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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What does historical analysis of noteworthy United States natural gas bear marketplace moves (NYMEX nearest futures continuation basis) reveal regarding the ending of the major bear trend that emerged in late February 2014? The mid-January 2015 low around 2.80 (NYMEX nearest futures continuation basis) could be, but probably is not, the final bottom. It is more likely that a final low will occur by end February 2015. The mid-January low probably will not be broken by much; in any event, substantial support lurks around 2.40.

Even if an observer focuses their attention on the natural gas price history variable alone, this is a very difficult marketplace call. In the current environment, much depends on weather, petroleum marketplace levels and trends (OPEC policy), whether (and how long) anticipated natural gas production jumps occur at current (or lower) gas prices, and the degree and duration of American economic strength. So the final bottom for natural gas may be postponed beyond February 2015.

Although history need not repeat itself, major natural gas lows (and highs) have not occurred in calendar March. April chronicles of course include the exceptional April 2012 major bottom; consequently, that calendar month represents a notable anniversary to watch, especially if weather for the balance of winter is warmer than normal. Gigantic inventories spurred the ferocious bear charge down to 1.90 in April 2012. However, assuming normal weather, and even allowing for increases in gas output, the current and probable US natural gas inventory situation looks relatively neutral, particularly in the context of NYMEX gas prices well under 4.00.

NYMEX natural gas reached many important troughs in late calendar August and September. However, a final low in late summer 2015 would stretch out the February 2014 bear marketplace longer than historical averages.

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Taking Shape- NYMEX Natural Gas Bear Trend History (1-19-15)

DO WHAT WE MUST: EUROZONE THEATRICS © Leo Haviland January 3, 2015

In the relatively near future, the European Central Bank probably will declare it will embark on more extensive quantitative easing (money printing) via purchasing Eurozone sovereign debt in secondary marketplaces. Assorted intertwined variables invite dramatic action. First, the ECB’s creative measures of the past several months have accomplished little. Think of negative policy interest rates. Marketplace response to the Targeted Longer Term Refinancing Operations (TLTRO) has been uninspiring. The ECB underscores its determination to significantly expand its balance sheet. Nevertheless, its current money printing scheme, which purchases asset-backed securities and covered bonds, thus far appears relatively modest to most audiences.

Moreover, the ECB’s fear of insufficient inflation (the deflation spectre) has increased in recent weeks, partly due to the continued bloody tumble in the petroleum complex. In its early December 2014 meeting, it underlined the Eurozone’s mediocre economic growth realities and prospects.

Potential for notable social unrest on the European scene exists. Unemployment remains stubbornly elevated. Difficulties, especially in Greece, but potentially elsewhere, recall the European periphery crisis. Greek political troubles erupted again, with a crucial election being held in late January 2015. Greece’s leading left-wing opposition party has a significant chance of winning that contest. That party wants to renegotiate and reduce the nation’s monstrous debt. Will it continue reforms of the economy and state administration desired by creditors? At times, though less so recently, this leftist group has displayed some hostility to the country’s remaining in the Euro FX circle.

Despite the Eurozone’s noble struggle to create adequate inflation (avoid deflation), its success on that front probably will be limited. Inflation and long term government interest rates in key nations such as Germany probably will not sustain substantial increases even if the ECB races down the path of massive money printing via buying of government debt securities. Keep in mind Japan’s history. The United States still falls short of the Federal Reserve’s inflation target despite sustained massive easing. Remember as well America’s experience after it ceased (or steadily “tapered”) quantitative easing rounds; the 10 year United States Treasury note yield declined.

In recent months, the Euro FX has weakened, both against the United States dollar and on an effective exchange rate basis. This currency relationship and bear trend will continue. Nowadays, part of the ECB’s inexorable determination to “do what we must” pursuant to its interpretation of its mandate involves a willingness to let the Euro FX slump. In any event, even if massive ECB money printing and currency feebleness manage to achieve an inflation goal (and higher interest rates), they likely will not generate enduring significant Eurozone economic growth.

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Do What We Must- Eurozone Theatrics (1-3-15)

MARKETPLACE ENTANGLEMENTS: REVISITING 2008 © Leo Haviland December 14, 2014

Focus on the current scene for and apparent relationships between the United States Treasury 10 year note, the S+P 500, emerging stock marketplaces (“MXEF”; MSCI Emerging Stock Markets Index, from Morgan Stanley), the United States dollar, and commodities in general (“GSCI”; broad Goldman Sachs Commodity Index). Surely much has changed since the dreadful days of the worldwide economic disaster that emerged in 2007 and accelerated during 2008. One critical difference involves the extraordinary sustained monetary accommodation (notably yield repression and money printing) by the US Federal Reserve Board and its central bank allies in response to the 2007-2009 crisis. Yet arguably many significant debt and leverage problems that developed during the wonderful Goldilocks Era never were solved, merely patched up, downplayed with sunny rhetoric, or postponed. Also, arguably, new debt and leverage problems, partly motivated by the ravenous hunt for yield (return), have walked on the financial stage.

The present marketplace panorama rather closely resembles that of 2008 in many respects. However, the S+P 500 has not yet slumped significantly from its recent high on 12/5/14 at 2079. A notable fall in the S+P 500 from that level nevertheless probably will occur, underscoring (further creating) the parallel with the 2007-08 situation. If the S+P 500 surpasses its December 2014 high, it likely will not do so by much anytime soon. In any event, assuming the major trends underway for these other marketplaces essentially remain intact, the S+P 500 likely will fall significantly, although probably not nearly as dramatically as it did during the 2007-09 span.

Although cross rates between the US dollar and other currencies are important, the level and trend of the broad real trade-weighted dollar (“TWD”) is a better benchmark for overall dollar strength and weakness.

The broad real TWD created a major low around 80.5 in July 2011. After moving to around 83.5 in September 2011, it meandered sideways for nearly three years, with June 2012’s 86.3 the high during that span.

From about 84.8 in July 2014, it began to edge steadily up (recall the related timing of the UST’s 7/3/14 interim high at 2.69pc and the GSCI’s 6/23/14 high). However, in September 2014, the TWD reached 86.6, thus breaching its June 2012 interim top; for this September 2014 TWD level, keep in mind the MXEF’s top in early September 2014.

The TWD reached 87.6 in October 2014 and 89.0 in November 2014. Its November 2014 level thus edged over September 2008’s TWD bull move take-off point, thus further warning marketplace observers of parallels between current times and the 2007-09 global financial crisis. The stronger dollar, as in 2008, coincides with the bear move in the broad GSCI. Note the MXEF high on 11/27/14 at 1018.

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Marketplace Entanglements- Revisiting 2008 (12-14-14)
Charts- Emerging Marketplace Stocks, Mexican Peso (12-14-14, for essay Marketplace Entanglements- Revisiting 2008)


The Euro FX and Japanese Yen for several months have been weakening together, both against the US dollar and on an effective exchange rate basis. This currency relationship and bear trend will continue. Despite the Eurozone’s and Japan’s brave quests to create sufficient inflation (escape deflation), their success probably will be limited; inflation and longer term government interest rates probably will not sustain significant increases. However, even if substantial currency depreciation and massive money printing manage to achieve an inflation goal (and higher interest rates), they likely will not generate sustained economic growth.

Given that both the Eurozone and Japan suffer from low growth and deflationary challenges and fears, is weakness in the Euro FX connected with (encouraging that of) the Japanese Yen? Is the Yen’s swoon helping to depreciate the Euro FX? Are Japan and the Eurozone (and other nations) engaged in competitive devaluations (currency wars) to bolster growth?

One sign of the obstacles facing the Eurozone and Japan in their quest to boost inflation (and generate higher interest rates) is the recent behavior of the UST 10 year government note. American GDP recently has been robust, rising at an annual rate of 4.6 percent in 2Q14 and 3.9pc in 3Q14. However, the UST 10 year yield around 2.20pc remains well beneath its 1/2/14 top at 3.05pc. Admittedly the UST yield bounced up from the 1.86pc low of 10/15/14. But even since that mid-October 2014 depth, yields traveled up to only around 2.40pc, never piercing the important resistance around that level. The failure of UST yields to rally may signal future mediocre US (and worldwide) economic growth since yields generally advance during recovery (or hope of one).

Take the broad Goldman Sachs Commodity Index (GSCI) as a benchmark for commodities “in general”. It collapsed, of course aided by price dives in the petroleum complex, from 6/23/14’s interim high around 673 to under 520 recently. If sustained, this bloody price retreat will cut many statistical measures of inflation (and perhaps reduce inflation expectations). Thus it may encourage European and Japanese (and other) policy makers to embark on especially accommodative monetary policies. For example, the ECB may decide it has more need (justification) to quickly engage in massive QE, perhaps even by sovereign debt buying.

However, this GSCI weakness also may indicate underlying and ongoing risks to global economic growth as well as the difficulty of generating sufficient inflation in general. Moreover, sustained declines in petroleum prices may create crises in some producing nations that in turn spill over into other nations. For example, think of Russia (the ruble has moved over 50 versus the dollar), Nigeria, and Venezuela.





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Whatever It Takes- Recent Eurozone and Japanese Adventures (12-1-14)
Charts- FX and 10 Yr Govt Note of Eurozone and Japan (12-1-14, for essay Whatever It Takes)