Central banks manipulating stock markets? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 17 June 2014
PRINTER FRIENDLY | ARCHIVES
Central banks manipulating stock markets? A  A  A

Baltimore, Maryland

The longer the world lives with its funny money, the funnier things get.

Here's a headline from yesterday's Financial Times:

"Central banks pour money into equities."

We paused. We collected our thoughts. And we wondered:

What the hell...?

    "A cluster of central banking investors has become major players on world equity markets," reads the report.
That was the conclusion of a group called the Official Monetary and Financial Institutions Forum, which goes on to warn that this trend "could potentially contribute to overheated asset prices."

The Omfif says these public sector investors have already invested more than $1 trillion into the stock market. The number could go much, much higher, inasmuch as "central banks around the world, including China's, have shifted decisively into investing in equities as low interest rates have hit their revenues."

We've devoted a good deal of the Diary to chronicling the tangled web of finance woven by central planners. We see curiosities aplenty...the sort people get up to when they have access to free money.

--- Advertisement ---
Treasures can still be found today...if you know where to look!

Imagine you discovered a bag of very old gold coins in your backyard garden, or from an old chest in the attic that belonged to your great grandfather...

What would you do? Would you rush to advertise your discovery to everyone?

Surely not! No one would do that.

You would instead try to figure out how to leverage on them. How best you can use the gold coins to make you rich quietly, without much ado!

A similar situation has emerged here...

We have discovered some such treasures after years and years of research. I am talking about some unknown companies that could deliver double or triple digit returns. And sometimes, probably even more!

But you need to act fast because if more people find out about them, the profit opportunity could shrink.

Just click here for full details...
---------------------------

It is against the law to manipulate stocks. But the Fed does it in broad daylight, lowering interest rates so as to increase the value of streams of income...no matter how trickly and unreliable. Companies earn money. Now, the money they earn is more valuable than ever. The stock market has hit all-time highs even as the source of its profits - the economy beneath it - struggles to find its footing.

The intention - ostensibly - is to light a fire under the economy by encouraging people to put their money in higher risk, and presumably higher reward, investments. Why the authorities think they know what other people should do with their money has never been fully revealed. Nor it is at all clear that the world would be a better place if people made riskier investments.

Still, in today's world nothing succeeds like failure. The Pentagon has not won a war in 60 years...but it keeps getting the go-ahead to enter another one. As near as we can tell central bankers' record of failures is just as strong. It never anticipates the trouble it causes...and then reacts in an inappropriate and ineffective way when the trouble starts.

In the present case, the FT appears to think that the central banks have been hoist on their own petard. Rather than manipulate stock prices through the back door of QE, the banks are being forced to go at it directly.

Now, with money they create out of nowhere, they buy real companies. Otherwise, the companies might have been owned by real people....who earned real money providing real goods and services.

And so, dear reader, more and more of the world's real wealth shifts from the people who make it...to the people who take it.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer:
The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Get The Daily Reckoning directly
in your mail box.
Just enter your e-mail address » 

Read our Privacy Policy and Terms Of Use.

Equitymaster requests your view! Post a comment on "Central banks manipulating stock markets?". Click here!

  

Recent Articles:
Which Gods Will Bring Down the US Empire?
August 17, 2017
Mr Trump is in the White House and the gods are in their heavens; what's not to like?
Will They Haul Off Trump's Statue, Too?
August 16, 2017
All across the country, the old gods become devils. New, gluten-free gods take their places...
Farm Loan Waivers: Why Bad Economics Makes for Good Politics
August 14, 2017
It is because the negative effects of the waivers aren't clearly visible.
The Most Important Innovation in Finance Since Gold Coins
August 10, 2017
Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.