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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What does a survey of total United States petroleum industry inventories (crude and products combined) relative to total products supplied indicate regarding current and near term US petroleum price trends? The very elevated days coverage (end month inventories versus average daily consumption for that calendar month) probably has significantly contributed to the renewed price weakness in the overall petroleum complex that emerged in February 2013.
The broad GSCI established a major high around 762 in spring 2011 (4/11 and 5/2/11 tops), with lower peaks at 717 on 3/1/12 and 699 on 9/14/12. NYMEX crude oil (nearest futures continuation) peaked 5/2/11 at 11483, with lower tops on 3/1/12 at 11055 and 9/14/12 at 10042.
As part of the major longer run downtrend that exists for commodities in general, note the assortment and timing of minor tops made in early 2013 (especially February) in several commodity indices and in numerous particular commodity marketplaces.
Many watch US equities alongside commodities in general and petroleum prices in particular. The S+P 500 in the past three years made springtime highs: 4/26/10 at 1220, 5/2/11 at 1371, and 4/2/12 at 1422. Compare the timing of the high in the S+P 500 during its recent rally, 4/2/13 at 1574. Compare also this 4/2/13 high in the S+P 500 with the timing of the fall off points in the petroleum complex just noted, as well as the renewed tumble in the broad GSCI from its 3/28/13 level around 659.
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US Overall Petroleum Inventories- Enough Is Enough (4-5-13)
The net Index Trader position for each of the 12 commodities has always been substantially net long. The net IT position percentage relative to total open interest for the various commodities differs, in some cases substantially: cocoa, corn, cotton, live cattle and wheat net long IT percentages are not the same. In any event, the average net long IT position for the 12 commodities combined from 2007 to the present is about 24.8 percent of total open interest (3/12/ 13’s is about 23.7pc). Thus the commodity buy-and-hold for the long run alternative investment community is a very important factor within the commodity arena.
Moreover, notable changes in the net long IT positions for the combined dozen marketplaces, offer insight into (helps to confirm) overall commodity price trends. A substantial addition over time to net IT positions is a bullish sign for the commodities sector, whereas a significant slash in these net IT positions warns of (or confirms) a bear trip. Of course since net IT positions and their changes are only one factor influencing commodity price level and trend, players should not be dogmatic regarding the role and predictive potential of this marketplace indicator.
Since mid-2008, commodities “in general” (use the broad GSCI as a benchmark) in recent years often have traded in patterns somewhat similar to those in United States stocks (S+P 500). Substantial bull (bear) moves in US equities find parallels in those in the commodity domain. Therefore stock marketplace congregations should monitor IT position levels and trends.
Yet recall 2007-08. American stocks peaked in October 2007, about nine months before the one in commodities. Only after the final stock summit in May 2008 did equities and commodities trade closely together. The current longer run relationship probably also reveals divergence, but with the commodity peak to date arriving well in advance of one in the S+P 500. See “Commodities and US Stocks: Convergence and Divergence” (1/28/03).
The net long IT position since early February 2013 has started to decline, as have prices in the broad GSCI and in the great majority of commodities, although stocks have remained robust. Admittedly IT data availability beginning in 2007 does not constitute an extensive history. One should interpret it in relation to commodity (and especially) stock trends with caution. However, given the frequent parallels of important commodity and stock trends since mid-2008, further notable slumps in the net long IT position alongside price falls in the broad GSCI will warn (help to confirm) that price divergence between the commodities and American stocks will cease. If so, and thus as occurred in spring 2008 and thereafter, stocks and commodities probably will begin to fall together. A boost in net IT positions conversely would be bullish for the S+P 500.
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Commodity Index Investment and US Stock Trends (3-20-13)
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)
Burning passion for another is not the only love which makes us shake. When fear of losing substantial sums creeps up on numerous money lovers in intertwined financial playgrounds, both the players and their marketplaces can quiver violently.
Many pundits define a bear marketplace as a 20 percent slide from a noteworthy price top. Though the S+P 500 nosedived about 20 percent from its 5/2/11 high around 1371 to its 8/9/11 low near 1100, it then rallied sharply. On 8/9/11, the United States 10 year Treasury note touched yield lows of just over two percent. This matched the bottom achieved on 12/18/08 during the previous “flight to quality” panic in the (still-running) economic crisis that erupted in 2007. Given this equity and debt support, will things calm down much? No. The economic and political scenery has not sufficiently changed. Relationships within and between various financial arenas and their variables probably will vary to some extent as time passes, but the current entangled key financial factors will remain powerful, volatile, and intertwined. Although there will be occasional intermissions, turmoil in and between key equity, interest rate, currency, and commodity theaters therefore will not cease anytime soon.
Why place blind faith in the 2013 low rate policy, for the Fed confesses it changes its viewpoints? In addition, consider the Fed’s policy track record relative to its “original” expectations. Economic growth has been considerably lower than the Fed “had expected”. The Fed “now expects” a slower pace of recovery. Just as the Fed this month adjusted its policy by speaking of low Fed Funds through mid-2013, it eventually may alter its present course. Historians recall that the Fed’s quantitative easing floods likewise represented policy changes due to marketplace developments. Besides, how accurate were the Fed’s economic forecasts in 2007 and 2008, at the dawn and during the early stages of the acceleration of the economic crisis? So as Fed expectations change, so may its actions, whether on rates, quantitative easing, or otherwise.
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Furious Financial Fluctuations (8-15-11)
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