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 provide players not only opportunities for profit (and loss), but also entertainment and excitement. Communities across America just finished observing thrilling Fourth of July holiday fireworks displays. Yet in contrast to this explosive holiday festivity, financial marketplace stargazers should underline the comparatively peaceful current trends of assorted iconic national benchmarks.
The United States government 10 year note established a major low in July 2012. However, for the past year or so it has been range bound. The broad real trade-weighted US dollar and commodities in general (enlist the broad Goldman Sachs Commodity Index as a signpost) also have traveled sideways, but for an even longer span. What about stocks? The S+P 500 has skyrocketed, nearly tripling since its 3/6/09 major bottom at 667, blasting higher from such interim lows as 10/4/11’s 1075, 11/16/12’s 1343, and 6/24/13’s 1560. But although the S+P 500 has continued to fly upwards and amaze audiences, the S+P 500’s key VIX volatility measure recently nevertheless has plummeted almost to ground level.
The past and ongoing determination of central bankers around the world, not just the Fed, to create sufficient inflation probably will play a key part in causing American government interest rates to rise and break out of their sideways trend. Deflation (or too low inflation) will be battled no matter what! Fearful “flights to quality” (as into the US or German sovereign debt marketplaces) must be remedied! But how eager will be people sitting on US Treasury and other interest rate instruments with rather low yields to keep doing so as rates climb? Foreigners have a huge stake in the trillions of dollars of US Treasury debt.
The Fed’s massive money printing and bloated balance sheet should make viewers cautious that they can guide marketplaces to happy results. Besides, its exit strategy rhetoric to date falls well short of a coherent detailed plan. How alert was that guardian before and during the early stages of the worldwide crisis that emerged in mid-2007 and erupted in 2008? Also, despite America’s economic growth, the nation as a whole (not just the federal government) still has enormous overall debt relative to GDP. Moreover, substantial actions to solve its long run federal debt problems remain a distant dream.
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Financial Fireworks (7-7-14)
Charts- Ten Yr UST, S+P 500, GSCI (7-7-14, for essay Financial Fireworks)
Especially if noteworthy economic variables- including so-called political ones- warn of or reveal substantial financial danger or injury, many marketplace participants preach “flight to quality” doctrines. What represents a supposed “safe haven” sector varies according to viewpoint and era. Inflation often is feared. Or, how could a severe recession or deflation injure us? Political unrest and military conflict sometimes surface.
Many gurus designate gold as a worthy store of value. We all saw it skyrocket over $1500. Clairvoyants devote much attention to government notes and bonds as an escape hatch if a dangerous downturn beckons or is underway. In terrifying recent times, those of the United States and Germany often have allured traders.
Instead, concentrate awhile on the Swiss Franc. Switzerland indeed is a rather small nation. However, this mountainous land has a very long history of and reputation for financial stability, which it battles fiercely to protect. The fluctuations of the Swiss Franc against the Euro FX are not precisely the same as its trajectories relative to the US dollar. In recent years, the major levels and trends of Switzerland’s actively traded currency nevertheless reflect worldwide (particularly European and American) economic disaster fears and recovery hopes.
Fear and hope interrelate in marketplaces, as elsewhere. Yet suppose one equates marketplace “flights to quality (safety)” with fear. Then there is a counterpart to the flight to quality outlook. Its opposite is the hopeful “flights of fancy” vision. Especially when policy interest rates are kept near rock bottom levels for extended periods (and all else equal), pursuits of profit via other paths of potential returns often become quite fervent. Suppose money printing occurs as well. All else equal, massive money printing tends to boost nominal prices of “assets”, including stocks, commodities, and low-rated (junk; many emerging marketplace) bonds.
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Flight Paths (The Money Jungle, Part Five)
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