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)

MARKETPLACE RELATIONSHIPS: LIFE DURING WARTIME © Leo Haviland March 7, 2022

In Mario Vargas Llosa’s novel “The War of the End of the World” (Part III, chapter II), the Baron de Canabrava declares: “‘The times are out of joint…Even the most intelligent people are unable to make their way through the jungle we’re living in.’”

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CONCLUSION AND OVERVIEW

Russia’s invasion of Ukraine halted, but did not end, the major trend for rising yields in the United States Treasury marketplace which commenced in March 2020 and accelerated in early August 2021. Despite this “flight to quality” (safe haven) pause, the long run pattern for increasing UST rates eventually will resume. Substantial inflation in America and the OECD relative to recent interest rate levels as well as globally high government (and other) debt levels will propel UST rates upward. Previous essays pointed not only to rising rates for high-quality government debt outside of the United States, as in Germany. A pattern of higher yields in the United States corporate sector as well as in lower quality emerging marketplace sovereign debt appeared. Thus a long run rising yield environment is an international phenomenon.

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Convergence and divergence (lead/lag) patterns between marketplaces can change or transform, sometimes dramatically. Marketplace history does not necessarily repeat itself, either entirely or even partly. Marketplace history nevertheless provides guidance regarding the probabilities of future relationships.

“History on Stage: Marketplace Scenes” (8/9/17) and subsequent essays updating it (such as 3/9/21’s “Truth and Consequences: Rising American Interest Rates”, “Financial Marketplaces: Convergence and Divergence Stories” (4/6/21), “American Inflation and Interest Rates: Painting Pictures” (5/4/21), and “Paradise Lost: the Departure of Low Interest Rates” (2/9/22) emphasized: “Marketplace history need not repeat itself, either entirely or even partly. Yet many times over the past century, significantly increasing United States interest rates have preceded a noteworthy peak in key stock marketplace benchmarks such as the Dow Jones Industrial Average and S+P 500. The yield climb sometimes has occurred over a rather extended time span, and the arithmetical (basis point) change has not always been large.” The US Treasury marketplace has been an important standard for this analysis. The 10 year UST note is a key benchmark.

What about trends for the S+P 500 and other advanced nation stock battlegrounds? Quite some time prior to Russia’s 2/24/22 attack on Ukraine, rising interest rates and tumbling emerging equity marketplaces warned that the S+P 500 probably would fall significantly. “Emerging Marketplaces, Unveiling Dangers” (12/2/21) concluded that “the S+P 500 probably has established a notable top or soon will do so”. “Paradise Lost: the Departure of Low Interest Rates” (2/9/22) stated: “The S+P 500’s stellar high, 1/4/22’s 4819, probably was a major peak; if its future price surpasses that celestial height, it probably will not do so by much.” “The S+P 500 price probably will decline further and establish new lows beneath the January 2022 trough. The development of a bear trend (decline of at least 20 percent) also is probable.”

Significantly, the S+P 500’s 1/4/22 high at 4819 and its initial 12.4 percent correction to 1/24/22’s 4223 preceded Russia’s late February 2022 invasion by several weeks. Thus that attack did not initiate significant S+P 500 weakness. In addition to the rising yields (increasing inflation; as well as lofty debt levels and outlook) and feeble emerging stock marketplaces, arguably high valuations from the historic perspective for the S+P 500 also existed prior to the Russia/Ukraine war. The strong United States dollar prior to the attack also pointed to stock marketplace weakness. The US dollar remains robust. The vicious bull spike in petroleum, wheat, and many other commodities since the invasion further undermines the S+P 500 and related stock domains. Looking forward, the S+P 500 probably will continue to retreat.

As “Paradise Lost” stated, the UST 10 year note yield probably will climb to at least the 2.50 to 3.00 percent range, with a substantial likelihood of achieving a considerably higher summit. The Federal Reserve and other heroic central banking generals probably will not deploy substantial actions to rescue the S+P 500 unless it tumbles around twenty percent or more from a prior pinnacle.

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Marketplace Relationships- Life During Wartime (3-7-22)

PARADISE LOST: THE DEPARTURE OF LOW INTEREST RATES © Leo Haviland February 9, 2022

Kenneth Burke remarks in “A Grammar of Motives”: “And so one can seek more and more money, as a symbolic way of attaining immortality.”

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CONCLUSION AND OVERVIEW

In both stock and debt marketplace domains (and especially in stock arenas), securities owners (particularly “investors”) and their central banking, political, and media allies adore bullish price trends and employ artful rhetoric to promote them. Bullish enthusiasm for low yields in debt marketplaces of course has its limits. Central bankers (and stock investors and Wall Street and Main Street) do not want recessions or deflation and consequently “too low” interest rates, which are “bad” for (reflect or portend feebleness in) “the economy” and equities. But sometimes even negative nominal yields for government debt of leading advanced nations (such as Germany) allegedly are reasonable and praiseworthy. Moreover, for stock marketplaces, bull moves almost always are joyful and good!

All else equal, for equity realms such as America’s S+P 500, low (but not overly depressed) arithmetic interest rates and widespread faith that this rate pattern probably will persist for the foreseeable future tend to give birth to and sustain bullish stock trends. Over the past several years (and despite the horrifying stock price crash in first quarter 2020), ongoing and successful yield repression (enhanced by money printing and fortified by accommodative sermons) by the revered Federal Reserve Board and its trusty friends, and often aided by massive government deficit/”stimulus” spending, encouraged major bull climbs in the United States stock marketplace. In addition, low interest rates (often negative in real terms) in advanced countries such as the United States inspired financial pilgrims avidly searching for adequate “yield” (return) to purchase corporate debt securities and other “asset classes” such as commodities.

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Previous essays discussed key stock, interest rate, currency, and commodity marketplaces and their relationships, as well as the political scene. See essays “Emerging Marketplaces, Unveiling Danger” (12/2/21); “Hunting for Yield: Stocks, Interest Rates, Commodities, and Bitcoin” (11/7/21); “Rising Global Interest Rates and the Stock Marketplace Battlefield” (10/5/21); “America Divided and Dollar Depreciation” (9/7/21); “Great Expectations: Convergence and Divergence in Stock Playgrounds” (8/14/21); “Financial Fireworks: Accelerating American Inflation” (7/3/21); “Marketplace Rolling and Tumbling: US Dollar Depreciation” (6/1/21); “American Inflation and Interest Rates: Painting Pictures” (5/4/21); “Financial Marketplaces: Convergence and Divergence Stories” (4/6/21); “Truth and Consequences: Rising American Interest Rates” (3/9/21).

Several months ago, that analysis concluded that the signpost United States Treasury 10 year note yield had established a major bottom. Essays emphasized, in contrast to the opinion of the majority of central bankers, the likelihood that substantial global inflation likely would persist. Higher inflation alongside massive and increasing international debt burdens probably would encourage higher interest rates around the world.

Also, long run United States interest rate history (use the UST 10 year note as a benchmark) reveals that noteworthy yield increases lead to peaks for and subsequent declines in American stock benchmarks such as the S+P 500 and Dow Jones Industrial Average.

Investigation pointed to rising rates for high-quality government debt outside of the United States, as in Germany. A pattern of higher yields in the United States corporate sector as well as in lower quality emerging marketplace sovereign debt appeared. Thus a rising rate environment has become a global phenomenon. Given not only the upward march of yields in the UST 10 year note, but also the international trend of rising rates, the probability of a peak in the S+P 500 and related leading nations increased.

 

America’s S+P 500 and stocks in other advanced nations soared to new highs after February 2021 while emerging marketplace equities have marched downhill (price divergence). However, the chronicle of those two broad marketplace realms at least since the Goldilocks Era of the mid-2000s reveals that their price and time trends tend to coincide. Over the long run, these landscapes are bullish (or bearish) “together”. In the current constellation of rising American and international yields, in both government and corporate areas, that warned of eventual price convergence between the S+P 500 and emerging marketplace stocks. The S+P 500’s record high in early January 2022 occurred near in time to interim highs in developing nation equities.

“Emerging Marketplaces, Unveiling Dangers” (12/2/21) concluded: “These intertwined patterns warn that the S+P 500 probably has established a notable top or soon will do so”.

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The longer run viewpoints of “Emerging Marketplaces, Unveiling Dangers” and related recent essays remain intact. The paradise of low interest rates in the United States and around the globe will continue to disappear. This ominous upward yield shift in the UST 10 year note and elsewhere endangers the heavenly bull move in the S+P 500 and related stock marketplaces. The S+P 500’s stellar high, 1/4/22’s 4819, probably was a major peak; if its future price surpasses that celestial height, it probably will not do so by much.

The UST 10 year note yield probably will ascend to at least the 2.50 to 3.00 percent range, with a substantial likelihood of achieving a considerably higher elevation. The Federal Reserve and other high priests of central banking probably will not engage in substantial actions to rescue the S+P 500 unless it tumbles around twenty percent or more from a prior pinnacle.

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Paradise Lost- the Departure of Low Interest Rates (2-9-22)

EMERGING MARKETPLACES, UNVEILING DANGER © Leo Haviland December 2, 2021

In the film “The Deer Hunter” (Michael Cimino, director), a character asks: “Did you ever think life would turn out like this?”

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OVERVIEW AND CONCLUSION

Prices for both emerging marketplace stocks and emerging marketplace debt securities “in general” peaked in first quarter 2021. The price tops (yield bottoms) in key emerging marketplace interest rate instruments (around early January 2021) preceded mid-February 2021’s summit in “overall” emerging marketplace equities. Emerging marketplace debt securities established interim price troughs in March 2021, and their prices thereafter rallied (yields fell) for several months. However, yields for those benchmark interest rate securities thereafter have climbed, and that has coincided with slumping prices for emerging marketplace stocks. Moreover, stocks for these developing nations have made a pattern of lower and lower interim highs since February 2021.

This price convergence between emerging marketplace stock and debt securities probably will continue, and prices in both arenas will continue to decline.

The latest coronavirus variant (Omicron) can encourage falls in both advanced nation and emerging stock marketplace prices, but it is not the only bearish factor for them. Rising interest rates and massive debt also play critical roles in this theater. Substantial global inflation and increasing debt burdens encourage higher interest rates around the world, despite the efforts of leading central banks such as the Federal Reserve Board and its allies to repress yields. The Fed’s recent tapering scheme and its related rhetoric portend eventual increases in policy rates (Fed Funds) and higher yields in the United States Treasury field and elsewhere. Moreover, long run United States interest rate history shows that noteworthy yield increases lead to peaks for and subsequent declines in American signposts such as the S+P 500 and Dow Jones Industrial Average.

The recent rally in the US dollar undermines prices for emerging marketplace debt instruments (both dollar-denominated sovereign and corporate fields) and thereby emerging marketplace stocks. All else equal, rising interest rates (particularly in the US dollar domain), especially when linked with US dollar appreciation, increase burdens on emerging marketplace sovereign and corporate borrowers.

Convergence and divergence (lead/lag) patterns between marketplaces can change or transform, sometimes dramatically. Marketplace history does not necessarily repeat itself, either entirely or even partly. But marketplace history nevertheless provides guidance regarding the probabilities of future relationships.

America’s S+P 500 and stocks in other advanced nations soared to new highs after February 2021 while emerging marketplace equities have marched downhill (price divergence). However, the chronicle of those two broad marketplace realms at least since the Goldilocks Era of the mid-2000s reveals that their price and time trends tend to coincide. Over the long run, these arenas are bullish (or bearish) “together”. In the current environment of rising American and international yields, that warns of eventual price convergence between the S+P 500 and emerging marketplace stocks. The S+P 500’s record high, 11/22/21’s 4744, occurred near in time to prior interim highs in developing nation equities. These intertwined patterns warn that the S+P 500 probably has established a notable top or soon will do so.

Many pundits label commodities in general as an “asset class”. Like stocks as well as low grade debt securities around the globe, and likewise assisted by yield repression (with UST yields low relative to inflation) and gigantic money printing, the commodities arena in recent years has represented a landscape in which “investors” and other players hunting for good (acceptable, sufficient) “returns” (“yields”) avidly foraged and bought. Sustained falls in commodity prices in general probably will link to (confirm) price slumps in both advanced and emerging marketplace stocks.

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Recall past financial crises in the past few decades in emerging (developing) nations (for example, Mexico; “Asian” financial crisis) and other important countries (Russia; Greece and several other Eurozone countries) which substantially influenced marketplace trends in more advanced nations. The “Mexican Peso” crisis emerged in December 1994, the terrifying “Asian” problem in July 1997. Russia’s calamity began around August 1998. The fearsome Eurozone debt troubles walked on stage in late 2009/2010. The coronavirus pandemic obviously has been a very severe global economic problem which has generated international responses by central bankers, politicians, and others. However, at present, no crisis similar to these various past national or regional ones, and which eventually might significantly affect the “world as a whole”, has spread on a sustained basis substantially beyond local (regional) boundaries. However, given current international inflation and debt trends, traders and policy-makers should not overlook minimize signs of and the potential for a genuine, wide-ranging economic crisis (perhaps sparked or exacerbated by the coronavirus situation).

Nowadays, consider country candidates for such dangers like Brazil, South Africa, Pakistan, and Turkey. For many emerging marketplace nations, their significant economic, political, and social divisions and related internecine conflicts can make it especially difficult for them to solve major economic challenges. After all, America is not the only country with significant internal “culture wars”. Though China’s troubled corporate real estate sector is not a nation, its massive size and influence makes it analogous to one. Those with long memories undoubtedly recall the “surprising” (“shocking”) problem uncovered in the United States housing (and related mortgage securities) marketplace (and other areas) during the 2007-09 worldwide economic disaster. Nowadays, if such a substantial predicament appears and is not quickly contained, it likely will be bearish for stock marketplaces around the globe.

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Emerging Marketplaces, Unveiling Danger (12-2-21)