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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FINANCIAL AGITATION ©Leo Haviland October 3, 2023


Listen to “Agitation”, jazz music from Miles Davis.


Let’s focus on the American horizon and the exciting US Treasury and S+P 500 marketplaces. 

Since around spring 2020, and particularly since August 2022, and especially in recent months, the UST marketplace has suffered noteworthy capital destruction due to falling prices. A glorious bull move in the  S+P 500 followed 3/23/20’s dismal bottom at 2192. The S+P 500 thereafter exploded upward, more than doubling, to establish a thrilling record high on 1/4/22 at 4819. After an agonizing bear slump to October 2022’s bottom, a significant joyful stock rally ensued. The S+P 500 approached January 2022’s peak, reaching a summit on 7/27/23 at 4607. The S+P 500 probably has commenced a bear trend, though its slump from its July 2023 peak has been moderate thus far. 


“Long Run Historical Entanglement: US Interest Rate and Stock Trends” (7/6/23) concluded: “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 yield climb sometimes has occurred over a rather extended time span. The arithmetical (basis point) change has not always been large. Sometimes the yield advance has extended past the time of the stock pinnacle.”

“Given the historic pattern in which UST [US Treasury; focus on the UST 10 year note] yield increases “lead” to peaks in key American stock benchmarks such as the S+P 500, do signs of a noteworthy rising yield trend exist on the interest rate front? Yes.” And “the pattern of rising UST 10 year note yields likely is leading to another peak in the S+P 500. This stock marketplace peak will probably occur relatively soon, probably within the next few weeks or months. However, even if the S+P 500 continues to climb, it probably will not exceed its January 2022 peak by much if at all.” 


The UST 10 year note yield increased since 3/9/20’s major bottom at .31 percent, accelerating upward from 8/4/21’s 1.13pc to 6/14/22’s 3.50 pc. The S+P 500 peaked during this rising yield trend on 1/4/22 at 4819. The UST 10 year note yield, after sliding down to 8/2/22’s 2.51 percent resumed its yield ascent. It made another important interim yield low with 4/6/23’s 3.25pc. With 8/22/23’s 4.37 percent, the UST 10 year pierced 10/21/22’s 4.34 percent high, achieved around the time of the S+P 500’s crucial trough on 10/13/22 at 3492. The UST 10 year note price kept falling, and the UST yield reached 4.81 percent on 10/3/23. A dramatic UST 10 year yield climb over five percent and toward 6/13/07’s 5.32 percent Goldilocks Era summit would further unnerve many UST (and stock) holders. 

In some circumstances, rising interest rates can indicate or portend adequate (good) real GDP growth, and thus from some perspectives (up to some point), increasing UST yields (falling debt prices) are designated as “good”. And investors in interest rate instruments of course want a decent (and real) return relative to inflation, so rising yields have been a blessing for many of them, at least to some extent. 

However, many institutions and individuals bought low-yielding UST during the Fed’s yield repression era. Their interest income during the past couple of years likely fell beneath inflation heights represented by the consumer price index. Many of these interest rate instrument owners probably have suffered some noteworthy mark-to-market damage to their principal; so have numerous other recent buyers given the rising rate trend of recent months. Nowadays, the average maturity of total outstanding marketable UST debt is about six years. 

From the price perspective, review the CME’s UST 10 year note (nearest futures continuation contract) as a rough guide to the capital consequences of recent trends. (In practice, this contract sometimes prices relative to deliverable grade instruments with a maturity somewhat different from ten years.) The UST 10 year peaked at about 140-22 on 3/9/20. Its recent low is 10/3/23’s 106-20 (as of 300pm EST), an eviscerating 24.2 percent tumble (and beneath 10/21/22’s 108-26). From 8/2/22’s interim price high of 122-02, 10/3/23’s level drops 12.6 percent. Excitement (emotions) will increase if the price heads closer to 104-00 (6/13/07 price bottom 104-04; 6/28/06 low 104-01). 

The CME UST five year note’s price peak (nearest futures continuation) occurred at about 126-08 on 8/7/20 (126-07 on 1/8/21). It nosedived 17.2 percent to 10/3/23’s 104-18 (under 10/21/22’s roughly 105-15). An attack on price support around 103-00 (7/5/06; 103-02 on 6/13/07) will boost anxiety. 


In America, a substantial amount of household net worth resides in debt securities (not only in US Treasuries) and equity shares (not just the S+P 500 playground). Read the fine print of the Federal Reserve’s Z.1, “Financial Accounts of the United States” (9/8/23; see Tables B.101, B.101.e, and B.101.h). As of end 2Q23, total assets for households and nonprofit organizations combined were about $174.4 trillion (net worth was $154.3 trillion), the great majority of which resided in the household domain. As of end 2Q23, for households and nonprofit organizations combined, debt securities at market value were about $10.9 trillion, or around 6.2 percent of total assets (9.3pc of total financial assets). Equity shares in 2Q23 had a value of about 44.7 trillion dollars, or 25.6 percent of total assets (almost 38.3pc of total financial assets). 

Consumers represent about two-thirds of United States GDP. If they suffer substantial wounds to their net worth, to what extent will they slash their spending? 

Many Wall Street and Main Street stock investment communities preach the wisdom of buying good (or high) quality American stocks for some version of the misty long run. To what extent are such stock bulls married to their positions? 


For the twenty-two US stock marketplace “bear” trends summarized in “US Stocks Over the Long Run: Bear Marketplace History” (8/4/23), the average percentage decline from the peak to the trough is about 33.9 percent. The average duration of the descent from the summit to the bottom is approximately 14.2 months. 


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Financial Agitation (10-3-23)


The rap music group Wu-Tang Clan sings in “C.R.E.A.M.”: “Cash, Rules, Everything, Around, Me C.R.E.A.M. Get the money Dollar, dollar bill, y’all.”



Based upon the Federal Reserve Board’s real and nominal Broad Dollar Indices, the United States dollar probably established a major top in autumn 2022. Its subsequent decline intertwined with a fall in the yield in the US 10 year Treasury note, and the dollar depreciation and UST yield decline interrelated with and encouraged notable price climbs in the S+P 500, emerging marketplace stocks, and several other important “search for yield” playgrounds.


However, for the near term, the Broad Dollar Indices (“BDI”) probably will appreciate some, thereby retracing some of the tumble from their autumn pinnacles. Why?

First, the Federal Reserve recently reemphasized its devotion to its monetary tightening agenda in its battle to return inflation to its two percent objective. This sentinel also has not ruled out further Federal Funds rate increases. It continues to reduce the size of its bloated balance sheet. Moreover, this noble guardian signals an intent to maintain policy rates for quite some time at heights sufficient to bring inflation down to acceptable levels. Unemployment figures remain very low (the Fed stresses “the labor market remains extremely tight”), further suggesting the likelihood that Fed policy will remain moderately hawkish for an extended time. See the 2/1/23 FOMC statement and the Fed Chairman’s Press Conference.

Also, the dollar’s weakness since autumn 2022, and the rally in key global stock marketplaces such as the S+P 500, has not been matched by a sustained rally in commodities “in general”. All else equal, a weaker US dollar tends to boost the nominal price of dollar-denominated assets. Marketplace history is not marketplace destiny. However, despite occasional divergence, over the long run commodities in general have moved in similar time and price patterns with the S+P 500. Yet commodities in recent months, despite occasional rallies, have remained comparatively weak. Even the petroleum complex, despite vigorous OPEC+ efforts to support the price and embargoes on Russia imports, has shown merely intermittent strength; it resumed its slump . This relative feebleness in commodities despite dollar depreciation hints that at least for the near term, the dollar probably will not decline much further in the near term.

In addition, as of January 2023, the real broad Dollar Index (a monthly average) borders important support, April 2020’s 113.4 summit. The nominal BDI (daily data) has retreated around ten percent from its autumn 2022 pinnacle, an important “correction” distance.

Consider recent US rhetoric about the importance of democracy relative to autocracy. For example, see the White House’s “National Security Strategy” (10/12/22). Is that wordplay and related American global policy actions on topics such as the Ukraine/Russia conflict and the Taiwan/China relationship an effort to keep the dollar fairly strong?

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US Dollar and Other Marketplace Adventures (2-5-23)

MONEY JUNGLE © Leo Haviland April 14, 2014

The S+P 500 high on 4/4/14 at 1897 probably is an important top. “US Stocks: Shadows and Signals” (2/3/14) remarked that “during the darkest days of the worldwide economic crisis of late 2008/early 2009 as well as during the subsequent recovery, Federal Reserve Board easy money policies have played key roles in encouraging bull moves in the S+P 500 (and many other equity playgrounds). Likewise, the elimination of some of these schemes, particularly previous rounds of quantitative easing (money printing), has occurred alongside highs in American stock benchmarks. What does tapering foreshadow? The Fed’s recent decision to reduce (taper) and eventually eliminate the current gigantic round of money printing warns that a notable top is or relatively soon will be in place.”

As it has in the past, the Federal Reserve will try to prevent a substantial stock marketplace tumble. But unless the S+P falls around ten percent, they probably will say or do little of note. However, if the S+P dives ten percent or more, the Fed lions probably will roar about their determination to sustain recovery. A slump of about 20 percent from a peak (especially if it occurs quickly) boosts the chances that they will slow their current tapering program.

Within and across fields such as stocks, interest rates, currencies, commodities, and real estate, the ardent hunt for sufficient “yield” by “investors” and others never ceases. Recall the glorious Goldilocks Era which preceded the worldwide economic disaster that emerged in mid-2007 and accelerated in 2008. As the Goldilocks Era neared its end prior to those dreadful days, packs of marketplace players eagerly foraged around in diverse (and sometimes very remote or complex) landscapes for adequate yield (good “investment” opportunities; fine returns). The global economic recovery began around mid 2009, with calendar year real GDP growth resuming in 2010. Over the most recent year or two in financial marketplaces (and especially currently), as during the late stages of the Goldilocks Era, the search for yield increasingly has become widespread and rabid. Such sustained heated quests, when reviewed alongside other indicators, warn of economic dangers.

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Money Jungle (4-14-14)
Charts- S+P 500 and others (4-14-14, for essay Money Jungle)


Given the proximity of the Federal Funds rate to the short end of the government yield curve, the Fed generally has more ability to manipulate (strongly influence) yields for Treasury Bills and short term notes than instruments such as the UST 10 year note and 30 year bond. The two year UST note generally receives much less media attention than longer duration government debt. Even most interest rate insiders these days concentrate much more on the long end of the curve than on the two year. However, financial heralds also should focus on short term American interest rate yield levels and trends, because in the current marketplace landscape, signs of bottoming and rising rates in this important segment of the UST yield curve confirm the higher yield trend in the 10 year UST and other long-dated securities.

After the UST two year reached a major low near the ground at .14pc on 9/20/11, it reaffirmed this depth with subsequent lows at .19pc on 7/23/12 and 5/3/13. The UST two year note thereby established a major bottom alongside that in the 10 year note. Admittedly the two year yield has not spiraled upward as dramatically as the 10 year’s, for the Fed conductor has not relaxed its tight grip on the Fed Funds rate baton. This relative quiet in and the low absolute level in the two year tend to create faith in and complacency regarding the Fed’s powers and the effectiveness of its methods. Very low short term government rates and promises to continue them arguably encouraged some complacency, not merely happy enthusiasm, in equity halls such as the S+P 500 as well. The S+P 500 was all jazzed up through much of calendar 2013, attaining its recent high around 1710 on 8/2/13. Yet this intertwined yield low and rising rate pattern at both ends of the government yield curve warns of weakness in the Fed’s near term ability or willingness (or both) to keep repressing short term yields to very low levels.

The bear move of higher US interest rates probably will continue, even if that venture is jagged and perhaps occasionally interrupted by forceful Fed action (or wordplay) or flight to quality fears. Marketplace history is not marketplace destiny. But in the current context, historical review suggests that a sustained substantial climb in US government interest rates such as the one currently underway probably will encourage a decline in the S+P 500. After all, sustained yield declines in US government rates helped to rally American stocks, so might sustained yield rallies help to reverse some of that equity bull charge?

Increasing government interest rates do not always indicate economic strength or point to (confirm) rallies in stock marketplaces. Recall the rather recent big-time crisis on the so-called “European periphery” that captured the limelight, as well as the experiences of many emerging marketplaces.

Anyway, increasing United States government interest rates are not always (necessarily) a sign of American economic recovery and strength, or of a bull move in stock benchmarks such as the S+P 500. The extent to and reasons why which UST rate levels and trends coincide (converge) with or lead (lag) those of those in the S+P 500 are matters of opinion. In any event, review the following table, which covers the past 25 years or so. Putting several substantial moves in the UST two year note in a spotlight alongside those in the S+P 500 indicate that sustained significant ascents in UST rates often eventually link to notable peaks in the US stock marketplace. The tops in yields are “roughly around the same time” as bull highs in US equities. UST 10 year moves are consistent with this perspective as well.
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