GLOBAL ECONOMICS AND POLITICS
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.
Subscribe to Leo Haviland’s BLOG to receive updates and new marketplace essays.
In recent years, there’s been a close linkage between trends in the S+P 500, commodities “in general”, and the United States dollar. Recent weakness in commodity currencies versus the US dollar coincides with and thus warns of continued declines in commodity benchmarks such as the broad Goldman Sachs Commodity Index and key stock indices such as the S+P 500. The worldwide economic crisis that erupted in 2007 has not been substantially solved.
The price and time trends of the commodity currencies from the US dollar cross rate perspective intertwine closely with key moves in stock and commodity benchmarks. Viewing them as a group, the five currencies soared higher against the US dollar from late 2008/early 2009 for over two years, until spring 2011/July 2011. Commodities in general and the S+P 500 made key bottoms in winter 2009 around the time of those in commodity currencies. The S+P 500 and the broad S+P Goldman Sachs Commodity Index (GSCI) then advanced dramatically for over two years.
In 2011, double tops in the commodity currencies (late April/early May; late July) link closely with the equity and commodity summits. The drops from late July 2011 are noteworthy because the S+P 500 subsequently fell decisively under the summer 2008 1265/1313 range (the financial crisis accelerated from around that 2008 time) and beneath the 4/26/10 top at 1220.
Many observers have faith that a substantial QE3 action will rally the S+P 500 (and commodities). Won’t history repeat itself? However, maybe history will refuse to do so, and stocks will climb very little before resuming their decline. Money printing is not a genuine repair policy for real economic problems. Despite the fearful Fed’s determination to maintain an extremely low Federal Funds rate, a renewed money printing enterprise also eventually may inspire interest rate jumps in US debt playgrounds.
FOLLOW THE LINK BELOW to download this market essay as a PDF file.
Commodity Currencies and Economic Cracks (9-12-11)
Especially if noteworthy economic variables- including so-called political ones- warn of or reveal substantial financial danger or injury, many marketplace participants preach “flight to quality” doctrines. What represents a supposed “safe haven” sector varies according to viewpoint and era. Inflation often is feared. Or, how could a severe recession or deflation injure us? Political unrest and military conflict sometimes surface.
Many gurus designate gold as a worthy store of value. We all saw it skyrocket over $1500. Clairvoyants devote much attention to government notes and bonds as an escape hatch if a dangerous downturn beckons or is underway. In terrifying recent times, those of the United States and Germany often have allured traders.
Instead, concentrate awhile on the Swiss Franc. Switzerland indeed is a rather small nation. However, this mountainous land has a very long history of and reputation for financial stability, which it battles fiercely to protect. The fluctuations of the Swiss Franc against the Euro FX are not precisely the same as its trajectories relative to the US dollar. In recent years, the major levels and trends of Switzerland’s actively traded currency nevertheless reflect worldwide (particularly European and American) economic disaster fears and recovery hopes.
Fear and hope interrelate in marketplaces, as elsewhere. Yet suppose one equates marketplace “flights to quality (safety)” with fear. Then there is a counterpart to the flight to quality outlook. Its opposite is the hopeful “flights of fancy” vision. Especially when policy interest rates are kept near rock bottom levels for extended periods (and all else equal), pursuits of profit via other paths of potential returns often become quite fervent. Suppose money printing occurs as well. All else equal, massive money printing tends to boost nominal prices of “assets”, including stocks, commodities, and low-rated (junk; many emerging marketplace) bonds.
FOLLOW THE LINK BELOW to download this market essay as a PDF file.
Flight Paths (The Money Jungle, Part Five)
View Leo Haviland’s profile