When tin-foil-hat wearing digital dickweed blogs first suggested that Central Banks were actively buying stocks, the mainstream media scoffed at the idiocy and un-independence of such an idea. However, it is clear the central banks themselves are now not only actively buying stocks but are activley encouraging it and propagandizing their efforts to lever this last policy tool left in the toolbox.
As Bloomberg reports [15], 23% of central bankers surveyed said the bank owns shares and plans to buy more. From the Bank of Japan to the Bank of Israel and with the SNB and the Czech National Bank now at over 10% allocation of reserves to stocks, is it any wonder there is an inexorable bid under the 'free' markets. Rick Santelli is rightly concerned that, "there is a danger that everyone is loaded in the same direction," asking what happens if all the Central Bank pump-priming does not work, given these equity valuations, "who gets caught holding the bag? What chairs are left when the music stops?"
Via Bloomberg, [15]
Central banks, guardians of the world’s $11 trillion in foreign-exchange reserves, are buying stocks in record amounts as falling bond yields push even risk- averse investors toward equities.
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In a survey of 60 central bankers this month by Central Banking Publications and Royal Bank of Scotland Group Plc, 23 percent said they own shares or plan to buy them. The Bank of Japan, holder of the second-biggest reserves, said April 4 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.
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“If reserves are growing, so are diversification pressures. Equities are not for every bank tomorrow, but more are continuing down this path.”
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The survey of 60 central bankers, overseeing a combined $6.7 trillion, found that low bond returns had prompted almost half to take on more risk. Fourteen said they had already invested in equities or would do so within five years.
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Even so, 70 percent of the central bankers in the survey indicated that equities are “beyond the pale.”
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Some central banks, including the Fed in Washington and the Bank of England in London, have no mandate to buy stocks directly.
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the SNB has allocated about 12 percent of assets to passive funds tracking equity indexes.
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“Central banks are looking at assets that I wouldn’t have necessarily expected in times gone by,”
Finally, when all the central banks have bid up all stocks to just shy of infinity using electronic monetary equivalent 1s and 0s (which can be created to precisely infinity if and when needed), will the BOJ, Fed and ECB be forced to start shopping in the JCPenney 90%-off closeout rack next?