October 2017 – The Quadruple Witching Begins

It all makes sense. Not! Since the Donald’s very improbable election victory the S&P 500 index has risen by 19%, the Dow by 25%, the Russell 2000 by 26% and the Nasdaq index has returned 27%. On top of that, the Nasdaq has posted 54 record closes this year and is well on its way to exceeding the 61 record closes of 1999, which occurred, as it happened, on the eve of the great dotcom bust.

Yet the above graph is a pure flight of fantasy because the visage embedded in the graph is actually Wall Street’s worst nightmare. The Donald’s historic mission was to be the Great Disrupter and bring down the baleful Wall Street/Washington regime that is ruining capitalist prosperity and American democracy. He is now almost there.

But the financial markets have been so impaired by 30 years of central bank fostered Bubble Finance that the boys and girls and robo-machines left in the casino have no clue about the global implosion lurking just around the corner. The are still making merry on the dance floor—-even as the world’s financial Titanic comes hard upon its denouement.

Indeed, what is now upon us is the quadruple witching month of October, 2017. We are not talking about standard options expiration dates, of course, but instead refer to four matters that are enormously more consequential. To wit, the fundamental forces in the world economy are now turning dramatically against the 30-year financial bubble that rages in its final days.

These October events include the beginning of global QT (quantitative tightening) led by the Fed’s $10 billion shrinkage of its balance sheet this month.That’s the first such contraction in decades and the beginning of an unprecedented central bank demonetization campaign which will drain trillions from the maniacally swollen financial markets.

The second force is the completion of the China’s 19th party congress, which paves the way for China’s newly crowned dictator – the most powerful since Mao – to break the back of China’s runaway Red Ponzi. By so doing, Beijing will extinguish the giant credit impulse of the last several quarters which has created the illusion of a global growth via short-term but unsustainable demands for raw materials, intermediate goods and CapEx.

The third force is the unprecedented, politically-fraught removal of a sitting President on “fitness” grounds. It will embroil the Imperial City in a deeply divisive power struggle that will bring governance to a virtual halt, and may end up destroying the Republican party as we know it. (Good riddance!)