Home Larry Levin

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In a blow to international free trade proponents in Washington and abroad, President Trump officially ended US involvement in negotiations for the proposed Trans-Pacific Partnership, or TPP. The TPP would have marked a major victory for global trade proponents, but critics have contended that the deal would represent another blow to the workers in the US and abroad. During the President race, now President Trump argued for the abandonment of the TPP due to his perceived threat it posed to the American worker. In statements he made during multiple debates, rallies and press interviews, President Trump stated that the TPP was another example of poorly negotiated trade deal that would not only hurt American workers and take jobs out of the country, but by extension would also leave the United States in a poor position to benefit from international trade. But Trump was not the only person in the race lamenting the proposed TPP. Bernie Sanders also was an outspoken critic of the proposed trade deal.

The TPP was the culmination of negotiations between the United States and multiple foreign nations the was heavily endorsed by then President Obama. The trade deal was designed to expand free trade opportunities internationally between North America and multiple Pacific Rim countries such as Japan and Malaysia. In order for the agreement to pass into international law, at least 6 states corresponding to 85% of the combined GDP of the 12 countries involved would need to ratify the agreement. With the withdraw of the US from negotiations, this now seems much less likely to occur. The deal sparked disapproval from both sides, with a common complaint being the expected negative impact on wages and likely loss of jobs that would be the result of the new agreement. Trump also added to this his belief that the trade deals would worsen the currently unfavorable balance of trade of the US. These accusations seem to be very legitimate when the impact of the  North American Free Trade Agreement, or NAFTA, is considered.

According to then Secretary of State Hillary Clinton in 2012, the TPP was the “gold standard” of trade agreements, and NAFTA was the primary trade agreement to which this comparison was drawn. NAFTA was presented at the time of its negotiation under former Presidents Bush Sr. and Bill Clinton as being of great value to the American worker. In the then landmark televised debate between businessman and candidate for President Ross Perot and then Vice-President Al Gore, Gore argued persuasively that NAFTA would create hundreds of thousands of new jobs in the United States by opening up trade to markets in Canada and Mexico. In contrast, Perot argued that a “giant sucking sound” will be heard once NAFTA was implemented as he expected great chunks of US manufacturing jobs to lost as companies relocated across the border. Clearly, NAFTA did not create more jobs than it destroyed. In fact, the results have been so lopsided that it consistently proved to be a thorn in the side of Hillary Clinton, as she consistently recast her approval and involvement in NAFTA.

Much of the reasons cited for the loss of jobs is the impact of Investor-State Dispute Settlement provisions (ISDS), which essentially allow multinational corporations far greater power against governments than they would have otherwise. This combined with the benefit of being able to offshore labor to places with less regulation and lower wages, and you have the perfect scenario for corporations to capitalize on the benefits of cheaper labor and lower regulation thresholds abroad, and the ability to sue governments for alleged damages due to business losses occurring due to legislative changes. For example, if a fuel additive is banned by a country due to environmental concerns, that country can be sued for revenue losses by a multinational corporation within the framework of NAFTA’s ISDS provisions. This actually occurred in the 1997 when Ethyl Corporation sued and won a settlement with the Canadian government when the government banned the fuel additive MMT. This is important to note because the TPP agreement includes ISDS provisions granting corporations even greater power than that of NAFTA according to many experts.

With this in mind, it seems clear why opposing the TPP was a major trade policy issue for the incoming administration, and the decision to formally withdraw from negotiations sends a clear signal to the global markets the the Trump administration is serious about its campaign rhetoric on trade. We will see if Trump’s promise to renegotiate or withdraw from NAFTA meets with equal success.

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The current strength of the US dollar versus other world currencies has stoked mixed feelings amongst political and financial leaders worldwide. U.S. Treasury Secretary-nominee Steven Mnuchin, formerly of Goldman Sachs, recently stated that he favored a strong US dollar over the long term, but cautioned against strength in the short term. These comments were expressed during Mnuchin’s confirmation hearing last week. In those comments, Mnuchin echoed the sentiments of former Treasury Secretary Robert Rubin, who was in office back in 1995. Mnuchin stated that he believes the US dollar is currently very strong and feels that this strength could force some US companies to seek to relocate abroad in order to offset the effect of a strong currency on export volumes. However, a weaker dollar could cause investors to abandon the dollar in search of greater stability elsewhere. With these things in mind, Mnuchin acknowledged that he would need to strike a delicate balance in order to insure that the dollar develops long term strength without undermining US exports.

The focus on US trade is clearly one of the top priorities for the Trump administration. President Trump’s comments on trade featured, amongst other things, a clear statement that he believes the US dollar is much too strong in relationship to the currencies of countries such as China. These comments caught the markets somewhat off guard as it is not typical for a US President to make such strong statements regarding the strength of US currency. However, the US dollar is still quite a distance below highs reached in the 1980’s and early 2000’s, and therefore there is likely more potential upside to gain. For example, analysts from Morgan Stanley stated in a press release last week that they expect the US dollar to continue to gain through 2017, possibly reaching a peak value some 9% higher than current levels, even to the point of the US dollar exceeding the euro in value for the first time since the late 1990’s.

We can realistically expect more volatility to come as the US dollar seeks to stabilize into a more comfortable range. What is clear for now is that dollar strength is likely to increase, but also that the new US administration may seek to weaken the US dollar if it feels the trade is being too greatly impeded by dollar strength. As before, I remain bullish on the US dollar for 2017.

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The government can provide a few essential necessities from time to time, but it usually doesn’t do that good of a job.  “Free stuff” doesn’t exist; it always costs something, and a lot more than even realists expect.  Just ask the governor of California, who often says “stuff” should be free.

Of course, the great part about our government is that we can all agree – to disagree – without an incident. Oh, and for the multitude of snowflakes out there: I guess you can have a safe space too, but you better ask your college president “are you always ready for useless garbage?” He or she will “exclaim YES! It is the American way (for lefty snowflakes).”

And don’t ask Gov Moonbeam if it will be free – it won’t.

Budget staffers said there were, in fact, two mistakes:

–  A double counting of state savings from a program that coordinates health, behavioral and long-term care services with local government. That error understated expenses by $913 million.

–  A forgotten state government cost from two counties — San Mateo and Orange — enrolling in the coordinated program, which meant missed expenses of $573 million.

But don’t worry .. the government will somehow fix it.  Yea, sure.

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The equity markets have hardly been moving at all.  It has been so slow for so long, it’s getting hard to believe.  What is the market waiting to see?  What needs to happen to breathe life into it (read: give us volatility!).  Recent economic data has been ignored, however, none of them were huge misses.  Many thought the market was waiting on Wednesday afternoon’s speech and Q&A that would yield the much-need volatility.  Alas, it didn’t happen.

There is one more thing on the horizon though: the inauguration of Donald Trump as the 45th president of the US.  I doubt that the very moment that he accepts the oath of the office that the market will instantly have higher volume and better action; however, perhaps the market will very soon afterwards price-in promises, or a lack of action on his part.

As it turns out, several on the Street are wondering the same.  From the Chief Market Strategist of Convergex, Nicholas Colas, we read the following piece about the “fragility” of the equity markets…

Want to know why US stocks feel so fragile?  Perhaps we can blame Wall Street analysts.  Even after two months of market buzz about lower taxes, infrastructure spending and less regulation juicing investor expectations for better earnings growth, they refuse to bump their revenue or earnings estimates for 2017.

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Our monthly look at revenue expectations for the companies of the Dow shows Street analysts still cutting their numbers for Q1 – Q3 of 2017.  About the only bright spot: they do expect revenue growth of 4.0% this year.  As far as earnings expectations go, there is still no change to “Bottom up” earnings expectations for the S&P 500 of $133/share.  That’s right where it’s been since before the election.  Nearer term, analysts are still cutting their earnings expectations for Q1 2017.  Now, markets are often happy to discount changes in Street expectations before they occur.  Current valuations of 17x – high by historical standards – may be a ceiling on equity prices until both buyside and sellside have more confidence in incremental earnings growth.  Next week – Trump’s first days in office – will be important in building that case.  First impressions matter, after all…

So in the hopefully not too distant future, the question will be: Is the market overpriced versus the Trump promises?  Has it gone too far?  Or will Wall Street further increase earnings expectations with a few filled promises?

Either way – the answer can’t come soon enough!

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Global markets were unsettled on Tuesday as it became clear that the United Kingdom is planning a clean break from the European Union, or as many have called it, a “hard brexit”. UK Prime Minister Theresa May stated in a major speech on Tuesday that it was time to “get on with it”, referring to Britain’s exit from the European Union. PM May stated clearly that her country would no longer be part of the single market that is the current European Union, but rather that her administration will seek to negotiate a trade arrangement with its EU neighbors. May stated that these negotiations would hopefully be accomplished by 2019, but she did not specify what would be the course of action should negotiations fail. In principle, a failure to successfully negotiate terms with the EU could keep Britain in a state of limbo, which ultimately could lead to a reversal of the decision to exit the EU. Either way, Theresa May’s statements catalyzed global markets into action.

Global markets reacted predictably to the hard brexit decision. The British Pound rallied strongly, gaining 2.7% upon the news. However, the pound still remains nearly 17% lower than what is was  before the Brexit vote in mid-2016. The US dollar slid lower, with the US Dollar Index closing down 1.25% for the day. US equity markets remained mostly neutral, with the S&P 500 down 0.30% and the Dow Jones settling down the same amount. Crude oil closed up slightly higher at +0.36%. Overall, Tuesday was most bearish for UK equities, with the FTSE 100 tumbling 1.5% on speculation of negative impact on corporate profits due to an expected decline in foreign trade revenues due to the brexit. However, since details regarding the future course of the brexit will take some time developing, it is likely that the market will not focus on this matter for long. As of now, volatility in the financial markets remains very low overall, and this situation is likely to persist up until the Trump administration takes office and begins to implement its economic policies.

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In my last post I talked about George Soros and the huge bet that he made betting against the stock market because of the Trump election.  As you know, it was reported that he lost $1 billion by the time he was done covering his short positions and being short, in general, is today’s topic.

Selling the market short is one way that professional traders attempt to profit in the market.  This is only done when they have a belief that the market will fall, which makes them bearish.  Eventually the position must be bought back and hopefully at a lower price so it is the opposite of being long: selling high and buying low.  When you buy the short positions back, it is called “short covering.”  As mentioned in the Soros post, this short covering helps the market rally.

The charts below suggest that a lot of short covering has already taken place, and the fuel that helped the market rally into the end of 2016 may be over.

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The market sector that has been reported to have caused the majority of the late rally in 2016 was the financial sector.  As you can see in the chart below, short interest in the financials dropped noticeably in the second half of the year.

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After this week’s inauguration, I wonder if the short interest will pick back up again?  If so, it should bring some much needed volatility to the market.

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A popular comedy was released in 1997, Austin Powers, that was such a hit that it led to several additional movies.  Like any well-liked comedy that is an instant success, it gave birth to many popular phrases like “$1 BILLION dollars” while holding your pinky finger to the edge of your mouth.  After any hit movie, comedy or otherwise, people make comparisons of the characters in the movie to others in real life.

Surely I’m not the first to compare Doctor Evil…to George Soros.  In the movie, Dr. Evil is obsessed with world domination, and billions of dollars, just like George Soros.  In the scene that we report on today, however, the very real George Soros doesn’t steal or trade his way to $1 billion – he LOSES it.

Going in to the election, it was well known that Soros was one of Hillary’s most well-heeled supporters on the planet to donate (huge) to her campaign.  Additionally, it has been reported that George Soros funds dozens of extreme left-wing organizations.  I would say that it is not a stretch to surmise that Mr. Soros believed CNN and all of the other fake-news organizations who had Hillary winning with a 98% margin.

George Soros is a legend for making truly MASSIVE bets in the market, and he wasn’t going to miss a sure thing with Hillary’s coronation.  Donald Trump was a loser, he thought, so why not make a killing off of it.

Yeah, but… not so much.  As we all know by now, after the election of Donald Trump, the market has been on a meteoric rise that destroyed anyone who was short.  Moreover, those that were short MASSIVE positions at this time were forced to cover, which then added fuel to the fire of an already bullish market.  Thanks George Soros!  Everyone’s 401k accounts also thank you.

One wonders: Did Mr. Soros raise a pinky to the corner of his mouth and say, “I just lost ONE BILLION dollars!”

Yes, his bet was so huge that when it went against him he lost $1,000,000.00.  But Little Sister’s of the Poor won’t be holding a charity auction for him.  He had $30 billion, so I’m sure he can get by on $29 billion.

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The term “fake news” has been used quite a bit lately.  What is fake news you ask?  Well, when you boil it down to its base, it seems to be anything that one disagrees with. It all started with conservative news outlets saying “crazy” things like “Hillary has health problems that should be brought up in the debates.”  Liberal media outlets said this was crazy, until we all saw at the 911 memorial that she nearly collapsed in an cataleptic-like seizure.  When the small and unknown conservative media continued to break this type of news regularly and scoop the Lame Stream Media (LSM), the LSM had to fight back – so they started calling their opposition “fake news.”

Well, that hasn’t worked out so well for the liberal titans of actual fake news; NBC, ABC, CBS, MSNBC, CNBC, HuffPo, BuzzFeed and arguably the most egregiously one-sided fake news site of them all: CNN.  Now that the LSM has used this phrase to try to knock down their small competition, people are fighting back and pointing out the hypocrisy of the Lame Stream Media.

A week ago, four black Chicagoan’s were arrested for the heinous crimes of kidnapping a white man with special needs (aka, mentally retarded), torturing, beating and scalping him because he was white and said he liked Trump.  These four fools actually streamed the torture LIVE on Facebook, which led to all of them getting arrested and charged with the racist charge of a hate crime, among many others.

Why would I bring this up?  Because CBS radio described this in such a way that made it sound like four white people were torturing a black man with special needs.  Talk about torture; the LSM producers of CBS radio had to torture the facts so badly, that the small clip that was played on the radio, and the voice over were so ridiculously slanted that it PURPOSEFULLY sounded like something completely different than what actually happened in real life. That, CBS, is FAKE NEWS indeed!  So many people complained about the terribly false radio spot, that CBS was forced to take it off the air.

If you read any of the over-the-top outrageously false accusations of Donald Trump yesterday, which led to an amazing press conference Wednesday, then you once again read fake news from the left-wing Lame Stream Media.  It seems like some prankster from the message boards of 4Chan wrote a crazy accusation of Trump, hookers, and Russia (I will spare you the fake news details) to troll the LSM – figuring these morons would take the bait and print the story.

They did run with it – a few anyway.  CNN and BuzzFeed were breathlessly pushing this idiotic story as if it were true, while the others in the LSM were, surprisingly, less anxious to use the story because they could tell it was too crazy.  Did any of the LSM, especially CNN and BuzzFeed, bother to investigate the story to see if any of it were true?  Of course not!  Journalism today is not about being correct, it is simply about being first and this leads to all types of fake news.

Regarding this story, Trump spokesman Sean Spicer said “for all the talk lately about ‘fake news,’ this political witch hunt by some in the media…is frankly shameful & disgraceful…. Highly irresponsible for a left-wing blog… to drop highly salacious and flat-out false information on the Internet.”

And during the press conference Trump said, “BuzzFeed which is a failing pile of garbage… will suffer the consequences.”  Moving on, Trump slammed CNN reporter Jim Acosta, who he also called out over their report of a two-page synopsis they claim was presented to Trump.

With Trump trying to call on other reporters, Jim Acosta yelled out, “Since you are attacking us, can you give us a question?” “Not you,” Trump said. “Your organization (CNN) is terrible!”  Acosta cried, “You are attacking our news organization, can you give us a chance to ask a question, sir?” Trump simply said, “don’t be rude.”

“I’m not going to give you a question,” Trump responded. “Don’t be rude. I’m not going to give you a question. You are fake news!” He then called on a reporter from Breitbart, which the Lame Stream Media claims is fake news.

What a day.  It made trading interesting too.  Let’s have more of that!

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US equities markets once again struggle to make solid headway this week as they settle close to all-time highs. The Dow settled on Tuesday down 0.16% at 19,855.53 and the S&P 500 ended unchanged at 2268.90. Both indexes have generally been range bound over the last month, with the Dow continuing to approach the 20,000 mark but failing surpass it. However, even if the Dow Jones does reach the historical 20,000 mark, it seems that there is a lack of follow through momentum as markets attempt to gauge the future direction of crude oil prices and weigh in the impact of a sudden drop in home sale agreements across the United States.

Crude oil has slumped after recent strength following the oil production cut agreement by major producers. Crude oil futures settled at $50.82, placing it at a one-month low. US dollar strength has certainly affected oil prices as the dollar is poised to continue to rally versus other global currencies due to stronger US interest rates and a generally more robust US economy in comparison to that of the European Union. Nevertheless, the biggest factor affecting oil is a lack of conviction that the production cut agreement will be enough and if it will even be adhered to in light of the increasing production of Libya and Iraq. Overall, oil prices closed down 2% in trading on Tuesday.

In a surprising twist, the real estate website Trulia has revealed that home buyers are facing a wave of obstacles to getting approved for a home purchase. The report revealed that the percentage of failed sales amongst US buyers has risen sharply as compared to 2015. The report found that 6.3% of sales of inexpensive “starter” homes fell through, whereas 3.6% of more expensive homes fell through. These figures represent a large increase above 2015 levels. Some of the reasons given for this are higher repair cost estimates and a greater number of loan applications being declined. At any rate, this will surely impact the economy.

We’ll see how the markets react to this developments on Wednesday. However, it appears we may be stuck in consolidation until more major economic data is released.

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As I mentioned last week, oil is likely to be volatile this month. Traders are seeking to gauge the level of commitment of major oil producers who signed an agreement last month to cut global production. The energies in general suffered declines overall today, with oil closing down 4.0% over concerns that Iraq is actually increasing production. Libya is already expected to increase production, and the additional production from Iraq if realized will reduce the impact of planned production cuts. In fact, if this additional production does come online, it will likely have the effect of discouraging some producers from going ahead and cutting production as promised. However, as I’ve mentioned before, the economic incentive for Saudi Arabia and other OPEC producers to cut production will likely keep the biggest producers on track. After all, if oil prices do not remain sufficiently high, these producers will continue to run fiscal deficits, something that they do not favor.

Natural gas also slumped today. Natural gas prices plunged over the last week of trading, ending down 14% from the beginning of the week. As mentioned previously, weather forecasts are now anticipating a warmer than average January, which should sharply decrease demand for natural gas. Prices previously found support due to increased exports, but with stockpiles still have high levels and an expected slump in demand, natural gas prices seem likely to remain lower unless there is a surprise drop in temperatures despite current forecast expectations.

Lastly, the energies sector slumped also. XLE, the energy sector ETF, closed down 1.45% as energies companies absorbed the impact of lower energies prices in addition to a slumping equities market. It seems likely that XLE will continue to slump unless oil prices recover. The equities markets will continue to be under some pressure as traders consider the impact of the still pending exit of Britain from the European Union. With all of these things in mind, the equities markets will likely have difficulty continuing to rally, and we may see narrow trading ranges going forward. Trade carefully.

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