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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PETROLEUM SPREADS AND FINANCIAL TRENDS © Leo Haviland December 10, 2012

Petroleum is a key part of the broad GSCI and many other commodity indices. Of course not all commodities travel in the same direction, for they have diverse supply/demand situations. And marketplace timing relationships are not precise; commodities (even within a specific sector such as petroleum) do not all embark in a bull or bear trend at or around the same time. The overall petroleum complex, a key chapter in the commodities in general story, nevertheless has marched more or less alongside the S+P 500.

Each of the assorted petroleum spreads has its own supply/demand variables. Picture a front-to-back intramarket NYMEX crude oil spread or a US Gulf Coast gasoline crack (refining margin) spread. An analytical connection portraying a relationship between petroleum spreads to the S+P 500 and economic recovery (decline) and Federal Reserve policies may seem to be a fairly long stretch.

Yet the price and time movements of one or more important petroleum spreads often “confirm” or warn of changes in outright price trends in the overall petroleum price complex (and its individual marketplaces such as Brent/NSea crude oil, or US Gulf Coast gasoline). So in a web where flat price petroleum patterns generally (roughly) coincide with those of the broad GSCI, trends in oil spreads offer guidance to the broad GSCI trend. Given the rather close bull (and bear) shifts between the GSCI and the S+P 500, petroleum spreads therefore sometimes can offer insight into S+P 500 trends (and into US and international economic growth trends as well). And so Federal Reserve policies tie into some petroleum spread marketplaces. Keep in mind, however, that perceived connections between petroleum spreads and these other domains are only guidelines, and they are not unchanging. Read the rest of this entry »

AMERICAN MARKETPLACES: AT THE CROSSROADS © Leo Haviland October 15, 2012

The world’s long-running economic crisis of course has not limited itself to either one nation or one region. However, at its outset in 2007, most did not anticipate the scope or length of the disaster. Weren’t potential risks to the international economy rather modest? Weren’t issues related to the United States real estate marketplace mostly relevant only to that domain and that nation, and likely to be restricted to them? Yet substantial debt and leverage (and other intertwined issues) and their consequences were not confined either to American territory or the real estate playground.

The recent Eurozone chapters of this terrible trouble supposedly started with so-called peripheral nations such as Greece, Portugal, and Ireland. Countries such as Greece indeed first captured headlines. However, that does not demonstrate that causes of Eurozone problems necessarily started only in them. In any event, “difficulties on the periphery” engulfed the rest of Europe and traveled around the globe.

Despite broad concerns regarding worldwide economic problems and risks, despite the widespread past and current fascination with the European scene, suppose one focuses on aspects of the American stage, beginning with some highlights involving the United States alongside Canada and Mexico in the foreign exchange context. This survey of America and its geographic neighbors underlines the weakness of the United States dollar and the size of America’s fiscal troubles. This suggests the merit of inquiring into US currency, stock, interest rate, and commodity marketplace past and future relationships in the context of Federal Reserve easing policies and America’s fiscal problems.

The broad real trade-weighted dollar probably will continue to weaken. The dangerous United States fiscal situation probably will not be genuinely fixed in the next several months. A full- fledged threat of a federal fiscal catastrophe likely will be necessary for sufficient progress in that sphere to occur. Though the United States is not the center of the universe, the effects of further dollar feebleness and the worsening of the country’s fiscal crisis will radiate worldwide.

The S+P 500 has made or soon will make a significant peak.

Thus the emerging (current) story and trend appears to be: weaker dollar (TWD), weaker S+P 500, and higher government rates (UST 10 year benchmark). This vision admittedly is dramatically different from the current popular faith in these marketplace relationships.




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American Marketplaces- At the Crossroads (10-15-12)
Charts- US Dollar v Canadian Dollar, Mexican Peso (10-15-12)

US CONSUMER CONFIDENCE: MANY HAPPY RETURNS? (c) Leo Haviland August 23, 2012

As America travels toward Labor Day, it pays to review the nation’s consumer confidence. Assorted measures perform as signposts to assess consumer attitudes and actions. For many, the United States stock marketplace (think of an “overall” benchmark such as the S+P 500) is one. The Conference Board’s United States Consumer Confidence Index is another widely watched indicator. Trends for the United States stock battleground do not precisely mirror those in the Consumer Confidence Index (“CCI”). Weathervanes such as the S+P 500 of course do not derive all their revenues or influences directly from Main Street dwellers or from American sources. The US, as the ongoing worldwide economic crisis that emerged in mid-2007 underscores, intertwines with Europe, China, Japan, and other countries around the globe. However, over the past several decades, there has been a rough link in the major patterns of the S+P 500 and the CCI. And many believe that major trends in US equities tend to parallel those of the American economy as a whole.

Stare at the S+P 500’s extensive ascent from its March 2009 abyss to its current new rally height on 8/21/12 over 1425, particularly the noteworthy stage from the October 2011 depth at 1075. Grandstanders might believe United States consumers generally are rather joyous, or that they soon will become so. The CCI indeed has climbed significantly from its February 2009 valley of 25.3 (the deepest of the 1967-present period). However, the CCI’s subsequent highs around 72.0 (February 2011 and February 2012) lurk far beneath those of 2000 and 2007 (January 2000’s 144.7 and July 2007’s 111.9). July 2012 flutters at a modest 65.9.

Admittedly the US CCI is only one yardstick for consumer confidence and thus to some extent of the strength and duration of economic recovery in America and elsewhere. Maybe sustained higher US equities and at least partial solutions to various troubles facing consumers (including those overseas) will encourage a significant CCI move over 72.0.

However, the feeble rally in the CCI in comparison with the S+P 500 since February 2009, and particularly after autumn 2011, raises significant questions regarding the present and future strength of the American economy (and even of the S+P 500). After all, US consumers are a substantial percentage (around 70 percent) of American GDP. Current US consumer confidence in context warns of economic weakness, or at least sustained sluggishness.

Summer 2012’s recent S+P 500 bull march to new highs over 1425 may continue a while longer. Yet the link between the S+P 500 and “the economy as a whole” is probably notably less than it was a several years ago. But the S+P 500 is not isolated from the economy. So this sustained mediocre (or renewed weakness in) the CCI is ominous for US stocks in general, particularly if other key consumer indicators such as housing, employment, and wages do not soon show substantial strength. Or, suppose there is not major progress on the American fiscal front.

The Gallup News Service recently polled Americans regarding their “confidence” in various “institutions in American society” (June 7-10, 2012). The category created by adding together the answers “great deal” and quite a lot” reveals dispiriting trends and levels that reflect current mediocre consumer confidence levels (as well as the broad erosion in confidence from the January 2000 CCI peak). Relatively weak consumer (Main Street) confidence in several key political and social institutions parallels many worries regarding America’s economic situation.

And anyways, America’s current national deficit and debt situation and its probable near term and long run fiscal prospects justify significant consumer concerns. Moreover, the housing, earnings, unemployment, and household debt factors also help to explain mediocre consumer confidence, both in absolute terms and relative to the S+P 500’s heights.

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US Consumer Confidence- Many Happy Returns (8-23-12)
US Consumer Confidence Chart (8-23-12)

STATE AND LOCAL TRAVELS: US NON-FEDERAL DEBT VISTAS © Leo Haviland, December 6, 2011

Europe’s ongoing sovereign debt and banking crisis grasps many headlines and excites worldwide fear. America’s continuous federal fiscal fiasco and restless debates regarding it will continue to capture attention as election year 2012 beckons. Yet noteworthy debt, deficit, and funding issues lurk in other financial corners.

In America, state and local debt topics generally feature less prominently in marketplace and national media commentary. However, the federal story is not the whole story. State and local debt is substantial. Moreover, pension (and other benefit) funding obligations represent a huge challenge for many states and communities. It pays to focus on these matters alongside federal and household indebtedness, for it further highlights the status and policies of the 50 United States as a major debtor nation.

In America, in principle, each citizen “is king of its castle”. However, in a representative democracy, it should not be surprising that debt trends and levels for “individuals in general” substantially mirror those for the nation as a whole. As thriftiness can be popular, so can appetite for debt.

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State and Local Travels – US Non-Federal Debt Vistas (12-6-11)