First,I have the extreme pleasure of participating in another PODCAST with Richard Bonugli at the Financial Repression Authority. It is always a pleasure to “JAM” with Peter Boockvar in an effort to discern the rhythms of the global financial system. Peter, along with Jim Bianco, are two of the best analysts covering the entire rubric of money flows being impacted by the data. Enjoy the exchange and remember that this recorded on Tuesday, October 23. There was a great deal of volatility and data after our podcast, but much of it is relevant heading into this week’s trading.

As I have discussed for the last three weeks, under the guidance of Chairman Jerome Powell the CAVALRY is not coming to save those who have applied too much leverage to enhance their returns. For those waiting for the cavalry I suggest learning to whistle Garry Owen. This market will benefit from low interest rates but it will realize that the excessive liquidity available for any “quality” investment will be severely minimized as the Fed’s balance sheet shrinkage is larger than the ECB or BOJ’s QE programs. This theme will continue as long as Powell sits at the helm of the Fed.

***In reviewing Thursday’s ECB decision and Draghi press conference, I offer these two takeaways for traders and investors. The first is that Draghi is pushing hard for the EU to sustain the rules of the Growth and Stability Pact (Maastricht Accord), but stresses that Italy is a fiscal issue and must be dealt with through fiscal reform. Draghi acknowledges that the MONETARY UNION is FRAGILE if not completed. This is why there’s a need for a banking union and European budget to deal with infrastructure needs, but this is an apolitical contingency. The best question of the press conference was: “What would happen if Italian Debt was downgraded below investment grade?” Draghi was adamant that the ECB Board did not discuss this WHAT IF and therefore would not speculate on such an outcome. This is pure nonsense from Draghi as he stressed that markets and policy makers had to prepare for the possibility of a HARD BREXIT. Prepare for one but not the other? THAT’S NONSENSE OF THE HIGHEST ORDER.

Secondly, pay attention to the CAPITAL KEY as adjustments are made respecting the changes in growth percentages and ancillary impacts from the U.K. moving outside the current structure. The capital key will prove to be badly flawed because of the German insistence on fiscal frugality. The scarcity of high quality liquid assets will continue to widen the spreads on German debt versus all of the other EU nations, including France and Spain. This is a significant element of the trap President Draghi has laid for the ECB.

***On Sunday, there was a German election in Hesse. This is the second consecutive regional election in which Merkel’s CDU has experienced a large drop in its popularity. The two mainstays of German postwar political stability are both losing voters as the GREENS gain on the left while the Alternative for Germany (AfD) continues to reach the hurdle for representation in Parliament. The Financial Times reported the news with a ridiculous headline: “Merkel’s CDU Humbled in German Regional Vote.” If Merkel hasn’t already been humbled by several political losses then the German polity needs to replace its arrogant leader.

It is Merkel’s weakness, perceived or real, that complicates the Italian situation. The Five Star/League coalition knows that they can be strident in its budget negotiations as a weakened Chancellor Merkel prevents the imposition of the fiscal austerity policies favored by the Germans and Dutch. There is more ambivalence in Brussels and Frankfurt as they attempt to deal with the demands of the Italian coalition. Volatility has many progenitors.