Wall Street is scared of Elizabeth Warren

Situational awareness:

• Payment processing company Stripe increased its valuation to $35 billion after a new fundraising round from Sequoia Capital, General Catalyst and Andreessen Horowitz.

For regular updates, be sure to subscribe to this LinkedIn newsletter as well as sign up for one of our Axios newsletters.

_________________________________________________________________________

1 big thing: Wall Street is scared of Elizabeth Warren

By: Dan Primack • Newsletter: Axios Pro Rata

Wall Street's fear of Elizabeth Warren puts its many never-Trumpers in an electoral pickle.

The big picture: Warren regularly aims her ire at professional financiers, whereas progressive rival Bernie Sanders is typically more generic in his "millionaires and billionaires" rhetoric.

• Sources I spoke with are split on the depth of Warren's actual knowledge of financial markets. Some say she knows more than almost anyone else in D.C., while others say she knows just enough to be dangerous.

What they're saying: Warren worries were a persistent theme on the sidelines of a CNBC conference yesterday.

• CNBC's Jim Cramer said earlier that the message he hears from Wall Street about Warren is that "she's got to be stopped."
• Steve Rattner, the onetime private equity exec and Obama car czar, recently told MSNBC that his fellow Democratic donors have "enormous nervousness" about Warren.
• Fox Business Network's Stuart Varney last week said: "Warren would force all big companies to take a lot of their profit away from shareholders. And it would be given to the workforce, the community, customers, the local and global environment, and community and societal factors (whatever that is)."

Worth noting: Assume Varney is also aghast at the 181 big company and Wall Street CEOs who signed onto the Business Roundtable's new mission statement.

The bottom line: This hand-wringing will intensify if Warren's polling momentum persists, but Wall Street ultimately will try figuring out how to best work with a possible Warren White House, rather than against it. After all, that's what it's largely done with Trump.

Go deeper: Elizabeth Warren's wealth tax could have slashed billionaires' fortunes

Sign up for my daily newsletter Pro Rata for insider views on deals and dealmakers in venture capital, private equity and mergers and acquisitions.

_________________________________________________________________________

2. Economists see sustained low growth, but no recession

By: Dion Rabouin • Newsletter: Axios Markets  

Illustration: Aïda Amer/Axios

The Organisation for Economic Co-operation and Development (OECD) became the latest international economic organization to cut its global growth forecast, announcing Thursday that it's dropping expected growth to 2.9% this year, the slowest since the financial crisis.

Why it matters: The designation follows similar moves from the International Monetary Fund, World Bank and a slew of central banks and ratings agencies that slashed their estimations for the world's economic growth this year as data continues to worsen.

• "We're heading slowly towards lower growth and the biggest risk that we see to these projections ... is that we remain stuck, engulfed at a very low level of growth," OECD chief economist Laurence Boone said in an interview with Bloomberg. "That is largely due to the uncertainty that has been created by trade conflicts all over the world."

Yes, but: While the direction of economic growth has been clearly negative, none of the organizations are expecting a recession, this year or next.

• In fact, from central banks to ratings agencies and intergovernmental orgs, top economists remain steadfast in their insistence that they do not expect a recession for the U.S. or global economy.

What they're saying: Even projections by mainstream economists on the low-end of the spectrum show the U.S. "comfortably" avoiding a recession and China continuing to see GDP growth around 6%.

• "That's why we're not forecasting any kind of global recession," Tony Stringer, COO of Fitch's global sovereigns group, told Axios on the sidelines of the ratings agency's Global Sovereign Conference. "Obviously if either of those really fell off a cliff that's when you get a different paradigm."

Between the lines: The key, Stringer said, is consumption, and U.S. consumers have shown it in droves over the last few months. Retail sales, consumer confidence and jobs data metrics remained at high levels, even as manufacturing, investment and CEO confidence stumbled.

Some economists are even bullish on the state of things.

• "There is no denying that elevated uncertainty is bad for investment, but our tracking of global fixed capital formation finds little sign of lasting damage, at least at this stage," Institute of International Finance economists Robin Brooks and Jonathan Fortun said in a recent note.
• "If we combine this relatively benign global growth picture with material easing from key central banks, it paints a picture that arguably looks quite constructive for risk assets."

Be smart: Economists almost never see recessions coming. Ahead of the global financial crisis, economic leaders from the Fed, Treasury Department and major ratings agencies gave no warning of what was to come.

Sign up for Dion’s Markets newsletter for a daily look at the news, trends and intrigue dominating business, finance and markets.

_________________________________________________________________________

3. The big lesson of this week: Don't trust the markets

By: Felix Salmon • Newsletter: Axios Edge

Illustration: Aïda Amer/Axios

U.S. money markets fell into chaos this week as risk-free overnight interest rates spiked to almost 10%. But, while market information is a very important signal, it should never be taken as being definitive.

• In the stock market, public order books on "lit" markets — where all the buy and sell orders for any given stock are theoretically visible to all traders — have been functionally useless for years. High-frequency traders place and withdraw millions of orders every second, and there's a mini "flash crash" in some stock or other every day, with the price plunging and then recovering within the blink of an eye.
• In precious metals futures, criminal racketeering and market manipulation went on for some 8 years, according to a complaint this week against JPMorgan traders, including the former head of the bank's precious metals desk.
• In fixed-income markets, banks have been fined billions of dollars — and 5 bankers have gone to jail — for manipulating the key Libor interest rate.

Where it stands: This week's chaos was largely due to a series of technical factors, including the fact that the Treasury issued some $54 billion of new bonds at exactly the same time that companies started withdrawing cash in order to make their Sept. 15 quarterly tax payments.

• That created a liquidity crunch, forcing the Fed to step in with $203 billion of short-term cash.

Context: Until the financial crisis in 2008, the Fed conducted open market operations every day to keep interest rates at their target level. Those operations ended when quantitative easing massively expanded the central bank's balance sheet.

• Now that its balance sheet is shrinking and banks need abundant reserves for regulatory reasons, the Fed is going to have to step in more frequently to ensure that rates are where they should be.

My thought bubble: The Fed's traders could probably have told Treasury's liability-management team that the timing of their bond issues would be problematic for the money markets.

• But we no longer live in a world where Tim Geithner could move effortlessly from Treasury to the New York Fed and back again. President Trump is waging war against the Fed, which makes things very awkward at Treasury.

What they're saying: "There are some advantages to just asking banks to make up the interest rate," writes the indispensable Bloomberg columnist Matt Levine. "To the extent that reality is messy and idiosyncratic there is something nice about abstracting away from it."

The bottom line: Multitrillion-dollar financial markets often look reasonably stable from afar. But they're always slapdash and human, and prone to deliberate or accidental breakage.

• When that happens, governments and technocrats need to be able to step in to fix what's broken. Governments aren't perfect, but taking them out of the system entirely, as some Bitcoin true believers would like to do, seems like a terrible idea.

Go deeper: The divided Fed is losing investors' faith

Sign up for Felix's Edge newsletter for a weekly look at the stories that are driving the business world.

_________________________________________________________________________

Thanks for reading. See you next week.