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.

RSS View Leo Haviland's LinkedIn profile View Leo Haviland’s profile


The United States Federal Reserve Board and its central banking allies have furiously battled the fierce financial forest fires of the ongoing worldwide economic crisis that emerged five years ago. As the disaster developed and traveled across the financial landscape, their accommodative approaches evolved. Although central bank methods have varied to some extent, they generally have included deluges of money printing and pinning nominal policy rates (Federal Funds and so forth) close to the ground. These central bank actions not only helped to spark and sustain economic recovery, but also bought politicians time to solve, or at least substantially mitigate, troubling fiscal deficit problems.

Nevertheless, debt levels and deficit spending in America and many other countries generally remain substantial. Efforts targeted to assist recovery partly explain the size of gaping fiscal deficits of recent years. Yet in America and many other nations, they arguably reflect and are structurally sustained by a culture of entitlement. This culture, although not universally shared, extends across the economic spectrum. In any event, government budget deficits in the United States are not a new phenomenon.

However, even without specifically concentrating on its long term fiscal challenges, the US probably is much closer these days to a big debt problem than many believe. Focusing on the near term US government deficit and debt situation in the context of several other nations highlights the danger.

Everyone knows of the Eurozone (Euro Area) crisis. America’s fiscal balances are much more in deficit over the 2008-2017 span than the overall Euro Area’s.

However, from the general government gross debt viewpoint, and especially with a view on 2012 and thereafter, the US problem looks at least as fearsome as the overall Eurozone difficulty. First, the US level exceeds the European height every year, from 2008 out to 2017. Second, the IMF indicates a fall for the Euro Area after 2013, but not for the US.

Inflation is not the only potential source of higher interest rates. The lesson of the Eurozone sovereign debt crisis shows that government interest rates can climb sharply in crisis nations (Greece, Portugal, Ireland, Spain, Italy) even if inflation is moderate. Ability to pay debts (and borrow money), not just inflation levels and trends, matters for interest rate levels (and sovereign credit spread differentials). A badly stretched debtor may have to pay up to find money, right? So rising government interest rates in some cases may reflect a dreadful debt crisis, not a sunny economic recovery.

Closely nearing or reaching a point of no return on the US fiscal front therefore probably would be reflected by a spike in UST yields. The 10 year US Treasury note offers a benchmark for US yield watchers. In recent years, rising government interest rates often have been roughly tied to ascending US stocks (S+P 500), not just an economic recovery. If US equity benchmarks such as the S+P 500 start to decline significantly, and roughly “alongside” the increase in yields (thereby breaking from the guideline UST/stock relationship of recent times), that probably would confirm the existence of a debt crisis.

FOLLOW THE LINK BELOW to download this market essay as a PDF file.
Financial Forest Fires- US Government Debt (8-15-12)
US Treasury 10 Year Note Chart (8-15-12)


The Federal Reserve and other central banking all-stars around the globe have teamed up. In varying fashions, and frequently led by the Fed, they vigorously practice accommodative strategies to tackle economic weakness and to spark and sustain economic recovery.

The Fed’s trusty playbook, for example, currently insists on the wisdom of keeping policy (Federal Funds) interest rates pinned to the floor. Much of the UST yield curve offers negative returns relative to inflation. The Fed thus deliberately encourages some American and other yield hunters to avoid, diversify away from, or leave US Treasury debt in search of better returns elsewhere. Many other central banks link arms with the Fed under the low interest rate banner.

Thus many players race into or cart more funds into other debt arenas.

Keep focusing primarily on America for a moment. Those yearning for return trot into domains beyond the interest rate one. If US government yields are going to stay at exceptionally low levels into 2014, why not give stocks an even closer look! Besides, even though not all equities pay dividends, some do. The unending search for yield (return) inspires pilgrims to venture into (or more robustly into) stock marketplaces (use the S+P 500 as a benchmark). Also, surely people have not forgotten the anthem that US stocks are an excellent long run investment.

What are investment, speculation, and gambling? In stocks, interest rates, real estate, and elsewhere, investment rhetoric encourages and often persuades people to embrace a given investment perspective and to act accordingly. Since investment generally is associated with notions such as reasonableness, prudence, and goodness, many people race to be investors (join some investment team) and wear the honored investment crown. And those promoting particular financial instruments compete fiercely to attach an investment label of some sort on what they want others to buy and hold. Thus in recent years, the commodity world has found numerous cheerleaders for concepts that commodities (“in general”) are (can be) an investment, an alternative investment, or an asset class. Think also of the potential diversification benefits for your portfolio of stocks and interest rate holdings. In any event, various assorted commodity investment advocates have won quite a few victories for their ownership cause.

Suppose groundskeeping central bankers mow down the yields of government securities to very low nominal levels (and especially suppose those returns are negative relative to inflation). Those central bankers thereby encourage “investors” in government debt (and those with deposits at bank and money market funds) to seek “investment” returns elsewhere. So why not entertain commodities as a marvelous investment buying opportunity?

FOLLOW THE LINK BELOW to download this market essay as a PDF file.
Commodity Playgrounds- Chasing Returns (2-21-12)