The Phaserl


Central Banks Buying Stocks Have Rigged US Stock Market Beyond Recovery

by David Haggith, The Great Recession Blog:

Central banks buying stocks are effectively nationalizing US corporations just to maintain the illusion that their “recovery” plan is working because they have become the banks that are too big to fail. At first, their novel entry into the stock market was only intended to rescue imperiled corporations, such as General Motors during the first plunge into the Great Recession, but recently their efforts have shifted to propping up the entire stock market via major purchases of the most healthy companies on the market.

Brian Rich, writing for Forbes, describes the economic illusion created by central banks buying stocks during a time of presidential prosecution:

The chaos and dysfunction message is loud, but markets aren’t hearing it. The real story is very different. Stocks continue to surge; stock market volatility continues to sit at ten–year (pre–crisis) lows. The interest rate market is much higher than it was before the election, but now quiet and stable. Gold, the fear–of–the–unknown trade, is relatively quiet. This all looks very much like a world that believes a real economic expansion is underway, and that a long–term sustainable global economic recovery has supplanted the shaky post-crisis (central bank–driven) recovery that was teetering back toward recession.

In other words, political chaos in the regime is not denting the stock market, because central banks buying stocks are eliminating volatility. Indeed, if you were to gauge the economy at this point by the US stock market, everything must be grand because the Trump Rally has been one of our most exuberant stock rallies.

According to Rich, all of that is a central-bank-created slight of hand intended to distract you from what is happening in politics and throughout the macro economy:

Remember, the financial media and Wall Street are easily distractible. Not only do they have short attention spans, but they’ve been trained throughout their careers to find new stories to obsess about…. We have major central banks around the world that continue to print money. These central banks buy assets with that freshly printed money. That means, stocks, bonds and commodities go higher.

Distract you from what? Distract you via the roaring success of stocks from the fact that the central banks’ recovery is failing everywhere. As Rich says, the fate of the world now rests on the successful outcome of these new policies because the banks that are now too big to fail are the central banks, themselves. The Fed and its central proxies are creating a grand distraction from a story that would chill America to the bone … if the truth were told.

Proofs of central banks buying stocks to rig the market

The Federal Reserve already confessed it rigged the stock market last January in hopes of creating a “wealth effect” throughout the US economy. Its plan, confessed by ex-Fed governor Richard Fisher was to front-run the stock market with its forward messaging about bond purchases though which it created massive liquidity that would be invested in stocks.

It worked like this: By promising overnight profits on bonds to its member banks, the Fed knew they would soak up tons of bonds. From there, the Fed hoped the member banks would take the money they made off of buying US bonds and selling them immediately to the Fed for a profit and invest that money in stocks, which they did. (Whether the Fed was just hoping or was secretly directing its member banks to do so could be speculated about endlessly; but they expressed it as “hoping to create a wealth effect.”)

Until now I have been speculating about central banks buying stocks, claiming that was all that was supporting the stock market; but I was also just speculating for years that the Federal Reserve was intentionally front-running the stock market throughout its “recovery.” Now those interventions in the stock market, which fueled the Fed’s recovery throughout the market’s long climb, are a well-known fact, admitted to by the Federal Reserve. My speculation that the long bull market was driven almost entirely by banks was much doubted years ago when I and other writers gathered at Zero Hedge, were claiming that was exactly what the Fed was doing. I couldn’t prove it back then, but everything clearly pointed in that direction, even as many experts denied it.

Last year, I upped my claims to saying that I believed the only thing that terminated the stock crash in January was a move toward even more direct Fed rigging of stock prices via having proxies buy oil (one significant cause of the January crash) and stocks directly. All year long, I speculated that the Fed was merely holding the illusion of recovery together by directly buying select commodities and stocks to drive the markets back up because it was an election year in which they would “pull out all the stops,” In this case that expression doesn’t mean organ stops, but all the market stops, but particularly the biggest stop of all that said central banks should not buy stocks because their capacity to rig the markets is infinite, and they have no investment risk. They can buy and hold forever, and they can create new money to replace any they lose.

As if to confirm my suspicions, the Fed began talking early last year about the possibility of buying stocks directly. However, they implied that would only happen, if at all, in some distant future should the economy crash again. I stated that this thing they would like to be able to do overtly and with everyone’s blessing was something they were already doing covertly. They were merely running the flag up the pole to see if they could move from working through proxies to being able to work openly — testing the nation’s response by putting the idea out there.

Recently Bank of America, the Wall Street Journal and others have begun to state that central banks are buying stocks in huge quantities. The only questions remaining is whether they are doing so at the Fed’s bidding and whether they are doing it primarily to prop up an otherwise failing stock market.

By definition, cornering enough of the market to push it where they want it to go is called “rigging.”

What is the scale of central banks buying stocks?

The Forbes article from May continues,

Among the reports on portfolio holdings yesterday, we heard from the Swiss National Bank…. Switzerland’s central bank has more freshly printed money to put to work every quarter, and has been increasing their allocation to equities dramatically–$80 billion of which is now (as of the end of the first quarter) in U.S. stocks! That’s a 29% bigger stake than they had at the end of 2016. The SNB is the world’s eighth biggest public investor.

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