Home Larry Levin

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Landscape image of a oil well pumpjack wiith an early morning golden sunrise and American USA red White and Blue Flag background.

There was oil news that hit the tape Sunday night that could affect the market this coming week; however, last Friday’s no-vote to repeal Obamacare will surely keep the markets on edge in the near future.

Following last week’s defeat of the healthcare bill, there were no shortages of opinions as to what would happen next.  Most though that it was no big deal, but I think they’re wrong.


“There’s a bit of a relief rally. There were worries going into it… but it’s a mixed bag.

“It does now open the door for maybe they table the whole thing and just move on, and I would think the next thing on the docket would have to be tax reform. The market, to me, is more interested in tax reform than it is in changing Obamacare.

“In a way, for me, sitting on $600 million worth of investments, I think it’s great. Let’s move and get into tax reform, and then get into the infrastructure bill.”

Oil will also be in the news.  Despite the recent OPEC agreement to cut oil supplies, US inventories continue to rise and are at record highs.


OPEC and non-OPEC countries held a meeting in Kuwait this weekend to discuss the effects of the recent supply cut, and possibly extending it.  These ministers will put forward a recommendation to cut supplies for a further 6 months to reduce oil output by 1.8 million barrels.

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President Donald Trump reportedly laid down an ultimatum to House Republicans: Pass the health-care bill, as is, on Friday, or live with Obamacare.

The hard line came after more than a day of frantic negotiations to win the support of conservative Republicans who oppose the bill, and could block its passage. A vote on the bill had been scheduled for Thursday night, but was postponed earlier in the day after the GOP couldn’t win over holdout lawmakers.

White House budget director Mitch Mulvaney dropped Trump’s demand in a meeting with rank-and-file House Republicans, and said the administration and House Speaker Paul Ryan were done with negotiations, according to a report in The Wall Street Journal. If Friday’s bill fails, Trump is resigned to live with Obamacare and move on, he said.

U.S. stocks closed slightly lower on Thursday, with the Dow edging into negative territory to extending its losing streak to six sessions as a delay in a closely watched health-care vote raised questions about the Trump administration’s ability to win passage of its ambitious legislative agenda.

Trading was volatile, with major indexes at one point posting solid gains, but then turning lower ahead of the close after House Republican leaders delayed a vote to replace the Affordable Care Act.

Today should come with more uncertainty around this vote.  Things are moving fast on this, so you never know what the affect on the market will be.  So keep those stops tight, and the Twitter feed streaming.  There is action in the air.

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Yesterday I wrote about the end of the 110 day streak where the markets lived in an ultra-low volatility world that didn’t have a 1% correction. I also mentioned that some people attributed it to the possibility of today’s healthcare vote going down in flames, which could then jeopardize the promised tax cuts and is arguably a bigger deal to the markets.

Judging by the way the markets swung back and forth Wednesday on any mention of the upcoming vote, it will be important indeed.

The following charts came from ZeroHedge:

YM chart

The roller coaster ride you see above is actually great for day traders; the increase in volatility is welcome! The chart below shows how the market sold off when President Trump responded to a question about today’s vote. The market didn’t like his enthusiasm.


So be prepared for nice moves in the markets no matter what the outcome is!

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The S&P 500 and the Dow Jones Industrial Average have finally broken their streak of not realizing a 1% decline in a day. This was a long time coming, as the markets had not seen such a decline since October 2016. The decline was striking to some. I heard that some traders believed that this decline was a sign of the markets losing confidence in the new administration. While this is partially correct, what really seems to be the issue was a rise in doubts about the expediency of the administration’s ability to complete its main policy objectives, and not so much whether those objectives would be accomplished at all.

Specifically, the delay in replacing Obamacare has made the markets somewhat less enthusiastic, which is evidenced by the fact that the S&P and Dow had essentially remained range bound at the recent highs until yesterday’s decline. This decline is not very large. It actually is something that normally would occur at least a few times during a normal month of trading. However, the current low volatility in the markets is abnormal, causing the current decline to appear more substantial than it actually is. Nevertheless, this appears to confirm that more volatility is to be expected as the financial markets now appear somewhat less certain than they did before. Even if the ultimate upward momentum still appears to be intact, there probably will be elevated risk premium as traders digest the impact of delays in legislative objectives as well as the impact of foreign political changes.

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As the US continues to adjust to our new presidential administration, the European Union shows more signs of coming difficulty and likely upheaval as we approach French elections. Marine Le Pen, the right wing candidate in the upcoming French elections who has gained significant public support, has made it abundantly clear that she has no intentions of submitting French sovereignty to the whims of the EU. In a statement that is sure to be remembered as one of her most defiant, Le Pen declared “I won’t be Merkel’s lapdog!”. Le Pen declared that she will protect France’s borders and protect French sovereignty if she wins the election. This is exactly what the EU establishment does not want, and also precisely what the global financial markets appear to be discounting as potentially becoming a reality.

Meanwhile, in the United Kingdom, Theresa May has triggered Article 50, beginning the process of the UK’s exit of the European Union. Sweden has criticized the UK, stating that trade costs will rise as a result of the Brexit. Meanwhile in Brussels, EU leaders have ordered a summit in response the move forward on the Brexit decision, which I might add was widely reported by the press as being likely to be reversed after the vote due to widespread “regret” by the UK public.

However, it is now quite clear that the UK will move forward on the decision of the people, despite the many warnings, criticisms, and even outright fear-mongering expressed in the mainstream press. The EU council meets on April 29th to discuss the implications of Britain’s decision. It seems the Europe has plenty of political and economic difficulties ahead.

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I’ve clearly been surprised at how persistent that slump in volatility has been for the markets. The VIX moved up a mere 2.66% in trading on Friday, making it clear that the markets are strongly discounting the possibility of any strong risk. While I am not looking for a reason for the markets to go down per se, I am convinced that there are several important developments that should impact the markets to increase volatility in the near future. Nevertheless, the markets as always do not need to follow my expectations. In the end, it may be that we will see a very calm market for most of 2017.

As of Friday’s close, the Dow and S&P have gone 108 trading sessions without so much as a 1% decline. This is impressive to say the least. While this does not mean that we are “due” for a correction, it does mean that we are now in the ranks of the longest streaks without a 1% decline in history. The longest currently is 155 sessions, a streak which ended on March 1, 1966. Clearly we have a long way to go in order to breach that record, but clearly no one knows what the end result will be.

With all of this said, I believe that recent developments in Europe point clearly to the likelihood of an increase in volatility. After Geert Wilders lost the election in the Netherlands, it was widely reported in mainstream media that this election was a clear signal that populism was losing momentum. What these media sources seemed to have ignored is that Wilders was a very long shot to begin with, and the fact that he finished in second place to his main opponent, Mark Rutte, shows just how strong anti-EU sentiment has risen. It is also noticeable that Rutte made a clear shift in his rhetoric to sound more like Wilders, and Wilders’ party gained seats in Dutch parliament while other established parties lost seats, some heavily. Expectations in Europe seem to be overly optimistic that the French will not move against EU membership. However, I suspect these expectations are biased due to a continue refusal to acknowledge the growing tide of anti-EU and anti-globalist sentiments amongst the European people. If the upcoming elections in France go against current market expectations, I expect volatility to increase sharply and to see greater ranges of intraday market movement. Until then, I expect the markets to continue their calm march upwards.

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This missive isn’t about a second rate hike by the US Fed, as such, but rather how its actions make other central banks feel like they must play catch up.  The European Central Bank (ECB) surprised the market this afternoon by suggesting that: it needs to catch up by raising rates soon.  What!??

Near mid-afternoon, the wires lit up the S&P500 with a headline from the German business paper, Hanelsblatt, that the ECB says “a rate increase may be on the way.”  Well, that certainly got the markets attention, which cause the ES futures to drop several points; however, there wasn’t a major move lower associated with it.

From the German paper we read:

The European Central Bank (ECB) could be heading away from loose monetary policy in a different manner than the U.S. Federal Reserve, Ewald Nowotny, the Austrian ECB council member, told Handelsblatt in an exclusive interview.

The American model was to finish bond purchases first, but this model might not transfer well to Europe, said Mr. Nowotny, who also serves as the Austrian National Bank governor. All interest rates also wouldn’t have to be increased simultaneously nor to the same extent, he added. 

“The ECB could also raise the deposit rate earlier than the prime rate,” Mr. Nowotny said.

On the topic of the succession of ECB President Mario Draghi, whose term expires in 2019, Mr. Nowotny said that decisions were being made “in the political sphere,” and they were out of the hands of the central bank chiefs.

Mr. Nowotny said he assumes that it will be a selection process between the most qualified. When it comes to the most likely picks, Germany’s central bank president Jens Weidmann and his French colleague François Villeroy de Galhau rank up there, “no doubt about it,” Mr. Nowotny said.

Jens Weidmann is a “highly valued colleague,” Mr. Nowotny said, and the Austrian National Bank has very close relations with the German central bank, the Bundesbank

Well, well, well…isn’t this getting interesting?  The ECB may raise rates AND it may boot Super Mario from its helm?  OK, I like the sound of this

Let the games begin!

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Market Rebound

Janet Yellen and the others that make up the Federal Open Market Committee (FOMC) voted to raise rates by 0.25% Wednesday; well, there was one dissenter, Neil Kashkari.  Some wondered why the markets rallied after a rate hike, but the answer was obvious: the markets expected this.  If you recall, the Federal Funds rate had this meeting pegged at a 100% chance for a rate hike – several weeks ago.  It surprised nobody.

Of course, the FOMCs overall statement was large, but the real takeaway paragraph follows:

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.”

With this, there were many talking heads on the financial shows saying that the Fed is getting – that it raised rates twice in just a few months.  I laughed when I heard this because I know what the big picture is: The Fed has only raised rates three times… in 11 YEARS.

In print form, one of the financial outlets, Bloomberg, highlighted the FOMCs decision with this article: Two more rate hikes this year are still the call after the FOMC did what it was expected to today, raise the federal funds target range by 25 basis points to 0.75 and 1.00 percent. The outlook for rest of the year is unchanged in the FOMC forecasts, still at 1.4 percent for the federal funds rate which works out to two more 25 basis point hikes.

Change in statement language is centered in inflation which policy makers, based on the very gradual curve higher for the core rate, see stabilizing around their 2 percent target. They acknowledge that total inflation is already close to 2 percent though the core, which excludes food and importantly energy which has been on the climb, remains “somewhat below” target.

Another change is the description of business investment which they say has “firmed somewhat” from their January meeting when it was described as soft. Otherwise there are no significant changes with the economic expansion described once again as moderate, the labor market solid and continuing to strengthen, household spending on a moderate rise, consumer and business sentiment improved. Near-term risks are once again described as balanced and there is no mention of winding down the Fed’s $4.5 trillion balance sheet. And of course there is no direct reference to the timing of the next rate hike.

The vote was 9 to 1 with Minneapolis’ Kashkari voting for no hike. The results are neutral to expectations, with the Fed still confident it’s not behind the inflation curve and willing to hold their cards close to their chest.

Let’s hope this stokes the volatility flames in the markets for some time to come!

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The financial markets showed signs of imminent volatility on Tuesday as markets prepared for the impact of European elections on Wednesday, as well as the news on crude oil and the FOMC rate decision. The VIX bounced back sharply from its low on Monday, moving up over 10% at some points during the trading session on Tuesday. Ultimately VIX settled higher at +7.22%. The markets have been essentially starved for volatility over the last few months, and it appeared that the S&P 500 might decline over 1% during Tuesday’s trading. However, buyers came in as before to scoop up equity shares, allowing the S&P to settle down -0.34%. Nevertheless, the sharp rise in the VIX suggests that the markets are not completely at ease, although it should be noted that the VIX is still in the lowest range it has been in several years. Meanwhile, crude oil prices have received a boost from news the Saudi Arabia is continuing to comply with production cut agreements by storing excess production rather than sending it to market. However, North American producers are tending to use hedging to keep themselves afloat in the event that oil prices decline further.

The European elections are set to impact the global financial markets substantially. Citizens of the Netherlands vote today to determine the next prime minister of their country. At present, late polls show the right wing parties losing some momentum, although it should be noted that these same polls revealed the same for Brexit. It seems likely to me that right wing parties with a stronger nationalist inclination are likely to advance in Europe due to the highly visible policy failures of the European Union, in particular the EU’s tendency to disdain popular opinions of the common citizens of its member states. If Geert Wilders, who is the leading right wing candidate in the Netherlands, wins the election then it will send a clear signal that Britain and the United States were not the only countries in the West leaning strongly against the status quo. With these things in mind, I expect greater volatility this month in the financial markets as a whole.

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I’ve mentioned previously my opinion that the Eurozone is likely to see strong political, economic and social upheaval this year as conflicting forces converge to forge the future of the continent. We’ve seen widespread unrest amongst migrants who have entered Europe in massive waves, we’ve also backlash from European citizens against European Union policies on immigration, finance and national sovereignty, and we have witnessed major upsets to the established bureaucracy as the UK voted to leave the union and Italy voted down a pro-EU referendum. At this stage, it seems clear that momentum in the EU is shifting away from globalism and collectivism in favor of national sovereignty. Of course the election of Donald Trump in the United States has also demonstrated a shift in global sentiment amongst the general public.

Europe is facing pressures from all sides, and now Turkey is stirring up strife through its controversial political campaigning in foreign countries. Turkey’s President Erdogan instructed his foreign ministers to rally Turkish citizens living in Europe around his proposed constitutional referendum, which would expand the powers of the country’s president. With this full court press to secure support from Turkish voters around his cause, Erdogan has run against the grain of many European leaders, who see these rallies as undesirable and expected them to cause civil unrest on a continent already struggling with social, political and economic woes that could very likely lead to the election of politicians who are not favorable towards the European Union.

Officials in The Netherlands took action by banning and eventually expelling Turkish officials who called together political rallies. With the election of its new Prime Minister this week, the small European country did not want any civil unrest to develop. The actions of the Dutch government were harshly denounced by Erdogan, who vowed harsh retaliation for these actions without detailing the nature of that retaliation. The Turkish president even went so far to accuse The Netherlands of Nazism. Not surprisingly, Dutch officials were outraged by this accusation. Nevertheless, while Erdogan’s referendum would certainly enable him to become more authoritarian, the actions of his subordinates in Holland seem likely help propel a nationalist candidate into power. The Dutch election will be held March 15th. Expect strong market volatility if nationalist candidate Geert Wilders wins.