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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DIVERGENCE AND CONVERGENCE: US STOCKS AND AMERICAN POLITICS © Leo Haviland July 11, 2020

William Butler Yeats said in his poem “The Second Coming”:
“Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.”

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OVERVIEW AND CONCLUSION

Numerous United States stock marketplace and economic wizards share a common faith that levels and trends in broad-based equity benchmarks such as the S+P 500 adequately represent the nation’s overall current economic “reality”, signal (forecast) the country’s future economic conditions, or both. Conversely, the present-day or prospective economic situation (or both) allegedly are built into or forecast S+P 500 and related stock signposts elevations and trends. Leading promoters of this creed frequently also are apostles of stock investment (buying), especially over the misty long run. Thus strong (bullish) US stocks supposedly equal, reflect, or confirm (at least to a substantial extent and at some point in time) a robust economy.

Assorted economic (commercial; business) variables around the globe of course influence patterns in American (and other international) stock marketplaces. So do political and other cultural factors. The perspectives on, analytical methods regarding, and arguments and conclusions relating to such cultural phenomena nevertheless are entirely subjective (matters of opinion; not scientific). Thus reasonable gurus can and do vary in their enlightened views regarding issues such as how to organize “the” past, present, and future, as well as in their causation and probability assessments regarding one or more marketplaces. This contrasts with the objective (Natural; true for all) sciences such as biology, chemistry, physics, mathematics, and mechanical engineering.

A given financial marketplace such as the S+P 500 and data (variables, facts, factors, evidence, statistics) related to it converge and diverge (lead/lag) in a variety of fashions. Existing relationships can change, sometimes dramatically. Marketplace history is not marketplace destiny.

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The S+P 500 rapidly crashed about 35.4 percent in only one month from its 2/19/20 pinnacle at 3394 to its dismal 3/23/20 trough at 2192. However, it thereafter skyrocketed nearly 47.5 percent to 6/8/20’s 3233, only about five percent beneath 2/19/20’s height. The S+P 500’s current level around 3185 neighbors the early June 2020 high. Generous money printing (quantitative easing) and yield repression (and other assistance) from the beloved Federal Reserve and its central banking allies substantially contributed to the spike from March 2020’s depth. So did massive deficit spending. Substantial bull moves in various important “technology” stocks within the S+P 500, and the related climb in the technologically-composed Nasdaq Composite Index, greatly assisted the upward march and sustained strength in the S+P 500.

Although the Nasdaq Composite Index and many leading (popular; large-capitalization) technology stocks achieved new highs very recently, several actual or probable divergences (and some convergences) within or linked to the S+P 500 stock playground warn that it will be difficult for the S+P 500 to surpass its lofty February 2020 peak by much, if at all, over the next several months. These factors not only probably will undermine the S+P 500 and induce it to start declining, but also will inspire a related fall in the Nasdaq Composite Index.

DIVERGENCE: AMERICAN STOCKS

The poet Wallace Stevens declared: “Nothing is itself taken alone. Things are because of interrelations or interactions.”

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Various forms of divergence (and convergence) relevant to stock marketplaces exist.

These include how a given marketplace recently has moved, or is travelling, relative to its past (or “overall”) history. It can include relationships between “the” stock marketplace (such as the S+P 500 benchmark) and other stock indices (both domestic and foreign), marketplace sectors (such as technology, energy, or finance; emerging marketplace stocks) or particular stocks. An apparent existing relationship between United States stocks and other financial territories such as interest rates (picture the US Treasury marketplace or high-yield corporate debt), the US dollar, and key commodities such as petroleum and base metals can change, sometimes dramatically. For the S+P 500, a stock sector, or an individual equity, its level, trend, and valuation can seem to converge or diverge with its earnings (or other variables).

To what extent has or will America’s coronavirus history, current trends, and future probabilities intersect with the S+P 500? Recall the vicious economic decline and sharp stock slumps during first quarter 2020 as the coronavirus spread worldwide and in America. Yet the significant increase in recent weeks in the America’s coronavirus infection rate contrasts with the persistent strength in the S+P 500, and with the Nasdaq Composite Index’s stellar ascent to all-time highs.

Significant divisions (divergence) and heated conflicts nowadays exist in America’s political and other cultural theaters. Political phenomena of course intertwine with economic ones, including financial marketplaces such as stocks. To some extent, the rally (“high” prices) in American stock benchmarks such as the S+P 500 diverges from the likely enactment (reality) of corporate and capital gain tax increases. In America’s upcoming November 2020 national election, Biden very likely will defeat Trump. The Democrats should retain control of the House of Representatives. The Democrats probably will gain Senate seats, and they have a very good chance of capturing the Senate. This unification of Democratic power on the national level not only will be a dramatic change in government. Tax policies embraced by Biden and the Democrats likely will be bearish factors for the S+P 500.

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Divergence and Convergence- US Stocks and American Politics (7-11-20)

US ELECTION 2020: POLITICS, PANDEMIC, AND MARKETPLACES © Leo Haviland June 3, 2020

CULTURAL OVERVIEW: A HOUSE DIVIDED

Competing aphorisms and advice abound regarding the uncertainties, unpredictability, probabilities, risks, opportunities, and appropriate viewpoints and methods in marketplaces such as stocks, interest rates, currencies, commodities, and real estate. Political stages also fill with diverse adages, slogans, perspectives, approaches, insights, foresights, predictions, and explanations.

The American cultural scenes (economic, political, and social) and opinions regarding them interrelate, and these entangle relatively closely with numerous foreign ones in a globalized world. This reflects and encourages wide ranges in outlook and recommendations for behavior.

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American history reflects and describes a generally-shared culture, which the American Dream concept significantly reflects. However, over the span of about four centuries (and even in recent decades) that culture and interpretations of it have not been unchanging. The degree of consensus has varied. Moreover, not all groups have been equally able to participate in the economic, political, and social benefits (promises; valued “good” aspects) of the American Dream.

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Thus America, even when united, always has had some internal differences in viewpoint (including opinions on the proper applications of a generally shared cultural theory) and thus assorted episodes and varying degrees of conflict. Let’s concentrate on today’s political panorama, which reflects (is permeated by) economic phenomena and interests. Admittedly, we’re not dwelling in the Civil War era of the mid-19th century. And the present-day United States political landscape (its ideological and structural parameters) is not anarchic. Nevertheless, the nation’s current political situation displays extensive divisions across numerous fields. The number and sharpness of these splits arguably have been increasing over the past few decades, as well as increasing (or at least becoming more evident) since President Trump’s 2016 election campaign and triumph.

A rapid survey of the United States unveils a country significantly divided across belief (doctrinal) dimensions as well as group membership categories. Subjective views occur on a continuum. For example, not all so-called “conservative” opinions are identical. Or, a given “liberal” (or progressive or globalist) may support some “nationalist” policies. Of course not all members of a given racial (ethnic), sex, or age category embrace the same opinion on a given policy or set of them. Consequently, beliefs, groups, and individuals do not necessarily or inevitably all end up on the same side of a ledger. Moreover, definitions and applications of political and other cultural labels can and do change. How should we define and measure liberty, freedom, and equality?

Anyway, numerous divisions apparently exist. These reflect values, visions for what is “good”, “bad”, and “neutral”. Cultural values inescapably involve emotions, not just reasoning; and emotions permeate the reasoning.

Look not only at (and within) the leading political parties, the Democrats (blue) and Republicans (red). The political spectrum reveals a range of opinions from left-wing to right-wing. Populists (which include left and right sides in orientation) battle against the “establishment” and associated elites (“the Man”; an entrenched political/economic/social power structure). Nationalists (“Make America Great Again!” is one mantra) fight against globalists (and multiculturalists); conservatives (or alleged reactionaries) combat liberals (perhaps some of these are progressives) and socialists (radicals; anarchists). Assorted political and economic “haves” fight in assorted ways with “have-nots”. Ardent debates rage about economic inequality and opportunity as well as social mobility. Allegiance to “capitalism” and the “free market” (however defined) varies in scope and intensity. Other contentious issues include abortion, the environment (including climate change), health care, immigration, race relations, gun control, and international trade. Such viewpoints incorporate values and result in propaganda battles to advance aims and defeat foes.

Within American political life and its communities, note the language (metaphors) of war, battle, and violence. Also examine wordplay of love and friendship. For example, people may love (or hate) a political candidate or party and its policies.

Rather lofty US government deficit spending has become entrenched. And sometimes, like nowadays in the coronavirus era (which involves a war against the disease), most Americans appreciate a generous helping hand and support a large (expensive) economic rescue package. However, significant disagreement remains regarding the role and extent of the federal government in our lives. Fervent quarrels burst into the open as to the appropriateness of, relative importance of, and actual expenditure on specific programs.

What generic cultural classifications to which individuals belong nowadays reflect (and offer opportunities for and encourage) partisanship and rhetorical conflict? These are numerous. The body politic is fractured. Noteworthy divides exist on the basis of race/ethnic, sex/gender and sexuality, age/generation, geographical location (region of the country; urban/suburban/rural), religion/faith, and level of wealth/income.

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In politics, economics, and elsewhere in culture, although a subjective consensus sometimes develops and persists, participants also can and do disagree on what information (facts, evidence, factors, data, statistics) is relevant and on the relative importance of such variables, as well as on the proper means of organizing and evaluating such phenomena. Where widespread cultural divisions exist, as in America nowadays, such diverse debates (dissonance) relating to “the facts” at times can severely challenge the abilities of even knowledgeable and experienced forecasters to predict a particular outcome, such as the 2020 American Presidential election battle between Trump and Biden, with a high degree of confidence.

Moreover, to the extent that citizens have diminished faith in political institutions and leaders, this increases (encourages) the potential for cultural splits and wars. Arguments from authority may become less compelling to the “average citizen”; many disagreements tend to become harder to resolve. It’s often difficult for enemies to make peace. This situation can boost the amount and loudness of divisive rhetoric and thus make it significantly harder to predict some outcomes.

History shows that a willingness to compromise, listen closely to and respect opposing views and values, and practice substantial civility ebbs and flows on political stages, even when differences between rivals are substantial. However, the American political scene during the Trump regime generally manifests a weakening inclination to do so by many participants. This increases the rhetorical racket.

The information revolution obviously is a complex topic. Nevertheless, the voices unleashed nowadays in cultural domains via mass communication media create and sustain Towers of Babel. And the internet in particular enables a “democratic” explosion of voices seeking to achieve some form of power, to become or remain relevant and influential. The massive amount of allegedly relevant information potentially important to “appropriate” cultural decision-making and the proliferation of supposedly satisfactory gurus and guides (opinion-makers) thereby at times can exacerbate the difficulty of predicting political and economic outcomes.

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US Election 2020- Politics, Pandemic, and Marketplaces (6-3-20)

US MONEY MOTIONS- SAVINGS AND SHIFTS © Leo Haviland November 8, 2011

Since June 2011, United States personal saving as a percentage of disposable personal income has declined. Many observers believe a declining savings rate generally signals economic growth and thus is a reason for optimism. Though this sometimes may be true, it probably is not the case now. In today’s worldwide economic theater, feeble personal savings- and especially a slumping level- indicate that US economic growth for the near term and perhaps longer probably will be weak. The savings rate in recent years, not just recently, has been low relative to long run history. Given this, in the context of the rather gloomy current and near-term economic horizon, further cuts in the savings rate will warn of or confirm an economic downturn.

Declines in the US personal savings rate may herald or coincide with economic growth. The period from 1993 to 2007, and especially the enthusiastic time of 2004-2007, evidences this. The down shift in America’s personal savings rate from its 2008-2010 summits of 6.2pc/5.6pc indeed coincides with the current recovery. However, permanent prosperity probably has not returned. The further declines since June 2011, when interpreted alongside other indicators, probably indicate that a more ominous US economic future of sluggish growth and arguably a recession lies ahead.

First, history shows that a very low or declining savings rate does not necessarily translate into (equal, represent) happy healthy times of growth and prosperity. Let’s look back into the allegedly ancient landscape preceding World War 2. The Great Depression ran from August 1929 to March 1933 (43 months). Note that the savings rate collapsed during the downturn. The savings rate was 4.3pc in 1929 (the year of the stock marketplace peak), 4.0pc in 1930, and 3.7pc in 1931. It went negative in 1932 (-1.1pc) and 1933 (-1.7pc), with 1934 barely positive (.9pc).

A renewed downturn followed from May 1937 to June 1938. Personal savings fell from the 6.2pc of 1936 and 5.9pc in 1937 to 1.9pc in 1938, with 1938 the lowest yearly level until the 1.5pc of 2005.

Thus declines in the personal savings rate can occur during economic downturns, not just in upswings. The Depression shows that very low (even negative) savings rates can reflect fear and pessimism as well as joy and optimism. To interpret the current low savings rate and to make predictions regarding its future and implications, one must look at surrounding circumstances.

Despite estimated US 3Q11 real GDP growth of 2.5pc (annualized) and the sharp stock marketplace rally from its October 2011 depth, numerous signs indicate that consumer resources are stretched rather thin and probably will remains so for some time. America’s low savings rate suggests that many consumers now are fighting especially fervently to maintain a constant (“appropriate”) standard of living (“lifestyle”).

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Money Motions- Savings and Shifts (11-8-11)