Central Banks Directly Buying Stocks to Boost Market

Posted on July 12, 2016 by WashingtonsBlog

The Fed has admitted that one of its main policy objectives is to boost stock prices.  Many well-known financial analysts – such as Jeremy Grantham, Charles Biderman and Scott Nations – say that the feds manipulate the stock market. And see this, this and this.

DYI Comments:  World wide central banks have painted themselves into a corner of requiring perpetually higher and higher markets in order to maintain their delusional notion this will increase consumption thereby their respective GDP's.  This has neither boosted consumption nor increased their GDP.  World economies are now totally distorted including the U.S.  How this will play out in the specifics I don't know.  What I can tell you, this will not end well.  A very real possibility of world wide recession is the best hope and worst would be a flat out depression.  Stocks are poised due to insane valuations, a bake into the cake decline of around 45% to 60%.

  John Hussman of the Hussman Funds stated:

I have little doubt that future generations will look at the reckless arrogance of today’s central bankers no differently than we view speculators in the South Sea Bubble and the Dutch Tulip-mania.

John Hussman had this to say regarding bonds:

 Meanwhile, in the face all this yield-seeking speculation, investors seem to have forgotten how securities actually work. Understand that by purchasing securities at extreme valuations, you are necessarily playing a “greater fool” game that relies on a) successfully exiting at some point and; b) exiting at higher valuations and even lower long-term expected returns than those that are baked into the cake already. Not content with the current obscene overvaluation of the financial markets, central banks have tried to extend this game by driving bond yields negative. But those who buy a negative yielding asset, by definition, are locking in a loss if they hold to maturity, so in order to attain even a zero return, those investors have to rely on a greater fool to buy the bonds at yet deeper negative interest rates before they mature.

Central banks no matter how much wind(QE) and furry(negative rates) to blow MR. Market's house down it will be to no avail.  A time will come Mr. Market will come out of his house and inform the central bankers that sentiment has change and no matter how much wind or furry; markets and the economy will crash.  No doubt this insane episode will be viewed no different than the South Sea Bubble or Dutch Tulip Bulb Mania.

DYI