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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Does the Federal Reserve Board have a coherent detailed exit plan from its long-running extraordinary and highly accommodative monetary policy? No. Is it likely to devise one soon? No. Is it nevertheless likely to continue to stress its ability to prudently manufacture and implement a suitable exit program? Yes.

The Fed’s broad and unspecific principles do not create a genuine and practical exit strategy. Neither do fervent hymns proclaiming devotion to its legislative mandate. Neither does rhetoric about studying numerous, intertwining, changing, and complex variables and eloquence regarding its diligent monitoring of the economic landscape. Adherence to forward guidance wordplay is not an adequate substitute for a practical strategy. The Fed’s policy exit generally will be reactive, with its decisions and actions that of a follower rather than a leader.

Why does the Fed battle to create expectations that it has, or at least can and (when necessary) readily will develop, a suitable exit program? The central bank wants audiences to have faith that it can substantially influence the creation of desirable economic outcomes. Exit guidelines fortify marketplace and political hopes that a vigilant, wise, and sufficiently experienced Fed really (or at least very probably) knows how and when it can retreat gracefully from its glorious easy money programs without endangering United States (and worldwide) economic growth and the central bank’s inflation and employment targets.

The Fed’s quest to create confidence in its exit strategy also fights to promote confidence that American interest rates will not rise too far or too fast. Why fear a bear move in debt securities? Higher rates would weigh on economic growth. They would wound owners of US Treasury and other debt securities, which could inspire many “investors” to flee from these marketplaces (especially from longer-dated debt). Such escapes of course could lead to even higher yields. Besides, why risk sitting around awaiting capital loss when the Fed promises higher rates- unless such hikes occur very slowly and with sufficient warning? Given the huge foreign ownership of US Treasury securities, net foreign selling (or even reduced net buying) of them could make funding of the nation’s budget deficits increasingly difficult (especially in later years), particularly as the Fed soon will no longer be ravenously buying US Treasuries.

Moreover, the Fed also does not want a sharp sustained bear tumble in the US stock marketplace. The enormous stock bull move has helped to rebuild household net worth and sparked rises in consumer and business confidence and activity. After the Fed ended the first two rounds of money printing, the S+P 500 dropped. The gradual tapering of its current mammoth debt securities acquisition adventure underlines its fears of another run to the exits by stock owning audiences.

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Exit Strategies- the Fed, US Treasuries, and US Stocks (7-14-14)


The Federal Reserve Board continues to stress via its wonderful forward guidance strategy that it will keep policy rates extremely low. However, the sustained rally in United States Treasury government yields shows that marketplace confidence in the Fed’s ability to manage (repress) interest rates, especially at the long end of the yield curve, has fallen. Look at the UST 10 year note. Not only did its yield bottom around 1.38 percent on 7/25/12. Not only did yields climb further from lows near 1.55pc (11/16/12 and 12/6/12). They have spiked from 5/1/13’s 1.61pc, touching 2.75pc 7/8/13. And this spike has continued even after the Fed underlined in recent weeks that it would not “taper” its money printing (and other easy money games) too quickly.

The ability of central bank maneuvers to sustain substantial economic growth (and repress government yields and rally the S+P 500 and related equities) probably has weakened.

Rising sovereign debt yields do not always reflect or portend economic growth (recovery) or higher stock marketplace prices. In the current marketplace playing field, rising interest rates in America (and elsewhere) also seem to be “leading” equity marketplace declines. Suppose the US government 10 year rate marches higher from current levels (or even if it stays relatively high versus its summer 2012 and May 2013 bottoms). Suppose the S+P 500 is unable to exceed (or break much above) its May 2013 height and that it declines beneath its late June 2013 low around 1560. The rising yields and falling equities will underscore that the easy money game of the Fed and its central banking allies increasingly strains credibility and thus has diminished substantially in its effectiveness.

In any event, it nevertheless stretches credibility to claim that these recent ECB and BoE statements represent a change of genuine significance. They appear to be clever ploys to boost confidence in the ability of the central banks to help guide and sustain recovery. How likely was (is) it that the ECB or the BoE were (are) going to raise rates anytime soon? Not only is much of Europe in recession, but Europe’s economic crisis (including sovereign and banking debt and related bailout issues) persists. Noteworthy troubles still loom in Greece, Ireland, Portugal, Cyprus, as well as in Spain and arguably in Italy. Moreover, recall the ECB President’s inspiring “whatever it takes” talk about a year ago (7/26/12); people gave substantial credence to that open-ended proclamation.

Consequently, these recent ECB and BoE remarks, like the cheerleading comments by Federal Reserve and Chinese officials after the June 2013 stock marketplace lows, look like a sign of weakness. Are the ECB and BoE losing some of their hold on the distant section of the yield curve? Yes. Again underscore the steady creep higher in longer run government rates in the United States (and many other arenas) despite keeping Federal Funds near the ground.
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