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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A BEAR TREND’S END: US NATURAL GAS © Leo Haviland September 4, 2019

Alvin Toffler’s “Future Shock” (Chapter I) notes: “Future shock…the shattering stress and disorientation that we induce in individuals by subjecting them to too much change in too short a time.”

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CONCLUSION

The ferocious bear trend in NYMEX natural gas (nearest futures continuation) that commenced after 11/14/18’s 4.929 peak probably ended with 8/5/19’s 2.029 low. If not, it likely will finish fairly soon. Assuming normal weather, major support around 1.90/2.00 probably will hold. For the near term, noteworthy resistance stands around 2.50/2.55, with 3.05/3.10 an important target. If United States winter weather is significantly colder than normal, an advance toward 4.00 looms.

Marketplace history of course is not marketplace destiny. Based on historical major bear trends for NYMEX natural gas (nearest futures), the current bear trend has lasted sufficiently long in price (distance) and time terms for that trend to end and for a bull move to emerge. A critical variable supporting this viewpoint is the overall United States natural gas inventory situation. From the days coverage perspective, America’s natural gas inventory outlook is bullish.

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A Bear Trend's End- US Natural Gas (9-4-19)

AMERICAN ECONOMIC GROWTH: CYCLES, YIELD SPREADS, AND STOCKS © Leo Haviland March 4, 2019

In “Back in the U.S.A.”, Chuck Berry sings: “Yes, I’m so glad I’m livin’ in the U.S.A. Anything you want, we got right here in the U.S.A.”

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OVERVIEW AND CONCLUSION

Marketplace and other cultural analysts create meaningful relationships between variables and groups of phenomena. As subjective perspectives differ, these faithful inquirers identify, define, select, assess, and organize evidence (data; facts; factors) in a variety of fashions. This results in diverse propositions, arguments, and conclusions, and thus an array of competing stories.

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In its discussion of America’s 4Q18 GDP growth, the NYTimes (3/1/19, pB1) stated that “most economists do not expect a recession this year.”

America’s current economic expansion is very long by historical standards. Of course history need not repeat itself. Conditions, including associations and patterns between variables, can and do change over time. Marketplace convergence and divergence trends (and lead/lag relationships) are not inevitable; they can shift, sometimes dramatically. However, devoted study of the ongoing economic expansion should not divorce itself from previous economic growth and decline episodes and patterns.

Interest rate yield relationships offer insight into economic history and prospects. Particularly given the remarkable length of America’s recent glorious real GDP expansion, marketplace clairvoyants should review the long run historical relationship between yields for lower-grade United States corporate bonds and the ten year US Treasury note in the context of American economic growth and recession cycles. The recent widening yield spread trend for this credit relationship warns that a US recession (or at least significantly lower growth than generally forecast), whether in calendar 2019 or not long thereafter, is more likely than most wizards anticipate. Moreover, current trends in the US Treasury yield curve, when placed in historic perspective, also underline the looming potential for an American economic downturn (or considerably slower growth than most soothsayers predict).

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American Economic Growth- Cycles, Yield Spreads, and Stocks (3-4-19)

AS THE WORLD BURNS: MARKETPLACES AND CENTRAL BANKS © Leo Haviland February 8, 2016

“To every thing there is a season, and a time to every purpose under the heaven.” Ecclesiastes, Chapter 3, verse 1 (King James Version)

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OVERVIEW AND CONCLUSION

To spark and sustain the worldwide economic recovery that began around first half 2009, the Federal Reserve Board and other major central banks warmly embraced highly accommodative monetary policies such as yield repression and money printing (quantitative easing). Who would want to repeat the horrors of the hellish worldwide economic disaster that erupted in 2007 and worsened dramatically after mid-year 2008? Therefore, often in recent years, after significant hints of feeble growth (or recession) or insufficient inflation (or signs of that evil, deflation) appeared, these high priests of the economic system offered further rhetoric or additional (or new) action to accomplish their aims and restore confidence. Such central banking efforts often succeeded. In any case, financial congregations (especially in American and other stock marketplaces) generally loudly hoped for, fervently encouraged, and joyfully praised such central bank rescue efforts.

However, around mid-2015, advanced nation stock benchmarks such as the S+P 500 peaked. Moreover, despite central bank wordplay and vigorous policy action, bear moves in these stock domains have persisted alongside renewed signs of economic weakness and “too low” inflation. Ongoing collapses in emerging marketplace stocks “in general”, the major bear move in commodities in general, and falling yields in the 10 year United States Treasury note accompanied tumbles in the S+P 500 and other advanced nation equities. The major bull move in the broad, real trade-weighted US dollar, which began in July 2011, has played a key role in these intertwined trends.

In the past few weeks, key global central banks once again preached sermons or engaged in actions aimed not only at creating sufficient inflation (defeating deflation) and ensuring sustained economic recovery. Stock marketplaces initially ascended higher after these recent efforts (recall their lows around January 20, 2016), and the US dollar weakened somewhat. The Federal Reserve Board and other guardian angels probably did not want the S+P 500 and related stock marketplaces to crash under their January 2016 lows. In addition, they probably did not want the United States dollar bull move to extend much (if at all) beyond its January 2016 high.

However, and although not much time has passed since these recent ardent central bank efforts, the S+P 500 and other stock landmarks have resumed their slumps. Ominously, many stock marketplaces have fallen under their August/September 2015 lows. In addition, the dollar still remains strong, commodities weak (despite talk about and hopes for OPEC petroleum production cuts), and US government yields (in a flight to quality) depressed. This vista warns that the Fed and other revered central banks are finding it more and more difficult to accomplish their various policy aims. It suggests that people (including devoted investors in US stocks) increasingly are losing faith in the ability of central banks to produce desirable outcomes.

Although it is a difficult marketplace call, these ongoing and interwoven marketplace trends probably will continue for a while longer. Admittedly, if these marketplace patterns persist and especially if they extend, watchers should beware of even more dramatic (and perhaps coordinated) central bank rescue action.

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For additional currency, stock, interest rate, and commodity marketplace analysis, see essays such as “The Curtain Rises: 2016 Marketplace Theaters” (1/4/16), “Japanese Yen: Currency Adventures (2007-09 Revisited)” (1/14/16), “US Natural Gas” Caught in the Middle” (especially pp2-3), “America: A House Divided” (12/7/15), “Two-Stepping: US Government Securities” (12/1/16), “Commodities: Captivating Audiences” (10/12/15), and “Déjà Vu (Encore): US Marketplace History” (10/4/15).

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As the World Burns- Marketplaces and Central Banks (2-8-16)

DANGEROUS TIMES IN US NATURAL GAS © Leo Haviland November 2, 2015

The probable range for the United States natural gas marketplace (NYMEX nearest futures continuation basis) for the next several months is a relatively broad avenue between major support at 1.65/1.90 and significant resistance at 3.10/3.45. For prices to sustain voyages over 3.00, it probably will require a significantly colder than normal winter or noteworthy cuts in natural gas production. A containment risk (supplies too high relative to available storage), although currently not probable, nevertheless lurks for the end of calendar 2016 build season, especially if 2015-16’s winter is warmer than usual. If significant containment problems develop, and perhaps even if the potential for significant containment difficulties significantly increases, the 1.65 to 1.90 floor could be broken.

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The NYMEX natural gas major bear trend that followed 2/24/14’s major peak at 6.493 smashed through 4/27/15’s 2.443 low, tumbling to 1.948 on 10/27/15 (near NYMEX contract expiration; many key troughs have occurred around contract expiration). The late October 2015 depth borders the last prior major bottom, 1.902 on 4/19/12. Historical analysis indicates the bear trend from February 2014 to October 2015 travelled sufficiently far in price and duration terms to look for a trend shift from bearish to neutral or bullish. In addition, the most recent Commitments of Traders reports for key natural gas contracts reveal a massive net noncommercial short position. Many significant marketplace trend changes in natural gas roughly coincide with very elevated net long or short noncommercial positions. Current and (assuming normal weather) anticipated upcoming natural gas days coverage through winter 2015-16 and the 2016 build season appear fairly close to historical averages, particularly in the context of NYMEX natural gas prices well under 3.00.

However, the dramatic February 2014 to October 2015 price tumble is not the greatest or longest on record. So a further descent in NYMEX natural gas would not be unprecedented. Moreover, the days coverage perspective of course does not provide a complete viewpoint on the natural gas inventory situation and related price risks. After all, arithmetic quantities (bcf) of gas must be put in arithmetic storage places. And currently, the containment risks for the end of build season 2016 are not insubstantial; this bearish potentiality weighs on prices.

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Natural gas prices often travel substantially independently of both petroleum (and commodities “in general”) and so-called “international” or “financial” factors. Trend changes in NYMEX natural gas need not coincide with one in the petroleum complex or in commodities in general.

However, especially since mid-to-late June 2014 (NYMEX natural gas nearest futures interim high 6/16/14 at 4.886) and into calendar 2015 (gas interim top 5/19/15 at 3.105), bearish natural gas price movements have intertwined with those in the petroleum complex (and commodities in general) and the bull move in the broad real trade-weighted US dollar. Such natural gas retreats to some extent have paralleled slumps in emerging marketplace stocks. Note also the timing coincidence between May 2015’s natural gas top and the S+P 500’s 5/20/15 high at 2135. See “Commodities: Captivating Audiences” (10/12/15) and other recent essays.

Worldwide OECD industry and United States petroleum stocks are very elevated. OPEC next meets 12/4/15. It remains determined to capture market share and induce output cutbacks by high-cost oil producers around the world (including some American and Canadian ones). Thus even if petroleum manages to rally further from its recent lows, it likely will remain relatively weak. The broad real trade-weighted United States dollar edged slightly lower (about one percent) to 97.0 in October 2015 from its September 2015 bull move high at 98.0 (Federal Reserve, H.10; monthly average), but it probably will remain relatively strong for the near term. Weak oil and a strong dollar, all else equal, are bearish factors for American natural gas prices.

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Dangerous Times in US Natural Gas (November 2, 2015)