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 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)

HUNTING FOR YIELD: THE THRILL IS GONE © Leo Haviland October 4, 2022

BB King complains “The thrill is gone” in his song named after that lyric.

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OVERVIEW AND CONCLUSION

 

Financial warriors in securities and other marketplaces always hunt for adequate yield (sufficient return) on their capital. Especially in Wall Street’s stock and interest rate realms, the majority of institutions and individuals (not the market-makers) eagerly searching for yield are owners, thus initiating their positions from the buying side. Most of these owners on Wall Street and Main Street seeking wealth and economic security grant themselves or receive the honored cultural designation of “investor”, with their long positions generally labeled as investments. Especially in stock and debt arenas, “investment” is deemed “good”. On Main Street, homeowners likewise as a rule view their property as an investment. And since the appealing investment badge and related rhetoric excites interest and encourages action, such as buying and holding, Wall Street guides and their media and political comrades enthusiastically and liberally employ investment wordplay, especially in stock and interest rate territories. Given the persuasiveness of investment talk, many Wall Street wizards often extend the label to other asset classes such as commodities “in general”, perhaps calling them “alternative investments”.

Of course therefore on Wall Street, investors generally are happy (joyous, pleased) when asset prices rise (especially in stocks) on a sustained basis, and sad (depressed, unhappy, angry) when such prices decline. Thus for stocks, high and rising prices (and bull market trends) are “good”, whereas low and falling prices (and bear markets) are “bad”. However, investment rhetoric and devotion to ownership do not abolish price risk. So capital preservation matters too. Because broad, longer-run directional price patterns are not necessarily a one-way street, numerous investors during a noteworthy price decline fearfully run for cover, selling some or all of their positions (or at least not buying more for their portfolio, even an allegedly well-diversified one).

Moreover, increasing fears regarding whether economic growth will be adequate can make investors (and others) considerably more nervous about holding on to a given quantity of assets. Uncertainty itself (as well as price “volatility”), if sufficiently substantial, can help to inspire many to flee out of assets which now appear to be “too risky”!

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In any case, the bear marketplace trend in the S+P 500 which commenced in January 2022 (and related slumps in other advanced nation equity arenas) and significantly rising yields (falling prices) in the US Treasury marketplace (as well as in other sovereign and corporate debt landscapes around the globe) thus have disturbed, dismayed, and injured many investors (and other owners). That stocks and bonds have collapsed “together” in recent months is especially upsetting! Note also the long-running retreat in emerging marketplace stocks. Commodities “in general” have cratered from their first quarter 2022 highs. In recent months, even United States home prices have declined moderately. This scary financial carnage surely has substantially reduced financial net worth around the world, and especially within the consumer (household) sector. The US dollar, which is part of this capital destruction story, not only has remained very strong for quite some time, but also recently climbed to new highs.

In today’s international and intertwined economy, the interrelated substantial price falls in the stock and bond marketplaces, and the potential for even greater weakness than has thus far appeared in home prices, plus a “too strong” US dollar, are a recipe for recession. The net worth destruction resulting from substantial price falls in these assets probably indicates a significantly greater probability of recession, not merely an extended period of mediocre real GDP growth (or stagflation), in America and many other leading economies, than most forecasters assert. Although commodities are not a substantial part of household net worth, their significant price slump in recent months not only confirms the price downturn in the S+P 500 and related stock marketplaces, but also warns of underlying economic feebleness. Note recent year-on-year declines in US petroleum consumption.

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“Marketplace Expectations and Outcomes” (9/5/22) restated the viewpoint of “Summertime Blues, Marketplace Views” (8/6/22): “Despite growing concerns about a United States (and global) economic slowdown or slump, and despite potential for occasional “flights to quality” into supposed safe havens such as the United States Treasury 10 year note and the German Bund, the long run major trend for higher UST and other benchmark international government yields probably remains intact.” Regarding the S+P 500, the essays concluded: “Although the current rally in the S+P 500 may persist for a while longer, the downtrend which commenced in January 2022 probably will resume. The S+P 500’s June 2022 low probably will be challenged.”

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Marketplace history is not marketplace destiny, and convergence and divergence patterns between stocks, interest rates, and other arenas can shift, sometimes dramatically. However, despite the S+P 500’s ferocious rally after 9/30/22’s 3584 trough, it and other related stock marketplaces probably will fall beneath their recent lows eventually. The US Treasury 10 year note yield, given ongoing lofty inflation levels around the globe and the determined effort of the Federal Reserve and other central bankers to reduce inflation to acceptable heights, probably over time will climb higher, exceeding its recent high around four percent. Consumer price inflation probably will remain lofty for at least a few more months on a year-on-year basis. However, within that rising yield trend, UST prices occasionally may rally due to nervous “flights to quality”.

A victorious fight against the evil of excessive inflation probably requires a recession. If a notable global recession emerges (or if fears regarding the development of one grow substantially), then central bankers probably will slow or even halt their current rate-raising program.

Suppose OPEC and its allies engineer a notable rally in petroleum prices from current levels which lasts for a while, or that the Russia/Ukraine war induces a renewed rally in energy (and perhaps other) commodity prices. Such ascents in commodities prices (if they indeed occur) will help to keep consumer prices high and thereby tend to induce central banks to sustain their current policy tightening (interest rate boosting) programs.

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Hunting for Yield- the Thrill is Gone (10-4-22)

BORN TO BE WILD: AMERICAN ECONOMIC AND POLITICAL BATTLEFIELDS © Leo Haviland November 2, 2020

President Donald Trump’s “Inaugural Address” (1/20/17): “This American carnage stops right here and stops right now.”

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OVERVIEW AND CONCLUSION

Marketplace connections and patterns, including convergence and divergence (lead/lag) relationships between financial realms, are complex and not necessarily precise. They can shift or even transform sometimes dramatically. Marketplace history is not marketplace destiny; history does not necessarily repeat itself, either entirely or even partly.

“Adventures in Marketland: Hunting for Return” (10/6/20) and “Marketplace Maneuvers: Searching for Yield, Running for Cover” (9/7/20) display the intertwined price trends in assorted financial fields in recent times. Such interrelated territories include United States and other stocks, US corporate bonds, lower-grade foreign dollar-denominated sovereign debt, and commodities “in general”. Prices in the S+P 500 and other benchmark US and global stock indices, lower-grade interest rate instruments, and commodities often have risen (or fallen) at roughly the same time. They frequently have climbed in bull markets (and fallen in bear markets) “together”. These thus have alternatively reflected bullish enthusiasm as “investors” and other traders hunted for adequate return (“yield”), and dismal bearish scenes as they scrambled frantically for safety. For example, the magnificent bull moves in the S+P 500 and these “related” financial areas established important tops in early to mid-first quarter 2020 (S+P 500 on 2/19/20 at 3394). Their subsequent murderous bear crashes entangled, finishing around the same time, around late March 2020 (S+P 500 on 3/23/20 at 2192). The ensuing price rallies in the S+P 500 and these assorted other key provinces thereafter united, establishing peaks around early September 2020 (S+P 500 top on 9/2/20 at 3588; subsequent lower high 10/12/20 at 3550). See those essays for a detailed presentation of these price moves and their relationships since first quarter 2020.

“Marketplace Maneuvers: Searching for Yield, Running for Cover” (9/7/20) concluded that various phenomena indicate that these marketplaces are at or near important price highs and probably have started to or soon will decline together. “Adventures in Marketland” reemphasized this bearish outlook.

What bearish factors for the S+P 500 and various related marketplaces (other stock signposts, US corporate bonds, lower-grade foreign dollar-denominated sovereign debt, and commodities such as petroleum and metals) did “Marketplace Maneuvers” and “Adventures in Marketland” emphasize? They include the probability of a feeble global recovery (the recovery will not be V-shaped), the persistence of the coronavirus problem for at least the next several months, and lofty American stock marketplace valuations (and the substantial risk of disappointing late 2020 and calendar 2021 corporate earnings). Democrats probably will triumph in the 11/3/20 American national election, which portends a reversal of the corporate tax “reform” legislation as well as the enactment of increased taxes on high-earning individuals and the passage of capital gains taxes. Also on the US national political scene, fears have grown of a political crisis and legal fights if President Trump disputes the November 2020 voting outcome. Other warning signals of notable price falls in the S+P 500 and various associated battlegrounds include vulnerable United States (and other) households (reduced consumer spending) and endangered small businesses, massive and rising government debt, a greater risk of rising US interest rates (at least in the corporate and low-quality sovereign landscapes) than many believe (even with ongoing Fed yield repression), and weakness in the US dollar.

This bearish trend in the S+P 500 probably will continue. Even if Congress answers widespread fervent prayers and enacts another large deficit spending (stimulus) package, the S+P 500’s 9/2/20 peak probably will not be broken by much, if at all. Given recent relationships, a sustained fall in the S+P 500 probably connects with declines in the prices of the other asset sectors currently closely linked to it.

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As always, in the context of these various marketplaces, money-seekers should monitor US Treasury and other high-quality government debt yield levels and trends as well as US dollar and other currency patterns.

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Born to Be Wild- American Economic and Political Battlefields (11-2-20)

STILL SWAMPED- US REAL ESTATE © Leo Haviland, October 11, 2011

The United States real estate marketplace, despite some improvement relative to winter 2008-09’s abyss, remains in mournful shape. During the ongoing terrible global economic crisis, nervous politicians, fearful central bankers, and enthusiastic real estate business promoters have devoted much effort and creativity in their quest to rescue the real estate arena. How should we characterize their overall performance to date? Despite their numerous at-bats and vigorous swings at the real estate debacle, the financial and political guardians have often struck out and their overall batting average remains low.

Perhaps the real estate scene will become brighter. After all, central bankers and politicians always have upcoming opportunities to step up to the plate. They will keep swinging and whacking at real estate problems. Nevertheless, the still-feeble US real estate world underlines the fragile foundation and structure of the economic revival fabricated by the Federal Reserve (and its overseas central bank teammates) and political crews. Despite some progress, the shattering damage of the international economic disaster that commenced in 2007 has not been substantially fixed. The economic crisis persists and will continue for several more innings. Though the worldwide economic advance that emerged in spring 2009 reflects repairs and is not entirely a house of cards, it’s not entirely built on solid ground. Money printing and deficit spending are not genuine (enduring) cures for economic problems.

The recent slowdown in the overall economic landscape will hinder the US real estate recovery. Therefore American real estate prices will remain relatively weak.

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Still Swamped – US Real Estate (10-11-11)