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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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)