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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“POPULISM” AND CENTRAL BANKS © Leo Haviland, July 12, 2016

“Big boss man, can’t you hear me when I call?” “Big Boss Man” (Al Smith and Luther Dixon), performed by Elvis Presley, the Grateful Dead, and others



The United Kingdom’s recent shocking referendum vote to leave the European Union not only sparked ferocious marketplace fluctuations. It did not merely underscore ongoing and widespread unease regarding mediocre economic growth and insufficient inflation in many nations inside and outside of Europe.

Brexit also highlighted previously existing and growing fears among many global economic and political elites (“the establishment”) and their disciples about increasing “populism” and its potential consequences. These worries extend beyond the troubles of the European Union and the Eurozone and nervousness regarding their fracturing or break-up. The British departure outcome probably inflamed populist ambitions in other countries. In any case, substantial divisiveness and partisan fervor are not confined to Europe or the United States. See “America: a House Divided” (12/7/15).

The “establishment”, like “populism”, is diverse rather than monolithic. Even among the advanced OECD nations such as the United States and those seeking to emulate them, it is not the same everywhere. Mainstream political parties and their economic agendas are not precisely identical, even though such different groups (such as Democrats and Republicans) can belong to the same establishment. What is an establishment (or populist or other anti-establishment) view can change over time.

Different cultures of course will have leaders, but their particular “establishment” ideologies may be significantly and perhaps dramatically different. The current Chinese establishment’s guiding faith in part overlaps with (resembles) but nevertheless is not identical to the creed prevailing in the United States establishment. Or, compare a primitive rural culture and that of a modern Western industrial nation.

However, as a rough and admittedly simplified guideline, one can summarize the ruling Western economic ideology of the post-World War Two period. It is a “capitalism” that in principle generally adores free (open) markets for goods and services, free trade, and free movement of capital, as well as (subject to immigration concerns) fairly free movement of people. Such economic goals (and political and social gospels related to them) are labeled and valued as good and desirable by the so-called establishment. Often they are honored as being rational, reasonable, intelligent, sensible, and prudent. In the post-World War Two span, these good outcomes have intertwined with globalization, which the elites (power structure), likewise generally (on balance) bless. Therefore these authorities view populism, at least to the extent it endangers such good capitalism and the related “structure (arrangement) of things”, as generally bad (or less good; inferior).


The establishment responded to the British outcome with passionate rhetoric. The dangers of supposedly overly left-wing or right-wing movements, or excessively nationalistic or protectionist ones, or fringe or radical groups must be handled somehow, right? Or so such currently empowered elites advise audiences.

Leading central banks and regulators such as the European Central Bank, Federal Reserve Board, Bank of England, and International Monetary Fund of course stress their devotion to their assorted mandates. Indeed their noble quest to secure praiseworthy aims such as stable prices (sufficient inflation), maximum employment, and economic growth are on behalf of “all of us”. Yet such loosely-defined legislative directives in practice provide these economic high priests wide scope for their interpretation.

In practice, central bankers, even if widely-revered, generally reflect the key economic and political doctrines and ambitions of traditional (current establishment) leaders. And “populism”, though one cannot define it scientifically, though its historical and current international appearance is not everywhere the same, still can “shake the existing economic and political situation and its institutional structures up a lot”. And such resulting uncertainty and disruption (and especially big changes) on balance would be bad (or at least not very good), right? So the Brexit vote was a bad (undesirable and unfortunate) outcome. Populist pressure, especially if it involved challenging the independence of central banks, might even make it more difficult for central bankers to achieve their beloved mandates. Leading central banks nowadays consequently want to preserve the basic structure and trends of the post-World War Two world “order”, to preclude revolutionary or even mildly substantial changes in it.

Therefore, the British “Leave” vote and its aftermath probably will encourage various leading central banks such as the Fed, ECB, Bank of England, and their allies to battle even more fiercely than before against populist menaces. Continued sluggish growth (or a recession), rising unemployment, or a renewed sovereign or private sector debt crisis (whether in Europe or around the globe), would inflame populist ardor, particularly given anger over widespread economic inequality. The central banks therefore likely will sustain existing highly accommodative policies such as yield repression and money printing for longer than previously anticipated, perhaps expanding them “if necessary”.

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Populism and Central Banks (7-12-16)


“And I’ll be taking care of business, every day
Taking care of business, every way”. Taking Care of Business”, by Bachman-Turner Overdrive



For a majority of earnest soothsayers, American corporate profitability is an important factor for US stock marketplace levels and travels. Use the S+P 500 as a benchmark for United States equities in general. In second quarter 2015, US after-tax corporate profits peaked (annualized basis). The S+P 500’s record pinnacle occurred alongside this, on 5/20/15 at 2135. It mournfully plummeted about 15.2 percent to its 1812 (1/20/16)/1810 (2/11/16) depth. Despite the S+P 500’s subsequent sharp rally, the current and near-term after-tax corporate profit trend likely will make it challenging for the S+P 500 to ascend much above (or even over) its May 2015 peak during the next several months. History reveals that several noteworthy bear moves in the S+P 500 have intertwined with noteworthy profitability slumps.


To explain past and current United States stock marketplace levels and trends, and in offering prophecies regarding future heights and patterns, diverse wizards tell competing tales. Their arguments and conclusions reflect their different marketplace perspectives and approaches, including the particular variables they select and arrange.

American and other corporations win or lose given amounts of money for all sorts of reasons. Factors influencing earnings and profitability change, as do the relative importance and interconnections of these variables. Long run inflation increases generally increase nominal values in general. Also, central bank policies, tax regimes, wage trends, and productivity (innovation; efficiency) developments influence sales and profits. The altitudes and paths of the US dollar, interest rate yields, and commodity prices also are relevant in various ways and degrees to particular corporations. Unemployment rates, fiscal situations (budget deficits), debt levels and trends (government, corporate, and consumer), regulatory structures, and population growth matter. America is not an island apart from the rest of the world; globalization has increased in recent decades.


Admittedly, the ongoing (extraordinary) very lax monetary policy of the Federal Reserve Board and other central bank guardians such as the European Central Bank, Bank of England, Bank of Japan, and China’s central bank helps underpin equity prices in America and elsewhere. Stock-owning audiences around the globe (particularly the praiseworthy investment community) as well as Wall Street institutions, public corporations, and the financial media friends generally adore massive money printing (quantitative easing) and sustained yield repression. Low interest rate yields for US Treasury securities (and negative yields for many government debt obligations elsewhere) encourage fervent scrambles for acceptable returns elsewhere. These often-alluring territories include stock realms (hunting for dividends and potential capital gain), corporate debt, and commodities. American inflation has been quite modest in recent years. Yet as nominal prices in general (all else equal) tend to rise alongside (or on a lagged basis) a climb in US nominal GDP, so will a nominally priced index such as the S+P 500.

The S+P 500’s retreat beginning in May 2015 interrelated with the preceding bear trends in emerging marketplace stocks and commodities (notably petroleum) and a further bull charge in the broad real trade-weighted dollar (“TWD”). Significantly, the S+P 500 (and stocks of other key advanced nations), emerging marketplace equities (“MXEF”, MSCI Emerging Stock Markets Index, from Morgan Stanley; 1/21/16 at 687), and commodities in general (broad GSCI at 268 on 1/20/16) all attained significant troughs around the same time in first quarter 2016. The US Treasury 10 year note yield low was 2/11/16 at 1.53 percent. The TWD established its recent high alongside these marketplaces in January 2016. This interconnection across assorted marketplaces assisted the rally in the S+P 500 from its January/February lows.

Thus to some extent, the recent weakness in the broad real trade-weighted dollar encouraged the ascent of the S+P 500. In any case, central banks did not want the TWD to ascend by much, if at all, over its January 2016 high. They likewise wanted to arrest stock marketplace declines.


However, suppose the TWD declines further from current levels, perhaps ten percent or more from its January 2016 elevation. Although the first stage of dollar decline has managed to spark and assist a S+P 500 rally, additional sustained depreciation eventually may undermine equity prices. Besides, even if the TWD fall from its January plateau does not reach ten percent, the S+P 500 nevertheless may slide lower. Marketplace history reveals that a weaker dollar does not inevitably (or necessarily) push US stocks upward. And also suppose US interest rates or inflation expectations sustain modest climbs. Rising US Treasury yields can help to lead S+P 500 prices lower. Assume commodities in general manage to hold onto much of their recent gains.

In this environment, further suppose US corporate profits (and those in related regions) continue to remain sluggish (or decline further). Then the S+P 500’s fall from its high probably will be significant, even though the Federal Reserve and its trusty allies will intervene with rhetoric and action to prevent dramatic stock marketplace drops (particularly watch the 20 percent bear market definition threshold).

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Looking Backward, Gazing Forward- US Corporate Profits and Financial Trends (5-3-16)



The Federal Reserve Board is a widely-watched star economic performer. Elvis Presley sings in “Jailhouse Rock” that “Everybody in the whole cell block Was dancin’ to the Jailhouse Rock”. The Fed’s actual and anticipated soulful lyrics and mesmerizing policy moves likewise attract, enthrall, and inspire Wall Street, Main Street, and political audiences. The Federal Reserve Board congregates 10/27-28/15 and 12/15-16/15.


Though major stock, interest rate, and currency marketplaces typically grab the lion’s share of marketplace and media attention, recently commodities “in general” have marched to center stage alongside them. Central bankers, finance ministers, and other leading economic players pay close attention to the analysis and forecasts of the International Monetary Fund. October 2015’s featured cover page titles of the IMF’s “World Economic Outlook” (“Adjusting to Lower Commodity Prices”) and “Fiscal Monitor” (“The Commodities Roller Coaster”) evidences this increased fascination with commodities.

Individual commodities such as crude oil, copper, and corn, as well as commodity sectors such as the petroleum complex, of course have their own supply/demand and inventory pictures. Perspectives on these can and do differ between observers. Yet commodity price trends in general are hostage not only to their own supply/demand situation and general economic growth trends, but also to movements in equities, interest rates, and foreign exchange. Particularly over the past several months, stock and other financial playgrounds more closely have intertwined with noteworthy travels in crucial commodity theaters such as petroleum and base metals. Such increasingly strong ties developed in the past during similar sustained dramatic commodity price adventures.

The current significant link between commodities in general (use the broad Goldman Sachs Commodity Index as a benchmark; the “GSCI” is heavily petroleum-weighted) and other key arenas such as the S+P 500, emerging stock marketplaces in general (“MXEF”; MSCI emerging stock markets index, from Morgan Stanley), and the broad real trade-weighted United States dollar (“TWD”) probably will persist at least for the next several months. Stocks, the dollar, and the GSCI probably will all move in a sideways path for the near term. The Fed and its allies do not want the S+P 500 to collapse twenty percent or more (and maybe not even much more than ten percent) from its May 2015 summit. They also do not want the TWD to break out above its September 2015 high (that barrier slightly exceeds the crucial March 2009 major top).

However, the bear move in the S+P 500 that emerged in May 2015 eventually will resume. The US dollar, though its rally from its July 2011 major low has paused, will remain relatively strong. OECD petroleum industry inventories in days coverage terms are very high from the historical perspective. Despite some crude oil production cuts in the United States and elsewhere, overall oil industry inventories likely will remain quite elevated through calendar 2016. So even if in the near term the broad GSCI rallies further from its current level (which likely would occur alongside a further modest S+P 500 ascent and dollar slide from their current altitudes), it probably ultimately will challenge its late August 2015 low.


As the enrapturing Goldilocks Era ended, stocks peaked before commodities. The S+P 500’s major high was 10/11/07’s 1576, with that in emerging marketplaces (MXEF) alongside it on 11/1/07 at 1345. The broad GSCI made its major peak on 7/3/08 at 894 (the Bloomberg Commodity Index (“BCI”) top also was on 7/3/08, at 238.5). However, this was close in time to the S+P 500’s final peak at 1440 on 5/19/08 (and the MXEF’s final top at 1253 on 5/19/08), and not long after the TWD’s important April 2008 low near 84.2 (Fed H.10; monthly average). The GSCI’s 2/19/09 major low at 306 (BCI bottom 2/26/99 at 74.2) occurred near the S+P 500’s major bottom, 3/6/09 at 667, which occurred alongside the TWD’s March 2009 major top at 96.9. The MXEF’s major trough occurred 10/28/08 at 446, its final low 3/3/09 at 471.

During the worldwide economic recovery that set sail around 2009, neither commodities in general nor the MXEF surpassed their 2008 plateau.

The major high in commodities in general and the MXEF (spring 2011) and their important 2014 interim tops occurred before the S+P 500’s May 2015 height. This pattern differs from the 2007-08 one. In late spring 2015, the S+P 500 (as did China’s Shanghai Composite stock index) nevertheless joined (encouraged) the slump in the MXEF and commodities alongside an acceleration of US dollar strength. Thereafter, as in the speeding up of the global economic crisis after around mid-2008, the S+P 500, MXEF, and broad GSCI retreated together in conjunction with TWD appreciation. Also note the similar late August 2015 troughs in commodities and stocks. Though more recent data from the Fed on the TWD eventually will emerge, key US dollar cross rates in the past couple of weeks hint the broad TWD perhaps has slipped a bit since its September 2015 high.


Is OPEC’s new policy of reducing high-cost (non-OPEC) production succeeding? Some, but not a great deal so far. Despite the dive in drilling rig counts, OECD days coverage levels and the worldwide supply/demand balance for 2015 and 2016 reveal plentiful petroleum.

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Commodities- Captivating Audiences (10-12-15)

SHAKIN’ ALL OVER: MARKETPLACE FEARS © Leo Haviland August 13, 2015

China’s recent shocking currency devaluation underscores not only that country’s ongoing growth slowdown, but also its leaders’ fears that real GDP expansion rates will ebb further. China of course is not the only emerging/developing nation nervous about insufficient output or even recessions. Trends in the broad real trade-weighted US dollar, emerging stock marketplaces, and commodities “in general” signal (confirm) slowing growth in both emerging and OECD economies. Moreover, recent pronouncements by the International Monetary Fund regarding the central bank policies of key advanced countries manifest widespread worries about growth in these well-developed territories. Despite about seven years of highly accommodative monetary policies such as yield repression and money printing (and frequently bolstered by hefty deficit spending), the foundations of worldwide growth increasingly look shaky.

China’s devaluation assists the long-running bull charge in the broad real trade-weighted US dollar (“TWD”). China represents about 21.3 percent of the TWD (Federal Reserve, H.10).


Are central banks and politicians always devoted to so-called “free markets”? To what extent do they restrict themselves from entering into and manipulating marketplaces?

In any case, the Federal Reserve, European Central Bank, Bank of Japan, and Bank of England have long been married (roughly seven years) to highly accommodative monetary policies. They do not seem to be in a rush to change them substantially anytime soon. The Fed’s apparent willingness to make a minor (gradual) boost in the Federal Funds rate in the near term is not a dramatic shift in its highly accommodative policy.

Inflation (and interest rate) and unemployment targets are not divorced from opinions regarding what constitutes sufficient (appropriate; desirable) real GDP growth levels and trends. An economic boom currently does not exist in the OECD in general. So if substantial “normalization” of monetary policy is not imminent among key advanced nations, then arguably central bankers believe that prospective growth GDP probably will remain rather feeble for at least the near term.


Former Federal Reserve Chairman Alan Greenspan coined the phrase, “irrational exuberance” (Speech, “The Challenge of Central Banking in a Democratic Society, 12/5/96). About two decades later, this financial guardian proclaimed (Bloomberg Television interview, 8/10/15): “I think we have a pending bond market bubble.” Of course, as in 1996, defining and identifying a bubble and predicting when (and why and how) it will pop and the consequences of such an event remains challenging.

Flights to quality can play a role in creating low interest rate yields, particularly in the safe haven government debt securities of countries such as the United States and Germany. However, sustained yield suppression by the Federal Reserve, the European Central Bank, and others, which motivates avid searches for yield (return) in assorted financial playgrounds (including stocks), surely encourages low interest rates in both government and many other debt arenas. Think of corporate bonds. In any case, suppose there is a bond price bubble (“too high” or “overvalued” bond prices; too depressed yields) in the United States. So presumably as various marketplaces interconnect in today’s global economy, if American bond prices are at bubble levels, then arguably prices in other realms, as in the S+P 500, some real estate sectors, or the art world (painting), consequently could be inflated.

Were the S+P 500, US real estate, and art at the end of the Goldilocks Era in 2007 rather lofty?

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Shakin' All Over- Marketplace Fears (8-13-15)