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.
Subscribe to Leo Haviland’s BLOG to receive updates and new marketplace essays.
Burning passion for another is not the only love which makes us shake. When fear of losing substantial sums creeps up on numerous money lovers in intertwined financial playgrounds, both the players and their marketplaces can quiver violently.
Many pundits define a bear marketplace as a 20 percent slide from a noteworthy price top. Though the S+P 500 nosedived about 20 percent from its 5/2/11 high around 1371 to its 8/9/11 low near 1100, it then rallied sharply. On 8/9/11, the United States 10 year Treasury note touched yield lows of just over two percent. This matched the bottom achieved on 12/18/08 during the previous “flight to quality” panic in the (still-running) economic crisis that erupted in 2007. Given this equity and debt support, will things calm down much? No. The economic and political scenery has not sufficiently changed. Relationships within and between various financial arenas and their variables probably will vary to some extent as time passes, but the current entangled key financial factors will remain powerful, volatile, and intertwined. Although there will be occasional intermissions, turmoil in and between key equity, interest rate, currency, and commodity theaters therefore will not cease anytime soon.
Why place blind faith in the 2013 low rate policy, for the Fed confesses it changes its viewpoints? In addition, consider the Fed’s policy track record relative to its “original” expectations. Economic growth has been considerably lower than the Fed “had expected”. The Fed “now expects” a slower pace of recovery. Just as the Fed this month adjusted its policy by speaking of low Fed Funds through mid-2013, it eventually may alter its present course. Historians recall that the Fed’s quantitative easing floods likewise represented policy changes due to marketplace developments. Besides, how accurate were the Fed’s economic forecasts in 2007 and 2008, at the dawn and during the early stages of the acceleration of the economic crisis? So as Fed expectations change, so may its actions, whether on rates, quantitative easing, or otherwise.
FOLLOW THE LINK BELOW to download this market essay as a PDF file.
Furious Financial Fluctuations (8-15-11)
The Japanese Yen has remained powerful relative to other currencies “in general” since autumn 2010. On an effective exchange rate basis, as well as against the United States dollar in particular, the Yen is around major resistance. However, the Yen probably will advance further over the next several months. Though many intertwining variables influence currency levels and trends, the fragility of the current worldwide recovery and the continuation of the global financial crisis that erupted in 2007 will play a key role in the continued Yen rally.
Assume America resolves its current battles related to the federal debt ceiling. Proposals likely to be enacted, though representing progress in cutting deficits over the next decade, are modest. In addition, these Washington fiscal fixes will not be significant in relation to the scope of the underlying long run deficit problem. Therefore, any Yen weakness derived from short-term solutions of United States fiscal deficit issues probably will be temporary.
US policy makers preach their desire for a strong dollar from time to time. Their practices over many months, however, underline their desire for (or at least toleration of) a rather weak TWD. The weak dollar policy may help to boost growth and reduce unemployment, right? Don’t many developing nations want their home currency to be relatively weak? One method by which the US can better compete with many developing (and other) nations, at least in some trade domains, is to depreciate its currency.
Roughly speaking, Japan is a creditor nation. Roughly speaking, and despite its wealth, America is a debtor nation.
FOLLOW THE LINK BELOW to download this market essay as a PDF file.
The Strong Yen, the Weak Dollar, a Shaky World (8-2-11)
Many influential storytellers dream that economies of nations such as Brazil, Russia, India, and (particularly) China are very- or at least sufficiently- independent of America and other so-called advanced realms. Moreover, the BRIC territories supposedly possess enough power not merely to sustain adequate domestic growth, but also- at least collectively- to help drive the overall world economy significantly forward.
However, this endearing fantasy regarding the house of BRICs confronts substantial real practical barriers. Audiences should not have faith in a tempting doctrine of BRIC independence and almost endless and inevitable strength. The BRIC fraternity and numerous other developing regions indeed have built and continue to construct growing economies. Yet as the recent worldwide economic crisis that emerged in 2007 demonstrates, awful problems in a major developed nation such as the United States can spread rapidly and deeply around the world. As this is so, noteworthy troubles in the BRICs or elsewhere can affect advanced nations significantly.
Slowdowns in advanced nations probably will help to cut- and by more than a little bit- individual and collective BRIC growth relative to the sunny IMF predictions.
If the fiscal and banking crisis related to the European periphery can spread through Europe and around the world, so can the unearthing and spread of a significant problem in a nation as crucial as China. China is no house of cards, but its deck does not hold only aces.
Prior to the financial fires that began burning more visibly in 2007, how many players, regulators, or armchair quarterbacks declared that the US housing boom was likely to suffer an unhappy ending? Is China’s local government debt only a local problem?
FOLLOW THE LINK BELOW to download this market essay as a PDF file.
The House of BRICs (The Money Jungle, Part Six)
The S+P 500 is at or near an important high in price and time terms. Watch the major resistance of 1440 (the May 2008 final high before the acceleration of the worldwide economic crisis), plus or minus five percent. Commodities “in general” likewise have achieved or soon will make a noteworthy top. Suppose these reversals haven’t begun yet. What is a guideline for the latest time for them? At the risk of being attacked by hunters armed with hindsight wisdom, let’s climb out on a limb and say midsummer 2011. However, the Federal Reserve and its allies will rush to the rescue and strive to prevent any sustained major fall in equities.
What about the broad real trade weighted dollar (“TWD”)? For the near term, its April 2011 level of 81.3 represents a low or is close to one, with its timing linked to that in stocks and commodities. The United States 10 year note yield will continue to meander sideways. However, yields eventually will move higher and attack the four percent barrier.
In recent years, the linkage between equities, commodities, the broad real trade weighted dollar, and interest rates has been close.
Focus first on price and time notes for these arenas in the period of the dismal depth of the worldwide financial crisis.
Timing may not be everything, but it’s pretty important in both music and marketplaces.
What does this forest of data for stocks, commodities in general, and the broad real trade weighted dollar portend for their current and future environment? There have been two alternating marketplace songs in recent years. Strong stocks/strong commodities/weak dollar has been one clear tune, with sagging stocks/cratering commodities/strong dollar the alternative one. It is very likely that a major or any very significant high in stocks and commodities will occur around the same time (within a couple of months). That peak probably will happen around the time of an important low for the dollar.
FOLLOW THE LINK BELOW to download this market essay as a PDF file.
The Money Jungle (Part One)
View Leo Haviland’s profile