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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Burning passion for another is not the only love which makes us shake. When fear of losing substantial sums creeps up on numerous money lovers in intertwined financial playgrounds, both the players and their marketplaces can quiver violently.
Many pundits define a bear marketplace as a 20 percent slide from a noteworthy price top. Though the S+P 500 nosedived about 20 percent from its 5/2/11 high around 1371 to its 8/9/11 low near 1100, it then rallied sharply. On 8/9/11, the United States 10 year Treasury note touched yield lows of just over two percent. This matched the bottom achieved on 12/18/08 during the previous “flight to quality” panic in the (still-running) economic crisis that erupted in 2007. Given this equity and debt support, will things calm down much? No. The economic and political scenery has not sufficiently changed. Relationships within and between various financial arenas and their variables probably will vary to some extent as time passes, but the current entangled key financial factors will remain powerful, volatile, and intertwined. Although there will be occasional intermissions, turmoil in and between key equity, interest rate, currency, and commodity theaters therefore will not cease anytime soon.
Why place blind faith in the 2013 low rate policy, for the Fed confesses it changes its viewpoints? In addition, consider the Fed’s policy track record relative to its “original” expectations. Economic growth has been considerably lower than the Fed “had expected”. The Fed “now expects” a slower pace of recovery. Just as the Fed this month adjusted its policy by speaking of low Fed Funds through mid-2013, it eventually may alter its present course. Historians recall that the Fed’s quantitative easing floods likewise represented policy changes due to marketplace developments. Besides, how accurate were the Fed’s economic forecasts in 2007 and 2008, at the dawn and during the early stages of the acceleration of the economic crisis? So as Fed expectations change, so may its actions, whether on rates, quantitative easing, or otherwise.
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Furious Financial Fluctuations (8-15-11)
Petroleum prices will remain in a sideways to down trend. At least in the OECD, industry inventory in days coverage terms is currently higher than average. Due to renewed economic weakness and still relatively lofty oil prices, petroleum demand for the balance of 2011 and calendar 2012 probably will be less than many believe. Thus days coverage in the petroleum world probably will remain adequate for some time.
Petroleum remains partially hostage to variables of and trends and levels in key equity, currency, and interest rate (and other commodity) battlefields. Equity declines seem to be intertwining with those in the petroleum complex. Consumer balance sheets and incomes in the United States and many other nations remain under pressure. Substantial fiscal deficits (US, several European nations, perhaps Japan) undermine stock marketplace strength. A weak US dollar has convinced many that equities as well as petroleum prices should inevitably keep climbing, or at least stay high. However, a very (especially) weak US dollar situation- which seems to be emerging these days- may coincide with both feeble stocks and falling petroleum prices.
Petroleum bulls underline that if the economic recovery retains strength, supplies could get fairly tight unless OPEC raises its production quite a bit. Admittedly, as the Libyan situation shows, there’s always a chance that some event will significantly interrupt supplies. Some petroleum players therefore prefer to keep a handful of extra inventory around “just-in-case”. Alternative investment by noncommercial players has not evaporated. Some observers have faith that if the American economy weakens substantially, the Fed will engage in a third wave of quantitative easing (money printing) which would rally petroleum prices in nominal terms.
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Oil and Troubled Economic Waters (8-8-11)
The Japanese Yen has remained powerful relative to other currencies “in general” since autumn 2010. On an effective exchange rate basis, as well as against the United States dollar in particular, the Yen is around major resistance. However, the Yen probably will advance further over the next several months. Though many intertwining variables influence currency levels and trends, the fragility of the current worldwide recovery and the continuation of the global financial crisis that erupted in 2007 will play a key role in the continued Yen rally.
Assume America resolves its current battles related to the federal debt ceiling. Proposals likely to be enacted, though representing progress in cutting deficits over the next decade, are modest. In addition, these Washington fiscal fixes will not be significant in relation to the scope of the underlying long run deficit problem. Therefore, any Yen weakness derived from short-term solutions of United States fiscal deficit issues probably will be temporary.
US policy makers preach their desire for a strong dollar from time to time. Their practices over many months, however, underline their desire for (or at least toleration of) a rather weak TWD. The weak dollar policy may help to boost growth and reduce unemployment, right? Don’t many developing nations want their home currency to be relatively weak? One method by which the US can better compete with many developing (and other) nations, at least in some trade domains, is to depreciate its currency.
Roughly speaking, Japan is a creditor nation. Roughly speaking, and despite its wealth, America is a debtor nation.
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The Strong Yen, the Weak Dollar, a Shaky World (8-2-11)
America’s substantial federal deficit problem, both for the near term and over the looming long run, captures headlines. A long march through a thicket of forecasts and fixes reveals the immensity of the deficit and the complexity of the intertwined factors and policies creating the deep fiscal hole. However, advancing through the repair proposals of leading legislators unveils the substantial disagreements in outlook regarding a solution. Even in Washington, differences in political perspectives on “economic” matters sometimes represent really serious sharp splits.
Called to action by the need to seriously attack the issue, confronted by the imminent August 2 deadline for boosting the deficit ceiling, the President, Democrats, and Republicans squawk, squeak, and squirm. Few budget combatants want a default, or even a reduction in America’s credit rating. Matters of principle and 2012 election politics will interrelate both to avoid debt default and to defer any noteworthy substantive resolution of the fiscal challenge. Since such a temporary compromise is not a genuine solution, the United States fiscal disaster will continue to beleaguer financial marketplaces.
In the Civil War, so-called neutral nations such as Great Britain and France were quite interested in the war’s outcome. America is not divided or cut off from the rest of the world, especially these days. In regard to the US’s current budget battles, not only its citizens but also countries around the world closely monitor events and trends. Like sovereign debt problems on the European periphery, America’s fiscal issues have global implications. Plus what occurs in debt and interest rate theaters has implications for stocks, currencies, and commodities. For example, if the American deficit crisis worsens significantly, what will the collateral damage be? Will stocks in the US as well as overseas nosedive? Will there be a renewed assault on the dollar?
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A House Divided- American Budget Battles
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