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.


 

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





DIVERGENCE AND CONVERGENCE: US STOCKS AND AMERICAN POLITICS © Leo Haviland July 11, 2020

William Butler Yeats said in his poem “The Second Coming”:
“Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.”

****

OVERVIEW AND CONCLUSION

Numerous United States stock marketplace and economic wizards share a common faith that levels and trends in broad-based equity benchmarks such as the S+P 500 adequately represent the nation’s overall current economic “reality”, signal (forecast) the country’s future economic conditions, or both. Conversely, the present-day or prospective economic situation (or both) allegedly are built into or forecast S+P 500 and related stock signposts elevations and trends. Leading promoters of this creed frequently also are apostles of stock investment (buying), especially over the misty long run. Thus strong (bullish) US stocks supposedly equal, reflect, or confirm (at least to a substantial extent and at some point in time) a robust economy.

Assorted economic (commercial; business) variables around the globe of course influence patterns in American (and other international) stock marketplaces. So do political and other cultural factors. The perspectives on, analytical methods regarding, and arguments and conclusions relating to such cultural phenomena nevertheless are entirely subjective (matters of opinion; not scientific). Thus reasonable gurus can and do vary in their enlightened views regarding issues such as how to organize “the” past, present, and future, as well as in their causation and probability assessments regarding one or more marketplaces. This contrasts with the objective (Natural; true for all) sciences such as biology, chemistry, physics, mathematics, and mechanical engineering.

A given financial marketplace such as the S+P 500 and data (variables, facts, factors, evidence, statistics) related to it converge and diverge (lead/lag) in a variety of fashions. Existing relationships can change, sometimes dramatically. Marketplace history is not marketplace destiny.

****

The S+P 500 rapidly crashed about 35.4 percent in only one month from its 2/19/20 pinnacle at 3394 to its dismal 3/23/20 trough at 2192. However, it thereafter skyrocketed nearly 47.5 percent to 6/8/20’s 3233, only about five percent beneath 2/19/20’s height. The S+P 500’s current level around 3185 neighbors the early June 2020 high. Generous money printing (quantitative easing) and yield repression (and other assistance) from the beloved Federal Reserve and its central banking allies substantially contributed to the spike from March 2020’s depth. So did massive deficit spending. Substantial bull moves in various important “technology” stocks within the S+P 500, and the related climb in the technologically-composed Nasdaq Composite Index, greatly assisted the upward march and sustained strength in the S+P 500.

Although the Nasdaq Composite Index and many leading (popular; large-capitalization) technology stocks achieved new highs very recently, several actual or probable divergences (and some convergences) within or linked to the S+P 500 stock playground warn that it will be difficult for the S+P 500 to surpass its lofty February 2020 peak by much, if at all, over the next several months. These factors not only probably will undermine the S+P 500 and induce it to start declining, but also will inspire a related fall in the Nasdaq Composite Index.

DIVERGENCE: AMERICAN STOCKS

The poet Wallace Stevens declared: “Nothing is itself taken alone. Things are because of interrelations or interactions.”

****

Various forms of divergence (and convergence) relevant to stock marketplaces exist.

These include how a given marketplace recently has moved, or is travelling, relative to its past (or “overall”) history. It can include relationships between “the” stock marketplace (such as the S+P 500 benchmark) and other stock indices (both domestic and foreign), marketplace sectors (such as technology, energy, or finance; emerging marketplace stocks) or particular stocks. An apparent existing relationship between United States stocks and other financial territories such as interest rates (picture the US Treasury marketplace or high-yield corporate debt), the US dollar, and key commodities such as petroleum and base metals can change, sometimes dramatically. For the S+P 500, a stock sector, or an individual equity, its level, trend, and valuation can seem to converge or diverge with its earnings (or other variables).

To what extent has or will America’s coronavirus history, current trends, and future probabilities intersect with the S+P 500? Recall the vicious economic decline and sharp stock slumps during first quarter 2020 as the coronavirus spread worldwide and in America. Yet the significant increase in recent weeks in the America’s coronavirus infection rate contrasts with the persistent strength in the S+P 500, and with the Nasdaq Composite Index’s stellar ascent to all-time highs.

Significant divisions (divergence) and heated conflicts nowadays exist in America’s political and other cultural theaters. Political phenomena of course intertwine with economic ones, including financial marketplaces such as stocks. To some extent, the rally (“high” prices) in American stock benchmarks such as the S+P 500 diverges from the likely enactment (reality) of corporate and capital gain tax increases. In America’s upcoming November 2020 national election, Biden very likely will defeat Trump. The Democrats should retain control of the House of Representatives. The Democrats probably will gain Senate seats, and they have a very good chance of capturing the Senate. This unification of Democratic power on the national level not only will be a dramatic change in government. Tax policies embraced by Biden and the Democrats likely will be bearish factors for the S+P 500.

FOLLOW THE LINK BELOW to download this article as a PDF file.
Divergence and Convergence- US Stocks and American Politics (7-11-20)

US ELECTION 2020: POLITICS, PANDEMIC, AND MARKETPLACES © Leo Haviland June 3, 2020

CULTURAL OVERVIEW: A HOUSE DIVIDED

Competing aphorisms and advice abound regarding the uncertainties, unpredictability, probabilities, risks, opportunities, and appropriate viewpoints and methods in marketplaces such as stocks, interest rates, currencies, commodities, and real estate. Political stages also fill with diverse adages, slogans, perspectives, approaches, insights, foresights, predictions, and explanations.

The American cultural scenes (economic, political, and social) and opinions regarding them interrelate, and these entangle relatively closely with numerous foreign ones in a globalized world. This reflects and encourages wide ranges in outlook and recommendations for behavior.

****

American history reflects and describes a generally-shared culture, which the American Dream concept significantly reflects. However, over the span of about four centuries (and even in recent decades) that culture and interpretations of it have not been unchanging. The degree of consensus has varied. Moreover, not all groups have been equally able to participate in the economic, political, and social benefits (promises; valued “good” aspects) of the American Dream.

****

Thus America, even when united, always has had some internal differences in viewpoint (including opinions on the proper applications of a generally shared cultural theory) and thus assorted episodes and varying degrees of conflict. Let’s concentrate on today’s political panorama, which reflects (is permeated by) economic phenomena and interests. Admittedly, we’re not dwelling in the Civil War era of the mid-19th century. And the present-day United States political landscape (its ideological and structural parameters) is not anarchic. Nevertheless, the nation’s current political situation displays extensive divisions across numerous fields. The number and sharpness of these splits arguably have been increasing over the past few decades, as well as increasing (or at least becoming more evident) since President Trump’s 2016 election campaign and triumph.

A rapid survey of the United States unveils a country significantly divided across belief (doctrinal) dimensions as well as group membership categories. Subjective views occur on a continuum. For example, not all so-called “conservative” opinions are identical. Or, a given “liberal” (or progressive or globalist) may support some “nationalist” policies. Of course not all members of a given racial (ethnic), sex, or age category embrace the same opinion on a given policy or set of them. Consequently, beliefs, groups, and individuals do not necessarily or inevitably all end up on the same side of a ledger. Moreover, definitions and applications of political and other cultural labels can and do change. How should we define and measure liberty, freedom, and equality?

Anyway, numerous divisions apparently exist. These reflect values, visions for what is “good”, “bad”, and “neutral”. Cultural values inescapably involve emotions, not just reasoning; and emotions permeate the reasoning.

Look not only at (and within) the leading political parties, the Democrats (blue) and Republicans (red). The political spectrum reveals a range of opinions from left-wing to right-wing. Populists (which include left and right sides in orientation) battle against the “establishment” and associated elites (“the Man”; an entrenched political/economic/social power structure). Nationalists (“Make America Great Again!” is one mantra) fight against globalists (and multiculturalists); conservatives (or alleged reactionaries) combat liberals (perhaps some of these are progressives) and socialists (radicals; anarchists). Assorted political and economic “haves” fight in assorted ways with “have-nots”. Ardent debates rage about economic inequality and opportunity as well as social mobility. Allegiance to “capitalism” and the “free market” (however defined) varies in scope and intensity. Other contentious issues include abortion, the environment (including climate change), health care, immigration, race relations, gun control, and international trade. Such viewpoints incorporate values and result in propaganda battles to advance aims and defeat foes.

Within American political life and its communities, note the language (metaphors) of war, battle, and violence. Also examine wordplay of love and friendship. For example, people may love (or hate) a political candidate or party and its policies.

Rather lofty US government deficit spending has become entrenched. And sometimes, like nowadays in the coronavirus era (which involves a war against the disease), most Americans appreciate a generous helping hand and support a large (expensive) economic rescue package. However, significant disagreement remains regarding the role and extent of the federal government in our lives. Fervent quarrels burst into the open as to the appropriateness of, relative importance of, and actual expenditure on specific programs.

What generic cultural classifications to which individuals belong nowadays reflect (and offer opportunities for and encourage) partisanship and rhetorical conflict? These are numerous. The body politic is fractured. Noteworthy divides exist on the basis of race/ethnic, sex/gender and sexuality, age/generation, geographical location (region of the country; urban/suburban/rural), religion/faith, and level of wealth/income.

****

In politics, economics, and elsewhere in culture, although a subjective consensus sometimes develops and persists, participants also can and do disagree on what information (facts, evidence, factors, data, statistics) is relevant and on the relative importance of such variables, as well as on the proper means of organizing and evaluating such phenomena. Where widespread cultural divisions exist, as in America nowadays, such diverse debates (dissonance) relating to “the facts” at times can severely challenge the abilities of even knowledgeable and experienced forecasters to predict a particular outcome, such as the 2020 American Presidential election battle between Trump and Biden, with a high degree of confidence.

Moreover, to the extent that citizens have diminished faith in political institutions and leaders, this increases (encourages) the potential for cultural splits and wars. Arguments from authority may become less compelling to the “average citizen”; many disagreements tend to become harder to resolve. It’s often difficult for enemies to make peace. This situation can boost the amount and loudness of divisive rhetoric and thus make it significantly harder to predict some outcomes.

History shows that a willingness to compromise, listen closely to and respect opposing views and values, and practice substantial civility ebbs and flows on political stages, even when differences between rivals are substantial. However, the American political scene during the Trump regime generally manifests a weakening inclination to do so by many participants. This increases the rhetorical racket.

The information revolution obviously is a complex topic. Nevertheless, the voices unleashed nowadays in cultural domains via mass communication media create and sustain Towers of Babel. And the internet in particular enables a “democratic” explosion of voices seeking to achieve some form of power, to become or remain relevant and influential. The massive amount of allegedly relevant information potentially important to “appropriate” cultural decision-making and the proliferation of supposedly satisfactory gurus and guides (opinion-makers) thereby at times can exacerbate the difficulty of predicting political and economic outcomes.

FOLLOW THE LINK BELOW to download this article as a PDF file.
US Election 2020- Politics, Pandemic, and Marketplaces (6-3-20)

AMERICAN CONSUMERS: THE SHAPE WE’RE IN © Leo Haviland May 4, 2020

The Band sings in “The Shape I’m In”:
“Out of nine lives, I spent seven
Now, how in the world do you get to Heaven?
Oh, you don’t know the shape I’m in”.

****

OVERVIEW AND CONCLUSION

 

Everyone knows that the coronavirus pandemic and political (medical) responses to it have wreaked widespread and deep economic destruction around the globe. The coronavirus, however, was not the only bearish phenomenon preceding and influencing the disastrous economic situation. The ultimate extent of the damage and the timing and extent of the international and American recovery remain conjectural.

America and its consumers obviously are not the only economic engines for the international economy. However, given substantial global economic interconnections, American economic conditions, trends, and policies significantly influence those elsewhere. US consumer spending represents about 68.0 percent of American GDP, a very sizable share (Federal Reserve Board; Z.1, “Financial Accounts of the United States”, Table F.2; 3/12/20). Consequently, regarding the prospects for United States economic growth, and thus output in other realms, much depends on the situation and attitudes of the American consumer.

American consumer spending and other “Main Street” variables intertwine with those around the globe, as well as with “business” (both big and small) and other economic, political, and social phenomena. For example, Federal Reserve and other central bank actions, government spending levels and trends, United States (and other) stock marketplace levels, American government and other interest rates, the dollar and other currencies, commodities, real estate, and assorted other economic, political, and social variables influence American consumer spending in a variety of fashions. These relationships and phenomena encouraging them can and do change, sometimes slowly, sometimes rapidly. Convergence and divergence (lead/lag) patterns between economic indicators as well as marketplaces likewise can shift or transform.

****

Wall Street (and its financial media friends), politicians, and Main Street pray that the monumental monetary interventions by central banks such as the Federal Reserve and its allies (massive money printing and so forth) and dramatic fiscal deficit spending boosts not only will rescue the international economy from its current monumental troubles (reduce the magnitude of a recession), but also will restore acceptable economic growth relatively quickly, perhaps even before the end of the third quarter of 2020. Prior success in dealing with the dreadful worldwide economic disaster of 2007-09 encourages widespread faith that these (and perhaps further) efforts and a warlike “whatever it takes” monetary and governmental policy attitude ultimately will succeed.

Many economic high priests such as the International Monetary Fund predict a relatively strong and quick global recovery. In its World Economic Outlook (Table 1.1; April 2020), the IMF forecast a gloomy three percent drop in world output in 2020. However, global real GDP ascends sharply in 2021 by 5.8 percent. GDP retreats in advanced economies by -6.1pc year-on-year in 2020, but climbs 4.5pc in 2021. According to the IMF, US GDP collapses -5.9pc in 2020 but jumps 4.7pc in 2021. Emerging/developing marketplaces allegedly will suffer only a one percent fall in calendar 2020, with GDP growing a rapid 6.6pc in 2021 (compare 2019’s modest 3.7pc expansion). China supposedly will manage to grow 9.2 percent in 2021 (1.2pc in 2020), although its GDP fell -6.8pc year-on-year in 1Q20.

US corporate earnings depend on many phenomena, and of course not all corporations depend (directly) on consumer purchasing (whether by Americans or others) to the same extent. Yet US corporate earnings estimates from Wall Street pulpits, like the IMF’s vision, generally display optimism for calendar 2021 despite the sharp year-on-year falls expected for calendar 2020.

****

However, a survey of several key US variables closely linked to the situation of the American consumer nevertheless suggest that the injury to the American consumer “in general” and thus the country’s overall economy has been and will continue to be severe. A very substantial portion of the general public is in rough shape. Numerous other consumers are fearful regarding their future. Between the terrifying unemployment situation (and at least the near term outlook for it) and a relatively high arithmetical household debt level prior to the coronavirus devastation, most American consumers probably will be cautious spenders for quite some time. Even if the coronavirus pandemic significantly subsides relatively soon, how rapidly will the shattered consumer sector race to resume its prior buying habits and thus boost GDP substantially? Moreover, the planned reopening of America’s economy probably will be gradual. And how quickly will firms, whether large or small, rehire a large number of laid-off workers? In addition, widespread worries about the ongoing and future coronavirus waves likely will persist, and people await the development of a proven vaccine and adequate testing.

Thus America’s economic recovery probably will be slow rather than fast (or even fairly quick on a sustained basis). Optimism heralded by the IMF and many other leading institutions, enthusiastic gospels from US “investment” gurus regarding magnificent corporate earnings in calendar 2021, and similar propaganda likely will be disappointed.

FOLLOW THE LINK BELOW to download this article as a PDF file.
American Consumers- the Shape We're In (5-4-20)

CRAWLING FROM THE WRECKAGE: US STOCKS © Leo Haviland, April 13, 2020

“Crawlin’ from the wreckage, Crawlin’ from the wreckage
You’d think by now at least that half my brain would get the message…
Nothin’ ever happened ain’t happened before
I see it all through flashes of depression”. “Crawling from the Wreckage”, a Dave Edmunds song

“We’ve not seen anything of the sort before, that’s all. Personally, I find it interesting, yes, definitely interesting.” A character in Albert Camus’ novel “The Plague” (Part I)

****

CONCLUSION

Everyone knows that the coronavirus pandemic and political (medical) responses to it have wreaked widespread and deep economic carnage around the globe. The coronavirus of course was not the only bearish phenomenon preceding and influencing the disastrous economic situation. The ultimate extent of the damage and the timing and extent of the recovery remain conjectural. 

Given the importance of the United States to the international economy, both Wall Street and Main Street spend much attention and energy focusing on America. Widely-watched American stock indices such as the S+P 500 and Dow Jones Industrial Average are benchmarks which to some extent probably reflect the overall health of and potential for the American economy. Thus in the current situation, levels and trends for these American equity marketplaces attract and sustain international fascination.  

****

To many, the biological (medical) problem of the coronavirus makes it a poster child for the viewpoint that “this time is different” in its consequences for economic (financial, commercial) trends and outcomes. Obviously, disease playing a critical role in a terrible downturn is very rare. Yet economic history (including recessions and bear and bull trends in stock marketplaces) involves all sorts of “causes” with supply and demand consequences, so observers should not neglect or dismiss past periods as being unimportant to an analysis of the current economic situation. So arguably there are parallels between prior marketplace history and that of nowadays, even if “the past” did not involve a deadly virus. 

****

Wall Street, politicians, and Main Street pray that the monumental monetary interventions by central banks such as the Federal Reserve and its partners (money printing and so forth) and dramatic fiscal actions not only will rescue the international economy from its current dire troubles (reduce the magnitude of a recession), but also will restore acceptable economic growth relatively quickly. The prior success in dealing with the appalling worldwide economic disaster of 2007-09 encourages widespread faith that these (and perhaps further) efforts and a “whatever it takes” policy attitude ultimately will succeed. 

Recall the glorious bull move in the S+P 500, sparked by sustained monetary easing (money printing; yield repression) and deficit spending, which ran for over ten years since 3/6/09’s major bottom at 667. Perhaps US stocks over some long run horizon (or even sooner) even will achieve new record highs! 

But maybe this time will be different for the global economy and stocks in comparison with the years following from the 2007-09 bloodbath. A satisfactory recovery (including moderate unemployment levels) may be very difficult to achieve anytime soon, even if more easing and deficit spending occur. 

****

The S+P 500’s fearful collapse from 3394 on 2/19/20 to 3/23/20’s 2192 was 35.4 percent and lasted just over a month. Following its March low, the S+P 500 ferociously rallied 28.6 percent in two weeks to 2819 (4/9/20). A review of previous major bear trends for the US stock marketplace going back in time about 125 years does not show a single trend which ended in one month. Will this time be different? 

Will the extraordinarily accommodative policies of the Federal Reserve and its central banking comrades (assisted by gargantuan global deficit spending) make this time different, so that the bear trend for American stocks which commenced in mid-February 2020 endures only one month? Or, will instead the 3/23/20 S+P 500 low eventually be broken?

FOLLOW THE LINK BELOW to download this article as a PDF file.
Crawling from the Wreckage- US Stocks (4-13-20)