Wall Street, WeWork flop and declining liquidity worry business banks. And the Fed launches a new Qe – Business Insider Italia

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"Don't call it Qe ”. Save appearances, this was the imperative of Jerome Powell announcing, soon, the restart of a structural program of direct purchases on the market by the Fed during the annual meeting of the National Association for Business Economics' in Denver. An ad as unexpected as revealing of something that really could not wait any longer, of a rope that had reached the maximum of bearable tension and already let glimpse filaments in free exit. In short, three days after the Federal Reserve's decision to extend repo operations until 4 November term to provide liquidity to the market, the Rubicon was crossed, after the chances for a rate cut at the meeting on the next 29-30 October had risen to 80% in the pricing of futures. "I want to emphasize the fact that the growth of our balance sheet in order to manage reserves should in no way be confused with the large-scale purchase programs that followed the financial crisis. In the same way, the recent technical problems or the purchases of Treasuries that we are making to solve them should not materially affect the monetary policy positions, "Powell told the audience, listening between the thrilled and the relieved. In short, how to say that there is no need to confuse an expansion of the budget for the management of reserves with one for the mere management of the stock market, Bernanke docet and as this graph shows.

So much so, whatever you want to call it, it's a Qe and Jerome Powell has given up. Just because of the ugly mess in the repo market and the scarce liquidity, maybe for JP Morgan's joke about deposits? No. The question is more systemic.

One of the best known adagios of Warren Buffett recites which is when the tide goes out we see who was swimming naked". In this case, the bather is of the large caliber. Goldman Sachsindeed, he saw his prestigious Investment & Lending division (I&L) to pay a decidedly high pledge to market reversals of names like Uber and Avantor in the third quarter of this year, falling by more than 30% in value in 100 and 62 trading days respectively. Translated into losses for the business bank, about 260 million dollars that could substantiate into a round -30% between the second and third quarters. A bad blow.

Certified, paradoxically, as a trend, right from the last Goldman Sachs report, in fact a sort of tombstone on the Ipo market, summarized to perfection in this chart

destined to dismantle a lot of mythology around tech unicorns: since the beginning of the year, in fact, the average placement is heavily going into underperformance on the Russell 3000 in the historical trend, a 3% that represents the worst reading ever, even compared to the peak reached in 2009 or immediately after the explosion of the tech bubble of 1999-2000.

In short, the farewell at WeWork's IPO would not only be an isolated case of mal-management, but the icing on the cake of a pattern that someone sees as dangerous déjà vu from the recent past. The flop of the placement of Adam Neumann's company could indeed be the proverbial pin that makes the bubble explode, exactly as happened three more times in the history of the last thirty years through as many corporate events: the missed United Airlines leveraged buyout October 1989, a contingency that marked the end of the madness period linked to its high performance; the merger between AOL and Time Warner in January 2000, concluding act of technological fever; the Take-under (proposal to acquire a listed company at a price significantly lower than the market value, ed) of JP Morgan for Bear Stearns in March 2008, end of the excesses of the 2000s and aperitif (or canary in the mine) of the Lehman collapse. In conclusion, it would seem the end of the games.

And yet, this chart:

exhibition another reality, that continually reiterated and emphasized in Donald Trump's tweets or in certain newscast titles: always in the first three quarters of this year, those from annus horribilis for the Ipo, the Standard & Poor’s 500 index has experienced its best performance since 1997. Dramatically, in the peak of irrational enthusiasm that led to the rude awakening of the dotcom bubble explosion.

And the reason why it is quite clear if you look at these other two graphs that are decidedly not available for interpretation:

if indeed since the financial crisis, equity buybacks have been, in fact, the only real driver on Wall Street, here is the latest Bank of America study certified as close to the end of September (therefore of the quarter) "the level of repurchase of own shares by companies has undergone the greatest acceleration in our historical tracking since 2009". Dynamics that, put in perspective by the second graph, tells us that the cumulative figure from January is now + 25% on an annual basis, while that from the third quarter at the beginning of the year to + 39%. In short, before entering the window of blackout started on 17 September last, the corporation wanted to put "hay on the farm" for the indices, pushing to the maximum. A dynamic that has brought with it, however, also a further reminder of the past, or the excess of moral hazard that accompanied the approach of the redde rationem of all the two crises preceding what appears to be at the gates.

This chart:

shows in fact how Wall Street has returned to flirting heavily with highly indebted companies, typical trend from a period of optimism (real or self-imposed) e guaranteed by very low funding rates. In short, paradoxically we are at re-leverage of indices, rather than at the end of the cycle: a dynamic that lasts as long as it can, depending on external factors.

In fact, however, it is not even too indirect victory of a rebellious Fed and his decision to cut rates at his last meeting, albeit in the vain hope of being able to keep the new Qe in his pocket – or how Jerome Powell prefers to call him, for the sake of concealment – for a while longer, at least until the new year . Instead the various Goldman Sachs, JP Morgan, Bank of America and Nomura (not surprisingly, protagonists of the same purchases on risk assets just described) have been right, which for at least two weeks at their most repeated their conviction regarding the starting a new direct purchase program as early as November. One thing is certain, or rather two. First, the free market, although distorted, is something else from this casino. Where the decks of cards loaded and the roulette balls reign supreme, they seem to bounce on command. Second, if Jerome Powell has accelerated similar to the change of policy of the Fed – starting from the emergency reactivation of repo auctions, passing through their dual extension of time until the announcement of new asset expansion through direct purchases – it was certainly not to put an end to the stalkeraggio via Twitter of Donald Trump or for a euphoric effect of high altitude air in Denver. Something could no longer wait, a new support was needed to hold on. And of those decidedly solid, given the contemporaneity with the new Qe of the ECB.



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