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.
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As Thanksgiving Day approaches and many prepare for holiday gatherings and festive feedings with family, friends, neighbors, and colleagues, several less-noticed marketplace courses deserve attention from marketplace travelers. United States Treasury International Capital (“TIC”) data reveal that gaping American federal fiscal deficits probably will find it difficult to lure sufficient foreign funds. Recent TIC evidence may warn of stock marketplace trend changes. Also, do foreign visitors find direct ownership (“investment”) in America highly appealing these days? What do New York Stock Exchange margin data unveil about major equity moves? Commodity Futures Trading Commission information on agricultural Index Traders not only offers a window on commodity price patterns in general. Perhaps surprisingly, that Index Trader information can illuminate and confirm marketplace voyages by stock benchmarks such as the S+P 500.
Since its 2009 depth, the high for agricultural Index Trader net long open interest occurred in 2010, at about 1.63 million contracts on 8/10/10. However, this quantity is not much above the more recent high net long position of 1.53mm on 4/26/11, which was close in time to the S+P 500 and broad GSCI elevations. By 10/4/11, the date of lows in the S+P 500 and the broad GSCI, the net IT long open interest had fallen to around 1.30mm. This equals about a 14.9pc dip from the 4/ 26/11 height. On 11/15/11, net IT was about 1.33mm contracts.
The recent percentage decline in IT length of nearly fifteen percent is fairly close to the initial fall of 16.7pc during 2008 (from 5/13/08 to 9/16/08). What would a sharp and sustained decline in the net IT long position under its 10/4/11 level indicate? It probably will coincide with declines in commodities in general and stocks, thus confirming a worsening of the worldwide economic crisis.
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Thanksgiving Marketplaces – Several Servings (11-22-11)
The United States real estate marketplace, despite some improvement relative to winter 2008-09’s abyss, remains in mournful shape. During the ongoing terrible global economic crisis, nervous politicians, fearful central bankers, and enthusiastic real estate business promoters have devoted much effort and creativity in their quest to rescue the real estate arena. How should we characterize their overall performance to date? Despite their numerous at-bats and vigorous swings at the real estate debacle, the financial and political guardians have often struck out and their overall batting average remains low.
Perhaps the real estate scene will become brighter. After all, central bankers and politicians always have upcoming opportunities to step up to the plate. They will keep swinging and whacking at real estate problems. Nevertheless, the still-feeble US real estate world underlines the fragile foundation and structure of the economic revival fabricated by the Federal Reserve (and its overseas central bank teammates) and political crews. Despite some progress, the shattering damage of the international economic disaster that commenced in 2007 has not been substantially fixed. The economic crisis persists and will continue for several more innings. Though the worldwide economic advance that emerged in spring 2009 reflects repairs and is not entirely a house of cards, it’s not entirely built on solid ground. Money printing and deficit spending are not genuine (enduring) cures for economic problems.
The recent slowdown in the overall economic landscape will hinder the US real estate recovery. Therefore American real estate prices will remain relatively weak.
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Still Swamped – US Real Estate (10-11-11)
The onset and acceleration of vicious bear trends in base metals “in general” such as copper in 2007 and 2008 preceded or coincided with meltdowns in other stock and many other commodity marketplaces. In late 2008, the London Metal Exchange’s base metal index’s bottom dawned only about three months before the major low in the S+P 500. What about 2011? Base metals reached their 2011 summits, as during the early stage of the global economic disaster, around the time of those in the S+P 500.
Erosion in base metal prices, especially as it now coincides with tumbles in stock arenas and in many other commodity playgrounds and some strength in the battered US dollar, confirms and points to further worldwide economic weakness. These intertwined marketplace trends underline that America’s policy actions (and related ones by many other nations) such as gigantic deficit spending, massive money printing, and sustained rock-bottom government interest rates have not sufficiently solved the severe debt and leverage problems that emerged into view in 2007 and 2008.
Although a repeat of the massive price declines of 2008 are unlikely, the current bear trends of 2011 in base metals probably will continue, as will those in equities and many other commodities.
The linkage of the base metal complex to stock marketplace and US dollar moves and interest rate policies and trends underscores the benefits of paying close attention to base metals. There has been a close bond in recent years between trends in the S+P 500, commodities “in general”, and the United States dollar. For example, in 2007, the LMEX major high on 5/4/07 at 4557 preceded the S+P 500 plateau on 10/11/07 at 1576. Eventually the crucial 2008 final tops in various marketplaces arrived. Note the timing coincidence in the final highs in the LMEX (3/5 and 7/2/08), the low in the broad real trade-weighted dollar (April 2008), the final top in the S+P 500 (5/19/08, midway between the LMEX 2008 tops), and the broad Goldman Sachs Commodity Index (7/3/08). Compare the 2011 timing coincidence in tops in these various marketplace domains. For example, the LMEX high on 2/14/11 at 4478 is very close in time to the initial S+P 500 top on 2/18/11 at 1344; compare 4/18/11’s 4469 LMEX high with the S+P 500 peak on 5/2/11 at 1371.
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Metals and Meltdowns (9-26-11)
The S+P 500 is at or near an important high in price and time terms. Watch the major resistance of 1440 (the May 2008 final high before the acceleration of the worldwide economic crisis), plus or minus five percent. Commodities “in general” likewise have achieved or soon will make a noteworthy top. Suppose these reversals haven’t begun yet. What is a guideline for the latest time for them? At the risk of being attacked by hunters armed with hindsight wisdom, let’s climb out on a limb and say midsummer 2011. However, the Federal Reserve and its allies will rush to the rescue and strive to prevent any sustained major fall in equities.
What about the broad real trade weighted dollar (“TWD”)? For the near term, its April 2011 level of 81.3 represents a low or is close to one, with its timing linked to that in stocks and commodities. The United States 10 year note yield will continue to meander sideways. However, yields eventually will move higher and attack the four percent barrier.
In recent years, the linkage between equities, commodities, the broad real trade weighted dollar, and interest rates has been close.
Focus first on price and time notes for these arenas in the period of the dismal depth of the worldwide financial crisis.
Timing may not be everything, but it’s pretty important in both music and marketplaces.
What does this forest of data for stocks, commodities in general, and the broad real trade weighted dollar portend for their current and future environment? There have been two alternating marketplace songs in recent years. Strong stocks/strong commodities/weak dollar has been one clear tune, with sagging stocks/cratering commodities/strong dollar the alternative one. It is very likely that a major or any very significant high in stocks and commodities will occur around the same time (within a couple of months). That peak probably will happen around the time of an important low for the dollar.
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The Money Jungle (Part One)
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