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.

RSS View Leo Haviland's LinkedIn profile View Leo Haviland’s profile




DESPERATE HOUSEWIVES (EPISODE 9)- JAPAN, AMERICA, AND MARKETPLACE INTERVENTIONS © Leo Haviland, March 29, 2011

Note the nearness in time of noteworthy marketplace turns in Japanese and American government notes and bonds in recent years. See those in equities as well.

In fragile, deteriorating, or desperate economic times, who do businesses and individuals call for support or salvation? Central bank firefighters and agile politicians head rescue lists of many firms and consumers.

What if Japanese owners decide to liquidate, or be smaller net buyers, of US Treasury securities? All else equal, this will make it harder for the US to finance its gaping fiscal deficit. What happens to United States interest rates and the dollar if other asset holders, not just Japanese ones, buy US Treasuries with less enthusiasm, or become net sellers? If this scenario emerges, the friendly Federal Reserve (a buyer of last resort) could elect to embark on yet another round of quantitative easing (money printing) sometime after the current round ends in June 2011.

As the broad real trade-weighted dollar (“TWD”) in recent months has attained historic lows (1973-present), further TWD feebleness (which probably would involve a resumed Yen rally versus the dollar) helps to make US asset holders in general (not just Japanese players) rather uneasy. How tolerant will foreigners remain of US dollar weakness, the American fiscal circus, and inflationary risks from extravagant Fed money printing? What if foreign buying of US assets in general, not just US Treasuries, dwindles or becomes net selling? In this script, the slumping dollar and increasing US interest rates help to undermine US stock prices.

US equities probably will keep edging up for while longer, breaking the 2/18/11 S+P 500 level of 1344. However, they probably will not ascend much above this. A five percent rally above 1344 carries to about 1410. Recall the final high in the last bull move at 1440 (5/19/08) and the initial high just over 1460 (2/22/07). Twice the March 2009 low of 667 is 1334. Stock bull moves can last a long time, but a two year rally (especially with a doubling of the index) is substantial in time terms. Though the adage that “timing is everything” is inescapable, a noteworthy high in the next few months looks likely.

FOLLOW THE LINK BELOW to download this market essay as a PDF file.

Agricultural Prices and Inflation (Desperate Housewives, Episode 9 )