Tags: Central Banks | Federal Reserve | Buying | Stocks

Central Banks on Steroids, Buying Stocks

By    |   Wednesday, 23 July 2014 12:52 PM EDT

The fix is in! Run for the mountains, but keep invested in stocks since they are now in the TBTF (Too Big to Fail) category.

Last week I was invited to speak at a conference in Boston where I was talking to senior Treasury officials and CFOs of some of the largest U.S. corporations. Over cocktails, the conversation turned to investing and gaining yields.

As I detailed my case for a perma bull market, the room went silent. Little did I realize that some of the facts that I was mentioning weren't well known in the learned financial circles.

Of the 60 central banks surveyed, 14 already have invested in stocks and the rest are planning to invest in stocks in the next five years. The Bank of Japan, holder of the second-biggest reserves, said it will more than double investments in equity exchange-traded funds to 3.5 trillion yen ($35.2 billion) by 2014.

The Bank of Israel bought stocks for the first time last year while the Swiss National Bank and the Czech National Bank have boosted their holdings to at least 10 percent of reserves.

So let me get this straight — as a central bank, I have a license to print as much money as I need with no real asset backing such as gold, etc. So I can print as much money as I want. Then I can invest that cash in anything I need. Traditionally central banks typically hold assets such as government debt that can be sold easily if funds are needed to counter a move in their currency.

So there is infinite supply of cash and no restrictions on where the cash can be invested to earn income.

Sweet! Now if only you and I can get such a deal, we would never have to work an honest day’s labor in our lives … Unfortunately we will end up in the slammer should we try such a stunt.

What is to stop a foreign bank from simply printing its own currency and trading it on the currency market for dollars, to be invested in the U.S. stock market or U.S. real estate market? What is to stop central banks from printing up money competitively, in a mad rush to own the world’s largest companies?

As former Federal Reserve Chairman Alan Greenspan once said, “Quite frankly it does not matter who is president as far as the Fed is concerned. There are no other agencies that can overrule the action we take.”

Not only do the central bankers want to grab global assets, they are planning to block the poor investor who has been led into a trap by the bond buying the banks had done during the financial crisis of 2008-2009.

The Financial Times last month revealed that “Feds look at exit fees on Bond Funds.” This is supposed to prevent the obvious risk that, when the bubble pops, investors will want to get out — fast. So the feds are trying to implement levers that they can pull to slow down the exit from bonds.

What will they think of next? Creating some financial penalties or levers to halt the investor from leaving the stock markets should they ever collapse? Maybe invent a law mandating an investor cannot sell stocks for 10 days if the market falls by 5 percent in a day? A sort of cooling off period and then extend that cooling off period in the interest of financial calm and stability of the markets?

The only asset they cannot manipulate is physical assets such as gold, silver, platinum, palladium and other such precious metals.

Have you had enough yet?

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Advani
Run for the mountains, but keep invested in stocks since they are now in the TBTF (Too Big to Fail) category.
Central Banks, Federal Reserve, Buying, Stocks
607
2014-52-23
Wednesday, 23 July 2014 12:52 PM
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