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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ADVENTURES IN STOCK LAND: THE S+P 500 AND OTHER DOMAINS © Leo Haviland October 3, 2019

“For, you see, so many out-of-the way things had happened lately, that Alice had begun to think that very few things indeed were really impossible.” Lewis Carroll, “Alice’s Adventures in Wonderland” (Chapter I)

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CONCLUSION

The S+P 500 probably started a bear trend following its summer 2019 highs at 3028 (7/26/19)/3022 (9/19/19). A survey of the S+P 500 over the past several years alongside trends for other key advanced nation stocks, travels of emerging marketplace equities, and patterns in several other financial marketplaces underscores this.

This United States equity benchmark thus finally links more closely with the extensive bear trend in emerging marketplace stocks “in general” which embarked after first quarter 2018. The essay “Running for Cover: Marketplace Exits” (8/9/19) stated: “The S+P 500’s decline since its late July 2019 high probably is the start of price convergence between it and emerging marketplace stocks.” And: “the S+P 500 probably is in, or soon will begin, a bear trend.”

The S+P 500’s price divergence relative to leading equity signposts in other developed nations over roughly the past year and a half was significantly less than that relative to emerging marketplaces. However, nowadays it appears likely that prices for notable American, European, Japanese, and Canadian stock playgrounds will continue to retreat together.

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An ardent hunt for “yield” (“return”) in various financial marketplaces (not just stocks) began around end-year 2018. Recall the S+P 500’s 12/26/18 valley at 2347 and the Federal Reserve promulgation of its monetary policy principles of “patience”. In addition to buying the S+P 500, yield pilgrims searched for reasonable (sufficient) return in domains such as other advanced nation stocks, emerging marketplace stocks, lower-grade United States corporate debt, emerging marketplace sovereign debt securities denominated in US dollars, and the commodities sector (witness the petroleum complex).

That frantic quest for adequate yield (return) likewise probably is finished, even though yield-seeking (especially in a low or even negative interest rate environment) of course has not disappeared entirely. As “Running for Cover” (8/9/19) stated, players who raced to identify and achieve “good” returns (by purchasing asset classes such as stocks and commodities) at the end of calendar 2018 and for several months thereafter in these sectors probably have started running for cover (begun to liquidate their long positions). Many other investors/owners in these marketplaces probably are running for the exits too.

The US Treasury 10 year note’s yield decline began in autumn 2018 at around 3.25 percent. Marketplace coaches may attribute interest rate drops in early 2019 to factors such as central bank easy money wordplay and schemes. However, the UST’s yield fall from 5/28/19’s height near 2.30pc also represents a “flight to quality” stage for UST yields. That yield withering, especially its dive beneath two percent, is a bearish signal for American and other stocks.

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Other bearish signs for the S+P 500 and related stock marketplaces include recent mediocre United States corporate earnings, the inversion of the US Treasury yield curve, ongoing international trade wars, substantial global indebtedness, the waning power of the Federal Reserve and its central banking friends to maneuver stock prices higher, and populist pressures in America and abroad.

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Adventures in Stock Land- the S+P 500 and Other Domains (10-3-19)

BUSLOAD OF FAITH: FINANCIAL MARKETPLACES © Leo Haviland, January 15, 2018

In his song “Busload of Faith”, Lou Reed chants: “you need a busload of faith to get by”.

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CONCLUSION

The United States 10 year government note is a widely-watched marketplace benchmark and guide. It ended its major bull move in summer 2016, establishing a yield bottom on 7/6/16 at 1.32 percent. Although the rate for the US Treasury 10 year note has walked peacefully sideways in a fairly narrow path over the past year or so, its yield nevertheless on balance has crept upward from its 9/8/17 interim trough at just over two percent toward its critical barrier around 2.65pc. In the UST’s bear move, the UST yield probably will pierce this 2.65pc target in the near term, with 1/2/14’s 3.05pc elevation the next height in sight.

After establishing a major top in December 2016/January 2017 at 103.2, the broad real trade-weighted US dollar (“TWD”; Federal Reserve, H.10; monthly average) slipped 7.8 percent to 95.2 in September 2017, slightly below crucial support around 96.2 to 96.6. Despite a slight bounce for a couple of months following that September depth, the TWD has renewed its bearish assault on 96.2/96.6 and probably will break decisively beneath that floor (and September 2017’s minor low) relatively soon.

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Economic phenomena and fields interrelate in various fashions. Apparent links and relationships between financial (and political) variables and trends (including convergence/divergence and lead/lag ones) of course can change, sometimes dramatically. In any case, although marketplace history is not marketplace destiny, historical analysis still can offer guidance regarding future probabilities.

The current intertwined relationship and trends of rising US Treasury yields alongside the weakening United States dollar likely is of substantial significance for financial marketplaces in general, not just US government interest rates and key currencies.

History signals that climbing US interest rate yields often precede (connect with; lead to) pinnacles in the Dow Jones Industrial Average and the S+P 500. In the current economic and political landscape, further feebleness in the broad real trade-weighted US dollar probably will warn of (or confirm) important tops in advanced nation and emerging marketplace stock marketplace benchmarks.

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See “Marketplace Vehicles: Going Mobile” (12/13/17), “History on Stage: Marketplace Scenes” (8/9/17), and other essays.

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Busload of Faith- Financial Marketplaces (1-15-18)

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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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)

STOCK MARKETPLACES: AT THE CROSSROADS © Leo Haviland, September 4, 2017

“Money beats soul, every time.” “Roadhouse Blues”, by The Doors, with John Lee Hooker

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CONCLUSION AND OVERVIEW

Many observers (including stock owners) are complacent about prospects for the emergence of significant stock marketplace declines, particularly in regard to the United States stock arena. Even a ten percent drop in US equities would shock many audiences. The S+P 500 and related American benchmarks nevertheless have been in the process of establishing an important top. The glorious long run bull advance in American stocks which started with the S+P 500’s major bottom at 667 on 3/6/09 probably is at or near its end. The S+P 500’s record height to date is 8/8//17’s 2491. That S+P 500 elevation probably will not be exceeded by much, if at all.

American stocks “in general”, although not an isolated island, have their own “individual” stories, as do assorted other stock marketplaces, whether in relation to earnings, valuations, or other phenomena. Yet marketplace history in recent years suggests that prices of stock marketplace signposts for other advanced (developed) nations and for emerging marketplaces “in general” likely will accompany any notable downtrend (including a bear move) in US equities.

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Admittedly, since first quarter 2016, and especially after around America’s November 2016 Presidential election, emerging stock marketplaces generally have rallied alongside the S+P 500 and its domestic comrades such as the Dow Jones Industrial Average, Nasdaq Composite, and Wilshire 5000. But the MSCI Emerging Stock Markets Index, from Morgan Stanley (“MXEF”), a guide for emerging stock marketplaces, is around major resistance and (unlike the S+P 500) well below all-time highs.

Owners of (particularly “investors”) American and international equities hopeful of enjoying further upward rides should note other significant yellow warning lights. In mid-year 2017, leading European and Japanese stock marketplaces established highs. The S+P 500’s 6/19/17 interim top at 2454 occurred around the time of these highs. However, these European and Japanese mid-2017 stock tops have not been broken. And the S+P 500’s August 2017 high exceeds its June 2017 one by only 1.5 percent.

But after their dreary troughs in first quarter 2016, didn’t Germany’s DAX and the United Kingdom’s FTSE exceed their spring 2015 plateaus, as did the S+P 500 (5/20/15 high 2135). Yes, but the April 2015 summit for a broader measure for European stock performance, the STOXX Europe 600 Index (“SXXP”), remains intact. Japan’s June 2015 Nikkei height likewise remains a roadblock.

The adventures of Canada’s S+P/Toronto Stock Exchange Composite Index (“SPTSX”) are also a bearish sign to worldwide stock marketplaces. It has failed to vault over its February 2017 top (established prior to the mid-2017 ones in Europe and Japan). Also, February 2017’s SPTSX plateau edged only 1.6 percent above its September 2014 pinnacle.

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Stock Marketplaces- at the Crossroads (9-4-17)