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Central Banks' Massive Incursion Into Buying Stocks

Bruce Wilds profile picture
Bruce Wilds

One indication of just how messed up and flawed the global markets have become is reflected in the way central banks across the world are now buying stocks. This has become a part of their response to correcting the forces of past excesses. Their incursion into this bastion of the free markets signals we have entered the era where true price discovery no longer exists. The central banks are often viewed as price-insensitive buyers, so this incestuous influx of money is in some ways the ultimate distortion. This is especially true when the markets are not deep enough to accommodate the size of these purchases. Over the years, global currency reserves have grown and this has increased pressure on central-bank managers to diversify them, moving from being a liquidity manager to focusing on investment management but with this comes risk.

A recent article in the Wall Street Journal details the reason behind why central banks are buying stocks. There are several forces driving this. Part of it is a hunt for higher returns, because of negative rates, nearly $11 trillion or roughly one-quarter, of global fixed-income assets yielded below zero at the end of 2016, according to Bank of America Merrill Lynch. This means some are investing a bigger share of their growing foreign-exchange reserves in equities, corporate bonds, and other riskier assets while others are doing so merely to prop up their stock market in an effort to create a wealth effect, hoping it will cause consumers to feel better and go out and spend which will propel the economy forward. This should not be confused with buying foreign currencies or with quantitative easing programs, under which central banks like the Federal Reserve have already bought trillions of dollars' worth of assets to boost growth and inflation.

While the

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Bruce Wilds profile picture
Bruce Wilds is an independent businessman and licensed general contractor that owns real estate in the Midwest, his holdings include apartments, retail space, and office complexes. He has invested in several businesses and traded both commodities and stocks for several decades. Wilds considers himself well anchored to reality and the economy as he maintains, designs, and leases buildings. His work has made him keenly aware of rapidly changing lifestyles and trends in new business formation. The not for profit blog he maintains incorporates many of the experiences and knowledge garnered from his hands-on business style, extensive travels, and studies of history, politics and economics. Bruce Wilds is also the author of the book "Advancing Time", the book focuses on how the ever quickening pace of change impacts today’s society and the massive challenges it creates. He feels that it is crucial we understand that we are living in a unique era the likes never before experienced by past generations. History viewed in the framework of mans time on earth forms the crux of this somewhat radical perspective. Journeys from the beginning of man to our current state helps us make sense of our fast changing chaotic world. Advancing Time illuminates the responsibilities society faces. Used as a tool Wilds wrote it with the hope it would help clarifies the choices before mankind, guiding and giving hope to those who want to have a positive impact.

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Comments (14)

Hello Bruce. Just to clarify the claim that Central Banks are buying large scale into private company shates/stock, can you tell us some examples. Is it happening by leading western countries central banks such as USA, UK and Australia. Can you name some actual companies that the FED is actively acquiring.
If its happening in Australia, i must have missed it.
ngtenor profile picture
Not it it's funded by debt. If it is funded by debt, the wealth is an illusion.
yardbird99 profile picture
The wealth enjoyed by developed countries is real. We're awash in commodities and consumer goods. That's not a bubble, it's real wealth. Money is just the way we've invented to facilitate the exchange of labor and goods. Unless the major developed countries start defaulting on their bonds, it's hard to see the kind of doomsday scenario here happening.
"I feel concern is beginning to grow. Many of these people are those with money and when they decide it is time to jump ship it could start a panic that spreads". You just perfectly defined Jim Rickard's complexity theory from his book the "Death of Money". Far more people are educated on the frailty of our financial system than in 2008, this writer being one of them. I in turn have been making these facts known to family and friends. They are far more knowledgeable on the topic then if I had said nothing. I have already told them to get their money out of the stock market and when that panic arrives I will be screaming for them to do so.
Bruce Wilds profile picture
It is interesting to note the speed at which inflation suddenly destroyed the German currency during the 1920s.


In our modern age of communication where news spreads so rapidly, it seems such a force might be much more deadly.
Jeremy Robson profile picture
I talk to my friends who are in the main educated people (but not in the financial world). Not one has any idea of what QE, monetization or the structure of fiat currencies actually means and what is worse they do not want to know. I am not so sure that the money printing that is going on world wide will not be enough to keep the financially literate happy (as they are making money)and the rest of the population will not be interested. This recipe seems to me to be enough for the world to continue on it's present course for some years yet. I hope I am wrong but I fear not. I would be interested in the author's take on timing.
Bruce Wilds profile picture
Predicting when this might all collapse has become a trap because those making the rules have proven extremely creative and continue pulling rabbits out of their hats. In the past, I have put forth the idea that inflation could rule the day even if central banks are unable to keep the wheels on the bus and the economy collapses. This powerful force also known as stagflation can devastate those improperly invested. The article below explores the basis of this theory.


I agree most people know nothing and have little interest in the financial world. I continue to contend the primary reason that inflation has not raised its ugly head or become a major economic issue is because we as a society are pouring such a large percentage of wealth into intangible products or goods. This includes currencies. If faith drops in these intangible "promises" which is the base of our financial system and money would suddenly flow into tangible goods seeking a safe haven inflation would soar. A man who has done a great deal of work on the subject of inflation is Vincent Cate, http://bit.ly/2pkUNqU
I'm not in the rabbit in the hat camp. I'm in the they keep reaching into my hat and pulling out money camp. The central banks fixation on covering up that they are complete failures is really getting old. They are stealing from everyone's future and funneling the money to securities. This on the surface seems like a good thing, because pensions are severely underfunded. But when they are done supporting this generations stock market, the next generation will not have anything. No investments, no businesses, no nothing. I don't feel they have the right to take everything from our generation, and either did our Founding Fathers. It was their flawed policy decisions that underfunded the pensions and every other thing in this country. The required annualized investment portfolio returns needed to support the pensions was known from portfolio theory, and that timed retirements would automatically switch investments from stocks to bonds. It was their own bad planning with their ridiculously low interest rates that got us into this mess. Now everything is in a massive bubble compared to the money available that is required to sustain the exponential growth required by a fractional banking system with interest. This is why the Central banks stopped trying policy and just bought the securities. They are well aware that anything short of a direct incursion will not create enough new money to keep the markets up. So, I guess they will steal from us until the Baby Boomer generation peak is past us, but the Fed only crosses one bridge at a time. Once we get over that bridge we will be at the next bridge, which is multiple generations going forward that have nothing, and it will be all brought to us by them.
Jeremy Robson profile picture
The more important question is when. Could be years or decades away. Only 3% of people are financially aware (of what CB are doing) and the reasons for it. Japanification is happening today and no one is blinking at all.
Bruce Wilds profile picture
I tend to agree with your comment but of those "financially aware" I feel concern is beginning to grow. Many of these people are those with money and when they do decide it is time to jump ship it could start a panic that spreads.

In the article I started writing earlier today I get into how housing prices in Toronto have soared by 33% in the last year, this kind of move indicates something is happening under the radar.
It's far worse than that in its final outcome. What is government controlling corporations called? Fascism or communism, depending on the tilt of ideology.

It's hard enough for private equity to make correct investment choices - you expect government faced with internal 'isms' to do it correctly? You think that leads to economic growth and prosperity?

The world is repeating 1930s under different rhyme.
Bruce Wilds profile picture
When we reach that inflection point many people will be surprised at how rapidly things change. I expect the message will go out hard and fast because of modern technology.
jadejet profile picture
@Bruce Wilds Thanks for the article Bruce. It sure reminds me to be prepared to act quickly because as you say things will change rapidly at the point of inflection. I am ready and well set here in Canada. Although prime mother controls the show even she is unsure of the exact outcome and who in the end will be in control in the event of a deep global crisis when tempers flair.
Spitfire MK V profile picture
Ruling by crisis on a weak kneed population works quite well . So, we are on the Japanese fiscal experimental road to nowhere which has been operating for the last 25 years . Still need to find the inflection point at which it all melts away . You may be correct regarding currencies , coupled with stifling protectionism .
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