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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As Thanksgiving Day approaches and many prepare for holiday gatherings and festive feedings with family, friends, neighbors, and colleagues, several less-noticed marketplace courses deserve attention from marketplace travelers. United States Treasury International Capital (“TIC”) data reveal that gaping American federal fiscal deficits probably will find it difficult to lure sufficient foreign funds. Recent TIC evidence may warn of stock marketplace trend changes. Also, do foreign visitors find direct ownership (“investment”) in America highly appealing these days? What do New York Stock Exchange margin data unveil about major equity moves? Commodity Futures Trading Commission information on agricultural Index Traders not only offers a window on commodity price patterns in general. Perhaps surprisingly, that Index Trader information can illuminate and confirm marketplace voyages by stock benchmarks such as the S+P 500.
Since its 2009 depth, the high for agricultural Index Trader net long open interest occurred in 2010, at about 1.63 million contracts on 8/10/10. However, this quantity is not much above the more recent high net long position of 1.53mm on 4/26/11, which was close in time to the S+P 500 and broad GSCI elevations. By 10/4/11, the date of lows in the S+P 500 and the broad GSCI, the net IT long open interest had fallen to around 1.30mm. This equals about a 14.9pc dip from the 4/ 26/11 height. On 11/15/11, net IT was about 1.33mm contracts.
The recent percentage decline in IT length of nearly fifteen percent is fairly close to the initial fall of 16.7pc during 2008 (from 5/13/08 to 9/16/08). What would a sharp and sustained decline in the net IT long position under its 10/4/11 level indicate? It probably will coincide with declines in commodities in general and stocks, thus confirming a worsening of the worldwide economic crisis.
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Thanksgiving Marketplaces – Several Servings (11-22-11)
Recent historically high nominal United States corporate profit levels are a key factor inspiring many to buy and hold US stocks. Bullish forecasts regarding future net earnings, especially when such predictions extend out to misty medium term or murky long run time horizons, sustain and bolster this enthusiastic ownership. In turn, stock rallies sometimes boost optimism regarding potential corporate profitability and overall economic growth, for many have faith that equity marketplaces are forward-looking indicators for “The Economy”.
Has the US entered a blessed New Era of very high corporate profitability that will stretch happily out into the indefinite future? Probably not. Has America revived the wonderful time of the Goldilocks economy? Probably not. Higher nominal corporate profits and ascending nominal stock prices, when accompanied by rising nominal GDP, can assist national confidence and encourage spending in the short term. However, since the nominal levels are not the real (genuine) ones, they do not translate into an equivalent amount of real and permanent prosperity.
Yet even if very elevated corporate profitability does not continue, what may have caused a sustained notable upward shift relative to long run history in the ratio of nominal US corporate profits to nominal GDP? To some extent, it reflects corporate cost-cutting measures and other battles to improve efficiency. The easy money policies of the Federal Reserve Board (sustained low interest rates; money printing) and its allies and massive deficit spending (stimulus) perhaps play roles. But picture the context of sluggish to declining real US household income, still-damaged consumer balance sheets, high unemployment, weak housing prices, and very low consumer confidence. With that domestic (home) background, high US nominal corporate profits- and especially a more elevated nominal profit versus GDP ratio- also arguably reflects economic globalization trends and profits captured from overseas. If so, then relatively high American corporate profits do not entirely reflect (do not fully represent) actual overall US prosperity (“Our Economy”), merely that of many of its corporations.
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US Corporate Profits- Patterns and Perspectives (11-1-11)
In various forms and fashions, accounting greatly matters in cultural domains. Economic realms employ professional accountants and other measurers and judges of accuracy (and compliance, responsibility, and virtue), but money meadows are not the only field involving accountability. In financial playgrounds- as in politics, war, romance, and elsewhere- it’s important to carefully evaluate the truth, quality, and implications of accounts and other storytelling.
Despite the ongoing excitement of the European sovereign debt crisis, European banks are not the only ones facing significant challenges. Thus some gloomy bystanders perhaps want to avoid renewed scans of America’s banks in the context of real estate and derivatives.
Sometimes the titanic numbers of billions and trillions mask the crucial importance of what’s going on in the provinces of smaller quantities. US real median household income in 2010 was about $49,400, a 2.3pc slide from 2009. Since 2007, real income has tumbled 6.4pc. It is 7.1pc under the median household income peak in 1999, back to the 1996 level of $49.1m.
According to the US Treasury’s recent TIC statistics (9/16/11), major foreign holders (official and others) of Treasury securities (these include bills, notes, and bonds) held about $4.48 trillion of them in July 2011. This is down slightly from June 2011’s $4.50tr and May’s $4.51tr. They held $4.45tr in January 2011. In sum, they’ve essentially not been net buyers for several months. Even relative to July 2010, they’ve been mediocre net buyers. Foreigners held $4.13tr in July 2010; July 2011 thus represents a meager add-on of only about $353 billion to the year-ago month.
Though money supply data are only one variable relevant to inflation, they have started to hint that the future inflationary picture will be less pretty than ardent Fed professors proclaim. Even in a sluggish or recessionary economy, and even if some deflationary forces at home or overseas are strong, that does not prove that inflation will not increase. And inflation perhaps will float considerably higher than many predict.
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Show Me the Money! (9-19-11)
America’s substantial federal deficit problem, both for the near term and over the looming long run, captures headlines. A long march through a thicket of forecasts and fixes reveals the immensity of the deficit and the complexity of the intertwined factors and policies creating the deep fiscal hole. However, advancing through the repair proposals of leading legislators unveils the substantial disagreements in outlook regarding a solution. Even in Washington, differences in political perspectives on “economic” matters sometimes represent really serious sharp splits.
Called to action by the need to seriously attack the issue, confronted by the imminent August 2 deadline for boosting the deficit ceiling, the President, Democrats, and Republicans squawk, squeak, and squirm. Few budget combatants want a default, or even a reduction in America’s credit rating. Matters of principle and 2012 election politics will interrelate both to avoid debt default and to defer any noteworthy substantive resolution of the fiscal challenge. Since such a temporary compromise is not a genuine solution, the United States fiscal disaster will continue to beleaguer financial marketplaces.
In the Civil War, so-called neutral nations such as Great Britain and France were quite interested in the war’s outcome. America is not divided or cut off from the rest of the world, especially these days. In regard to the US’s current budget battles, not only its citizens but also countries around the world closely monitor events and trends. Like sovereign debt problems on the European periphery, America’s fiscal issues have global implications. Plus what occurs in debt and interest rate theaters has implications for stocks, currencies, and commodities. For example, if the American deficit crisis worsens significantly, what will the collateral damage be? Will stocks in the US as well as overseas nosedive? Will there be a renewed assault on the dollar?
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A House Divided- American Budget Battles
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