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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GREAT EXPECTATIONS: MARKETPLACE FIREWORKS©Leo Haviland July 3, 2024

In Charles Dickens’s novel “Great Expectations”, a character says: “‘Ask no questions, and you’ll
be told no lies.’”

CONCLUSION

Since around end December 2023, global inflationary forces have remained rather persistent. Note the moderate increase in the United States Treasury 10 year note yield since then. Recent consumer price index measures, despite having fallen from their peaks, stand fairly distant from the Federal Reserve Board’s inflation target. Commodity prices “in general” clearly exceed their December 2023 trough. For at least the near term, the Fed therefore will find it difficult to reduce its Federal Funds policy rate nearly as much as many marketplace participants hope. The US dollar has remained strong, appreciating modestly since year end 2023; this pattern suggests that American interest rate yields probably will remain rather high. America’s substantial and worsening national debt problems remain unsolved, with little prospect of progress anytime soon. Towering massive federal government budget deficits and high and growing debt as a percentage of GDP tend to boost interest rate yields higher.

Many times over the past century, significantly increasing United States interest rate yields have preceded a major peak, or at least a noteworthy top, in key stock marketplace benchmarks such as the Dow Jones Industrial Average and S+P 500. Although the S+P 500 has achieved a new all-time high this week, a “too strong” US dollar alongside rising US Treasury yields increases the probability for a fall in stocks. Marketplace opinions regarding substantial growth in US corporate earnings prospects for calendar years 2024 and 2025 look very optimistic.

Bitcoin and gold trends offer insight into patterns and prospects for other marketplaces, including the S+P 500.

The US national political scene in general and election season 2024 in particular add to financial marketplace risks.

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Great Expectations Marketplace Fireworks

FINANCIAL BATTLEGROUNDS: AN AGE OF ANXIETY (CONTINUED) © Leo Haviland November 1, 2023

W.H. Auden’s poem “The Age of Anxiety” asserts: “When the historical process breaks down and armies organize with their embossed debates the ensuing void which they can never consecrate, when necessity is associated with horror and freedom with boredom, then it looks good to the bar business.” (Part One, Prologue). And the character Rosetta states (Part One): “Numbers and nightmares have news value.”

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FINANCIAL AGITATION

Financial marketplaces and other cultural battlegrounds always include and reflect diverse and contending perspectives and actions. They also inescapably involve values and emotions. In culture, values and emotions permeate viewpoints, thought processes, and behavior. 

Within and regarding the competitive interest rate, stock, foreign exchange, and commodity arenas (and other economic fields), marketplace perspectives (outlooks; orientations), arguments, and conclusions are always subjective, matters of opinion. So are the selection and assessment of variables (facts, factors, evidence, information). Although agreement often is widespread, so is disagreement. Views compete. After all, marketplaces have bulls and bears, long and medium and short term traders, various advocates of fundamental and technical methods, and so forth. Opinions regarding history, probability, and causation differ. Hence prices and price relationships fluctuate, sometimes dramatically. In addition, rhetoric aims to persuade audiences (including oneself) that a given goal, view, or action is good (or “reasonable”, “rational”, prudent, wise; or better than alternatives), less good, neutral, or bad. In cultural fields, this uncertainty of viewpoint and the differences in behavior create agitation, though levels of excitement/emotion (relative calmness) differ. Anxiety can vary in intensity for a given individual or an “overall” community over time, or between a person and group at any given time. 

For some marketplace participants, apparent cascades of diverse and often changing information can increase agitation (anxiety). “How does one keep up with it all? Information sure travels fast these days.” Perceptions (faith) that “the world” (or some part of it) has become more complex can boost anxiety (tension). 

Trading risks and uncertainty of outcome generate agitation and anxiety; enthusiasm, greed, fear, and hope abound. Investors and other courageous trading warriors fervently battle to win the valued (good) American Dream cultural goals of wealth and financial security. Making money and achieving wealth (financial security) makes many people happy and feel successful. Making and having sufficient money is a means to the “good life” and a “better life”. Marketplace playgrounds can be exciting and entertaining too! In quests to make money and avoid losing it, many devoted fortune seekers compare their performance with that of others, which enhances ongoing inevitable passions. 

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In general, large armies of securities “investors” and other owners in stock and interest rate realms (especially in stocks) love high and rising prices and hate low and falling ones. After all, those security assets represent big money (trillions of dollars and other currencies). Wall Street’s key role in capital formation and investment (wealth management) encourages it to promote bullish outlooks in securities marketplaces (particularly in stocks). Consequently, a significant price decline (and of course especially a sustained one) in both equity and interest rate arenas is especially agitating (in the sense of being upsetting, a source of unhappiness) to securities owners in America (and around the globe) and their Wall Street, financial media, and political comrades. Substantial wealth destruction due to bloody securities price declines also can damage economic growth, perhaps helping to produce a recession. What if house prices also slump? 

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Rising United States interest rates have helped to propel (lead) the S+P 500 lower. The S+P 500 currently is attempting to hold support at around a ten percent decline from its late July 2023 peak. However, long run American stock marketplace history indicates that large and scary falls occur; the average percentage retreat from the peak to the trough is roughly 33.9 percent. The average duration of the descent from the summit to the bottom runs approximately 14.2 months. Marketplace history of course does not have to repeat itself. However, as a bear marketplace trend for the S+P 500 probably commenced in late July 2023, and as the decline thus far only has been 10.9 percent over three months, its bear campaign has quite a bit more distance and time to travel downhill. 

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Some would argue that the financial (economic), political, and social worlds, both in America and around the globe, are especially agitated (anxious) nowadays. In any case, “the cultural situation” does not appear peaceful in many respects. 

Since “economic”, “political”, and “social” fields are entirely cultural (subjective), they are not objectively (scientifically) different territories. In any case, culture wars across economic, political, and social dimensions in America arguably are diverse and intense at present and likely to remain so for quite some time. All else equal, this suggests that the resulting agitation and anxiety make it challenging for American politicians to adequately resolve their differences and solve important problems (such as those relating to government spending). This is particularly true as the nation’s 2024 election approaches. Cultural wars thereby significantly influence interest rate, stock, and other financial marketplaces. 

Cultural feuds also exist in other leading nations. Moreover, especially in today’s globalized and multipolar world, cultural hostilities can and do cross national boundaries, which in turn can directly affect financial marketplaces, which increase anxiety (agitation) regarding and within them. Picture the rich versus poor divide, democracy versus authoritarianism, capitalism (free markets) against socialism, and religious differences. Those wars of course can be military, as the violent Russia/Ukraine and Hamas/Israel situations demonstrate.

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Financial Battlegrounds- an Age of Anxiety (Continued) (11-1-23)

US STOCKS OVER THE LONG RUN: BEAR MARKETPLACE HISTORY © Leo Haviland, August 4, 2023

“It’s déjà vu all over again!”, declared Yogi Berra, a famous baseball star.

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OVERVIEW AND CONCLUSION

Given the great significance of the United States within the global economy, both Wall Street and Main Street spend much attention and energy focusing on the American economic scene. Benchmark American stock indices such as the S+P 500 and Dow Jones Industrial Average to some extent probably reflect the overall health of and potential for the American economy. 

United States stock marketplace trends and phenomena intertwine with those of other global stock arenas. Prices and trends for (and assorted other economic, political, and social variables influencing) US signpost stock indices such as the S+P 500 and Dow Jones Industrial Average interrelate with those of key American and global interest rate, currency, commodity, real estate, and other economic domains. History reveals that these cultural relationships can and do change, sometimes slowly, sometimes rapidly. Convergence and divergence (lead/lag) patterns between marketplaces can and do shift or transform. 

Price levels and trends for these key American equity marketplaces therefore attract and sustain widespread and domestic international attention. 

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US interest rate, dollar, commodity, real estate, and other marketplace trends entangle with and influence American stock trends. 

“Long Run Historical Entanglement: US Interest Rate and Stock Trends” (7/6/23) concluded: “Many times over the past century, significantly increasing United States interest rates have preceded a major peak, or at least a noteworthy top, in key stock marketplace benchmarks such as the Dow Jones Industrial Average and S+P 500. The yield climb sometimes has occurred over a rather extended time span. The arithmetical (basis point) change has not always been large. Sometimes the yield advance has extended past the time of the stock pinnacle.”

“Given the historic pattern in which UST [US Treasury; focus on the UST 10 year note] yield increases “lead” to peaks in key American stock benchmarks such as the S+P 500, do signs of a noteworthy rising yield trend exist on the interest rate front? Yes.” And “the pattern of rising UST 10 year note yields likely is leading to another peak in the S+P 500. This stock marketplace peak probably will occur relatively soon, probably within the next few weeks or months. However, even if the S+P 500 continues to climb, it probably will not exceed its January 2022 peak by much if at all.” 

The UST 10 year note yield broke through 3/2/23’s 4.09 percent interim high with 8/3/23’s 4.20 percent high. It thus is approaching 10/21/22’s 4.34 percent top, attained around the time of the S+P 500’s crucial trough on 10/13/22 at 3492. 

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Given the importance of price trends in widely watched US equity indices such as the S+P 500 and Dow Jones Industrial Average, stock and other marketplace players and observers should review and assess long run bear (and bull) marketplace history for those American benchmarks. 

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US Stocks Over the Long Run- Bear Marketplace History (8-4-23)

MARKETPLACE TRENDS AND ENTANGLEMENTS © Leo Haviland April 4, 2022

Bob Dylan says in “The Times They Are A-Changin’”:
“There’s a battle outside and it is ragin’
It’ll soon shake your windows and rattle your walls
For the times they are a-changin’”

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CONCLUSION

Marketplace history of course is not marketplace destiny, whether for one financial realm or the relationships between assorted domains. Although traditions and the analytical time horizon and the scope of allegedly relevant variables remain critical, the cultural past in its major fields such as economics and politics need not repeat itself, either completely or even partly. Yet sometimes current and potential economic and other cultural situations apparently manifest sufficient important similarities to “the past” so that many observers can perceive patterns helping to explain “the present” and to forecast future probabilities. Thus from the standpoint of many subjective perspectives, marketplace history (like other history) often does recur to a substantial extent. Such alleged historical similarity, as it is not objective (scientific), also consequently permits a great variety of competitive storytelling about it.

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The 2022 landscape for the United States dollar, the US Treasury 10 year note, commodities “in general”, and the S+P 500 resembles that of around early 2020. The United States dollar currently hints that it may have established an important peak or that it will soon do so. The real Broad Dollar Index’s height (see the Federal Reserve Board, H.10) borders its March/April 2020 highs. Arguably commodities in general began a notable decline in early 2022. Using the broad S&P GSCI as a benchmark, the spot/physical/cash (as well as the nearest futures continuation) commodities complex (including the key petroleum arena) peaked in early January 2020 alongside a strengthening US dollar. A pattern of increasing US Treasury yields (take the 10 year note as the signpost) preceded the early 2020 stock pinnacles (S+P 500 on 2/19/20; emerging marketplaces in general on 1/13/20) as well as the commodities one. Marketplace chronicles unveil a significant yield increase in the UST 10 year note (and other important debt security benchmarks) prior to (and following) the S+P 500’s very significant high (perhaps a major top) 1/4/22 at 4819. As in 2020, the 2022 highs in stocks and commodities entangled with both rising yields and a strong dollar.

In summary, although their future levels and trends admittedly are cloudy and uncertain, what are probable trends for these marketplaces? The United States real Broad Dollar Index probably has attained its pinnacle or will do so in the near future. Commodities in general (spot; nearest futures basis) probably made a major high in early March 2022 and will continue to retreat. Although it is a difficult call, the S+P 500 likely peaked in January 2022, and it probably will venture beneath late February 2022’s 4115 low. Over the long run, given the American (and global) inflation and debt situation, the yield for the US Treasury 10 year note will ascend above its recent high around 2.55 percent, although occasional “flights to quality” and thus interim yield declines may emerge.

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Arguments in marketplaces and elsewhere in cultural life that “this time is different” are inescapable and often persuasive. Of course the coronavirus pandemic played a major role in the first quarter 2020 collapse in global stocks and commodities. However, the rising interest rates and strong dollar variables still played an important part in those 2020 marketplace declines. And the American and international inflation and debt troubles of 2022 (“nowadays”) far exceed those existing around January 2020. The Russian invasion of Ukraine obviously makes aspects of the recent commodities situation different from 2020; global petroleum prices, for example, though “high” prior to the Russia/Ukraine conflict, probably would not have skyrocketed in its absence. And in regard to historic and potential future marketplace relationships and related risk assessments, we should not forget 2007-09, the ending of the Goldilocks Era and its dismal aftermath, the global economic disaster. The S+P 500’s summit (October 2007) diverged for several months from the peak in commodities in general (July 2008), although the trends of those two financial sectors thereafter converged. Also, as US and other stocks began their terrifying descent in spring 2008 until March 2009, the dollar rallied.

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Marketplace Trends and Entanglements (4-4-22)