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.


Subscribe to Leo Haviland’s BLOG to receive updates and new marketplace essays.

RSS View Leo Haviland's LinkedIn profile View Leo Haviland’s profile

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.

FOLLOW THE LINK BELOW to download this article as a PDF file.
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.





FOLLOW THE LINK BELOW to download this article as a PDF file.
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)


Currency marketplace watchers generally concentrate their attention on important cross rate relationships such as the US dollar against the Euro FX, Canadian dollar, Japanese Yen, or Chinese renminbi. However, broad real currency indices (trade-weighted or effective exchange rate) offer greater insight regarding the actual overall strength (or weakness) of any given currency than does a particular cross rate. Thus the broad real trade-weighted dollar is a more comprehensive benchmark for “the dollar in general” and its relationship with debt, stock, commodity, and other arenas.

As the Goldilocks Era faded and the dreadful worldwide economic disaster of 2007-09 unfolded, not only did US Treasury yields collapse alongside massive falls in the S+P 500, emerging marketplace equities, and commodities. During the darkest times of that global financial crisis, the broad real US dollar, Japanese Yen, and Chinese renminbi all appreciated sharply.

Though the renminbi has advanced relative to the dollar since around late April 2014, the broad real (effective exchange rate) yardsticks for both the renminbi and the dollar have rallied together (moved upwards) in recent months (since around mid-2014). In contrast to these bull moves in broad real exchange rates for the renminbi and the dollar, Japan’s real effective exchange rate weakened further in recent months. Moreover, despite the Yen’s depreciation, this simultaneous recent strength in both the dollar and the renminbi overlaps with (confirms) declines in UST 10 year yields and slumps in emerging marketplace stocks and commodities. In this context, in a world of interrelated marketplace battlefields, and given the increasing importance of China in the international economy, the hand-in-hand (joint) rally in the broad real dollar and renminbi indices also warns that a notable top in the S+P 500 may soon emerge.

The recent declines in the Yen and the Euro FX probably hint that the worldwide economy is weakening, not strengthening. Note too the indications of a slowdown in China’s enviable GDP growth rate. In this context, dramatic falls in currencies such as the Russian ruble also can signal or spark potentially more widespread weakness.

The upward trends in the broad real trade-weighted dollar and the renminbi real effective exchange rates probably will continue. For the near term, the Yen’s effective exchange rate probably will remain relatively weak. However, if the world economic situation worsens significantly relative to the current scene, since the Yen appreciated very sharply during the 2007-2009 crisis, the Yen may depart from its current bearish path and venture somewhat higher.

FOLLOW THE LINK BELOW to download this article as a PDF file.
Currency Contexts- Recent Rallies in the Dollar and Renminbi (11-9-14)
Chart- Chinese Renminbi (11-9-14, for essay Currency Contexts)


Assume normal weather for the United States natural gas 2014-15 winter draw period. Then the NYMEX natural gas complex in general probably will trade in a sideways trend. The broad range remains 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 attack major support around 3.00/3.13 during the next several months. Recall the 3.05 bottom 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 trough. 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).

Despite the leap 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 is significantly below average. Even by end March 2015, inventory days coverage probably will remain moderately below average (normal, typical, desired, reasonable, prudent) levels, though less so than at end October 2014. And though much can happen between now and October 2015, days coverage at end October 2015 arguably will rest under average levels.

FOLLOW THE LINK BELOW to download this article as a PDF file.
US Natural Gas Travels- Running Back and Forth (11-2-14)
Chart- NYMEX natural gas (nearest futures) (11-2-14, for essay US Natural Gas Travels)