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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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)

MARKETPLACE CLIFFS © Leo Haviland June 25, 2012

Ongoing and mounting concern regarding European problems, especially within the sovereign debt and banking sector, has distracted many marketplace observers from concentrating closely on similar major American issues. The global economic crisis is a long way from being surmounted. Fiscal, banking, debt, and leverage challenges in Europe and the United States (and elsewhere) remain substantial. For the near term, the international crisis probably will worsen. Many perceive the S+P 500 as a rough benchmark measure for overall economic strength. The S+P 500 will head downhill, perhaps precipitously at times. It probably will decisively break beneath its early June 2012 low at 1267.

The International Monetary Fund’s “Fiscal Monitor” (“FM”, April 2012) provides helpful numbers. Analysts can debate which tables illuminate the situation best. Events since April 2012 would adjust the data somewhat.

The FM “general government” tables include state and local government debt with that of the national governments. Look at Table 1, General Government Balance. The United States was -9.6pc (a deficit) of GDP in 2011. The FM predicts -8.1pc in 2012 and -6.3pc in 2013. The overall Euro area deficit is actually lower for these years than the American one; it was -4.1pc in 2011, with -3.2pc for 2012, and -2.7pc in 2013. The US deficit falls only to -4.4pc in 2017, notably above the Euro area’s -1.1pc that year. What about some specific Euro area nations about which many tremble? In 2012, Italy’s general government balance is -2.4 percent, well under that of America’s. Portugal’s 2012 hole was -4.5pc. Spain’s 2012 balance, -6.0pc, also is beneath America’s (though an update to the FM probably would raise Spain’s deficit, placing it closer to the US 2012 range).

Review Table 7, General Government Gross Debt. The US gross debt was 102.9pc of GDP in 2011 (soaring from 66.6pc in 2006). The IMF predicts it will be 106.6pc in 2012 and 110.2pc in 2013. It stays at a plateau with 2017’s 113.0. Thus there is no progress in reducing it. Moreover, the US gross debt percentage exceeds that of the Euro area. Euro area gross debt was 88.1pc of GDP in 2011. The FM predicts 90.0pc in 2012, 91.0pc in 2013, and 86.9pc in 2017. Thus the US fiscal situation is worse than that of the Euro area as whole from this viewpoint as well.

In addition, note the US’s 2012 out to 2017 gross debt levels in comparison with those of Euro area crisis/bailout nations other than Greece. Admittedly Greece’s gigantic 153.2pc is larger, and its problems interrelate with those of the Eurozone as a whole. In 2012, Italy’s debt is 123.4pc of GDP, Spain’s 79.0pc. That of Ireland is 113.1pc, Portugal’s 112.4 pc. The average for 2012 of Italy, Spain, Ireland, and Portugal is 107.0pc. However, this is almost exactly that of the US’s 2012 debt of 106.6pc.

So this perspective underlines that as the Euro area has a scary fiscal (sovereign debt) problem, so therefore does the US.

Yet travel further and look at US total credit marketplace debt US (nonfinancial, financial, and rest of the world sectors combined), not government debt alone. In 1951, it was about 132.4pc of nominal GDP. It ascended gradually to 168.1pc by 1981. It climbed to 250.8pc in 1995, marching to just under 300 percent in 2002. During the marvelous Goldilocks Era economy, total US credit marketplace debt flew even higher, touching 362.8pc of GDP in 2007. It advanced more as the economic crisis emerged, reaching a pinnacle of 381.6pc in 2009.

So where is this total credit marketplace debt now? At the end of 1Q12, it remained at a very lofty altitude, 353.6pc. Not only does the long run increase in total credit marketplace debt display devotion to (economic reliance on) debt. The only slight slide from the 2009 peak to the 1Q12 level indicates that at some point more debt reduction (deleveraging) for “America as a whole” lies ahead, and thus a significant probability of a weaker economy (and even recession).

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Marketplace Cliffs (6-25-12)

FISCAL FINE PRINT © Leo Haviland, February 7, 2012

To create a sustained and substantial recovery, gurus and their audiences agree that much matters on the fiscal front. In the darker days of the economic crisis, most financial sentinels and their allies proclaimed that large sustained fiscal deficits were good (or at least acceptable, up to some point). Whatever have been the short term benefits of enthusiastic deficit spending campaigns in America and elsewhere, epic fiscal measures only shifted some of the debt (and leverage) burden from the private sector to the public one.

However, nowadays big sovereign debt generally is viewed as a problem. Most of the public hopes that noteworthy fiscal progress to reduce terrifying deficits has been made, is being achieved, or eventually (and soon enough) will be accomplished.

Let’s spend time surveying some fine print regarding the fiscal landscape, paying particular attention to Europe and America. At best, only limited advances have been made in recent wars against huge deficits. Actually, judging from their very modest results, these struggles to slash them look more like skirmishes than pitched battles.

A Financial Times front page headlines the European Union’s “tough fiscal treaty” (1/31/12; this refers to the “Treaty on Stability, Coordination and Governance in the Economic and Monetary Union”). Many applaud this treaty for its alleged fiscal hard line. It indeed takes a step towards resolving Europe’s sovereign debt and banking crisis, but a small step is not a giant leap. Despite the stagecraft of European leaders, the region’s fiscal challenges are not near to being resolved.

Though many states and municipalities face scary times, let’s focus on the federal deficit. The US fiscal situation remains fearful.

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Fiscal Fine Print (2-7-12)