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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ALL ALONG THE WATCHTOWER: US DOLLAR DEPRECIATION © Leo Haviland October 1, 2025

Patrick Henry, one of America’s political “Founding Fathers”, is remembered for orations such as his 1775 one: “Give me liberty or give me death!” In a March 1799 speech, in regard to the Virginia and Kentucky Resolutions, he declared: “United we stand, divided we fall. Let us not split into factions which must destroy the union upon which our existence hangs.”

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CONCLUSION

The Federal Reserve releases a real Broad Dollar Index (H.10; January 2006=100; monthly average) as well as a nominal Broad Dollar Index (daily data) covering both goods and services. These Indexes are useful measures of overall United States dollar strength (weakness) and trends. “As the World Turns: Marketplace Battlefields” (1/1/25) noted: “Though the ‘overall’ United States dollar may remain strong for a while longer due to relatively lofty US interest rates, the real Broad Dollar Index probably will begin to decline from around current levels, which have reached the major resistance barriers of autumn 2022. It eventually will retreat toward its key support at April 2020’s 113.4 elevation (recall also December 2023’s 113.9).” “Shakin’ All Over: Financial and Political Turmoil” (4/1/25) emphasized: “The real Broad Dollar Index probably peaked in January 2025 and likely will continue to decline over the long run.” 

The real Broad Dollar Index attained its summit in January 2025 at 122.6, and the nominal Broad Dollar Index peaked at 130.2 on 1/13/25. Through September 2025, the real Broad Dollar Index has depreciated about 6.6 percent from its January 2025 high, and the nominal Broad Dollar Index has descended 8.1 percent. The percentage depreciation and time duration of the decline in the real Broad Dollar Index since January 2025 has been significantly less than that of past major bear moves in the dollar. The US dollar probably will continue to depreciate. Though marketplace history of course does not necessarily repeat itself, either entirely or even partly, this dollar bear move probably will be fairly substantial and may last several years. Thus the real BDI probably will decline beneath April 2020’s important support at 113.4. Competitive depreciation may mitigate the US dollar’s long run decline, but it will not avert its fall.

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All Along the Watchtower- US Dollar Depreciation (10-1-25)

SHAKIN’ ALL OVER: FINANCIAL AND POLITICAL TURMOIL©Leo Haviland April 1, 2025

The Guess Who sing in “Shakin’ All Over”: 
“That’s when I get the chills all over me
Quivers down my backbone
I got the shakes in my thigh bone
I got the shivers in my knee bone
Shakin’ all over”.

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CONCLUSION

The United States (and global) economy probably will slow down substantially. The risk of a recession is substantial. Forces warning of American and international economic weakness are widespread. What are some of these factors? 

United States inflation benchmarks such as the Consumer Price Index have receded toward the Federal Reserve’s two percent objective, but they remain far enough above that target to preclude near term easing by the Fed in the absence of substantial economic weakness. The Fed has adopted a cautious strategy regarding further rate cuts. Moreover, this guardian may need to raise rates if inflation increases more than expected. 

The optimistic rhetoric regarding and devoted faith in the strategies of “Make America Great Again” (“MAGA”) and “America First” do not preclude substantial economic (and political) dangers resulting from the implementation of those programs. The essence (broad outlines) of President Trump’s probable tariff plans (which currently appear more extreme than most had expected he would impose), will generate inflation, damage consumer and business confidence, and (at least for the near term) hamper domestic (and worldwide) economic growth. Substantial protectionism does not necessarily create beneficial outcomes. America’s trading partners will retaliate. Everyone remembers that trade (tariff) wars encouraged the Great Depression to begin in 1929. In addition, the tax and immigration policies embraced by Trump and his allies represent noteworthy inflationary risks. 

Also, the long term and arguably even the near term US fiscal situation and its management are dangerous. American deficit spending and debt levels represent ongoing problems. These challenges preceded Trump’s inauguration on 1/20/25, but despite spirited talk of and hunts for fiscal savings, the current Administration’s schemes probably will worsen the nation’s debt situation. Massive fiscal expansionism over an extensive time span arguably at some point can begin to endanger rather than bolster economic growth, in part because the combination of substantial deficit spending and a very large government debt as a percentage of GDP tends to boost interest rates, especially longer term ones. Significant fierce debates regarding spending and the debt ceiling loom. 

America is not a developing/emerging marketplace nation. Yet as in those other countries, mammoth and growing US federal debt, especially in conjunction with fierce ongoing US political conflict and inflationary phenomena (encouraged by massive US tariffs), could produce a further noteworthy yield jump. There is a substantial chance that the UST 10 year’s October 2023 summit will be attacked over the next several months. However, if the American economy threatens to or actually enters a recession, the UST 10 year probably will assault 9/17/24’s 3.60 percent low. 

The essay “As the World Turns: Marketplace Battlefields” (1/1/25) emphasized: “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 UST 10 year note’s yield increase from 9/17/24’s 3.60 percent interim low, and especially alongside the recent runup stage from 12/6/24’s 4.13pc to 12/26/24’s 4.64pc probably warns of a significant decline in the S+P 500 from 12/6/24’s 6100, especially since the Federal Reserve’s real Broad Dollar Index has rallied in recent months and is now probably “too strong”. The S+P 500 price probably will not exceed its December 2024 high by much, if at all.” 

Note the S+P 500’s 5.4 percent initial dip from 12/6/24’s elevation to 1/13/25’s 5773. The UST 10 year yield nevertheless continued its climb after 12/6/24’s 4.13pc interim low to reach 1/14/25’s 4.81pc. The S+P 500 peaked not long thereafter, on 2/19/25 at 6147. This S+P 500 pinnacle surpassed 12/6/24’s interim high by less than one percent. With 1/14/25’s 4.81 percent high, the UST 10 year note yield traveled above 4/25/24’s important top at 4.74pc and neared 10/23/23’s 5.02pc peak. The S+P 500 collapsed from 2/19/25’s pinnacle to 3/31/25’s 5489, a 10.7pc slump in merely six weeks. The S+P 500’s 3/31/25 low probably will be broken, even if Trump chooses to make his upcoming 4/2/25 Liberation Day tariff regime less burdensome in order to support stock prices. Though bullish optimism about corporate earnings for calendar years 2025 and 2026 persists, and even if the Trump Administration manages to engineer a noteworthy tax cut and reduce government spending to some extent, an eventual bear move in the S+P 500 of around 20 percent or more from February 2025’s peak will be unsurprising. History shows that most US bear stock trends do not end in less than two months. 

A substantial and persistent decline in the S+P 500 would warn of (or confirm) an economic downturn.

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Shakin' All Over- Financial and Political Turmoil (4-1-25)

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

US NATURAL GAS: A VIEW OF THE PAST, A VISION OF A FUTURE © Leo Haviland, January 21, 2017

Bob Dylan’s song “All Along the Watchtower” states:
“There must be some way out of here,’ said the joker to the thief
“There’s too much confusion, I can’t get no relief”.

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CONCLUSION AND OVERVIEW

Is the major bull trend for NYMEX natural gas (nearest futures continuation) that began in early March 2016 finished? Probably not, though it is a difficult call. In any event, assuming normal weather and moderate United States economic growth, it nevertheless will be very hard for the NYMEX front month price to exceed 12/28/16’s high bordering 4.00 by much (if at all) anytime soon.

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The probable longer run bullish US natural gas inventory situation suggests the likelihood of eventual further moderate rises in NYMEX natural gas prices (nearest futures continuation). The days coverage perspective underlines this, particularly in light of anticipated stockpiles at end October 2017 and thereafter. A comparison of the recent bull move that started in March 2016 to the prior major bull move inaugurated on 4/19/12 at 1.902 offers insight into past and potential trends.

Marketplace history does not necessarily repeat itself, whether entirely, partly, or at all. But all else equal, since 2016’s natural gas rally was less than average in time and (percentage) distance terms, this also indicates the move that commenced in March 2016 probably has more time and price to run. NYMEX natural gas (nearest futures continuation) rallied about 148 percent in about ten months from its 3/4/16 bottom at 1.611 to its 12/28/16 high at 3.994. The distance and duration for eleven major bull moves in NYMEX natural gas (nearest futures continuation) since trading began in 1990 is about 246 percent and twelve months and three weeks.

Some bull voyages took a very long time to complete. For example, the April 2012 to February 2014 advance lasted about twenty-two months and a week. September 2003-December 2005’s flight took 26 months and three weeks; the August 1998 to December 2000 adventure was 28 months.

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However, the move above December 2016’s height may not be substantial and could take at least a few months to occur. Why?

First, US natural gas inventories in days coverage terms at end March 2017, though they likely will slip slightly below those at end March 2013, nevertheless will hover around end March long run averages.

A few major (over 120 percent) bull charges were shorter in extent or briefer in time than 2016’s leap, so an assertion that the 2016 rally ended in December 2016 is not “unreasonable”. Besides, the NYMEX natural gas 26 year trading history is relatively short; compare wheat or the Dow Jones Industrial Average. In any case, one big bull move voyaged up around 123.5 percent, another 129.2pc. For the time horizon parameter, three major bull moves from 1990 to the present were completed quickly. One finished in about two months, another in about three and a half months, and a third in four months. In this context, and although marketplace history is not marketplace destiny, several major peaks in NYMEX natural gas occurred in calendar December, with another one in early January. NYMEX natural gas often attains its major peaks and valleys around the day of the actual nearest futures contract expiration.

The CFTC’s Commitments of Traders reveals a massive net noncommercial long position in the natural gas complex. An elevated net noncommercial position in natural gas has often (but not always) been associated with key marketplace trend changes. The current net noncommercial long position in the petroleum complex likewise is extremely large from the historical standpoint. Both natural gas and petroleum currently are vulnerable to liquidation by the net noncommercial long fraternity, which would tend to pressure prices.

For predicting NYMEX natural gas price trends, monitor those in the petroleum complex. NYMEX crude oil’s 2/11/16 trough at $26.05 (nearest futures continuation) occurred shortly before the NYMEX natural gas bottom on 3/4/16 (and alongside the S+P 500’s 2/11/16 trough at 1810). NYMEX crude oil made important interim lows in its rally, $39.19 on 8/3/16 and $42.20 on 11/14/16; critical interim lows in NYMEX natural gas occurred near in time to these. Remember 8/12/16’s 2.523 and 11/9/16’s 2.546. NYMEX crude oil’s recent high occurred 1/3/17 at $55.24, adjacent in time to 12/28/16’s 3.994 natural gas elevation.

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US Natural Gas- a View of the Past, a Vision of a Future (1-21-17)