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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Burning passion for another is not the only love which makes us shake. When fear of losing substantial sums creeps up on numerous money lovers in intertwined financial playgrounds, both the players and their marketplaces can quiver violently.
Many pundits define a bear marketplace as a 20 percent slide from a noteworthy price top. Though the S+P 500 nosedived about 20 percent from its 5/2/11 high around 1371 to its 8/9/11 low near 1100, it then rallied sharply. On 8/9/11, the United States 10 year Treasury note touched yield lows of just over two percent. This matched the bottom achieved on 12/18/08 during the previous “flight to quality” panic in the (still-running) economic crisis that erupted in 2007. Given this equity and debt support, will things calm down much? No. The economic and political scenery has not sufficiently changed. Relationships within and between various financial arenas and their variables probably will vary to some extent as time passes, but the current entangled key financial factors will remain powerful, volatile, and intertwined. Although there will be occasional intermissions, turmoil in and between key equity, interest rate, currency, and commodity theaters therefore will not cease anytime soon.
Why place blind faith in the 2013 low rate policy, for the Fed confesses it changes its viewpoints? In addition, consider the Fed’s policy track record relative to its “original” expectations. Economic growth has been considerably lower than the Fed “had expected”. The Fed “now expects” a slower pace of recovery. Just as the Fed this month adjusted its policy by speaking of low Fed Funds through mid-2013, it eventually may alter its present course. Historians recall that the Fed’s quantitative easing floods likewise represented policy changes due to marketplace developments. Besides, how accurate were the Fed’s economic forecasts in 2007 and 2008, at the dawn and during the early stages of the acceleration of the economic crisis? So as Fed expectations change, so may its actions, whether on rates, quantitative easing, or otherwise.
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Furious Financial Fluctuations (8-15-11)
Petroleum prices will remain in a sideways to down trend. At least in the OECD, industry inventory in days coverage terms is currently higher than average. Due to renewed economic weakness and still relatively lofty oil prices, petroleum demand for the balance of 2011 and calendar 2012 probably will be less than many believe. Thus days coverage in the petroleum world probably will remain adequate for some time.
Petroleum remains partially hostage to variables of and trends and levels in key equity, currency, and interest rate (and other commodity) battlefields. Equity declines seem to be intertwining with those in the petroleum complex. Consumer balance sheets and incomes in the United States and many other nations remain under pressure. Substantial fiscal deficits (US, several European nations, perhaps Japan) undermine stock marketplace strength. A weak US dollar has convinced many that equities as well as petroleum prices should inevitably keep climbing, or at least stay high. However, a very (especially) weak US dollar situation- which seems to be emerging these days- may coincide with both feeble stocks and falling petroleum prices.
Petroleum bulls underline that if the economic recovery retains strength, supplies could get fairly tight unless OPEC raises its production quite a bit. Admittedly, as the Libyan situation shows, there’s always a chance that some event will significantly interrupt supplies. Some petroleum players therefore prefer to keep a handful of extra inventory around “just-in-case”. Alternative investment by noncommercial players has not evaporated. Some observers have faith that if the American economy weakens substantially, the Fed will engage in a third wave of quantitative easing (money printing) which would rally petroleum prices in nominal terms.
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Oil and Troubled Economic Waters (8-8-11)
Not only does recent Middle East political turmoil flood the news. Actual supply interruptions, as well as conjectural ones, of course influence petroleum and other trading and hedging behavior.Increasing petroleum consumption in non-OECD (developing) nations, though it is challenging to measure, is a bullish factor. There’s probably been a shift within the petroleum industry from a rather confident “just-in-time” orientation to a more fearful “just-in case” bias regarding preferred levels of inventory holding. Moreover, keep in mind the continued bullish effects of the weak United States dollar, low policy interest rates in America and many other OECD nations, noteworthy quantitative easing (money printing), and the global economic recovery story in general and associated rallies in stock marketplaces. Moreover, to many soothsayers onWall Street and beyond, commodities (particularly petroleum) are a new asset class. This faith inspires “alternative investment” (buy and hold for the long run) in that universe, thus tightening petroleum free supply and pushing prices higher.
By around calendar 1996, US petroleum statistics suggest a move to lower inventory holdings in days coverage terms, probably at least due to widespread faith in the appropriateness of just-in-time inventory management.
So the longer that US (and OECD) holdings such as those of March 2011 remain high relative to the 1996-10 period, the more it seems that there has been a partial shift (by at least some industry members) to a just-in-case approach. Given what may happen in the oil world, why not hold a bit more around “than usual”. Players may grab an three or four days extra now relative to just-in-time needs, as versus say 10 or more days in the distant past.
Both the 2008 and 1987 eras hint that any major (final) high in the petroleum complex will be fairly near in time (within a few months, either before or after) one in United States equities.
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Inside the Petroleum Jungle (Desperate Housewives, Episode 10)
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