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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Yet the current landscape is not the best of all possible worlds. Certainly in many regions, it does not appear to be a very happy one. Worries continue, both in regulatory pastures and in the playgrounds of the so-called real world. Recent growls from economic watchdogs and noises from diverse corners of the statistical garage suggest that further thrilling and chilling episodes remain in the worldwide economic crisis.
The long-running ABC television series, “Desperate Housewives”, offers an archetypal title for our devoted central bankers and their allies in their epic and frequently frantic saga to promote prosperity. This widely-watched show does not confine itself to its crew of leading actresses. The economic domain likewise contains a wide cast of characters.
Why shouldn’t television inspire the production of a mini-series of essays analyzing dramas on the economic stage? Part of this perspective should chronicle and assess the words and actions of the Federal Reserve, their friends, and other marketplace players.
How much dollar weakness is the US prepared to endure relative to current levels? What about foreign holders of dollar denominated assets? The broad real trade weighted US dollar in September 2010 averaged 87.00, quite a distance from its February 2002 peak at 113.04. It is not far from major support around 84.00. Recall the April 2008, July 1995, and October 1978 troughs. How long will the Fed be able to keep its policy rates low if it engages in a money printing party? US melodies about its love of a “strong dollar” do not necessarily inspire everyone to sing along. Also, what will holders of US securities do if the dollar depreciates quite a bit at a fairly rapid pace, and especially if that weakness occurs alongside a noteworthy increase in US interest rates? See “Goldilocks, Green Shoots, and the US Dollar” (9/7/10).
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Desperate_Housewives-_21st_Century_Economic_Housekeeping
The worldwide petroleum supply demand situation from the physical standpoint remains bearish. However, considerable inventory oversupply in the OECD (so-called advanced nations) arguably is not mirrored in other regions. Moreover, in recent years price trends in equities and commodities roughly have tracked each other. Low short term interest rates, deficit spending, and money printing have supported equities and thus commodities. Also, relative US dollar weakness has tended to encourage the equity and commodity rallies of recent months. Alternative investment underpins commodity prices, as does some concern about political disruption of petroleum supplies. Yet the worldwide economic crisis that erupted in 2007 is not over.
The worldwide petroleum price trend is sideways. The potential range for the next several months is quite large (NYMEX nearest crude oil futures continuation basis).
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Petroleum Overview- Crosscurrents and Crossroads (9-27-10)
Since America continues to issue more and more debt, sustained patterns of reduced net Chinese buying (and of course net selling) of US Treasury securities is a bearish factor for US government note and bond prices. And quite unsettling for those worthy financial watchdogs who yearn to keep US interest rate levels low! What if other nations behave the same as China? In any event, perhaps other foreign sources or Americans will replace Chinese demand.
But perhaps the Federal Reserve will be the key incremental American buyer of such US debt securities via its beloved quantitative easing (monetary printing) extravaganza. The Fed clearly is willing to gobble up US government notes and bonds. And who knows, the Fed may even renew its taste for mortgage-backed securities.
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China- Currencies, Commodities, and US Treasuries
Ringling Brothers and Barnum & Bailey offer their wonderful circus to eager spectators, calling it “The Greatest Show on Earth”. The long-lasting easy money performance displayed by the Federal Reserve over the course of the worldwide economic crisis surely ranks as a close second. The Federal Reserve does not have a formal directive to manage equity or real estate prices. In general, it claims that its economic maneuvers do not target these prices. Yet much of the Fed’s orchestration has sought to propel stocks and home values skyward and to keep them airborne.
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Barnum, Bailey, and Bernanke- Taking Stock (Desp. Housewives, Episode 3)
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