Business

Authored by Nick Giambruno via InternationalMan.com,

The Deep State is set to prick the largest bubble in human history today…

The Deep State is the permanently entrenched “national security” bureaucracy - the top tier of the military, the CIA, FBI, NSA, etc. It also includes the Federal Reserve, the quintessential Establishment institution.

They all hate President Trump. They did everything possible to stop him from taking office. None of it worked. They fired all of their bullets, but he still wouldn’t go down.

In 2015, options expirations mattered - stocks would tear higher into the event and like clockwork sink back lower after.

2016 was not so obvious but the all-important 'quad-witch' expirations still had some bias.

However, if JPMorgan's equity derivative strategists are right, tomorrow's 'quad-witch'  - with $1.4 trillion worth of S&P 500 notional set to expire - could lead to a vicious cycle higher in volatility going forward.

The Fed has completely backed itself into a corner.

The truth that no one wants to admit, is that the Fed should have raised rates in 2012. Instead Bernanke “gifted” QE 3 to the Obama admin to help its re-election bid. The Fed finally got around the hiking rates for the first time in seven years at the end of 2015.

Fast-forward to today and the Fed is now facing stag-flation: a situation in which inflation is developing while the economy is weak.

As we reported on Wednesday evening, something interesting took place on Thursday morning in Beijing: in a case of eerie coordination, China tightened monetary conditions across many of the PBOC's liquidity-providing conduits just 10 hours after the Fed raised its own interest rate by 0.25% for only the third time in a decade.