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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SHAKIN’ ALL OVER: FINANCIAL AND POLITICAL TURMOIL©Leo Haviland April 1, 2025

The Guess Who sing in “Shakin’ All Over”: 
“That’s when I get the chills all over me
Quivers down my backbone
I got the shakes in my thigh bone
I got the shivers in my knee bone
Shakin’ all over”.

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CONCLUSION

The United States (and global) economy probably will slow down substantially. The risk of a recession is substantial. Forces warning of American and international economic weakness are widespread. What are some of these factors? 

United States inflation benchmarks such as the Consumer Price Index have receded toward the Federal Reserve’s two percent objective, but they remain far enough above that target to preclude near term easing by the Fed in the absence of substantial economic weakness. The Fed has adopted a cautious strategy regarding further rate cuts. Moreover, this guardian may need to raise rates if inflation increases more than expected. 

The optimistic rhetoric regarding and devoted faith in the strategies of “Make America Great Again” (“MAGA”) and “America First” do not preclude substantial economic (and political) dangers resulting from the implementation of those programs. The essence (broad outlines) of President Trump’s probable tariff plans (which currently appear more extreme than most had expected he would impose), will generate inflation, damage consumer and business confidence, and (at least for the near term) hamper domestic (and worldwide) economic growth. Substantial protectionism does not necessarily create beneficial outcomes. America’s trading partners will retaliate. Everyone remembers that trade (tariff) wars encouraged the Great Depression to begin in 1929. In addition, the tax and immigration policies embraced by Trump and his allies represent noteworthy inflationary risks. 

Also, the long term and arguably even the near term US fiscal situation and its management are dangerous. American deficit spending and debt levels represent ongoing problems. These challenges preceded Trump’s inauguration on 1/20/25, but despite spirited talk of and hunts for fiscal savings, the current Administration’s schemes probably will worsen the nation’s debt situation. Massive fiscal expansionism over an extensive time span arguably at some point can begin to endanger rather than bolster economic growth, in part because the combination of substantial deficit spending and a very large government debt as a percentage of GDP tends to boost interest rates, especially longer term ones. Significant fierce debates regarding spending and the debt ceiling loom. 

America is not a developing/emerging marketplace nation. Yet as in those other countries, mammoth and growing US federal debt, especially in conjunction with fierce ongoing US political conflict and inflationary phenomena (encouraged by massive US tariffs), could produce a further noteworthy yield jump. There is a substantial chance that the UST 10 year’s October 2023 summit will be attacked over the next several months. However, if the American economy threatens to or actually enters a recession, the UST 10 year probably will assault 9/17/24’s 3.60 percent low. 

The essay “As the World Turns: Marketplace Battlefields” (1/1/25) emphasized: “Many times over the past century, significantly increasing United States interest rates have preceded a major peak, or at least a noteworthy top, in key stock marketplace benchmarks such as the Dow Jones Industrial Average and S+P 500. The UST 10 year note’s yield increase from 9/17/24’s 3.60 percent interim low, and especially alongside the recent runup stage from 12/6/24’s 4.13pc to 12/26/24’s 4.64pc probably warns of a significant decline in the S+P 500 from 12/6/24’s 6100, especially since the Federal Reserve’s real Broad Dollar Index has rallied in recent months and is now probably “too strong”. The S+P 500 price probably will not exceed its December 2024 high by much, if at all.” 

Note the S+P 500’s 5.4 percent initial dip from 12/6/24’s elevation to 1/13/25’s 5773. The UST 10 year yield nevertheless continued its climb after 12/6/24’s 4.13pc interim low to reach 1/14/25’s 4.81pc. The S+P 500 peaked not long thereafter, on 2/19/25 at 6147. This S+P 500 pinnacle surpassed 12/6/24’s interim high by less than one percent. With 1/14/25’s 4.81 percent high, the UST 10 year note yield traveled above 4/25/24’s important top at 4.74pc and neared 10/23/23’s 5.02pc peak. The S+P 500 collapsed from 2/19/25’s pinnacle to 3/31/25’s 5489, a 10.7pc slump in merely six weeks. The S+P 500’s 3/31/25 low probably will be broken, even if Trump chooses to make his upcoming 4/2/25 Liberation Day tariff regime less burdensome in order to support stock prices. Though bullish optimism about corporate earnings for calendar years 2025 and 2026 persists, and even if the Trump Administration manages to engineer a noteworthy tax cut and reduce government spending to some extent, an eventual bear move in the S+P 500 of around 20 percent or more from February 2025’s peak will be unsurprising. History shows that most US bear stock trends do not end in less than two months. 

A substantial and persistent decline in the S+P 500 would warn of (or confirm) an economic downturn.

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Shakin' All Over- Financial and Political Turmoil (4-1-25)

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).

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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.

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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)