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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BORN TO BE WILD: AMERICAN ECONOMIC AND POLITICAL BATTLEFIELDS © Leo Haviland November 2, 2020

President Donald Trump’s “Inaugural Address” (1/20/17): “This American carnage stops right here and stops right now.”

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OVERVIEW AND CONCLUSION

Marketplace connections and patterns, including convergence and divergence (lead/lag) relationships between financial realms, are complex and not necessarily precise. They can shift or even transform sometimes dramatically. Marketplace history is not marketplace destiny; history does not necessarily repeat itself, either entirely or even partly.

“Adventures in Marketland: Hunting for Return” (10/6/20) and “Marketplace Maneuvers: Searching for Yield, Running for Cover” (9/7/20) display the intertwined price trends in assorted financial fields in recent times. Such interrelated territories include United States and other stocks, US corporate bonds, lower-grade foreign dollar-denominated sovereign debt, and commodities “in general”. Prices in the S+P 500 and other benchmark US and global stock indices, lower-grade interest rate instruments, and commodities often have risen (or fallen) at roughly the same time. They frequently have climbed in bull markets (and fallen in bear markets) “together”. These thus have alternatively reflected bullish enthusiasm as “investors” and other traders hunted for adequate return (“yield”), and dismal bearish scenes as they scrambled frantically for safety. For example, the magnificent bull moves in the S+P 500 and these “related” financial areas established important tops in early to mid-first quarter 2020 (S+P 500 on 2/19/20 at 3394). Their subsequent murderous bear crashes entangled, finishing around the same time, around late March 2020 (S+P 500 on 3/23/20 at 2192). The ensuing price rallies in the S+P 500 and these assorted other key provinces thereafter united, establishing peaks around early September 2020 (S+P 500 top on 9/2/20 at 3588; subsequent lower high 10/12/20 at 3550). See those essays for a detailed presentation of these price moves and their relationships since first quarter 2020.

“Marketplace Maneuvers: Searching for Yield, Running for Cover” (9/7/20) concluded that various phenomena indicate that these marketplaces are at or near important price highs and probably have started to or soon will decline together. “Adventures in Marketland” reemphasized this bearish outlook.

What bearish factors for the S+P 500 and various related marketplaces (other stock signposts, US corporate bonds, lower-grade foreign dollar-denominated sovereign debt, and commodities such as petroleum and metals) did “Marketplace Maneuvers” and “Adventures in Marketland” emphasize? They include the probability of a feeble global recovery (the recovery will not be V-shaped), the persistence of the coronavirus problem for at least the next several months, and lofty American stock marketplace valuations (and the substantial risk of disappointing late 2020 and calendar 2021 corporate earnings). Democrats probably will triumph in the 11/3/20 American national election, which portends a reversal of the corporate tax “reform” legislation as well as the enactment of increased taxes on high-earning individuals and the passage of capital gains taxes. Also on the US national political scene, fears have grown of a political crisis and legal fights if President Trump disputes the November 2020 voting outcome. Other warning signals of notable price falls in the S+P 500 and various associated battlegrounds include vulnerable United States (and other) households (reduced consumer spending) and endangered small businesses, massive and rising government debt, a greater risk of rising US interest rates (at least in the corporate and low-quality sovereign landscapes) than many believe (even with ongoing Fed yield repression), and weakness in the US dollar.

This bearish trend in the S+P 500 probably will continue. Even if Congress answers widespread fervent prayers and enacts another large deficit spending (stimulus) package, the S+P 500’s 9/2/20 peak probably will not be broken by much, if at all. Given recent relationships, a sustained fall in the S+P 500 probably connects with declines in the prices of the other asset sectors currently closely linked to it.

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As always, in the context of these various marketplaces, money-seekers should monitor US Treasury and other high-quality government debt yield levels and trends as well as US dollar and other currency patterns.

FOLLOW THE LINK BELOW to download this article as a PDF file.
Born to Be Wild- American Economic and Political Battlefields (11-2-20)

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.

FOLLOW THE LINK BELOW to download this article as a PDF file.
Divergence and Convergence- US Stocks and American Politics (7-11-20)

TREND RELATIONSHIPS: US AND CHINESE STOCKS AND THE INTERNET SECTOR © Leo Haviland, November 27, 2017

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“Away from baseball, I had a lot of fun, and much of it came in pitting myself against the odds found in the financial world, which are somewhat longer against success than getting a base hit.” The Hall of Fame star Ty Cobb, “My Life in Baseball”

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The price movements and levels of various leading “internet-related” stocks attract the attention of and story-telling by assorted stock marketplace strategists and media guides around the globe.

Attached are several charts.

Charts 1-5 constitute America’s FAANG army (Apple, Amazon, Facebook, Google, and Netflix). Charts 7-9 cover the large Chinese internet groups labeled BATs (Baidu, Alibaba, and Tencent). Although these bar charts are weekly, the handwritten price and date noted is for the actual trading day.

During the past two and a half years, a review of the dates and lines noted on the graphs of this array of internet companies manifests a similarity “in general” (for the group) as to noteworthy price trend shifts (or accelerations) “around” several critical marketplace turns. These key time points include: mid-2015 high; late August 2015 low; late year 2015 drop-off; first quarter 2016 bottom; dramatic rally after the 11/8/16 election.

Not every stock necessarily closely fits the given key turning point noted, but the majority did. Of course not all travelled the same percentage distance. Nevertheless, there has been some tendency for the group members to “confirm” each other’s trend.

Sometimes a given stock, stock sector, or broad marketplace may lead (lag) another (the convergence/divergence issue).

This trend and timing linkage for the FAANGs and BATs provides guidance for anticipating and evaluating movements in broad indices such as the S+P 500 and China’s Shanghai Composite. United States and Chinese benchmarks do not always voyage together, but they have frequently done so (see the notes on chart 1).

The internet sector and broad equity stock indices are not necessarily divorced from movements in other stock sector domains (such as “financial” or “retail”) and their members. Many scouts closely monitor noteworthy financial corporations such as Goldman Sachs. The GS chart is at page 6 (unlike the other eight graphs, this one is monthly).

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A noteworthy decline in this internet stock group “in general”, whenever this happens, probably will occur around the same time. Given the widespread importance and allure of the internet playground (and the “technology” territory), such an important sectoral shift by the FAANGs and BATs likely will develop around the time of one in the S+P 500 and Shanghai Composite (and perhaps for other related broad stock indices of advanced and emerging/developing nations as well). As always, watch for price leads (lags). For the S+P 500, given its glorious long-running bull move, a decline of about ten percent (or more) would worry many observers.

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Keep an eye on rising interest rates for (and other signs of tighter credit in) the United States and China (and in other key nations). What if the United States does not enact tax “reform”? A significant portion of the rally in the overall US stock marketplace since the November 2016 election probably has derived from optimism regarding the passage of a massive tax cut package (particularly for corporations). Yet watch debt trends in America (especially if the so-called reform becomes law) and China. The adventures of the broad real trade-weighted dollar, especially if it breaches important support and resistance levels, also intertwines with and can significantly influence trends in stocks, interest rates, and commodities.

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FOLLOW THE LINK BELOW to download this article as a PDF file.
Trend Relationships- US and Chinese Stocks- the Internet Sector (11-27-17)
Charts- Trend Relationships- US and Chinese Stocks and the Internet Sector (11-24-17)