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.
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.
FOLLOW THE LINK BELOW to download this market essay as a PDF file.
Metals and Meltdowns (9-26-11)
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.
FOLLOW THE LINK BELOW to download this market essay as a PDF file.
The Strong Yen, the Weak Dollar, a Shaky World (8-2-11)
Many influential storytellers dream that economies of nations such as Brazil, Russia, India, and (particularly) China are very- or at least sufficiently- independent of America and other so-called advanced realms. Moreover, the BRIC territories supposedly possess enough power not merely to sustain adequate domestic growth, but also- at least collectively- to help drive the overall world economy significantly forward.
However, this endearing fantasy regarding the house of BRICs confronts substantial real practical barriers. Audiences should not have faith in a tempting doctrine of BRIC independence and almost endless and inevitable strength. The BRIC fraternity and numerous other developing regions indeed have built and continue to construct growing economies. Yet as the recent worldwide economic crisis that emerged in 2007 demonstrates, awful problems in a major developed nation such as the United States can spread rapidly and deeply around the world. As this is so, noteworthy troubles in the BRICs or elsewhere can affect advanced nations significantly.
Slowdowns in advanced nations probably will help to cut- and by more than a little bit- individual and collective BRIC growth relative to the sunny IMF predictions.
If the fiscal and banking crisis related to the European periphery can spread through Europe and around the world, so can the unearthing and spread of a significant problem in a nation as crucial as China. China is no house of cards, but its deck does not hold only aces.
Prior to the financial fires that began burning more visibly in 2007, how many players, regulators, or armchair quarterbacks declared that the US housing boom was likely to suffer an unhappy ending? Is China’s local government debt only a local problem?
FOLLOW THE LINK BELOW to download this market essay as a PDF file.
The House of BRICs (The Money Jungle, Part Six)
View Leo Haviland’s profile