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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US MONEY MOTIONS- SAVINGS AND SHIFTS © Leo Haviland November 8, 2011

Since June 2011, United States personal saving as a percentage of disposable personal income has declined. Many observers believe a declining savings rate generally signals economic growth and thus is a reason for optimism. Though this sometimes may be true, it probably is not the case now. In today’s worldwide economic theater, feeble personal savings- and especially a slumping level- indicate that US economic growth for the near term and perhaps longer probably will be weak. The savings rate in recent years, not just recently, has been low relative to long run history. Given this, in the context of the rather gloomy current and near-term economic horizon, further cuts in the savings rate will warn of or confirm an economic downturn.

Declines in the US personal savings rate may herald or coincide with economic growth. The period from 1993 to 2007, and especially the enthusiastic time of 2004-2007, evidences this. The down shift in America’s personal savings rate from its 2008-2010 summits of 6.2pc/5.6pc indeed coincides with the current recovery. However, permanent prosperity probably has not returned. The further declines since June 2011, when interpreted alongside other indicators, probably indicate that a more ominous US economic future of sluggish growth and arguably a recession lies ahead.

First, history shows that a very low or declining savings rate does not necessarily translate into (equal, represent) happy healthy times of growth and prosperity. Let’s look back into the allegedly ancient landscape preceding World War 2. The Great Depression ran from August 1929 to March 1933 (43 months). Note that the savings rate collapsed during the downturn. The savings rate was 4.3pc in 1929 (the year of the stock marketplace peak), 4.0pc in 1930, and 3.7pc in 1931. It went negative in 1932 (-1.1pc) and 1933 (-1.7pc), with 1934 barely positive (.9pc).

A renewed downturn followed from May 1937 to June 1938. Personal savings fell from the 6.2pc of 1936 and 5.9pc in 1937 to 1.9pc in 1938, with 1938 the lowest yearly level until the 1.5pc of 2005.

Thus declines in the personal savings rate can occur during economic downturns, not just in upswings. The Depression shows that very low (even negative) savings rates can reflect fear and pessimism as well as joy and optimism. To interpret the current low savings rate and to make predictions regarding its future and implications, one must look at surrounding circumstances.

Despite estimated US 3Q11 real GDP growth of 2.5pc (annualized) and the sharp stock marketplace rally from its October 2011 depth, numerous signs indicate that consumer resources are stretched rather thin and probably will remains so for some time. America’s low savings rate suggests that many consumers now are fighting especially fervently to maintain a constant (“appropriate”) standard of living (“lifestyle”).

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Money Motions- Savings and Shifts (11-8-11)

STILL SWAMPED- US REAL ESTATE © Leo Haviland, October 11, 2011

The United States real estate marketplace, despite some improvement relative to winter 2008-09’s abyss, remains in mournful shape. During the ongoing terrible global economic crisis, nervous politicians, fearful central bankers, and enthusiastic real estate business promoters have devoted much effort and creativity in their quest to rescue the real estate arena. How should we characterize their overall performance to date? Despite their numerous at-bats and vigorous swings at the real estate debacle, the financial and political guardians have often struck out and their overall batting average remains low.

Perhaps the real estate scene will become brighter. After all, central bankers and politicians always have upcoming opportunities to step up to the plate. They will keep swinging and whacking at real estate problems. Nevertheless, the still-feeble US real estate world underlines the fragile foundation and structure of the economic revival fabricated by the Federal Reserve (and its overseas central bank teammates) and political crews. Despite some progress, the shattering damage of the international economic disaster that commenced in 2007 has not been substantially fixed. The economic crisis persists and will continue for several more innings. Though the worldwide economic advance that emerged in spring 2009 reflects repairs and is not entirely a house of cards, it’s not entirely built on solid ground. Money printing and deficit spending are not genuine (enduring) cures for economic problems.

The recent slowdown in the overall economic landscape will hinder the US real estate recovery. Therefore American real estate prices will remain relatively weak.

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Still Swamped – US Real Estate (10-11-11)


Yet despite these economic rescue and repair programs, the continued substantial overall weakness in the US real estate marketplace reflects and warns of trouble. In particular, what do the housing sector and its consequences for the consumer balance sheet suggest? One should view real estate in the context of consumer confidence. The foundation for and structure of the recovery fabricated by the homespun policies of the Fed and the political herd is fragile. Although progress has been made, the shattering damage of the international economic disaster that commenced in 2007 has not been fixed. Though the worldwide economic recovery that emerged in spring 2009 is not entirely a house of cards, it’s also not entirely built on solid ground.

Nominal GDP growth is better than none at all, right? All else equal, money printing does not over time breed permanent real GDP growth. Also, deficit spending borrows from the future to spend in the present; it may boost current output, but at the end of the day, this factor primarily involves a shift of money between players and across time. All else equal, even if a slump in the broad real US trade weighted dollar benefits the US economy, that tends to undermine those of many of its trading partners. Holding policy interest rates such as Fed Funds low does not preclude higher yields later. Don’t those substantially in debt or suffering injury to their net worth often endorse easy money policies? Despite optimism indicated by rosy prices in the S+P 500 and lofty corporate profits, US real economic growth probably will be mediocre looking forward from now. What happens to American real estate still matters a great deal for the global economy.

Given the still-weak home and commercial real estate marketplaces, the net worth of many banking institutions probably is vulnerable to marking-to-market of existing real estate loan portfolios. Renewed economic weakness of course would worsen that problem. In any event, banks nervous about their capital strength will not hurry to significantly expand their overall lending.

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American Real Estate (The Money Jungle, Part Two)