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.
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.
“In the last year or so, I have spoken with 103 central banks on diversification,” Gary Smith, London-based global head of official institutions at BNP Paribas Investment Partners, which oversees about $649 billion, said in a phone interview. “If reserves are growing, so are diversification pressures. Equities are not for every bank tomorrow, but more are continuing down this path.”
Managers of banks’ assets are looking for alternatives to holding government bonds after efforts to stimulate growth from the Federal Reserve, the Bank of Japan and the Bank of England helped send yields near to record lows. Central banks’ foreign- exchange holdings have increased by about $8.5 trillion globally in the past decade, exceeding levels needed for day-to-day currency administration.
According to a new survey of 60 central bankers conducted by by Central Banking Publications and RBS, 23% said they own stocks or plan to buy them. Major central bank buyers of equities include the Bank of Japan, the Bank of Israel, the Swiss National Bank, and the Czech National Bank.
The EuroStoxx 600 – one of Europe’s broadest equity index – is up almost 5% in the last 5 days, the best such run since July of last year and is trading close to levels not seen since June 2008. Of course it is we hear you scream, Spanish unemployment is worst and getting worster, the core economy (Germany) is fading rapidly, Italian growth forecasts are being slashed, Europe’s growth forecasts are being significantly lowered; have no fear Draghi is here (with what? we implore?). While stocks in Europe were off to the races once again,for the second day in a row, Spanish and Italian bond spreads leaked wider (after their record-breaking run recently). EURUSD also took a big stumble today, from around 1.31 to below 1.30 on Goldman’s note on ECB’s albeit ‘cosmetic’ rate cut.
She claims it was a result of the Federal Reserve issuing too much money [currency]. “Since the Fed is a private institution which enjoys a monopoly over the issuing of currency, US dollar holders can sue it for printing too much money”
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The Power of the Pattern reflected on April the 10th that Einstein was commenting that “Infinity Ben” could push the Dow to the 16,000 level. (see post here) Where did 16,000 come from? The top of the rising channel above reflects that is a key resistance level for the Dow in the near future.
Monday of this week Barron’s did a cover story, expressing the Dow could reach 16,000. A break above line (2) in the chart above helps to increase the odds that the Dow will push towards the top of this decade long rising channel.
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The U.S. Dollar has rallied since the summer of 2011, almost 2 years! The rally has taken it up to a resistance line that has been in place since 2005. Bullish sentiment levels at this are lofty reaching levels hit only 5 times in the past 5 years.
The combo of this line and high bullish sentiment has resulted in the US$ taking a breather for a while. As the US$ has rallied what has Gold, Silver, Copper and Commodities (CRB/CRX) direction been? Not too pretty!!!
Will this set up cause the US$ to decline or will it be different this time? Could a US$ decline have a positive short-term impact on Commodities? Stay tuned!!!
In his new note he writes:
We still forecast 450 S&P, sub-1% US 10y yields, and gold above $10,000
My working experience of the last 30 years has convinced me that policymakers’ efforts to manage the economic cycle have actually made things far more volatile. Their repeated interventions have, much to their surprise, blown up in their faces a few years later. The current round of QE will be no different. We have written previously, quoting Marc Faber, that “The Fed Will Destroy the World” through their money printing. Rapid inflation surely beckons. But that will not occur without firstly a Japanese-style loss of confidence in policymakers as we dive back into recession and produce dislocative market moves.
- Central Banks Buy Equities as Low Rates Kill Yields
- Spain jobless at new all-time high above 27%
- Moody’s says Detroit bankruptcy could mean further downgrades
- Aging U.S. to drive up heart-related health costs: study
- IMF Says Monetary Policy Should Remain Accommodative for Growth
- Fed Debate Moves From Tapering to Extending Bond Buying