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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Nevertheless, compare the first several years of the US Treasury yield curve relative to current and forecast inflation statistics from the CBO. Real returns look negative. The two year UST note is about .25pc, with the five year UST .65pc (under one percent). So although US inflation has been low, the Fed’s yield repression interest rate policy (whatever its merits), which probably will extend at least through end 2014, tends to cheat savers in UST (and assist the US government debtor- “We, the people”, in a representative government). Lower interest rates for the UST benchmark help to slash yields for (lower real costs for) and thus benefit other debtors/borrowers (state, local, corporate, household). Creditors/lenders correspondingly suffer via reduced real return relative to inflation. Admittedly, marketplace gardeners can argue that the Fed’s current interest rate agenda benefits “all of us” over the long run.

The Fed’s ongoing worries about unemployment in particular (and economic strength in general) underline (reflect) its willingness to suppress policy rates.

Perspectives on the output gap intertwine with analysis of and opinions regarding appropriate employment and unemployment levels. Sustained high unemployment levels may reflect a large output gap, if the economy’s productive potential remains as substantial as most economic wizards believe. However, sustained high unemployment in the face of determined longstanding Federal Reserve easing (and political deficit spending) argues that the output gap (long run productive potential) is significantly less than the IMF and Federal Reserve contend. Suppose the output gap is less than the widespread faith. Then allegedly “normal” (long run) unemployment may be greater than the Fed asserts.

So suppose unemployment unfortunately will tend to remain historically high (above current theories regarding “normal” levels) in part due to the reduction in productive potential (GDP). If so, the Fed’s well-intentioned highly accommodative policies eventually run a noteworthy risk of helping greater than desirable inflation to blossom, even if this takes an extended time to develop.

Current high unemployment levels, as well as trends in some employment measures going back to calendar 2000 (and thus preceding the economic disaster that emerged in 2007), suggest that “normal” unemployment levels probably are quite a bit higher than the Fed and many others believe. If so, America’s productive potential and its output gap also probably are less than the Fed argues.

Dig into some other key employment statistics (from the BLS; Labor Force Statistics from the Current Population Survey). Again look further backward in time than the dawn of the economic crisis in 2007. Like the official and U-6 unemployment data, both the employment-population ratio and the civilian labor force participation rate suggest that there has been a secular decline in America’s “employability potential” and productive capacity.

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The Growth Game- US Unemployment and Federal Reserve Policies (9-10-12)

FURIOUS FINANCIAL FLUCTUATIONS © Leo Haviland, August 15, 2011

Burning passion for another is not the only love which makes us shake. When fear of losing substantial sums creeps up on numerous money lovers in intertwined financial playgrounds, both the players and their marketplaces can quiver violently.

Many pundits define a bear marketplace as a 20 percent slide from a noteworthy price top. Though the S+P 500 nosedived about 20 percent from its 5/2/11 high around 1371 to its 8/9/11 low near 1100, it then rallied sharply. On 8/9/11, the United States 10 year Treasury note touched yield lows of just over two percent. This matched the bottom achieved on 12/18/08 during the previous “flight to quality” panic in the (still-running) economic crisis that erupted in 2007. Given this equity and debt support, will things calm down much? No. The economic and political scenery has not sufficiently changed. Relationships within and between various financial arenas and their variables probably will vary to some extent as time passes, but the current entangled key financial factors will remain powerful, volatile, and intertwined. Although there will be occasional intermissions, turmoil in and between key equity, interest rate, currency, and commodity theaters therefore will not cease anytime soon.

Why place blind faith in the 2013 low rate policy, for the Fed confesses it changes its viewpoints? In addition, consider the Fed’s policy track record relative to its “original” expectations. Economic growth has been considerably lower than the Fed “had expected”. The Fed “now expects” a slower pace of recovery. Just as the Fed this month adjusted its policy by speaking of low Fed Funds through mid-2013, it eventually may alter its present course. Historians recall that the Fed’s quantitative easing floods likewise represented policy changes due to marketplace developments. Besides, how accurate were the Fed’s economic forecasts in 2007 and 2008, at the dawn and during the early stages of the acceleration of the economic crisis? So as Fed expectations change, so may its actions, whether on rates, quantitative easing, or otherwise.

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Furious Financial Fluctuations (8-15-11)