Had interesting discussions today including with one who'd been in "the belly of the beast" (shadow banking system). I'm convinced the Fed's surprise $60B a month QE program(while everyone was focused on the Trump/China show Friday) is to combat an evolving shadow banking crisis
Shadow banking - the land of little oversight, leveraged loans, covenant-lites, leverage on leverage, investments in zombie cos. & now much lower valued Unicorns, has seen the exit door (IPO market) shut and the WeWork types implode. Bank loans that can be called bi-weekly.
Also interesting is (coincidental?) timing of WeWorks' world implosion & money market/repo interest rate crisis that doesn't seem to be getting much better. $75B in repos today, despite fact that quarter end has passed as did the Sept 15 corp. tax payments.
QE -even $60B a mo. worth is a blunt tool,meaning Fed can't direct funds where they necessarily might want them to go. Today's $7.525B(maximum t-bill purchase)began at 10:15AM -almost the exact time the Dow Industrials, S&P & gold all started turning up from their lows of the day
All of them bottoming &rallying at same time the t-bill purchases began.Coincidence?I think not.Will this potential shadow banking problem lead to a 2008-type crisis.Probably not.But there's lots more t-bill purchases ahead in coming mos. which should be good for "quality" assets
Also don't think its coincidence Workday saw order pushouts& IBM missed revenue estimates (even though they'd just reset guidance). There was likely a lot of cos. looking at cash flow over expansion in the last mo. of the quarter (Sept). Could herald a further capex slowdown
For gold,a week ago ECB was leading the charge with $20B QE per mo.& lowering rates. Now Fed is doing 3X ECB's QE &also cutting rates. Not good for US$ which is rolling over(breaking below 98 tonight),but good for gold. Gold's correction may be over. Would catch many by surprise
