.6pc) and propelling the S+P 500 to new bull heights. However, marketplace history is not marketplace destiny. In addition, during the worldwide economic disaster, it did not stop the cratering from 2007’s summit at 20pc. Past success in marketplace games does not necessarily win future victories, even if the Fed may be more determined to use weapons such as money printing than it was in the early stages of the financial crisis. In any case, it is conjectural whether the Fed could stop a S+P 500 decline at 20pc as easily as it did in 2010 and 2011. And even if the Fed is able to steady S+P 500 prices at around 20pc (or lower), it probably will be more difficult than it was after the 2010 and 2011 slumps to rally the index to new highs anytime soon thereafter.


Suppose the S+P 500 managed to achieve new highs above the 2135 level. The Fed probably would respond in the fashion described if faced with such five, ten, and twenty (or more) percent descents.

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Playing Percentages- Stock Marketplace Games (7-13-15)

MARKETPLACE FIREWORKS © Leo Haviland July 6, 2015

Statistics and stories constantly bombard marketplaces. In today’s marketplace environment, and especially when an especially enthralling news item bursts into view, many gurus and coaches scream about current or prospective crises, panics, and bubbles (overvaluation).


Recent debt-related troubles in Greece and Puerto Rico and the collapse in the Chinese stock battleground are not isolated or entirely unique (special) marketplace events. They are signs and symptoms of widespread and intertwined marketplace phenomena. They are examples of and interconnected with current problems and related (linked) marketplace price movements around the globe.


It is a truism that times change, but that does not mean that times necessarily are entirely or substantially different. Some historians may hearken back to the 2007-09 worldwide economic disaster; the United States real estate catastrophe and the demise of Lehman Brothers were not mere flare-ups. They did not stand alone. Debt, leverage, and credit problems were worldwide, even if they varied to some extent from place to place; their consequences erupted around the globe.

The Federal Reserve, European Central Bank, Bank of Japan, Bank of England, and China’s central bank have engaged for many years in highly accommodative monetary programs. Despite lax policies such as sustained yield repression and massive quantitative easing (money printing), international debt, leverage, and credit problems did not disappear. They persisted and have reappeared. These central bankers have provided cosmetic fixes, not permanent ones, to such difficulties. Remarkably easy money policies, aided by political deficit spending, have helped to spark and sustain worldwide GDP growth since around early 2009.

Yet that past success does not guarantee future triumphs. Is worldwide growth decelerating? Probably. Note the downward growth revisions in recent months for 2015 for the United States by the International Monetary Fund (Article IV Consultation, released 6/4/15) and the Fed (Economic Projections, 6/17/15). Indications of a Chinese slowdown preceded its recent stock tumble. There have been concerns about the property marketplace, shadow (and other) banking, and increasing debt. “China orders banks to keep lending to insolvent provincial projects” declares the front page of the Financial Times (5/16-17/15, p1). Note the continued bear marketplace trend in base metals in general. Through May 2015, China’s year-on-year electricity output was about flat, up only .2pc (National Bureau of Statistics).


Some issues obviously matter more to some traders (and marketplace sectors) than others. But in today’s interconnected global marketplaces, various key stock, interest rate, currency, and commodity playgrounds intertwine in diverse and often-changing fashions. Moreover, these arenas are never separate from the “real” economy. So flashy economic stories about one marketplace or nation can spark or accelerate modest and sometimes even dramatic price travels in numerous venues.

And regardless of which exciting tales currently capture substantial trading and media attention, they usually reflect and interconnect with crucial (and so-called “underlying”) economic (financial, commercial) and political phenomena. These noteworthy variables, issues, trends, and opinions regarding them not only capture the attention of many marketplace players, but also necessarily remain major factors for Wall Street price action and Main Street prosperity.


The debt and leverage (credit) problems in the United States and elsewhere which developed prior to yet culminated in the Goldilocks Era arguably remain unsolved, or have appeared in related forms. For example, America in general has a love affair with debt. The overall consumer debt burden has lightened somewhat since the darkest nights of the 2007-09 crisis. However, federal debt has jumped up. Thus America’s overall indebtedness remains quite significant. See the essay, “America’s Debt Culture” (4/6/15).

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Marketplace Fireworks (7-6-15)