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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Does the Federal Reserve Board have a coherent detailed exit plan from its long-running extraordinary and highly accommodative monetary policy? No. Is it likely to devise one soon? No. Is it nevertheless likely to continue to stress its ability to prudently manufacture and implement a suitable exit program? Yes.

The Fed’s broad and unspecific principles do not create a genuine and practical exit strategy. Neither do fervent hymns proclaiming devotion to its legislative mandate. Neither does rhetoric about studying numerous, intertwining, changing, and complex variables and eloquence regarding its diligent monitoring of the economic landscape. Adherence to forward guidance wordplay is not an adequate substitute for a practical strategy. The Fed’s policy exit generally will be reactive, with its decisions and actions that of a follower rather than a leader.

Why does the Fed battle to create expectations that it has, or at least can and (when necessary) readily will develop, a suitable exit program? The central bank wants audiences to have faith that it can substantially influence the creation of desirable economic outcomes. Exit guidelines fortify marketplace and political hopes that a vigilant, wise, and sufficiently experienced Fed really (or at least very probably) knows how and when it can retreat gracefully from its glorious easy money programs without endangering United States (and worldwide) economic growth and the central bank’s inflation and employment targets.

The Fed’s quest to create confidence in its exit strategy also fights to promote confidence that American interest rates will not rise too far or too fast. Why fear a bear move in debt securities? Higher rates would weigh on economic growth. They would wound owners of US Treasury and other debt securities, which could inspire many “investors” to flee from these marketplaces (especially from longer-dated debt). Such escapes of course could lead to even higher yields. Besides, why risk sitting around awaiting capital loss when the Fed promises higher rates- unless such hikes occur very slowly and with sufficient warning? Given the huge foreign ownership of US Treasury securities, net foreign selling (or even reduced net buying) of them could make funding of the nation’s budget deficits increasingly difficult (especially in later years), particularly as the Fed soon will no longer be ravenously buying US Treasuries.

Moreover, the Fed also does not want a sharp sustained bear tumble in the US stock marketplace. The enormous stock bull move has helped to rebuild household net worth and sparked rises in consumer and business confidence and activity. After the Fed ended the first two rounds of money printing, the S+P 500 dropped. The gradual tapering of its current mammoth debt securities acquisition adventure underlines its fears of another run to the exits by stock owning audiences.

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Exit Strategies- the Fed, US Treasuries, and US Stocks (7-14-14)

FINANCIAL FIREWORKS (c) Leo Haviland July 7, 2014

Financial marketplaces provide players not only opportunities for profit (and loss), but also entertainment and excitement. Communities across America just finished observing thrilling Fourth of July holiday fireworks displays. Yet in contrast to this explosive holiday festivity, financial marketplace stargazers should underline the comparatively peaceful current trends of assorted iconic national benchmarks.

The United States government 10 year note established a major low in July 2012. However, for the past year or so it has been range bound. The broad real trade-weighted US dollar and commodities in general (enlist the broad Goldman Sachs Commodity Index as a signpost) also have traveled sideways, but for an even longer span. What about stocks? The S+P 500 has skyrocketed, nearly tripling since its 3/6/09 major bottom at 667, blasting higher from such interim lows as 10/4/11’s 1075, 11/16/12’s 1343, and 6/24/13’s 1560. But although the S+P 500 has continued to fly upwards and amaze audiences, the S+P 500’s key VIX volatility measure recently nevertheless has plummeted almost to ground level.

The past and ongoing determination of central bankers around the world, not just the Fed, to create sufficient inflation probably will play a key part in causing American government interest rates to rise and break out of their sideways trend. Deflation (or too low inflation) will be battled no matter what! Fearful “flights to quality” (as into the US or German sovereign debt marketplaces) must be remedied! But how eager will be people sitting on US Treasury and other interest rate instruments with rather low yields to keep doing so as rates climb? Foreigners have a huge stake in the trillions of dollars of US Treasury debt.

The Fed’s massive money printing and bloated balance sheet should make viewers cautious that they can guide marketplaces to happy results. Besides, its exit strategy rhetoric to date falls well short of a coherent detailed plan. How alert was that guardian before and during the early stages of the worldwide crisis that emerged in mid-2007 and erupted in 2008? Also, despite America’s economic growth, the nation as a whole (not just the federal government) still has enormous overall debt relative to GDP. Moreover, substantial actions to solve its long run federal debt problems remain a distant dream.
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Financial Fireworks (7-7-14)
Charts- Ten Yr UST, S+P 500, GSCI (7-7-14, for essay Financial Fireworks)


Much of the world currently displays nearly unblinking faith in the expertise of key central bank guardians such as the Federal Reserve Board, European Central Bank, Bank of Japan, and Bank of England. These illuminated central bankers supposedly will continue to play substantial and successful roles in engineering further economic growth via easy money schemes such as interest rate yield repression, quantitative easing (even if money printing ends in America or elsewhere, the securities buying operation may not be unwound quickly, if at all), and forward guidance wordplay. The Fed wizard in particular also surely has an almost pain-free and coherent exit strategy from its longstanding highly accommodative programs, right?

Ongoing trust in such marvelous central bank talent finds a counterpart in widespread belief that the Chinese economic growth miracle will continue for the long run, or at least the foreseeable future. Significant government deficit spending and relaxed credit policies indeed sparked much Chinese growth in recent years. However, Chinese real GDP growth probably has slowed more than many believe. Assorted intertwined variables hint at this reduced expansion and suggest that the slowdown in its growth rate probably will continue over the medium term. Given China’s crucial role in the interdependent global economy, this relative weakness in its GDP growth should have ominous implications for growth elsewhere.

Admittedly, China’s official and private sector debt scene is murky. Yet the edging down of its real GDP growth is occurring in an environment of its increasingly troubling debt and credit situation. All else equal, efforts to solve or at least mitigate debt and credit problems probably will result in greater than expected (desired) cuts in the country’s economic growth rate.

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China- Its Great Growth Story Grows Old (6-23-14)
Charts- China (6-23-14, for essay China- Its Great Growth Story Grows Old)


Assume normal weather and moderate United States economic growth. Then natural gas inventories in the US Eastern Consuming Region at the end of the 2014 build season probably will range between 1825bcf and 1930bcf. Around 2050bcf is about “normal” (average) for current United States supply and demand patterns. This current bullish inventory picture for the Eastern Consuming Region for the balance of build season parallels the bullish stock outlook of the US Producing Region.

Within the American natural gas scene, Producing Region and Eastern Consuming Region inventories have bigger marketplace shares than that of the Western Consuming Region. Is the Western Consuming Region’s inventory situation for build season 2014 bullish or bearish? The Energy Information forecasts that Western inventories will exceed 560bcf, a bearish perspective relative to that region’s 511bcf end build season average. However, the EIA probably overstates the likely amount of Western inventory building. Not only did Western stocks finish winter 2013-14 draw season at very low levels. Based on historical analysis of builds following comparable low starting totals, Western end build season inventories probably will be around 450bcf to 500bcf. This outcome is slightly bullish.

Despite the sharp price slump in NYMEX natural gas nearest futures continuation after its 2/24/14 peak at 6.493, the overall US inventory situation for the balance of 2014 build season remains bullish. The NYMEX natural gas complex during the course of build season probably will remain in a sideways trend. The NYMEX nearest futures contract probably will stay in a range from 3.80 /4.00 to 5.00/5.20. See “US Natural Gas Inventory Building: the Producing Region Picture” (5/18/14) for price forecast and Producing Region inventory details.

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Natural Gas Inventory- East and West Region Build Season (6-2-14)
Chart- NYMEX natural gas winter 2014-15 strip (6-2-14, for essay US Natural Gas Inventory- East and West Region Build Season)