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: STOCKS, INTEREST RATES, COMMODITIES, AND BITCOIN © Leo Haviland November 7, 2021

“‘Because I want you to know that we’re on our way to Las Vegas to find the American Dream.’” Hunter S. Thompson’s novel, “Fear and Loathing in Las Vegas: A Savage Journey to the Heart of the American Dream”

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OVERVIEW

 

In recent years, fervent yield repression (with resulting low United States Treasury yields relative to inflation) by the Federal Reserve and its central banking comrades, often assisted by money printing (quantitative easing), and accompanied by artful easy money rhetoric, often have encouraged epic quests for adequate “yield” (return) and bullish trends in stocks and assorted other (“related”) marketplace domains. Especially since the emergence of the coronavirus pandemic in March 2020 and the related economic and worldwide stock marketplace crashes, the revered Fed and other central bank wizards, in addition to expanding magnificent money printing programs, have promoted and enforced a yield repression regime.

The heroic Fed earnestly and repeatedly declares its devoted allegiance to its legislatively mandated goals of “maximum employment” and “stable prices”. However, how often does the venerated Fed even mention the third aspect of its monetary policy objectives, “moderate long-term interest rates”? The Fed is eager to deflate (repress) UST yields, and seems happy (even ecstatic) to greatly inflate S+P 500 and home prices. Do the magnificent climbs in stocks and homes represent “stable prices”?

American inflation rates in March 2020 and many months thereafter obviously were lower than those of recent months. Yet even around March 2020 and the next several months, real returns from benchmark United States Treasury instruments across the yield curve were small or negative in comparison to the Consumer Price Index. What about more recent times? The UST 10 year yield is about 1.46 percent, but for the past several months, US CPI-U inflation has surpassed five percent. This negative return situation (which encourages borrowers and debtors but thereby cheats savers and creditors) of course (all else equal) tends to make UST ownership unattractive for many marketplace participants.

What has resulted from keeping yields low and often negative in real terms relative to the current Consumer Price Index and similar inflation gauges? Not only have central bankers assisted spenders (consumption) and helped debtors, but also they have encouraged avid searches for adequate (sufficient) “yield” (“return”) in the S+P 500 (and other international equity realms), emerging marketplace dollar-denominated sovereign debt, corporate debt, as well as in other “asset classes” such as homes, commodities “in general”, and many cryptocurrencies such as Bitcoin. The enthusiastic buying by eager and sometimes frantic yield-hunters has generated meteoric price rallies in the S+P 500 and these other realms since their dismal March 2020 bottoms.

Investment rhetoric encourages price rallies in marketplaces, especially in stocks. Thus Wall Street leaders, supported by the loyal financial media, loudly applaud “investment”, “investors”, and bull moves. Assorted investment generals and their loyal troops perennially fight to identify stocks (especially American ones) as well as other praiseworthy asset classes to buy (or keep holding).

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Widespread marketplace faith still exists in the power of the Fed and its trusty friends to engineer and appropriately manage interest rate yield outcomes, especially in the government securities marketplace. Fed epistles and hymns proclaim its praiseworthy pilgrimage of pursuing the goal of an inflation average of two percent over some misty version of the long run, as well as its noble intention to keep long term inflation expectations “well anchored” at two percent.

The Fed and other central banking magicians and evangelical finance ministers have repeatedly claimed (prayed) that recent inflationary signs in America and elsewhere in recent months are merely “transitory”, “temporary”, or the “result of special factors” (such as high prices for used cars; or, supply bottlenecks). However, this inflation viewpoint probably is wrong.

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Convergence and divergence (lead/lag) patterns between marketplaces can change or transform, sometimes dramatically. Marketplace history does not necessarily repeat itself, either entirely or even partly. But marketplace history nevertheless provides guidance regarding the probabilities of future patterns.

Increases in benchmark high-grade government interest rates (such as US Treasuries) and higher yields for lower-quality debt securities (such as corporate bonds and emerging marketplace sovereign debt) probably will weaken the S+P 500 and related advanced nation stock marketplaces. Very elevated government debt levels in America and many other leading nations will help to undermine stocks. Price divergence between the S+P 500 and emerging marketplace stocks (which since February 2021 have not soared to new highs, but instead have declined) also warns of potential weakness in the S+P 500.

Price and time trends for commodities “in general” probably will intertwine with and track those of the S+P 500 and other stock marketplaces.

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Cryptocurrencies in recent years have attracted widespread attention and increased “investor” and other trading (and regulatory) attention. Despite the great variety of cryptocurrencies, Bitcoin is a well-known and actively-traded representative of the crypto trading arena. The overall “search for yield” financial environment  reflected in the bullish price trend in the S+P 500 and elsewhere has assisted Bitcoin’s price ascent. An important additional factor, but not the only one, supporting Bitcoin’s heavenly price leap has been growing inflation and fears that it may increase further. Of course the supply/demand/available inventory situation of Bitcoin is important, and an exciting new marketplace such as Bitcoin can attract additional buyers into its domain, especially when prices have tended to soar upward significantly. Also, Bitcoin offers people a means by which to hide their assets and money movements from government and other regulatory eyes. And fears about American and other government debt levels and trends probably also have been an important consideration fueling Bitcoin’s climb.

These inflation and debt concerns intertwine with wariness regarding the trustworthiness of political and economic leaders and institutions (including banks). Some cryptocurrency participants probably worry about the long run strength of the US dollar, and perhaps other leading currencies as well. Persistent cultural divisions in America and numerous other nations, helps to build and sustain distrust about institutions and leaders.

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Bitcoin’s price rise since its creation about a dozen years ago (around the time of the global economic disaster of 2007-09) astonishes observers. However, underline also that since around first quarter 2020, Bitcoin’s price and time trends often have paralleled those in the S+P 500 and related stock marketplaces.

Bitcoin’s celestial advance to date probably constitutes a danger signal regarding the international financial system and thereby potential economic growth. Nevertheless, Bitcoin and other cryptocurrencies are not integral to the current or near-term functioning of the financial system and the global economy. Moreover, worldwide economic and political leaders have long demonstrated an ability to support traditional global economic (financial, commercial, business) and political arrangements. For example, note the interrelated responses around the globe in 2008-09 and thereafter to the worldwide economic crisis, as well as actions in late first quarter 2020 and thereafter to the fearsome economic downturn (and the 1Q20 stock marketplace crash). Consequently, for the near term horizon at least, if the S+P 500 and related stock marketplaces fall significantly in price, then the Bitcoin price probably will decline (whether at around the same time or eventually) as well.

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Hunting for Yield- Stocks, Interest Rates, Commodities, and Bitcoin (11-7-21)

MARKETPLACE VEHICLES: GOING MOBILE © Leo Haviland, December 13, 2017

The Cars ask in their song “Drive”:
“Who’s gonna tell you when it’s too late
Who’s gonna tell you things aren’t so great”?

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CONCLUSION AND OVERVIEW

To the majority of Wall Street marketplace observers, price fluctuations for at least the past few months in many key benchmarks such as the United States government 10 year note, the broad real US trade-weighted dollar, and the S+P 500 generally have seemed relatively peaceful. Many players are rather complacent. However, history reveals that the relative lack of dramatic movement (“volatility”) according to such perspectives of course does preclude greater and ongoing violent future swings. Though the outward landscape of the given financial realm may seem calm, powerful intertwined and shifting forces may lurk beneath, perhaps eventually and possibly suddenly causing substantial tremors in one or more economic (and political) domains.

Confidence yardsticks for US consumers and small businesses are high. American unemployment has slipped substantially in recent years. Yet the fierce political conflicts around the globe between assorted camps, including various right and left wing populist crews and diverse establishment (elite) groups, hint at and probably reflect strong, entangled, and contending variables in economic spheres. The long-running accommodative monetary schemes by the key global central banks such as the Federal Reserve Board, European Central Bank, Bank of England, and Bank of Japan reflect not only their devotion to their interpretation of their beloved legislative mandates. Sustained marketplace manipulation programs such as yield repression and money printing (quantitative easing) also aim at sparking and sustaining economic outcomes favorable to (or at least protective of) the economic and political interests of “the establishment”. Central banks do not want the establishment’s boat to get rocked too much or capsize!

In America and many other regions around the world, sharp cultural divisions involve more than just economic (or “class”) quarrels and concerns regarding financial opportunities and mobility. Partisan feuds involve politics, whether Democrats versus Republicans, liberal versus conservative, the quality of the current Presidential leadership, and so on. Yet fervent debates and frequent anger on Main Street regarding issues relating to race/ethnicity, sex/gender, age, religion, geography, the environment, and so on probably reflect economic (political) splits and consequently hint at the potential for marketplaces to become inflamed.

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In any case, the US Treasury 10 year note and the broad real trade-weighted dollar (“TWD”) are two important marketplace vehicles currently near critical levels. The key US 10 government note height is around 2.65 percent, that in the TWD around 96.2 to 96.6. A sustained rise in the UST above that level or a decisive TWD breakdown under 96.0 (and especially if both events occurred) might reflect and probably would increase price volatility in those fields. Such significant moves in rates and the dollar probably also would spark a substantial reversal of the current bull trend in the S+P 500 (and related advanced and emerging marketplace stock arenas). Commodities “in general” in this scenario likely would decline as well.

The enthusiastic “buy the dips” chorus for US equities likely will not remain forever fashionable or successful. What happens if the American Congress does not enact tax “reform” in the near future? Suppose observers focus more closely on the long run US federal budget deficit and debt issues (and debt problems in China, Japan, and elsewhere)? What if US corporate earnings do not sustain notable growth? Will such events (or a US dollar decline; or higher interest rates or central bank threats of these; or some other phenomenon such as trade wars, the North Korea nuclear issue, or further petroleum price rallies) help to stop the train of the glorious long bull market trend for the S+P 500?

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Marketplace Vehicles- Going Mobile (12-13-17)
Charts- Trade-Weighted US Dollar and UST 10 Year Note (for essay Marketplace Vehicles- Going Mobile, 12-13-17)

WALL STREET MARKETPLACE VIOLENCE © Leo Haviland September 1, 2015

The long-running bull charge in the broad real trade-weighted United States dollar, and particularly its recent assault on major resistance established in March 2009, played a critical role not only in creating and sustaining emerging stock (and commodity) marketplace bear moves, but also in the recent bloody toppling of the once-mighty S+P 500 from its lofty May 2015 record peak. Interest rate levels and trends of course remain important to stock marketplace battlefields, but US dollar movements will maintain their substantial influence. The broad real trade-weighted dollar probably will remain relatively strong.

 

Moreover, the S+P 500’s decline since its 5/20/15 pinnacle at 2135 indicates that its major trend probably will no longer diverge as significantly from those of emerging equity marketplaces. Compare the pattern of the past few years, during which the S+P 500 exceeded its spring 2011 peak but emerging stock marketplaces in general (Morgan Stanley’s MSCI Emerging Stock Marketplace Index benchmark) did not. The S+P 500 probably will not surpass its May 2015 height by much (if at all); instead, it probably will continue to travel lower.

 

As “Shakin’ All Over: Marketplace Fears”; 8/13/15) noted: “Despite about seven years of highly accommodative monetary policies such as yield repression and money printing (and frequently bolstered by hefty deficit spending), the foundations of worldwide growth increasingly look shaky.” Substantial debt and leverage problems continue to confront today’s interconnected global economy. The Federal Reserve Board of course focuses on all sorts of domestic and international factors and their interrelations. However, nowadays the level and trend of the S+P 500 will continue to strongly influence its policy rhetoric and decisions.

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What’s the bottom line? Reviewing these various US and diverse international stock marketplace scorecards together, spring 2015’s similar time for highs followed by significant price declines is noteworthy. This underlines the likely slowing of worldwide growth in general. It also shows that stock trend benchmarks for America are nowadays rather closely connected to those elsewhere, including emerging marketplaces. The similar timing of lows in August 2015 emphasizes that worldwide equities in general currently are “trading together”. Renewed roughly simultaneous retreats in emerging and advanced nation stock benchmarks would be an ominous sign to equity bulls and for world GDP growth rates.

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Wall Street Marketplace Violence (9-1-15)