FacebookTwitterGoogle+RedditEmail

Central Bank Stock Buying Binge

by

Central banks have shifted into stocks and are buying up everything that isn’t bolted to the floor.

That’s the gist of the story that breathlessly appeared in the Financial Times about a week ago and swept across the blogosphere like a Santa Anna brushfire. And there’s some truth to it too, if taken with a large grain of salt. Here’s a clip from the Omfif’s report the FT’s cites in the article:

“A cluster of central banking investors has become major players on world equity markets,” says a report to be published this week by the Official Monetary and Financial Institutions Forum (Omfif), a central bank research and advisory group. The trend “could potentially contribute to overheated asset prices”, it warns.” (Financial Times)

So, there you have it; stocks are rising, central banks are buying stocks like mad, therefore, central banks are driving the market. That’s all there is to it, right?

And we’re not talking chump change here either. According to the Omfif”s press release “global central banks and public sector institutions now account for an eye-watering “$29.1tn worth of investments … in 162 countries.”

Hmm. It’s easy to read that statement and assume that central banks have purchased $29 trillion in stocks, isn’t it? That’s what the folks over at Zero Hedge did. Check out the headline they ran shortly after the story appeared in the FT: “Cluster Of Central Banks” Have Secretly Invested $29 Trillion In The Market” (Zero Hedge)

But that’s not what the press release says, is it? It says “global central banks and public sector institutions”. There’s a big difference between the stocks a bank buys and all the investments in public pension funds, 401Ks, sovereign wealth funds etc. A huge difference. It looks like someone might be engaging in a bit of fear-mongering to get a rise out of readers.

That’s not to downplay the fact that CB’s are distorting prices by playing the market. They are. No one disputes that. Just like no one disputes that central banks should limit their activities to doing their job, which is maintaining price stability. (We’re deliberately omitting “full employment” since the Fed thinks it’s a big joke anyway.) But, hey, everyone knows these guys are a dodgy lot to begin with, so it’s hard to get whipped up into a lather every time they get caught in some new flimflam. Besides CB stock purchases are likely insignificant compared to corporate stock buybacks which are presently just-south of $600 billion per year. CB stock purchases are no where near that, regardless of what you read at Zero Hedge. Check this out in the Wall Street Journal:

“Last year, the corporations in the Russell 3000, a broad U.S. stock index, repurchased $567.6 billion worth of their own shares—a 21% increase over 2012, calculates Rob Leiphart, an analyst at Birinyi Associates, a research firm in Westport, Conn. That brings total buybacks since the beginning of 2005 to $4.21 trillion—or nearly one-fifth of the total value of all U.S. stocks today.” (Will Stock Buybacks Bite Back?, Wall Street Journal)

Yikes. “$4.21 trillion”! Now that’s what you call froth.

Anyway, the reason CBs are buying equities is to hedge their losses on the mountain of low-yielding bonds they purchased in their effort to recapitalize the insolvent banking system. They’re already taking it in the shorts for an estimated $250 billion per year, and when rates start marching upward, (as they inevitably will) they’re going to be bleeding red ink from both eyeballs. That’s why they want to diversify their portfolio; to staunch the hemorrhaging. Even so, the whole matter looks shabby and underhanded, which of course it is. It also calls into question present stock valuations which have been soaring with the zero rates, QE and positive earnings reports, the trifecta which pushes equities into the stratosphere regardless of the shitty condition of the underlying “real” economy. So–just like everyone else–the banks want to get on the winning side of the trade. But what a firestorm they’ve set off with these latest shenanigans! Here’s a sample of the outrage you’ll find on the Internet. This is from a Bill Bonner article titled “Proof the Stock Market Is Being Rigged”:

“We are still reeling.
Yesterday, we reported that central banks are major buyers of stocks…
We hardly know where to begin…

Outraged, we sputter and spit… we search for words… we look for metaphors and narratives… anything that will put this extraordinary situation in the right light…

Ah yes… central banks create new money… it gets passed around the financial community in many ways… and ultimately ends up in the equity markets…

In short, a grand slam of deceit. The World Series of financial catastrophe will follow. But that could be a long way off.” (Proof the Stock Market Is Being Rigged, Bonner and Partners)

“A grand slam of deceit”?

Fair enough. A little hyperbolic, but that’s to be expected, right? But, c’mon now, given the long list of scandals in the last few years–High-Frequency Trading (HFT), “toxic” mortgage-backed securities, Libor, London Whale, Robo-signing, structured finance, Madoff etc etc–it’s hard not to be little blasé about the whole deal, isn’t it? I’m not sure where Bonner’s been, but if you were to ask Joe Blow on the street, whether he thought the “market was rigged or not”, he’d undoubtedly nod his head affirmatively as if it was the most obvious thing in the world. Because it is the most obvious thing in the world. Heidi Moore summed it up pretty well in a recent article at the Gurdian. She said:

“Most Americans don’t think much about the stock market, and that’s just fine with Wall Street. Because once you wake up to how screwed up the stock market really is, the financial industry knows you’re likely to get very nervous and take your money out.

Many are catching on: between 2007 and 2014, investors pulled $345bn from the stock market. E-Trades are down and worries are up, with 73% of Americans still not inclined to buy stocks, five years after the financial crisis…

Let’s get one thing straight: Investor confidence is not the problem. The screwed-up stock market is the problem. It’s time to break down the polite fiction that investing in the stock market is something that sane, rational, sensible people do. It is a high-risk contact sport for your money…

The US stock market depends entirely on the ignorance of regular people who are supposed to just shovel their money into retirement funds and 401(k)s, pay a whopping one-third of your retirement in fees to high-priced managers, and never whisper a complaint.

It’s a wonder that anyone (trusts the market) at all.” (Wall Street and Washington want you to believe the stock market isn’t rigged. Guess what? It still is, Heidi Moore, Guardian)

The market is totally rigged from stem to stern, which is why it is so hard to feign outrage at this latest sign of corruption. It’s just par for the course. What we found more interesting, was the OMFIF’s contention that the experimental monetary policies, the centrals banks initiated to deal with the Financial Crisis, have changed the system to what the author calls “state capitalism”.

“Whether or not this trend is a good thing”, he opines, “may be open to question. What is incontestable is that it has happened”.

While you can’t expect the media to cover something like this, it’s certainly worth mulling over. The fact is, CBs have taken over economic policy altogether. They’re running the whole shooting match. The various congresses and parliaments across the western world now merely act as a rubber stamp for the austerity measures demanded by their corporate bosses. Fiscal policy is a dead letter in the US, Japan, Australia, Canada, UK and the Eurozone. Everywhere the bank cartel has extended it’s grip, fiscal policy has been jettisoned altogether. It’s bailouts and lavish subsidies for the 1 percenters and belt-tightening, shock therapy for everyone else. Isn’t that how it works? State Capitalism isn’t a conspiracy theory. It’s just class warfare taken to the next level. Check this out from Dave Marsh at Marketwatch:

“Central banks’ foreign-exchange reserves have grown unprecedentedly fast, especially in the developing world. The same authorities that are responsible for maintaining financial stability are often the owners of the large funds that add to liquidity in many markets…

Evidence of an increase in equity-buying by central banks and other public-sector investors has emerged from a survey of publicly owned or managed investments compiled by the Official Monetary and Financial Institutions Forum (OMFIF)… There are worries that central banks may be over-stretching themselves by operating in too many areas.

Jens Weidmann, president of Germany’s Bundesbank — spoke yearningly last week of the need for “central banks to shed their role as decision-makers of last resort and, thus, to return to their normal business.”

He said this “would help to preserve the independence of central banks, which is a key precondition to maintaining price stability in the long run.” (Central banks becoming major investors in stock markets, Dave Marsh, Marketwatch)

You might want to read that first part over again to savor what the author is saying. Here it is: “The same authorities that are responsible for maintaining financial stability are often the owners of the large funds that add to liquidity in many markets.”

That’s what you call corruption with a capital “C”. But then the author does a 180 and waxes-on about “preserving the independence of central banks, which is a key precondition to maintaining price stability in the long run.”

Right. The whole independence thing is a big joke. Why would anyone in their right mind bestow such extraordinary powers (“independence”) on a group of voracious, cutthroat bankers who have repeatedly shown that they can’t be trusted?

Huh?

It’s insanity. This latest outrage just proves that the central bank system needs to be either reformed or terminated. Preferably, terminated.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

Weekend Edition
April 28, 2017
Friday - Sunday
Paul Street
Slandering Populism: a Chilling Media Habit
Andrew Levine
Why I Fear and Loathe Trump Even More Now Than On Election Day
Jeffrey St. Clair
Mountain of Tears: the Vanishing Glaciers of the Pacific Northwest
Philippe Marlière
The Neoliberal or the Fascist? What Should French Progressives Do?
Conn Hallinan
America’s New Nuclear Missile Endangers the World
Peter Linebaugh
Omnia Sunt Communia: May Day 2017
Vijay Prashad
Reckless in the White House
Brian Cloughley
Who Benefits From Prolonged Warfare?
Kathy Kelly
The Shame of Killing Innocent People
Ron Jacobs
Hate Speech as Free Speech: How Does That Work, Exactly?
Andre Vltchek
Middle Eastern Surgeon Speaks About “Ecology of War”
Matt Rubenstein
Which Witch Hunt? Liberal Disanalogies
Sami Awad - Yoav Litvin - Rabbi Lynn Gottlieb
Never Give Up: Nonviolent Civilian Resistance, Healing and Active Hope in the Holyland
Pete Dolack
Tribunal Finds Monsanto an Abuser of Human Rights and Environment
Christopher Ketcham
The Coyote Hunt
Mike Whitney
Putin’s New World Order
Ramzy Baroud
Palestinian, Jewish Voices Must Jointly Challenge Israel’s Past
Ralph Nader
Trump’s 100 Days of Rage and Rapacity
Harvey Wasserman
Marine Le Pen Is a Fascist—Not a ‘Right-Wing Populist,’ Which Is a Contradiction in Terms
William Hawes
World War Whatever
John Stanton
War With North Korea: No Joke
Jim Goodman
NAFTA Needs to be Replaced, Not Renegotiated
Murray Dobbin
What is the Antidote to Trumpism?
Louis Proyect
Left Power in an Age of Capitalist Decay
Medea Benjamin
Women Beware: Saudi Arabia Charged with Shaping Global Standards for Women’s Equality
Rev. William Alberts
Selling Spiritual Care
Peter Lee
Invasion of the Pretty People, Kamala Harris Edition
Cal Winslow
A Special Obscenity: “Guernica” Today
Binoy Kampmark
Turkey’s Kurdish Agenda
Guillermo R. Gil
The Senator Visits Río Piedras
Jeff Mackler
Mumia Abu-Jamal Fights for a New Trial and Freedom 
Cesar Chelala
The Responsibility of Rich Countries in Yemen’s Crisis
Leslie Watson Malachi
Women’s Health is on the Chopping Block, Again
Basav Sen
The Coal Industry is a Job Killer
Judith Bello
Rojava, a Popular Imperial Project
Robert Koehler
A Public Plan for Peace
Sam Pizzigati
The Insider Who Blew the Whistle on Corporate Greed
Nyla Ali Khan
There Has to be a Way Out of the Labyrinth
Michael J. Sainato
Trump Scales Back Antiquities Act, Which Helped to Create National Parks
Stu Harrison
Under Duterte, Filipino Youth Struggle for Real Change
Martin Billheimer
Balm for Goat’s Milk
Stephen Martin
Spooky Cookies and Algorithmic Steps Dystopian
Michael Doliner
Thank You Note
Charles R. Larson
Review: Gregor Hens’ “Nicotine”
David Yearsley
Handel’s Executioner
FacebookTwitterGoogle+RedditEmail