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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Stimulating American policies such as the trinity of money printing, sustained low nominal interest rates, and government “spend-and-borrow now/pay later somehow” only buy time. They delay reckoning rather than really solve underlying problems. The broad real trade weighted dollar (“TWD”) rests near the major support of its all-time lows (1973-present). As marketplace players turn the floodlights more and more closely on America, the broad real trade weighted dollar will fall under its 84.00 floor by at least five percent to around 80.00.
All else equal, and in an environment of unappealing interest rates, the greater (and faster) the TWD’s dive under all-time lows around 84.00, the less desirable American assets in general and debt in particular will appear to actual and potential owners (especially overseas players).
A dive of around five percent beneath that major TWD support would help to raise interest rates in general, including yields within the control of the Federal Reserve Board (rates probably would rise at least until equity prices began to plummet substantially). Would diminishing dollar values deliver long run deficit discipline in the US Congress? Not quickly, but one always can hope.
So the United States confronts enormous deficits now and in the future. There is troublesome and often misleading rhetoric from and loud quarrels within Congress. Admittedly many American politicians have been braying, grunting, and squawking about fiscal discipline, yet when will there be major tangible actions? If the US federal government were a household, would you say it was well-managed right now? Nowadays, would you want to lend it a big bucket filled with your cash?
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Keeping It Real- The Dolorous Dollar (Desperate Housewives, Episode 6)
We all know that America is not a single player in the economic scene. The vigorous fiscal and monetary responses of the United States and its friends to the worldwide financial crisis that erupted in 2007 indeed have supported near term economic recovery and excited some optimism. Look at the jump in key stock marketplace playgrounds and many commodity sectors!
Nevertheless, America increasingly looks married to fiscal deficits. The Federal Reserve Board not only promises, at least for now, the ongoing joys of low nominal government interest rates. It has espoused a new foray into quantitative easing. The ongoing threesome of large and growing fiscal deficits, lax Federal Reserve policy, and a feeble US dollar should worry marketplace voyeurs. US interest rates in general are in the process of mounting higher. The US dollar probably will decisively penetrate its all time lows. Rising yields alongside a falling dollar increasingly will undermine and eventually reverse a fair amount of the worldwide equity rally that began in spring 2009.
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Desperate Housewives (Episode 5)- Let’s Get Fiscal!
Firms (and nations) obviously always need some inventory to keep their commercial and other economic wheels rolling. From the mid-1990s or thereabouts, arguably many industries reduced their desired level of inventory holdings. They fought to keep only enough supply around to satisfy expected demands “just in time”. The information revolution and other productivity advances encouraged this practice of edging toward some minimum (yet hopefully safe) operating level.
Has there emerged, or is there now appearing, another shift in desired holdings of commodity inventories in days coverage terms (not merely in absolute arithmetical levels)? Has there been a change from “just in time” to somewhat of a “just in case” bias? There’s no cultural bright line between “just in time” and “just in case”. Yet picture the just in case perspective as one of greater fears regarding marketplace risks, with consequently higher inventory holdings.
Commodities differ, but let’s focus on petroleum. In any event, one should ask to what extent the petroleum inventory orientation is mirrored in other commodity territories, especially for goods that consumers “have-to-have” like wheat and corn.
Whereas the Fed (and the US Treasury) can print more money, they cannot print more land, even with a weak dollar. And US agricultural land acreage arguably will not increase much, though perhaps sustained stratospheric prices will change that scenario.
Remember that a growing world population yearns to improve its standard of living. For many, that means eating more food in general and protein in particular. The US is not the whole world, but it is a crucial agricultural exporter.
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Desperate Housewives (Episode 4)- In the Commodities Corner
The big bear moves history for six large declines from 1996 to the present have an average decline of 70.7 percent and a duration lasting just over eight and one-half months.
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Natural_Gas_Drawdowns_and_Downturns_(11-9-10_essay)
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