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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“In the day we sweat it out in the streets of a runaway American dream”, sings Bruce Springsteen in “Born to Run”.
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CONCLUSION
Wizards in Wall Street and coaches on Main Street offer a variety of competing descriptions of and reasons for the emergence, continuation, and ending of economic trends, including bull and bear patterns in stock, interest rate, currency, and commodity marketplaces. Apparently dramatic price fluctuations and trend changes frequently inspire heated language of volatility, spikes, crashes, mania, and panic. Colorful metaphors frequently punctuate the tales and explanations. The Federal Reserve Board Chairman’s May and June 2013 tapering talk about a potential reduction in quantitative easing (money printing) in conjunction with marketplace movements generated wordplay of a “taper tantrum”.
In recent weeks, international financial marketplaces and media have worried that central bank policy tightening (or threats of such action) will ignite a taper tantrum akin to what occurred around late spring 2013. That fearsome event saw stocks plummeting and interest rate yields rising rather rapidly in the United States and elsewhere around the globe.
Not only is the Federal Reserve in the process of slowly raising the Federal Funds rate and chirping about diminishing the size of its gargantuan balance sheet. The European Central Bank and others have hinted about reducing the extent of their highly accommodative monetary policies. The ECB is buying €60 billion in mostly government bonds each month via quantitative easing. Will the ECB taper its purchases in 2018?
The Financial Times headlined: “Confusion as Carney [Bank of England Governor] and Draghi [ECB President] struggle to clarify stimulus exit” and “‘Taper tantrum’ echoes” (6/29/17, p1). “End of cheap money leaves central bankers lost for words” and “Officials struggle to convey policy direction precisely to avoid further ‘taper tantrums’” (FT, 6/29/17, p3). “Central bank retreat from QE gathers pace”; “Sudden hawkish shift in policy across the globe has analysts talking of new ‘taper tantrum’” (FT, 7/5/17, p20).
Central bank language and behavior (whether by the Fed or one of its allies) expressing willingness to reduce (or cease) very easy money schemes indeed increase the chances of rising yields in key debt signposts such as the US Treasury 10 year note and boost the likelihood of a decline in important stock benchmarks such as the S+P 500.
Though central banks nowadays may (as in 2013 and at other historical points) spark or accelerate noteworthy trends in securities (and other) marketplaces, the central bank policy factor nevertheless intertwines with numerous other economic and political phenomena. And one or more of such other variables significantly may help to inspire a noisy marketplace “tantrum”. Not all marketplace tantrums are “taper tantrums”.
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Marketplace Tantrums (and Other Signs, Sounds, and Fury) (7-11-17)
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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