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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Assume normal weather and moderate United States economic growth. Then natural gas inventories in the US Eastern Consuming Region at the end of the 2014 build season probably will range between 1825bcf and 1930bcf. Around 2050bcf is about “normal” (average) for current United States supply and demand patterns. This current bullish inventory picture for the Eastern Consuming Region for the balance of build season parallels the bullish stock outlook of the US Producing Region.

Within the American natural gas scene, Producing Region and Eastern Consuming Region inventories have bigger marketplace shares than that of the Western Consuming Region. Is the Western Consuming Region’s inventory situation for build season 2014 bullish or bearish? The Energy Information forecasts that Western inventories will exceed 560bcf, a bearish perspective relative to that region’s 511bcf end build season average. However, the EIA probably overstates the likely amount of Western inventory building. Not only did Western stocks finish winter 2013-14 draw season at very low levels. Based on historical analysis of builds following comparable low starting totals, Western end build season inventories probably will be around 450bcf to 500bcf. This outcome is slightly bullish.

Despite the sharp price slump in NYMEX natural gas nearest futures continuation after its 2/24/14 peak at 6.493, the overall US inventory situation for the balance of 2014 build season remains bullish. The NYMEX natural gas complex during the course of build season probably will remain in a sideways trend. The NYMEX nearest futures contract probably will stay in a range from 3.80 /4.00 to 5.00/5.20. See “US Natural Gas Inventory Building: the Producing Region Picture” (5/18/14) for price forecast and Producing Region inventory details.

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Natural Gas Inventory- East and West Region Build Season (6-2-14)
Chart- NYMEX natural gas winter 2014-15 strip (6-2-14, for essay US Natural Gas Inventory- East and West Region Build Season)


Since mid-2008, commodities “in general” and United States stocks “as a whole” have moved roughly in the same direction at around the same time. In this convergence process (relationship), noteworthy bull (bear) moves in US equities find parallels in those in the commodity arena. Thus significant marketplace rallies (declines) have tended to occur around the same time.

However, this perspective is not the only vantage point by which to assess the often close relationship between US equities and the commodities complex. There also is another, longer run view by which one can examine the relationship between them. Since spring 2011, commodities have ventured down (or sideways to down). However, key American stock benchmarks such as the S+P 500 have attained new highs, first in April 2012, then September 2012, and again in January 2013. Thus despite the convergence at assorted timely turning points since spring/ summer 2008, and even though the two territories continue to trade together to some extent, arguably there has been noteworthy divergence in their overall relationships (their trends) since May 2011.

Now recall several of 2007-08’s details. US equities peaked in October 2007, almost nine months before the commodity one in early summer 2008. Only after the final stock marketplace

summit in May 2008 did equities and commodities trade in close tandem. The current longer run relationship thus perhaps likewise reveals divergence, but with the commodity peak to date appearing well before any major S+P 500 one.

In contrast to 2007-08, what if the major peak in commodities is well before that in stocks (and the lag is likewise so great as to suggest divergence)? Suppose- and this admittedly is a key suppose- eventually commodities and US stocks will trade together over the long run. After all, so-called marketplace relationships can change dramatically, whether from the convergence/ divergence (lead/lag) perspective or otherwise. What does continued divergence, the failure of commodities to near or exceed its spring 2011 heights, suggest?

The 2007-08 relationship warns that the current continued failure of commodities to confirm the equity rally eventually will reveal a notable decline in stocks. Since the duration between the spring 2011 commodities top and today’s new highs in the S+P 500 is almost 20 months, whereas that between October 2007’s stock pinnacle and the broad GSCI’s summit in July 2008 was about nine months, the failure of the broad GSCI to achieve new heights should warn equity bulls that a decline may be fairly near in time.


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Commodities and US Stocks- Convergence and Divergence (1-28-13)
S+P 500 Chart (1-28-13, for essay on Commodities and US Stocks)