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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AMERICAN DEBT GARDENS- HIGHER YIELDS (“DESPERATE HOUSEWIVES”, EPISODE 7) © Leo Haviland, February 8, 2011

The sustained economic rescue and repair efforts by America’s resolute yet fearful central bank and politicians and their overseas allies will continue to encourage rising US interest rates. The Federal Reserve’s seeds of very low Federal Funds rates and its quantitative easing deluge play crucial roles. As part of its heated quest to propel a recovery and rehabilitate injured consumer net worth, the Fed scrambles to create some inflation. Congress and the President, enamored of stimulus, place fiscal discipline aside in the tool shed for the foreseeable future.

Such US regulatory and political permissiveness erodes the broad real trade-weighted dollar. Rising interest rates and a slipping dollar tend to diminish the appetite of foreigners for US securities in general and debt ones in particular.

Are climbing interest rates a sign of the success of “green shoots” economic policies? Many weathervanes proclaim them as such. Yet over the next several months, higher yields will tend to reflect and encourage economic weakness.

Take the US 10 year government note as a benchmark for rate trends. Yields will test the 400/430 range, probably by end-June 2011 at the latest.

The likelihood of an eventual move in the 10 year Treasury toward 500/550 is higher than many believe. In that regard, inaction regarding the deficit rot and a substantial wilting of the US dollar are key ingredients. Moreover, the Fed’s deliberate cultivation of some inflation creates the danger of more than sufficient inflation. The Fed and many other watchdogs display minimal concern about inflation hints from high-flying equity and commodity marketplaces. Signs of more than adequate money floating around trouble them little. Recall the sluggish analysis and action of such guardians in the prelude to and dawn and early afternoon of the economic crisis that emerged in 2007. Will exit strategies to preclude so-called excessive inflation be rapid or forceful enough to preclude marketplace tragedies?

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American Debt Gardens- Higher Yields (Desperate Housewives, Episode 7)