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.
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What does historical analysis of noteworthy United States natural gas bear marketplace moves reveal (NYMEX nearest futures continuation basis)? It generally confirms the conclusion that “the long run bear trend probably ended with the 1/23/12 low around 223” (see “US Natural Gas- There Has Been and Will Be Blood”; 1/31/12). In addition, that review also indicates a significant possibility that NYMEX natural gas will reach a second low distant in time from but close in price level to the January 2012 bottom. The most likely time for this “double bottom” is late August/calendar September 2012.
Marketplace history is never marketplace destiny. Over two decades of NYMEX natural gas history is substantial, yet it is not an extremely long period. Compare US stock marketplace benchmarks such as the Dow Jones Industrial Average or the S+P 500. In addition, definitions and identifications of bull, bear, and sideways marketplaces and their alleged trends reflect opinions. Designation of particular start and end dates for apparently notable moves likewise reflect personal outlooks.
Also, interpretation of natural gas can focus on more than the nearest futures continuation contract. One may choose to peer at individual actual contract months (as in the April 2012 futures contract), several trading months of a season (as in summer 2012), calendar years (as for the calendar 2013 strip of contracts), spreads (such as NYMEX March 2013/April 2013), and regional (basis) relationships. Insight into natural gas marketplaces and their bull and bear trends can derive from analyzing electricity, coal, other marketplaces, and assorted additional economic and political phenomena as well. In natural gas as in other arenas, supply/demand investigation can intertwine with so-called technical analysis.
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NYMEX Natural Gas- A History of Bear Trends (2-28-12)
The Federal Reserve and other central banking all-stars around the globe have teamed up. In varying fashions, and frequently led by the Fed, they vigorously practice accommodative strategies to tackle economic weakness and to spark and sustain economic recovery.
The Fed’s trusty playbook, for example, currently insists on the wisdom of keeping policy (Federal Funds) interest rates pinned to the floor. Much of the UST yield curve offers negative returns relative to inflation. The Fed thus deliberately encourages some American and other yield hunters to avoid, diversify away from, or leave US Treasury debt in search of better returns elsewhere. Many other central banks link arms with the Fed under the low interest rate banner.
Thus many players race into or cart more funds into other debt arenas.
Keep focusing primarily on America for a moment. Those yearning for return trot into domains beyond the interest rate one. If US government yields are going to stay at exceptionally low levels into 2014, why not give stocks an even closer look! Besides, even though not all equities pay dividends, some do. The unending search for yield (return) inspires pilgrims to venture into (or more robustly into) stock marketplaces (use the S+P 500 as a benchmark). Also, surely people have not forgotten the anthem that US stocks are an excellent long run investment.
What are investment, speculation, and gambling? In stocks, interest rates, real estate, and elsewhere, investment rhetoric encourages and often persuades people to embrace a given investment perspective and to act accordingly. Since investment generally is associated with notions such as reasonableness, prudence, and goodness, many people race to be investors (join some investment team) and wear the honored investment crown. And those promoting particular financial instruments compete fiercely to attach an investment label of some sort on what they want others to buy and hold. Thus in recent years, the commodity world has found numerous cheerleaders for concepts that commodities (“in general”) are (can be) an investment, an alternative investment, or an asset class. Think also of the potential diversification benefits for your portfolio of stocks and interest rate holdings. In any event, various assorted commodity investment advocates have won quite a few victories for their ownership cause.
Suppose groundskeeping central bankers mow down the yields of government securities to very low nominal levels (and especially suppose those returns are negative relative to inflation). Those central bankers thereby encourage “investors” in government debt (and those with deposits at bank and money market funds) to seek “investment” returns elsewhere. So why not entertain commodities as a marvelous investment buying opportunity?
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Commodity Playgrounds- Chasing Returns (2-21-12)
In love and commerce, taking implies giving. On Valentine’s Day and throughout the year, undoubtedly the prudent Federal Reserve remembers the benefits of having and needs of both debtors and creditors. This regulatory chaperone surely would declare that they passionately strive to perform their very best (do what’s most reasonable according to their interpretation of their regulatory duties) for all parties concerned. Besides, they must balance competing interests. Besides again, the Fed has a long run horizon. The Fed’s recent policies nevertheless imply not only an ethics of inflation, but also manifest somewhat greater affection for debtors than creditors.
Japan’s general government gross debt as a percent of its GDP is gigantic, at 241.0 percent for 2012 (IMF, Fiscal Monitor Update, Table 1, 1/24/12). This dwarfs America’s 107.6pc and the Euro area’s 91.1pc. Japan’s general government debt has been huge for several years. How does it keep financing this massive total? And if Japan can keep doing it, doesn’t America really have a lot of room to go (and time to wait)?
Japan may have more domestic savings than America, or be more of a nation of savers from an overall cultural perspective. Japan has run a current account surplus for quite some time, in direct contrast to the bulging United States current account deficit. (See the September 2011 World Economic Outlook, Statistical Appendix, Table A10.)
However, Japan’s ability to accumulate and finance its big general government deficit also may be due to its more favorable treatment of creditors. And despite low interest rates! Creditors of the Japanese government have earned, and have earned for quite some time, a net positive return due to deflation alongside low government interest rates.
So how long will the Fed and US Treasury get away with offering negative (or very low) real returns on US government debt?
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Sweet Talking, Slick Banking- Federal Reserve Policy (2-14-12)
To create a sustained and substantial recovery, gurus and their audiences agree that much matters on the fiscal front. In the darker days of the economic crisis, most financial sentinels and their allies proclaimed that large sustained fiscal deficits were good (or at least acceptable, up to some point). Whatever have been the short term benefits of enthusiastic deficit spending campaigns in America and elsewhere, epic fiscal measures only shifted some of the debt (and leverage) burden from the private sector to the public one.
However, nowadays big sovereign debt generally is viewed as a problem. Most of the public hopes that noteworthy fiscal progress to reduce terrifying deficits has been made, is being achieved, or eventually (and soon enough) will be accomplished.
Let’s spend time surveying some fine print regarding the fiscal landscape, paying particular attention to Europe and America. At best, only limited advances have been made in recent wars against huge deficits. Actually, judging from their very modest results, these struggles to slash them look more like skirmishes than pitched battles.
A Financial Times front page headlines the European Union’s “tough fiscal treaty” (1/31/12; this refers to the “Treaty on Stability, Coordination and Governance in the Economic and Monetary Union”). Many applaud this treaty for its alleged fiscal hard line. It indeed takes a step towards resolving Europe’s sovereign debt and banking crisis, but a small step is not a giant leap. Despite the stagecraft of European leaders, the region’s fiscal challenges are not near to being resolved.
Though many states and municipalities face scary times, let’s focus on the federal deficit. The US fiscal situation remains fearful.
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Fiscal Fine Print (2-7-12)
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