GLOBAL ECONOMICS AND POLITICS
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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Assuming normal weather, the United States natural gas inventory situation probably will remain around average levels (1990-2012 history) in days coverage terms as the April/October 2013 build season marches forward. Yet if NYMEX prices (nearest futures continuation basis) persist over 400, there is a modest risk that over the next several months greater stock increases than many forecasters predict will occur. In any event, even based on current Energy Information Administration (EIA) supply/demand estimates, by the end of winter 2013-14 draw season, US natural gas days coverage probably will be moderately above average. Also, not only has the major bull move from the dismal April 2013 bottom around 190 (4/19/13) to recent highs around 443 (4/18/13) been enormous (about 133 percent); it has been lengthy in time (a one year diagonal time move).
So what is the near term outlook for US natural gas prices (nearest futures continuation)? They probably will retreat further from around the levels reached in mid-April 2013. A 20 percent decline gives around 354; important support exists around the 305/310 1Q13 lows. What about the mystical time horizon called the long run? Suppose weather is normal and the American economy grows moderately. The longer run natural gas trend probably will be sideways, with the broad range roughly 280/310 to 490/520.
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Natural Gas Chart (NYMEX nearest futures) (4-25-13)
Natural Gas- the 2013 Build Up (4-25-13)
Many wizards praise emerging marketplace countries such as China as engines for international prosperity. The worldwide scope of the 2007 financial (economic) crisis and the following years emphasizes the close interconnection of the economies of advanced nations and key emerging (developing) countries around the globe. Historical review from the dawn of the global economic disaster up to the current time reveals price and time parallels between the trends of emerging stock marketplaces and those of the US (and related stock arenas in Europe and other advanced nations). Therefore, the bear trend since spring 2011 in emerging marketplaces is a warning sign to the S+P 500.
Maybe emerging stock marketplaces will resume their bull trend alongside a continuing climb by the S+P 500. However, the downturn within this flock of emerging countries is widespread. Note also the similar fall in commodity prices in general. Such considerations indicate that a return to the bull side by stock marketplaces of emerging marketplaces in general is unlikely. Although relative to their dismal appearance of autumn2008/winter2009, emerging marketplaces may seem to be in full flower (“still looking pretty good”), their bloom has faded substantially and suggests potential for further withering. Not only have stock benchmarks of developing nations in general been a bear trend, but also they established additional interim tops in early 2013. This underlines the significant potential for a notable decline in the S+P 500 in the relatively near future.
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Chart- Emerging Stock Marketplaces (4-9-13)
Springing a Question- Are Emerging Stock Marketplaces in Bloom (4-9-13)
What does a survey of total United States petroleum industry inventories (crude and products combined) relative to total products supplied indicate regarding current and near term US petroleum price trends? The very elevated days coverage (end month inventories versus average daily consumption for that calendar month) probably has significantly contributed to the renewed price weakness in the overall petroleum complex that emerged in February 2013.
The broad GSCI established a major high around 762 in spring 2011 (4/11 and 5/2/11 tops), with lower peaks at 717 on 3/1/12 and 699 on 9/14/12. NYMEX crude oil (nearest futures continuation) peaked 5/2/11 at 11483, with lower tops on 3/1/12 at 11055 and 9/14/12 at 10042.
As part of the major longer run downtrend that exists for commodities in general, note the assortment and timing of minor tops made in early 2013 (especially February) in several commodity indices and in numerous particular commodity marketplaces.
Many watch US equities alongside commodities in general and petroleum prices in particular. The S+P 500 in the past three years made springtime highs: 4/26/10 at 1220, 5/2/11 at 1371, and 4/2/12 at 1422. Compare the timing of the high in the S+P 500 during its recent rally, 4/2/13 at 1574. Compare also this 4/2/13 high in the S+P 500 with the timing of the fall off points in the petroleum complex just noted, as well as the renewed tumble in the broad GSCI from its 3/28/13 level around 659.
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US Overall Petroleum Inventories- Enough Is Enough (4-5-13)
The net Index Trader position for each of the 12 commodities has always been substantially net long. The net IT position percentage relative to total open interest for the various commodities differs, in some cases substantially: cocoa, corn, cotton, live cattle and wheat net long IT percentages are not the same. In any event, the average net long IT position for the 12 commodities combined from 2007 to the present is about 24.8 percent of total open interest (3/12/ 13’s is about 23.7pc). Thus the commodity buy-and-hold for the long run alternative investment community is a very important factor within the commodity arena.
Moreover, notable changes in the net long IT positions for the combined dozen marketplaces, offer insight into (helps to confirm) overall commodity price trends. A substantial addition over time to net IT positions is a bullish sign for the commodities sector, whereas a significant slash in these net IT positions warns of (or confirms) a bear trip. Of course since net IT positions and their changes are only one factor influencing commodity price level and trend, players should not be dogmatic regarding the role and predictive potential of this marketplace indicator.
Since mid-2008, commodities “in general” (use the broad GSCI as a benchmark) in recent years often have traded in patterns somewhat similar to those in United States stocks (S+P 500). Substantial bull (bear) moves in US equities find parallels in those in the commodity domain. Therefore stock marketplace congregations should monitor IT position levels and trends.
Yet recall 2007-08. American stocks peaked in October 2007, about nine months before the one in commodities. Only after the final stock summit in May 2008 did equities and commodities trade closely together. The current longer run relationship probably also reveals divergence, but with the commodity peak to date arriving well in advance of one in the S+P 500. See “Commodities and US Stocks: Convergence and Divergence” (1/28/03).
The net long IT position since early February 2013 has started to decline, as have prices in the broad GSCI and in the great majority of commodities, although stocks have remained robust. Admittedly IT data availability beginning in 2007 does not constitute an extensive history. One should interpret it in relation to commodity (and especially) stock trends with caution. However, given the frequent parallels of important commodity and stock trends since mid-2008, further notable slumps in the net long IT position alongside price falls in the broad GSCI will warn (help to confirm) that price divergence between the commodities and American stocks will cease. If so, and thus as occurred in spring 2008 and thereafter, stocks and commodities probably will begin to fall together. A boost in net IT positions conversely would be bullish for the S+P 500.
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Commodity Index Investment and US Stock Trends (3-20-13)
