Near Term Stock Market Melt-Down? Or Melt-Up?

By Gregory Mannarino TradersChoice.net

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Near Term Stock Market Melt-Down? Or Melt-Up?

By Gregory Mannarino TradersChoice.net

Octoberphobia.

The specter of October stock market crashes looms large in the minds of many, and for good reason.

Just to name a few. There was the Bank Panic of 1907, the Stock Market Crash of 1929, Black Monday 1987. All these events happened during the month of October. Then, most recently, there was the sub-prime housing market crash which precipitated the stock market crash of 2008.

These events have imprinted a psychological scar upon the minds of the masses. Therefore, every year when October rolls around the calls for stock market crashes during this month skyrockets.

The anxiety of October, although understandable, must be looked at in the context of what is driving stock market price action at that time. By closely observing the flow of cash through the markets, we can make good calls as to what the most likely outcomes for the market will be.

What is driving stock market price action today?

It’s the same driver ever since the stock market crash of 2008. The NUMBER ONE market driver remains hyper-debt expansion, which is brought about directly by central bank easy money policy.

Hyper-debt expansion, and this is a worldwide phenomenon, has triggered what is known as a multiple’s expansion cycle in the stock market.

A “multiples expansion cycle” is the direct result of artificially suppressed rates and therefore, a weaker currency. In simple terms, it means that investors are willing to pay more to own the market. Multiple expansion cycles create stock market bubbles, along with MASSIVE price action distortions across the entire spectrum of asset classes.

For many years now I have explained to the people who follow my work that “The Faster That the Economy Craters, The Higher the Stock market Will Go.” Let’s see how this mechanism works.

The same forces which drive the stock market higher, are also ECONOMIC DESTROYERS.

In finance and economics THERE ARE ONLY TWO fundamental truths, and these are:

1.      To have a strong economy you need a strong currency, and

2.      To have a strong currency, you need a corresponding rate of interest as to allow the currency to remain strong.

To put this into perspective, artificially suppressed rates and a weak currency are key stock market drivers-TO THE UPSIDE. For the economy, artificially suppressed rates and a weak currency have the opposite effect.

Right now, today, the Federal Reserve and other world central banks have begun an EXPANSIVE AND MASSIVE new easy money cycle. The effect of this will, for the short run, push more cash into the stock market while at the same time weaken the economy.

KEY: What will be sold to an unknowing public by politicians is this, “we need lower rates,” (which also means a weaker currency). However, the opposite will happen, and the economy will suffer. Conversely, the ILLUSION of a higher stock market, on the back of easy money policy, will allow these same politicians to sell THE FEDERAL RESERVES PLAN to the public, and expanding HYPER-debt will be the result.