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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The world’s long-running economic crisis of course has not limited itself to either one nation or one region. However, at its outset in 2007, most did not anticipate the scope or length of the disaster. Weren’t potential risks to the international economy rather modest? Weren’t issues related to the United States real estate marketplace mostly relevant only to that domain and that nation, and likely to be restricted to them? Yet substantial debt and leverage (and other intertwined issues) and their consequences were not confined either to American territory or the real estate playground.

The recent Eurozone chapters of this terrible trouble supposedly started with so-called peripheral nations such as Greece, Portugal, and Ireland. Countries such as Greece indeed first captured headlines. However, that does not demonstrate that causes of Eurozone problems necessarily started only in them. In any event, “difficulties on the periphery” engulfed the rest of Europe and traveled around the globe.

Despite broad concerns regarding worldwide economic problems and risks, despite the widespread past and current fascination with the European scene, suppose one focuses on aspects of the American stage, beginning with some highlights involving the United States alongside Canada and Mexico in the foreign exchange context. This survey of America and its geographic neighbors underlines the weakness of the United States dollar and the size of America’s fiscal troubles. This suggests the merit of inquiring into US currency, stock, interest rate, and commodity marketplace past and future relationships in the context of Federal Reserve easing policies and America’s fiscal problems.

The broad real trade-weighted dollar probably will continue to weaken. The dangerous United States fiscal situation probably will not be genuinely fixed in the next several months. A full- fledged threat of a federal fiscal catastrophe likely will be necessary for sufficient progress in that sphere to occur. Though the United States is not the center of the universe, the effects of further dollar feebleness and the worsening of the country’s fiscal crisis will radiate worldwide.

The S+P 500 has made or soon will make a significant peak.

Thus the emerging (current) story and trend appears to be: weaker dollar (TWD), weaker S+P 500, and higher government rates (UST 10 year benchmark). This vision admittedly is dramatically different from the current popular faith in these marketplace relationships.

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American Marketplaces- At the Crossroads (10-15-12)
Charts- US Dollar v Canadian Dollar, Mexican Peso (10-15-12)

FED FIXES AND DOLLAR DEPRECIATION © Leo Haviland September 17, 2012

The broad real trade-weighted United States dollar will depreciate. Over the next several months, its retreat probably will reach July 2011’s record low around 80.6 (for the nearly four decades going back to 1973, monthly averages; March 1973=100) and break beneath it, with around 77.0 a reasonable target. Over the longer term, a descent to around 72.5 to 75.0 would not be surprising.

We know that all else equal, debtors (and borrowers) want as low an interest rate as they can get.

The Fed’s interest rate policy is (and has been for several years) geared toward aiding debtors (borrowers) at the relative expense of creditors (savers). Since debtors deserve special Fed help, surely the unemployed do.

We know that all else equal, debtors in a home currency (imagine the beloved US dollar) tend to enjoy some modest home currency depreciation. This makes their debt obligations less burdensome to pay off. This perspective assumes that these debtors can keep borrowing fairly easily, and at interest rates that not too high (overly punitive).

However, all else equal, foreign creditors are not enamored of such currency degradation. Foreigners hold an enormous amount of US Treasury securities, nearly $5.3 trillion (as of June 2012,

What happened to the US dollar after the Fed’s prior two massive rounds of quantitative easing? The TWD depreciated.

Significantly, the Fed’s determination to keep interest rates pinned to the floor (and thus offering pitiful returns on government debt relative to inflation) for an extended time period, say out to mid-2015, boosts the odds that its QE3 money flood will help to push the dollar down. In addition, recall that he TWD has been in a declining pattern over the past decade (or longer). So has America’s relative international economic and political prominence. Remember that QE3 is occurring alongside substantial US indebtedness (with a potential federal deficit disaster lurking on the horizon), a noteworthy current account deficit, and only modest domestic savings (compare Japan).

The Fed presumably is aware that the TWD declined after the QE1 and QE2 episodes. So apparently the Fed will tolerate dollar weakness to achieve its employment objectives.

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Fed Fixes and Dollar Depreciation (9-17-12)


Australia, Brazil, Canada, Russia, and South Africa produce and export substantial amounts of crucial commodities. Think of the petroleum, base and precious metal, and agricultural sectors. Marketplace guides label the currencies of these five exporting countries “commodity currencies”. The commodity shares within and the commodity export profile of these national economies varies.

In recent years, there has been a close linkage between trends in the S+P 500, commodities “in general” (use the broad Goldman Sachs Commodity Index as a weathervane), and the United States dollar. Remember the song guideline: “a strong dollar equals weak stocks (and feeble commodities), and a weak dollar equals strong stocks (and bullish commodities)”.

So despite the S+P 500’s new highs in 2012, and though the broad GSCI is not very far from its 762 springtime 2011 peak, suppose there is further weakness in commodity currencies versus the dollar. That probably will point to at least interim tops in commodities and the S+P 500.

What’s the bottom line prediction for the near term? The US dollar will strengthen against the commodity currencies (and the broad real trade-weighted dollar also will rally some). Commodities in general will decline (though the Iranian situation obviously is a notable risk). The S+P 500 (and equity marketplaces of commodity currency nations) will fall. As always, timing is everything. This trend probably will start around March/May 2012, though it may be delayed until summer 2012. The various currency, commodity, and stock (and interest rate) marketplaces of course do not have to peak (or bottom) at the same time. Thus the S+P 500 could peak after (or before) the broad GSCI.

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Commodity Currencies and the Economic Recovery Story (3-12-12)


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.

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Spreading It Around- Some US 10 Year Treasury Relationships (1-24-12)