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.
Subscribe to Leo Haviland’s BLOG to receive updates and new marketplace essays.
Relationships of assorted debt instruments to the widely-watched United States Treasury 10 year note offer insight on the American economy’s health. They also offer some guidance regarding stock marketplace signposts such as the S+P 500. Several years of easy money policies and massive deficit spending by the United States and its allies indeed have helped to inflame and propel an American recovery and stock marketplace rally. Because the S+P 500 at around 1300 is nearly double its March 2009 abyss, has the economic crisis that emerged in 2007 almost disappeared, and is a new golden age of prosperity eagerly beckoning? Probably not. These interest rate comparisons confirm that only a fair economic recovery has emerged during the ongoing worldwide economic crisis. These yield relationships also suggest that the S+P 500 faces very strong resistance at its 2011 highs (around 1345/1371), as well as around its May 2008 final top at 1440.
The Federal Reserve’s abiding battle and repeated sweet promises to keep government interest rates resting comfortably near the floor aim to inspire not merely consumer spending and business investment, but also incremental buying in stocks. If, for example, a government two year note pays next-to-nothing in interest, where should we put our money? Stock dividend yields may appear alluring (especially if viewers decide equity prices will not slump much if at all). The fervent search for acceptable returns by many marketplace players sometimes sweeps into other arenas such as corporate notes and bonds, real estate, and alternative “investments” such as commodities. Marketplace voyeurs should ask whether the current quests for “yield” bears at least a passing resemblance to the later scenes of 2006-07 during the gorgeous Goldilocks Era.
FOLLOW THE LINK BELOW to download this market essay as a PDF file.
Spreading It Around- Some US 10 Year Treasury Relationships (1-24-12)
The 10 year versus two year spread on the United States government yield curve offers some insight into major economic and financial marketplace trends. US Treasury 10 year note spread relationships versus other instruments of similar maturity further confirm or signal major marketplace trends. The US of course is not the only nation with a yield curve, and America’s debt playground is not the only relevant one. America is not the only country with painful fiscal troubles. However, both the UST 10/2 yield curve differential and important 10 year UST note intermarket spreads underline recent trends in stock benchmarks such as the S+P 500 (and in commodities “in general”). They also warn of US (and worldwide) economic weakness ahead.
Across various parts of the yield curve, traders and other observers compare instruments of similar maturity. A popular time benchmark is 10 years. Given the variety of nations and marketplace sectors, potential quality comparisons are numerous. A survey of a handful underlines the ability of such spreads to shed light on economic conditions and various marketplace trends.
However, history is not destiny in spreads, including this German/US sovereign spread. Admittedly Treasuries offer some an apparent safe haven against the crumbling of parts of the international banking (financial) system. Yet with the US ten year yielding about two percent and current US inflation levels around that, and with the Fed determined to create inflation of around two percent, how eager will Chinese, Japanese, and other holders of US government debt be to keep being net buyers of it? We all know that shorter term UST yields are even less. What if foreigners become net sellers of Treasuries? Or, suppose the US dollar weakens sharply from current levels. What if this is not only on a broad real trade-weighted basis, but also against the Euro FX as well? What if America engages in another substantial round of money printing (or some other clever easing), and that the European Central Bank does not follow suit?
FOLLOW THE LINK BELOW to download this market essay as a PDF file.
Yield Curves and Spreads- Making a Difference (8-22-11)
View Leo Haviland’s profile