Posted on 06/17/2014 6:47:55 PM PDT by Lorianne
LONDON (MarketWatch) — Some leading central banks have become major players on world equity markets in a development that could potentially contribute to overheated asset prices.
The buildup of central-banking interest in equities is one of the unexpected consequences of the last few years’ fall in interest rates, which has depressed the returns on central banks’ foreign exchange reserves and driven them to find alternative investment targets.
In the years since the financial crisis, central banks have leapt to the forefront of public policy making. They have taken responsibility for lowering interest rates, for maintaining stability of financial institutions, and for buying up government debt to help economies recover from recession.
Now it seems that they have become important in another area, too, in starting to build up holdings of equities.
Central banks as investors need to cope with demands wrought by sheer size — competition, complexity and cost. Many of these challenges are self-feeding. Whereas 20 years ago only a small number of public investors carried genuine weight in investment markets, the proliferation of such institutions is now a fact of life. Central banks’ foreign-exchange reserves have grown unprecedentedly fast, especially in the developing world.
The same authorities that are responsible for maintaining financial stability are often the owners of the large funds that add to liquidity in many markets. Large and similar-minded public-sector investors can show herd-like behavior, seeking the illusive return, for example in the “search for yield” in many markets and thus creating fresh volatility.
(Excerpt) Read more at marketwatch.com ...
The plane is in a spin.
It’s all a put-up job.
This is exactly what Latin American central banks used to do in the 60s and 70s. Right before their economies collapsed, they defaulted on their debts and inflation skyrocketed.
Gosh, what could go wrong?
And they devalued their currency.
What a clever way to steal from the peasants!
“Investors”?? With what, fiat money?
Oh no!!!!
Nothing. They are all too big to fail.
All in baby.
They stole this from ZeroHedge I believe. But it is interesting to see the word get out.
So that is who is artificially propping the stock market up! When the stock market crashes watch all those banks fall like dominoes.
Lotta people are gonna get hungry real fast and look for a saviour.
It’s sure to bring about the collectivist, world dictator sooner than not.
I believe it was an FT story. Reuters ran similar stories in October 2012 and April 2013 without the 29 trillion number.
Their equity investments are generating good returns, so far, because their economies have been stimulated by the low interest rates that they have created, by their own government bond purchases (QE) and by the equity prices have risen because of their own purchases.
Purchase of equities by central banks has resulted in bureaucrats, government employees in all but name, picking winners and losers in the private sector. They will invest in a few blue chips, but, unlike private investors, will not search out smaller growth companies, will not support entrepreneurialism, invention and calculated risk. They are dispositionally incapable of this. In fact, we would not want them to be making these choices. Yet they are, but promoting low risk, low reward and discouraging risk-taking, all on behalf of the average citizen/investor/pensioner. Even worse, they are subject to political pressure in their decision-making. For example: banning investments in Israeli companies, investing in unwise solar energy ventures, etc.
Gradually at first and then faster toward the end, with increasing yield requirements from their governments, they will make unwise investments to "reach for yield". They will structure these investments in a complex manner so as to dress them up as "safe"for public consumption.
This is a giant incestuous circular self-propelled juggernaut that crushes rational investors under its wheels, but which is inherently unstable. By definition, like a gamblers formula, it will eventually fall apart, wrecking economic destruction upon us all.
I think you are correct, it was FT. But it is important no matter the source. It changes my investment strategy.
Smart people know the system is doomed to crash. The question is when. The Ponzi could go on for a long time, in which case betting against the house is not an option.
They describe themselves as "...a ‘club’ for central banks, sovereign funds and public sector financial institutions which provides a discreet forum for interaction with private sector asset managers and market participants."
You might be right on investing. Don't fight the OMFIF.
On the other hand, one has to question why they've seen fit to inform the "Muppets".
It sure is getting easier and easier to crash the whole system.
Reminds me of this clip from the movie, “Sneakers.”
https://www.youtube.com/watch?v=coDtzN6bXAM
[On the other hand, one has to question why they’ve seen fit to inform the “Muppets”. ]
Perceptive question. They have kept it exceptionally low key till now. But if they are jawboning, it would be to tell the muppets that the game IS endlessly rigged, so you MUST kep your money on the craps table.
I sure wish I knew when to get off the musical chairs.
So governments are buying up stocks at inflated prices with money they print? So they just keep printing money and buying stock? And these government companies will profit from things like war and silly environmental initiatives? And governments can end up being majority stockholders in private corporations?
Head is spinning
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