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 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.

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Financial Forest Fires- US Government Debt (8-15-12)
US Treasury 10 Year Note Chart (8-15-12)


The bloody retreat in the Euro currency that began in spring 2011 signaled a slowdown in the worldwide economic recovery that commenced around early 2009. The Euro FX’s mournful slump does not merely reflect Europe’s sovereign debt and banking crisis. In an interconnected international economy, Europe does not fight alone. Thus Euro FX weakness underscores the ongoing global economic disaster that emerged in 2007. The Euro currency’s further breakdown since late winter 2012 warns audiences of growing worldwide economic feebleness. The Euro FX will continue to depreciate.

European policy makers and some other viewers likewise pay attention to measures of the real European effective exchange rate (CPI deflated; first quarter 1999 equals 100; “EER”). This effective exchange rate probably is superior to cross rates (such as the one against the US dollar) as an indicator of Eurozone currency strength/weakness (and the Eurozone crisis). The European Central Bank provides data for the 17 Euro area countries against a group of 20 trading partners.

The EER established its major high in April 2008 at 111.8 (monthly average). The low during the October 2008 to April 2009 period, during which the Euro FX cross against the US dollar touched lows, was November 2008’s 102.8. However, after marching up to 111.2 in October 2009 (thus bordering on the April 2008 pinnacle), the EER started traveling downhill. On an effective exchange rate basis, it made an important bottom in June 2010 at 98.1. Although it retrenched and climbed to an April 2011 height at 103.4, this April elevation only slightly exceeded the November 2008 depth.

Under almost relentless assault, the Euro EER measure has crumbled since April 2011. This sustained bear move thus emphasizes the weakness of the global economic recovery. For June 2012, this real effective exchange rate is about 94.8. This decisively breaks beneath the key floor of June 2010 at 98.1 (the December 2011 level also was 98.1; a 10pc fall form April 2008 is 100.6). The Euro effective exchange rate erosion in very recent months, and particularly the shattering of June 2010 support, reflect both the fearsome Eurozone crisis (and recession in many European nations) and confirm the deteriorating prospects on the international front.

Further significant depreciation of the Euro FX may well turn out to be part of the solution for the Eurozone’s ongoing sovereign debt (banking; economic; debt, leverage; political) crisis.

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Eurozone- Its Currency Under Assault (7-9-12)

EUROPE’S HAPPY DAYS © Leo Haviland July 2, 2012

The European Council’s economic summit concluding on June 29, 2012 seemingly was a stellar success. First- and importantly given the modest (or low) expectations preceding the meetings, the rendezvous did not end in disastrous collapse. Players did not exit uttering unpleasant comments about or noisy threats toward their fellows.

Participants did not merely stress their desire to stabilize (protect) the European Monetary Union. Pacts, declarations, statements, and remarks by participants and politicians offered near-term support for the Spanish banking (sovereign debt) problem (though quite a few details remain).

Spanish banks will be recapitalized directly via the EFSF/ESM (the ESM stage assumes the ESM going into effect). Thus bailout money for this purpose will not go to the Spanish government, reducing Spain’s potential government indebtedness.

In addition, leaders made promises regarding European banking supervision. There also now are greater hopes for Europe-wide bank deposit insurance. Moreover, the extensive official statements related to budgets, fiscal union, and related matters were hopeful hymns to many enraptured audiences.

And no one can deny the sunny revival movements expressed via the sharp stock, interest rate, currency, and commodity forums following the conference.

However, a review of the lyrics in the documents issued by or directly related to this important European Council gathering shows that leaders made little progress in solving the underlying economic (fiscal, debt; structural, political) problems confronting Europe (and particularly the Eurozone). Thus widespread happiness regarding this summit probably will not persist. This money summit arguably makes more urgent appeals than prior ones. It does speak fondly of road maps, architecture, and building blocks. Talk of unified banking supervision and deposit insurance is some progress. However, as in other recent summits, fundamental problems are handled with vague language and nebulous standards. Issues of how to resolve such ambiguity thus permeate the documents. And binding mechanisms by which to effectively enforce current (and any future) fiscal standards for the various nations remain lacking.

The summit documents and related songs of confidence may buy politicians, central bankers, and other economic officials some time. However, the result is about the same as that from other recent European choruses- not much fundamental advance toward solving debt and leverage problems for Europe as a whole. It is way too soon to shout hallelujah. The persistence of the crisis (and especially further worsening of it) eventually may speed progress toward a solution. 

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Europe’s Happy Days (7-2-12)


Though global marketplaces and their problems intertwine, let’s concentrate on recent European debt developments and related statements alongside a review of several European interest rate spread relationships. This inquiry underlines that the heated efforts by European (and American and other) economic (political) generals have yielded only partial progress in vanquishing the challenges of the worldwide international crisis. So the worldwide international economic crisis probably will march onward for quite some time. And there is more than a little chance that it will worsen.

A review of yield spreads between the 10 year government debt of Germany and the key Eurozone nations of Spain and Italy over the past year or so underlines the gradually growing sovereign debt and banking stresses on Europe (and therefore on other territories and marketplaces). In addition, these widening European spread trends, especially when reviewed in the context of stock marketplace, currency, and commodity ones, point out the limited (merely partial) successes of efforts to solve the European sovereign debt and banking crisis in particular (and the worldwide economic disaster in general). These spreads warn of dangers to European (and global) economic growth.

Compare the timing of the German 10 year’s high on 4/11/11 at 3.51pc with the April 2011 lows in the German 10 year’s spread against Spanish, Italian, and Hungarian government debt. Keep in mind the pattern of higher lows in the Spanish/German and Italian/German spreads since mid-April 2011. For this mid-April 2011 timing perspective and its aftermath, remember the S+P 500’s high around then (on 5/12/11 at 1371) and that in the broad Goldman Sachs Commodity Index (4/11/11 and 5/2/11 at 762).

Euro FX weakness also reflects the Eurozone (European) crisis. Note the rough parallel since spring 2011 between the declining Euro currency (peak versus the US dollar 5/4/11 at 1.4940) and the gradual widening of the Spanish/German and Italian/German 10 year government spreads.

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European Debt Dangers- Selling Solutions, Buying Time…Yielding Results (1-17-12)