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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The recent advance in America’s broad real trade-weighted dollar index has attacked June 2012’s 86.3 high (Federal Reserve Board, H.10; March 1973=100, monthly average). That key top rests near August 2008’s 86.7, a level from which the dollar rallied sharply during the worldwide economic disaster that emerged in mid-2007 and accelerated during 2008. The broad real trade-weighted dollar (“TWD”) probably will climb higher (even if only modestly) over the next several months given the current trends in the US Treasury 10 year note, emerging stock marketplaces, and commodities in general. For these present-day marketplaces and their interrelations, keep in mind their 2007-2009 history. Moreover, the current level and probable near term climb in the TWD, when viewed in conjunction with trends in the UST 10 year and emerging stocks and commodities, indicate that a significant plateau in the S+P 500 is or soon will be in place. A walk in the TWD toward or above September 2008’s 88.8 (and especially) October 2008’s 93.9 increases the likelihood of a noteworthy S+P 500 peak.

After the Fed ceased its prior rounds of money printing, the 10 year UST note yield and the S+P 500 tumbled. Although that benevolent central bank embarked on a slow tapering process in mid-December 2013, America’s 10 year government note yields have meandered downhill from 1/2/04’s 3.05 percent top. Shouldn’t US longer term government interest rates tend to rise if significant real GDP growth or widespread hopes for it exist? In an interdependent international economy, the ongoing sideways to down trend in emerging marketplace stocks in general warns of slowing growth in advanced as well as developing nations. The retreat in the overall commodities complex roughly resembles that of emerging marketplace equities.

Are owners of US stocks complacent? Not only do many players in stocks and elsewhere have faith in the Fed. Over the past year and a half, the S+P 500’s percentage declines have been even smaller and of increasingly short duration. This probably has mitigated marketplace fears of a large stock retreat.

Measurement moves hint that the S+P 500 probably does not have much more room to travel upward for the near term relative to 9/19/14’s recent high at 2019. The 3/6/09 major low around 667*3 equals about 2000. The 7/1/10 low at 1011 times two is 2022. The key take-off point of 1343 on 11/16/12 (various renewed easing by the ECB, Fed, and Bank of Japan within several months before or after that date) times 1.5 is 2015. All these levels are around the recent high. Also, within the context of the current long run bull move in the S+P 500, October is an important anniversary month. Recall 10/11/07’s major peak 1576 and the significant 10/4/11 bottom at 1075.



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Walking the Walk- US Stocks and the Dollar (10-5-14)
Charts- S+P 500 and emerging stock marketplace index (10-5-14, for essay Walking the Walk- US Stocks and the Dollar)

STEPPING HIGHER: UST TWO YEAR NOTE YIELDS © Leo Haviland September 21, 2014

The US Treasury two year and 10 year notes over the past several years have made many important marketplace turns around the same time. The yield spread relationship between those instruments provides insight into and offers guidance regarding Federal Reserve policies. Although other variables of course are relevant, this spread offers indications regarding the extent of American (and international) economic strength or weakness.

Important trend moves in the 10 year less two year United States government yield spread often have roughly coincided with significant Federal Reserve Board policy decisions (sometimes assisted by major ones by the European Central Bank and others). Especially since around the time of its mid-December 2008 low around 125 basis points (10 year yield higher than two year; a positive yield curve), and thus during the Fed’s yield repression and quantitative easing era, the 10 year less two year spread has tended to widen (become more positive) during times of US economic growth (or notable signs or hopes for it) and decline during times where economic expansion slows or slumps (or when fears rise that this will occur). Fed quantitative easing moves link up with a widening of the yield spread (particularly via boosting the 10 year UST yield). The ending of the Fed’s money printing ventures have tied to narrowing of the yield spread (especially via falls in the UST 10 year yield). A narrowing pattern in this spread and the UST 10 year itself after the ending of QE (including the current tapering round) suggests that noteworthy “underlying” weakness remains in the US economy. See “Bond Yield Perspectives: Easing Comes: Easing Goes” (9/1/14) and related essays.

However, since the UST 10 year’s 1/9/14 plateau at 3.05pc, its yields on balance have moved sideways to down, whereas the two year yield pattern seems sideways to up over that period. The slip in the 10 year yield since then, given the Fed’s determination to increase inflation, indicates less than robust US (worldwide) economic growth. The increase in two year yields may reflect Fed plans more than notable overall economic strength (or the Fed’s faith that such strength is or will soon emerge). Yet will yields for both UST notes keep moving higher since their mid-August 2014 lows?

From the depths of the international economic disaster through most of the succeeding years, these US Treasury yield curve ventures (trend changes) generally have occurred around the same time as significant moves not only in the US Treasury 10 year note but also in the US stock marketplace (S+P 500). Many lows in the 10/2 UST yield curve spread have tied up with (occurred within a few months of) important S+P 500 bottoms; pinnacles in the spread likewise connect somewhat closely in time with plateaus in the US stock landscape.

However, whereas the 10 less two year spread and the 10 year yield itself have declined in recent months (265 basis point high in the yield spread 12/31/13; 3.05pc high on 1/2/14 for the UST 10 year), the S+P 500 this year has ascended to new highs over 2000. Thus the S+P 500’s relationship relative to the 10 less two year spread and the UST 10 year itself seems to have diverged from its prior pattern.

Significantly, the rise in two year note yields since very late 2013/early 2014 contrasts with the fall in the UST 10 year yield and the narrowing of the 10 less two year spread. Since end December 2008, roughly simultaneous declines in the 10 year note yield and the 10 less two year UST spread have been associated with a relatively weak US economic situation (or fears that such feebleness will emerge; international players such as the Eurozone affect this picture).

This slide in the 10 year note and the 10 less two year UST spread connects with the end of Federal Reserve money printing festivals, including the current one. Thus the US may be economically weaker (or more vulnerable to such feebleness) than many marketplace players or even the Fed (judging from its Fed Funds projections) perceives.

Emerging stock marketplaces have not followed the S+P 500 up to record highs. Given the slowing of economic growth in those economies, this represents a warning that the massive bull move in the S+P 500 may not continue forever. Look at the “MSCI Emerging Stock Markets Index” (from Morgan Stanley: MXEF). The MXEF over the past year or so has advanced from lows near in time to those in the S+P 500. Note the MXEF troughs at 878 on 6/25/13, 905 on 8/28/13, and 914 on 2/4/14. However, the MXEF remains below its Goldilocks Era pinnacle at 1345 (11/1/07), as well as 4/27/11’s 1212 plateau. In addition, it has started to fade from its recent top at 1104 on 9/4/14 (despite the ECB’s monetary easing action). If the MXEF starts to step significantly lower (keep an eye on 2/29/12’s high at 1085 and 1/3/13’s one at 1083), that will suggest increasing risks for the S+P 500 (especially if the UST 10 year yield also is unable to breach the 3.05pc level). Renewed weakness in emerging stock marketplaces increases the odds that the continued S+P rally will end (S+P 500 divergence from UST 10 year and 10 less two year trends will cease).

The S+P 500 eventually dropped after QE1 and QE2 ended. Since the current round of US quantitative easing will end in October 2014 (tapering of purchases will finally finish), one should be especially watchful for a reversal (even if it is modest) of the S+P 500’s epic bull trend.

Another sign of sluggish economic growth, particularly in emerging marketplaces, has been the decline in commodities “in general” since spring 2011 (broad Goldman Sachs Commodity Index/GSCI). The GSCI peaked at 762 on 4/11 and 5/2/11. Since then, it generally has displayed a pattern of declining (lower and lower) highs. It recently made an interim top around 673 on 6/23/14, slipping to 582 on 9/15/14.



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Stepping Higher- US Two Year Note Yields (9-21-14)
Charts- Two Year UST, 10 Year v 2 Year UST spread (9-21-14, for essay Stepping Higher- UST Two Year Note Yields)


The dreadful economic crisis which emerged throughout the interconnected global economy after the departure of the Goldilocks Era in mid-2007 saw its darkest times in late 2008/early 2009. Politicians and central bankers around the globe took decisive action to escape and repair the disaster and to spark and sustain recovery. From late 2008/early 2009 through the ensuing years, dramatic United States Federal Reserve policy action, and especially massive quantitative easing (money printing), often has been associated with rising interest rates in the ten year US Treasury note. The ending of quantitative easing has connected with declines in the 10 year UST yield.

In the American theater, the past several years indicate that rising UST 10 year yields tie in with the reality of (or hopes for) at least a moderate economic recovery. Slumping UST rates are bound to the existence of (or fears about) more feeble US (and international) growth (or even worries that a downturn may occur). History of course need not repeat itself, and viewpoints change. Nevertheless, and despite America’s strong 2Q14 GDP expansion, the decline in UST 10 year yields over the course of the Fed’s current slow tapering program suggests that US and worldwide economic growth probably is and will remain mediocre.

The European Central Bank probably will embark on a modest money printing adventure in the relatively near future. However, all else equal, that decision likely will boost- but not substantially- the key German sovereign 10 year note yield (and 10 year government note yields in America and many other key nations).
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Bond Yield Perspectives- Easing Comes, Easing Goes (9-1-14)
Charts- Ten Year Notes (9-1-14, for essay Bond Yield Perspectives- Easing Comes, Easing Goes)

US NATURAL GAS: SEASONS COME, SEASONS GO © Leo Haviland August 17, 2014

Assume normal weather for the balance of the United States natural gas 2014 stock build season and the following 2014-15 winter draw period. Then the NYMEX natural gas complex in general probably will trade in a sideways trend. The broad range is roughly 5.00/5.20 to 3.38/3.55 (NYMEX nearest futures continuation contract).

Unless the upcoming winter is much warmer than normal (or fears grow that it will be), or unless gas production spikes more than most prophets predict, then prices for NYMEX nearest futures probably will not test major support around 3.00/3.13 during the next several months. Recall the 3.05 low on 1/2/13 (and the gap relative to the 3.046 high on 9/26/12) as well as 2/15/13’s 3.125 low and 8/8/13’s 3.129 bottom. Given the low days coverage inventory situation, the NYMEX nearest futures continuation contract probably will challenge the 5.00/5.20 range during this upcoming draw season if the winter is significantly colder than normal (or concerns increase that it will be) or if production gains turn out to be notably less than the EIA’s current forecast.

Since very important gas marketplace bottoms generally do not occur in late July, and as the current build season apparently will add a record amount of net supplies to United States working gas inventory, natural gas in the very near term probably will travel a bit (though not a lot) beneath 7/29/14’s low around 3.72. The withering 42.7 percent bear march from 2/24/14’s 6.493 summit, although substantial, is not as extensive as several past ones. A five percent move under the 3.72 depth gives about 3.54; important support rests around 3.38 (11/5/13 low).

However, the NYMEX natural gas marketplace has achieved quite a few significant bottoms in late calendar August and calendar September. Although history of course does not necessarily repeat itself, look for a key trough around then. Moreover, despite the big jump in United States natural gas production in calendar 2014, with a further moderate increase expected in 2015, natural gas days coverage at the end of October 2014 will be significantly below average. Even by end March 2015, inventory days coverage will be below average (normal, typical, desired, reasonable, prudent) levels, though less so than at end October. And though much can happen between now and October 2015, days coverage then arguably will remain under average levels.
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US Natural Gas- Seasons Come, Seasons Go (8-17-14)
Charts- Natural Gas (8-17-14, for essay US Natural Gas- Seasons Come, Seasons Go)