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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FINANCIAL MARKETPLACES: CONVERGENCE AND DIVERGENCE STORIES © Leo Haviland April 6, 2021

“Honest to goodness, the tears have been falling
All over this country’s face
It was better before, before they voted for What’s-His-Name
This was supposed to be the new world…
All we need is money
Just give us what you can spare”. X the Band’s 1983 song, “The New World”

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Financial observers often seek to ascertain a relationship between apparent trends involving stock, interest rate, currency, and commodity marketplaces. This involves subjective historical reviews as to the extent to which the price and time trends (patterns) of two or more marketplaces tend to converge or diverge. Some viewpoints may indicate that trends for a given marketplace tend to lead (or lag) those of another. For example, people investigate linkages between two United States technology stocks. Or, traders and analysts seek to establish the relationship (extent of convergence or divergence) between emerging marketplace stocks “in general” and the S+P 500.

The marketplace arenas studied are not necessarily the same. To what extent do significant increases in United States Treasury interest rates precede (lead to) eventual noteworthy declines in the S+P 500?

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Since cultural (subjective) perspectives, arguments, predictions, and actions regarding marketplace and other phenomena and their interrelations diverge (and converge) to various extents over time, emerging stock marketplaces “as a whole” and the S+P 500 do not necessarily trade identically or even very closely in price direction and timing terms. Of course marketplace history is not marketplace destiny, either completely or partially. Relationships within and between financial fields can shift or transform, sometimes dramatically. And these stock theaters have their own supply/demand situations and intertwine with other financial realms and assorted variables in diverse ways. However, over the past couple of decades, important price highs (and lows) and related trend shifts for the overall emerging stock marketplace and the S+P 500 have tended to occur at around the same time, sometimes within a few days, generally within a couple of months.

In first quarter 2020, prices for emerging stock marketplaces began to fall shortly before the S+P 500. They thereafter collapsed and reached a major bottom “together” in late March 2020. Over subsequent months, ferocious bull moves emerged in both districts.

However, since around early March 2021, prices for emerging stock marketplaces have diverged somewhat from the S+P 500. The emerging stock theater stands around seven percent beneath its mid-February 2021 top, whereas the S+P 500 has marched relentlessly to record heights. Will this divergence persist for an extended period?

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Financial Marketplaces- Convergence and Divergence Stories (4-6-21)

TRUTH AND CONSEQUENCES: RISING AMERICAN INTEREST RATES © Leo Haviland March 9, 2021

“The past is never dead. It’s not even past.” “Requiem for a Nun” (Act 1, Scene 3), by William Faulkner

CONCLUSION

Faith in the appealing proverb “don’t underestimate or fight the Federal Reserve Board” has become increasingly deep and widespread in recent years, and especially within stock investment congregations. This dogma underlines that mighty guardian’s powers and its willingness to employ them, not only to assist and even rescue the economy, but also to eventually halt substantial stock declines in the S+P 500. The Fed’s past successes have built and reinforced reliance by economic players as well as political leaders on it.

The Fed has other central banking allies in its noble efforts. Also, at times efforts by national political leaders in the United States and elsewhere, when dangerous and terrifying situations threaten, enact major assistance packages (such as avalanches of deficit spending).

If underestimation of the Fed is possible, then so is overestimation of it. The Fed of course is not the only performer on the economic and political stage, and marketplace and other cultural conditions can evolve, change significantly, or become extreme. Therefore, the great confidence in the Fed nowadays has an implicit corollary. Fed devotees and marketplace watchers “should not overestimate the Fed and its powers.” For example, the revered Fed probably does not have unlimited power to keep Federal Funds rates and United States Treasury yields repressed.

Not only may inflation propel interest rates higher than currently expected or desired. So can massive deficit spending and huge debt, especially if created by the US federal government.

The major yield increase trend in the United States Treasury marketplace (enlist the UST 10 year note as a benchmark) which commenced with 3/9/20’s .31 percent low probably will continue. A notable target for the UST 10 year is around the 3.26 percent top attained on 10/19/18. Even if over the so-called long run the UST 10 year yield does not eventually ascend to 2007’s seemingly ancient high (5.32pc; 6/13/07), attaining such an elevation is considerably more probable than most marketplace preachers proclaim.

Marketplace history of course is not marketplace destiny. Assorted variables in addition to interest rate levels and trends influence stock prices. However, many times over the past century, significantly increasing United States interest rate yields have preceded a noteworthy pinnacle in and the start of bear trends for key stock marketplace signposts such as the Dow Jones Industrial Average and S+P 500. The yield rise in the UST 10 year note since its March 2020 bottom probably signals that the S+P 500 has established a significant top or soon will do so.

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Truth and Consequences- Rising American Interest Rates (3-9-21)

GAMESTOP AND GAME SPOTS: MARKETPLACE AND OTHER CULTURAL PLAYGROUNDS © Leo Haviland February 13, 2021

In “The Biggest Game in Town”, A. Alvarez writes: “Mickey Appleman remarked to me that a lot of people don’t fit in where they are, but Las Vegas takes anybody.”

James McManus declares in “Positively Fifth Street”: “Las Vegas…attracts more annual pilgrims than any destination but Mecca.”

OVERVIEW

Wall Street inhabitants and other observers often label Wall Street as a game. Stock, interest rate, currency, and commodity marketplaces likewise are games with assorted players.

GameStop Corporation’s stock trades publicly on the New York Stock Exchange, a respected venue. GameStop’s website, advertisements, and Annual Report include a catchy slogan, “power to the players”. The firm says: “we are a family of preferred destinations for gaming, collectibles and consumer electronics”.

Though GameStop is a significant business enterprise, over the years it generally has not won substantial Main Street attention beyond those following the industry sector to which it belongs. However, GameStop’s recent explosive flight and bloody fall in recent weeks captured front page headlines around the globe. Recall its spring 2020 bottom at less than five dollars per share (2.57 on 4/3/20). From a much higher interim trough at 20.03 on 1/13/21, GameStop marched quickly upward in its bull campaign, more than doubling by its close at 43.03 on 1/21/21. The stock thereafter skyrocketed to 1/28/21’s 483 pinnacle (about 24 times 1/13/21’s depth). On this wild upward ride, a couple of big hedge funds with short positions in GameStop (betting that the GameStop price would slump) apparently got squeezed by a wave of (primarily) Main Street buyers (longs) and had to pay stratospheric prices to escape their short position. Despite the enthusiastic buying spearheaded by the retail (Main Street) crew, not long thereafter GameStop cratered over ninety percent to its subsequent low, at 46.52 on 2/9/21. The pattern of trading in the S+P 500, which reached a new high at 3937 on 2/12/21 in its massive bull charge since 3/23/20’s major bottom at 2192 (though that depressing key trough was close in time to GameStop’s 4/3/20 one), has not closely resembled that of GameStop.

Remarkable (unusual) moves in relatively unknown stocks often attract a modest amount of Wall Street and Main Street (retail) attention. However, the excitement around GameStop’s recent dramatic price action, and especially the related widespread blizzard of wordplay involving GameStop from numerous leading Wall Street stock marketplace wizards, investment and other trading gurus, venerable financial regulators, and sage financial and mainstream media commentators, indicate the relevance of the GameStop phenomenon to other more important cultural matters in economic, finance, and elsewhere.

The extensive passionate interest around GameStop points out that variable’s importance as a factor to consider in connection with overall American (and global) stock marketplace trends and the growing democratization of financial playgrounds. Taking a look at GameStop also offers insight into America’s economic and other cultural divisions and conflicts, the American Dream, and financial rhetoric (including metaphors).

CONCLUSION

Many orations about GameStop’s meteoric stock price rise and its subsequent collapse have involved talk of Main Street (retail; “the little guys”) “versus” Wall Street (typically including institutional “professionals”, “big guns” such as banks, investment banks, and larger money managers and financial (wealth management) advisors.

However, although the large GameStop shorts who got killed were Wall Street pros (insiders), the majority of Wall Street money in stocks (including hedge funds and other money managers) is on the buy (ownership) side. Most institutions (regardless of whether one labels them as an “investor” or some breed of investor, speculator or trader) are net owners of stock who, all else equal and as a guideline, want prices in the S+P 500 (and other stock signposts and individual equities around the world) to rise. So do their banking, investment banking, and financial media allies. Likewise, most of the various communities of Main Street stock owners (typically Wall Street and the media honors these financial pilgrims as “investors”) want stock prices to climb.

Consequently, from the standpoint of stock price action, assuming the existence of a Wall Street versus Main Street battle is erroneous, or at least highly misleading. If retail (investors, traders, speculators) sticks a knife into a few hedge funds (or other institutions) short a stock (or stock sector; index) via encouraging a stock price rise in the given supply/demand situation, that almost surely is not damaging Wall Street institutions as a whole. Despite retail enthusiasm and pride in such a victory, neither Wall Street, capitalism, nor “The Man” suffer much if at all.

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In the stock game, Wall Street loves retail players. Why? Main Street buys and holds stocks. Even when it does not own them for a long time, the majority of Main Street initiates its marketplace position by buying, not selling. Sometimes Main Street is a net seller, but as a rule of thumb it owns equities. It is a truism that all else equal, incremental net buying of equities by Main Street inhabitants will tend to move stock prices upward. That helps Wall Street institutional stock owners to make money from such rising prices. Plus significant retail participation in equity playgrounds provides Wall Street and the corporations they serve with an audience to whom it can sell new issues of stock.

Consider most Wall Street stock recommendations. Doesn’t Wall Street usually advise both professional and Main Street audiences to buy, or at least to hold? How many stock research analysts and advisers (brokers) advise their clients to go short? Of all recommendations, in the array of buy, hold, or sell, what percentage are sell ones? Generally speaking, most Wall Street and Main Street participants in the cultural world of marketplaces, in regard to stocks, applaud upward (bullish) stock price moves and “high” prices as “good”. Conversely, all else equal, most assert that it is “bad” if stocks fall (enter a bear trend) or are “low”.

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In marketplaces, notions of probability and causation reflect opinions. But nevertheless ask a question about Main Street’s role in Wall Street during the past several years, especially since the coronavirus pandemic emerged about a year ago. To what extent has the growing ability of Main Street fortune (financial security, wealth)-seekers to readily access stock marketplaces tended to elevate equity prices? Probably by a great deal. Overall US corporate earnings realities in recent months were feeble; their probable future prospects have not rocketed up to the extent of the S+P 500’s leap. So by propelling stock prices higher, Main Street thereby probably has played a critical role in stretching valuation measures upward significantly relative to what they otherwise would be.

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Wall Street has sold itself to America and the rest of the world as a good (reasonable) place for institutional and Main Street players seeking to make money (receive an acceptable/adequate/good financial return) to put and keep their money. Investment wordplay is a critical aspect of Wall Street sales pitches. Especially in the securities landscape, in stocks and interest rate instruments, Wall Street seeks owners (buyers), and especially it hunts for, honors, and praises “investors” and “investment”. The basic definition of the investment label in Wall Street (and on Main Street) means buying (owning) something. In general Many on Main Street (and Wall Street) have devoted faith that prices for US stocks (“in general”; at least those of investment grade) will continue to rise over the misty long run.

What is one of Wall Street’s greatest fears in regard to Main Street? It is the departure of retail owners of securities (especially stock investors, and particularly stock investors buying and holding for the so-called long run. Hence Wall Street gospels diligently and cleverly promote and solicit stock buying. From Wall Street’s view (not only banks, investment banks and big money managers and financial advisors, but also publicly-held corporations in general), a dramatic reduction of net buying by Main Street of stocks in general (particularly American ones) would be ominous, but an actual sustained substantial run for the exits by retail sects (Main Street becoming a net stock seller) would be dreadful (bad).

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GameStop and Game Spots- Marketplace and Other Cultural Playgrounds (2-13-21)

US CONSUMER CONFIDENCE: MANY HAPPY RETURNS? (c) Leo Haviland August 23, 2012

As America travels toward Labor Day, it pays to review the nation’s consumer confidence. Assorted measures perform as signposts to assess consumer attitudes and actions. For many, the United States stock marketplace (think of an “overall” benchmark such as the S+P 500) is one. The Conference Board’s United States Consumer Confidence Index is another widely watched indicator. Trends for the United States stock battleground do not precisely mirror those in the Consumer Confidence Index (“CCI”). Weathervanes such as the S+P 500 of course do not derive all their revenues or influences directly from Main Street dwellers or from American sources. The US, as the ongoing worldwide economic crisis that emerged in mid-2007 underscores, intertwines with Europe, China, Japan, and other countries around the globe. However, over the past several decades, there has been a rough link in the major patterns of the S+P 500 and the CCI. And many believe that major trends in US equities tend to parallel those of the American economy as a whole.

Stare at the S+P 500’s extensive ascent from its March 2009 abyss to its current new rally height on 8/21/12 over 1425, particularly the noteworthy stage from the October 2011 depth at 1075. Grandstanders might believe United States consumers generally are rather joyous, or that they soon will become so. The CCI indeed has climbed significantly from its February 2009 valley of 25.3 (the deepest of the 1967-present period). However, the CCI’s subsequent highs around 72.0 (February 2011 and February 2012) lurk far beneath those of 2000 and 2007 (January 2000’s 144.7 and July 2007’s 111.9). July 2012 flutters at a modest 65.9.

Admittedly the US CCI is only one yardstick for consumer confidence and thus to some extent of the strength and duration of economic recovery in America and elsewhere. Maybe sustained higher US equities and at least partial solutions to various troubles facing consumers (including those overseas) will encourage a significant CCI move over 72.0.

However, the feeble rally in the CCI in comparison with the S+P 500 since February 2009, and particularly after autumn 2011, raises significant questions regarding the present and future strength of the American economy (and even of the S+P 500). After all, US consumers are a substantial percentage (around 70 percent) of American GDP. Current US consumer confidence in context warns of economic weakness, or at least sustained sluggishness.

Summer 2012’s recent S+P 500 bull march to new highs over 1425 may continue a while longer. Yet the link between the S+P 500 and “the economy as a whole” is probably notably less than it was a several years ago. But the S+P 500 is not isolated from the economy. So this sustained mediocre (or renewed weakness in) the CCI is ominous for US stocks in general, particularly if other key consumer indicators such as housing, employment, and wages do not soon show substantial strength. Or, suppose there is not major progress on the American fiscal front.

The Gallup News Service recently polled Americans regarding their “confidence” in various “institutions in American society” (June 7-10, 2012). The category created by adding together the answers “great deal” and quite a lot” reveals dispiriting trends and levels that reflect current mediocre consumer confidence levels (as well as the broad erosion in confidence from the January 2000 CCI peak). Relatively weak consumer (Main Street) confidence in several key political and social institutions parallels many worries regarding America’s economic situation.

And anyways, America’s current national deficit and debt situation and its probable near term and long run fiscal prospects justify significant consumer concerns. Moreover, the housing, earnings, unemployment, and household debt factors also help to explain mediocre consumer confidence, both in absolute terms and relative to the S+P 500’s heights.

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US Consumer Confidence- Many Happy Returns (8-23-12)
US Consumer Confidence Chart (8-23-12)