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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SHAKIN’ ALL OVER: MARKETPLACE FEARS © Leo Haviland August 13, 2015

China’s recent shocking currency devaluation underscores not only that country’s ongoing growth slowdown, but also its leaders’ fears that real GDP expansion rates will ebb further. China of course is not the only emerging/developing nation nervous about insufficient output or even recessions. Trends in the broad real trade-weighted US dollar, emerging stock marketplaces, and commodities “in general” signal (confirm) slowing growth in both emerging and OECD economies. Moreover, recent pronouncements by the International Monetary Fund regarding the central bank policies of key advanced countries manifest widespread worries about growth in these well-developed territories. Despite about seven years of highly accommodative monetary policies such as yield repression and money printing (and frequently bolstered by hefty deficit spending), the foundations of worldwide growth increasingly look shaky.

China’s devaluation assists the long-running bull charge in the broad real trade-weighted US dollar (“TWD”). China represents about 21.3 percent of the TWD (Federal Reserve, H.10).


Are central banks and politicians always devoted to so-called “free markets”? To what extent do they restrict themselves from entering into and manipulating marketplaces?

In any case, the Federal Reserve, European Central Bank, Bank of Japan, and Bank of England have long been married (roughly seven years) to highly accommodative monetary policies. They do not seem to be in a rush to change them substantially anytime soon. The Fed’s apparent willingness to make a minor (gradual) boost in the Federal Funds rate in the near term is not a dramatic shift in its highly accommodative policy.

Inflation (and interest rate) and unemployment targets are not divorced from opinions regarding what constitutes sufficient (appropriate; desirable) real GDP growth levels and trends. An economic boom currently does not exist in the OECD in general. So if substantial “normalization” of monetary policy is not imminent among key advanced nations, then arguably central bankers believe that prospective growth GDP probably will remain rather feeble for at least the near term.


Former Federal Reserve Chairman Alan Greenspan coined the phrase, “irrational exuberance” (Speech, “The Challenge of Central Banking in a Democratic Society, 12/5/96). About two decades later, this financial guardian proclaimed (Bloomberg Television interview, 8/10/15): “I think we have a pending bond market bubble.” Of course, as in 1996, defining and identifying a bubble and predicting when (and why and how) it will pop and the consequences of such an event remains challenging.

Flights to quality can play a role in creating low interest rate yields, particularly in the safe haven government debt securities of countries such as the United States and Germany. However, sustained yield suppression by the Federal Reserve, the European Central Bank, and others, which motivates avid searches for yield (return) in assorted financial playgrounds (including stocks), surely encourages low interest rates in both government and many other debt arenas. Think of corporate bonds. In any case, suppose there is a bond price bubble (“too high” or “overvalued” bond prices; too depressed yields) in the United States. So presumably as various marketplaces interconnect in today’s global economy, if American bond prices are at bubble levels, then arguably prices in other realms, as in the S+P 500, some real estate sectors, or the art world (painting), consequently could be inflated.

Were the S+P 500, US real estate, and art at the end of the Goldilocks Era in 2007 rather lofty?

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Shakin' All Over- Marketplace Fears (8-13-15)


The long running bull march in the Japanese Yen from early summer 2007 to the current time generally coincides with a continuing worldwide economic crisis. The Yen’s robust strength mirrors the failure by central bankers and politicians around the globe to cure the lamentable financial ills. National policies often differ. The international guardians frequently coordinate their rescue and stimulus programs. Yet measures such as deficit spending, money printing, efforts to keep government interest rates near the floor, and struggles to maneuver currency rates merely have patched and postponed severe problems, not genuinely repaired them. Worrisome debt and leverage issues revealed in 2007-08 lurk on in various forms.

The rally in the Japanese Yen on an effective exchange rate basis since around July 2011 warns that an acceleration of the worldwide crisis, as in mid-2008, may be underway or very near to commencing. Significantly, the climb in the Yen cross rate versus the US dollar since mid- March 2012 also fits the ongoing international economic weakness story. Recall that as the world economy deteriorated more and more quickly around mid-2008, not only did the US dollar rally on a broad real trade-weighted basis, but also the dollar weakened relative to the Yen. The strong dollar equals weak stocks (and weak commodities in general), weak dollar equals strong equities (and bullish commodities) chant remains popular.

The world and perspectives on it are not immutable, so 2012 does not precisely duplicate 2008. Yet given the experience of 2008, what does a rally by the dollar in general, if accompanied by a rally in the Yen (effective exchange rate), and especially if the Yen also marched higher against the dollar on a cross basis, portend? This would hint that the disturbing international crisis is in the process of becoming more fearful. And since March 2012, that seems to be what has been happening.

The current dangerous situation in the ongoing worldwide economic crisis, if it further worsens (and it probably will worsen to some extent, even if the deterioration is not nearly as severe as in 2008), will be sufficiently severe to induce policy makers around the globe to take further substantial steps in their struggles to provide long-lasting remedies. Perhaps such actions by central bankers and political leaders may occur relatively soon. These may issue from individual nations in somewhat piecemeal fashion. Yet there is a substantial chance that intervention will be relatively coordinated, especially if an encore of second half 2008 looks more and more to be underway.

But in the meantime, for the near term, the Japanese Yen probably will keep rallying on an effective exchange rate basis; it probably will breach the 1/16/12 daily low of 187.5. The Yen likely will retest the Y75 level against the dollar. However, the US dollar (TWD) will remain fairly strong. The bear trend in worldwide equities and commodities in general therefore probably is not over. Renewed sustained weakness in both the Yen and the dollar would indicate an easing of the current stage of the global crisis.

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2008 Revisited- Japanese Yen Strength, Global Economic Weakness (6-4-12)

UNITED KINGDOM- GETTING POUNDED © Leo Haviland, January 10, 2012

As the fifth largest economy in the world and as a major center of international finance, the United Kingdom is not alone. It remains entwined with the long-running worldwide economic crisis. Although challenges to the British economy intertwine with those confronting the Eurozone, they do not duplicate these. England’s financial problems are not as severe as Greece’s, but they are not minor; England’s present situation and near term prospects do not look as strong as Germany’s. The British Pound will continue to depreciate over the next few months. This decline parallels that of the Euro FX. Bearish trends in the Pound, like those in the Euro currency, portend or confirm weakness in worldwide equities and commodities.

The Euro area currently is almost 16.4pc of the broad real trade-weighted dollar (“TWD”). It was 18.6pc in 2001. The Pound is a comparatively modest part of the TWD. The United Kingdom in 2012 (and 2011) is about 3.5 percent of the broad real TWD (compare 2001’s 5.6pc). Currency trading generals nevertheless closely monitor the cross rate between the US Dollar and the British Pound.

The Pound arguably has been in a major bear pattern for some time. The crucial plateau during the worldwide financial crisis period was attained 11/9/07 around 2.116. Although marketplace history is not marketplace destiny, keep in mind the popular chant, “weak US dollar equals strong US stocks, strong US dollar equals weak US stocks”. This British Pound top versus the dollar occurred about a month after the S+P 500’s major high on 10/11/07 at 1576. Important resistance for Sterling is about 1.665 (see the 4/28/11 high, adjacent in time to the S+P 500 pinnacle at 1371 on 5/2/11 and the Euro FX’s 1.494 5/4/11 summit versus the dollar). Also note around 1.700 (see the 8/5/09 level; compare the later timing of the Euro FX high at 11/25/09 at 1.514). The 10/28/11 top was about 1.615.

The Pound versus dollar cross rate settled around 1.543 at the end of last week, close to the 1.538 low of 10/6/11. The October 2011 level is beneath 1.563 (a fifty percent rally from the all-time low close on 2/26/85). The 1.500 level (about a ten percent drop from the 4/28/11 top) probably will be tested and broken. Though it is distant from today’s price, the key bottom around 1.430 (see the 5/20/10 low) eventually will be neared and perhaps challenged. Noteworthy additional Pound support is around 1.350 to 1.380. The 1/23/09 intraday low was about 1.350, the 3/9/09 close about 1.376 (Euro FX final cross rate low versus the greenback was 3/4/09 at 1.246). Recall the major low in the S+P 500 on 3/6/09 at 667. A 20pc fall from 1.665 is 1.332.

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United Kingdom- Getting Pounded (1-10-12)


The Japanese Yen has remained powerful relative to other currencies “in general” since autumn 2010. On an effective exchange rate basis, as well as against the United States dollar in particular, the Yen is around major resistance. However, the Yen probably will advance further over the next several months. Though many intertwining variables influence currency levels and trends, the fragility of the current worldwide recovery and the continuation of the global financial crisis that erupted in 2007 will play a key role in the continued Yen rally.

Assume America resolves its current battles related to the federal debt ceiling. Proposals likely to be enacted, though representing progress in cutting deficits over the next decade, are modest. In addition, these Washington fiscal fixes will not be significant in relation to the scope of the underlying long run deficit problem. Therefore, any Yen weakness derived from short-term solutions of United States fiscal deficit issues probably will be temporary.

US policy makers preach their desire for a strong dollar from time to time. Their practices over many months, however, underline their desire for (or at least toleration of) a rather weak TWD. The weak dollar policy may help to boost growth and reduce unemployment, right? Don’t many developing nations want their home currency to be relatively weak? One method by which the US can better compete with many developing (and other) nations, at least in some trade domains, is to depreciate its currency.

Roughly speaking, Japan is a creditor nation. Roughly speaking, and despite its wealth, America is a debtor nation.

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The Strong Yen, the Weak Dollar, a Shaky World (8-2-11)