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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RISING GLOBAL INTEREST RATES AND THE STOCK MARKETPLACE BATTLEFIELD © Leo Haviland October 5, 2021

In “Life During Wartime”, the Talking Heads sing: “This ain’t no party, this ain’t no disco, this ain’t no fooling around.”

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CONCLUSION

Looking forward, United States Treasury yields probably will continue to rise. So will yields for government debt in Germany and other advanced nations. In general, yields of emerging market sovereign debt securities probably will keep climbing as well. US dollar-denominated corporate debt yields also will ascend. Substantial inflation and massive government debt are important variables for this rising interest rate outlook. Increasing yields for this array of debt securities around the globe probably have created (led to) an important top around early September 2021 for the American stock battlefield (S+P 500 high 9/2/21 at 4546) and related advanced nation and emerging marketplace stock arenas, or will soon do so. There is a significant probability that the S+P 500 and related equity domains have commenced or soon will begin bear trends.

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Rising Global Interest Rates and the Stock Marketplace Battlefield (10-5-21)

GREAT EXPECTATIONS: CONVERGENCE AND DIVERGENCE IN STOCK PLAYGROUNDS © Leo Haviland August 14, 2021

In Charles Dickens’s “Great Expectations” (Chapter 2), a character says: “Ask no questions, and you’ll be told no lies.”

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STOCKS: THE EMERGENCE OF SOME NOTABLE DIVERGENCE

In first quarter 2020, prices for an array of stock marketplaces cratered at approximately the same time as the S+P 500. They thereafter reached a major bottom “together” in late March 2020. Over subsequent months, magnificent bull moves occurred.

However, since around early mid-February 2021, prices for the S+P 500, European stock indices in general, and broad international benchmarks (including American stocks and those of other countries), have diverged from emerging stock marketplaces in general, China’s Shanghai Composite Index, and Japan’s Nikkei signpost.

Some important and widely-watched American large capitalization stocks have retreated fairly significantly in recent months despite the S+P 500’s onward march to new highs. If more marketplace leaders within the large capitalization stock fraternity (especially American ones) begin to decline, the greater the odds of price convergence between that group (picture the S+P 500) and small cap stocks (in the US and elsewhere), emerging marketplace stock realms (including China), and Japanese equities

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Great Expectations- Convergence and Divergence in Stock Playgrounds (8-14-21)

GAMES PEOPLE PLAY: FINANCIAL ARENAS © Leo Haviland December 1, 2020

“The Great Game: the Story of Wall Street….An original two-hour documentary event that spans the 200-year history of American capitalism.” NYTimes (over 20 years ago; 5/28/00; p13) regarding a CNBC television program broadcast 5/29/00

CONCLUSION

Financial marketplace investors, speculators, traders, hedgers, analysts, risk managers, and media have enjoyed, endured, or suffered an adventurous 2020! Substantial ongoing political and other cultural divisions and associated conflicts in the United States and elsewhere intertwined with and often enhanced the marketplace circuses. The coronavirus pandemic and the feverish economic (political) responses to its actual and potential ravages of course magnified agitation within marketplace playgrounds.

What are several key existing marketplace patterns worth watching by marketplace players as 2020’s finish line nears and calendar 2021’s competitions beckon?

First, prices in the S+P 500 and other benchmark US and global stock indices, lower-grade interest rate instruments within corporate fields ( and low-quality foreign dollar-denominated sovereign debt), and commodities “in general” often have risen (or fallen) at roughly the same time. They generally have climbed in significant bull ascents (and fallen in noteworthy bear retreats) “together”. These entangled domains thus have alternatively reflected joyous bullish enthusiasm as “investors” and other traders hunted for adequate return (“yield”), and scary bearish scenes as they scrambled frantically for safety. Whether the existing bull trend for American stocks in general (use the S+P 500 as a benchmark) persists is especially important for these connected landscapes.

Despite strenuous yield repression by the Federal Reserve Board and its central bank teammates, United States Treasury yields, using the UST 10 year note as a signpost, probably have commenced a long run increase. Despite widespread global desires for a sufficiently feeble home currency to promote economic recovery and growth, and the related willingness to engage in competitive depreciation to accomplish this, spring 2020 unveiled the onset of substantial US dollar weakness. Although the US dollar (using the Fed’s “Broad Dollar Index” as the yardstick) already has dived about ten percent from its peak, its long run pattern probably will remain down.

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Games People Play- Financial Arenas (12-1-20)

BORN TO BE WILD: AMERICAN ECONOMIC AND POLITICAL BATTLEFIELDS © Leo Haviland November 2, 2020

President Donald Trump’s “Inaugural Address” (1/20/17): “This American carnage stops right here and stops right now.”

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OVERVIEW AND CONCLUSION

Marketplace connections and patterns, including convergence and divergence (lead/lag) relationships between financial realms, are complex and not necessarily precise. They can shift or even transform sometimes dramatically. Marketplace history is not marketplace destiny; history does not necessarily repeat itself, either entirely or even partly.

“Adventures in Marketland: Hunting for Return” (10/6/20) and “Marketplace Maneuvers: Searching for Yield, Running for Cover” (9/7/20) display the intertwined price trends in assorted financial fields in recent times. Such interrelated territories include United States and other stocks, US corporate bonds, lower-grade foreign dollar-denominated sovereign debt, and commodities “in general”. Prices in the S+P 500 and other benchmark US and global stock indices, lower-grade interest rate instruments, and commodities often have risen (or fallen) at roughly the same time. They frequently have climbed in bull markets (and fallen in bear markets) “together”. These thus have alternatively reflected bullish enthusiasm as “investors” and other traders hunted for adequate return (“yield”), and dismal bearish scenes as they scrambled frantically for safety. For example, the magnificent bull moves in the S+P 500 and these “related” financial areas established important tops in early to mid-first quarter 2020 (S+P 500 on 2/19/20 at 3394). Their subsequent murderous bear crashes entangled, finishing around the same time, around late March 2020 (S+P 500 on 3/23/20 at 2192). The ensuing price rallies in the S+P 500 and these assorted other key provinces thereafter united, establishing peaks around early September 2020 (S+P 500 top on 9/2/20 at 3588; subsequent lower high 10/12/20 at 3550). See those essays for a detailed presentation of these price moves and their relationships since first quarter 2020.

“Marketplace Maneuvers: Searching for Yield, Running for Cover” (9/7/20) concluded that various phenomena indicate that these marketplaces are at or near important price highs and probably have started to or soon will decline together. “Adventures in Marketland” reemphasized this bearish outlook.

What bearish factors for the S+P 500 and various related marketplaces (other stock signposts, US corporate bonds, lower-grade foreign dollar-denominated sovereign debt, and commodities such as petroleum and metals) did “Marketplace Maneuvers” and “Adventures in Marketland” emphasize? They include the probability of a feeble global recovery (the recovery will not be V-shaped), the persistence of the coronavirus problem for at least the next several months, and lofty American stock marketplace valuations (and the substantial risk of disappointing late 2020 and calendar 2021 corporate earnings). Democrats probably will triumph in the 11/3/20 American national election, which portends a reversal of the corporate tax “reform” legislation as well as the enactment of increased taxes on high-earning individuals and the passage of capital gains taxes. Also on the US national political scene, fears have grown of a political crisis and legal fights if President Trump disputes the November 2020 voting outcome. Other warning signals of notable price falls in the S+P 500 and various associated battlegrounds include vulnerable United States (and other) households (reduced consumer spending) and endangered small businesses, massive and rising government debt, a greater risk of rising US interest rates (at least in the corporate and low-quality sovereign landscapes) than many believe (even with ongoing Fed yield repression), and weakness in the US dollar.

This bearish trend in the S+P 500 probably will continue. Even if Congress answers widespread fervent prayers and enacts another large deficit spending (stimulus) package, the S+P 500’s 9/2/20 peak probably will not be broken by much, if at all. Given recent relationships, a sustained fall in the S+P 500 probably connects with declines in the prices of the other asset sectors currently closely linked to it.

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As always, in the context of these various marketplaces, money-seekers should monitor US Treasury and other high-quality government debt yield levels and trends as well as US dollar and other currency patterns.

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Born to Be Wild- American Economic and Political Battlefields (11-2-20)