Welcome to the 12-07-2017 update from your Pocono Summit Certified Financial Planner and retirement planner, Mike Savage. Today, Mike talks about the wild west world that is central banks.
As I am doing my daily reading today there are numerous articles out there that are actively asking what a government shutdown would mean for the stock markets. Personally,I don’t believe it appears that it would have too much of an effect unless it would discourage some central banks and sovereign wealth funds from allocating even more to US stocks because of the political climate.
It’s likely that we’ll know by Friday because the government is funded until then.
In doing research for some upcoming client meetings I noticed on Weiss Ratings that the Swiss National Bank (largest shareholder of Apple stock) is increasing its holdings in Pepsi. This is just one central bank of many that is making no bones about actively buying private companies in addition to bonds, etc.
Keep in mind that throughout history the Swiss were known for conservatism and privacy. That has all been washed away and they have joined the “anything goes to profit” party. Let’s not forget that this bastian of conservatism is, in my opinion joining in the “print up money for nothing” crowd and buying real tangible assets with that faux cash.
Just between the European Central Bank and Japanese Central bank $2 trillion in assets were “bought” in the same manner just so far in 2017. (Peak Prosperity- Chris Martenson) Why should anyone believe that ANY asset reflects a true price?
When will it end? I am the wrong person to ask. I believe it should have ended long ago but I am pretty sure that it will end when the debts that have been piled on in the aftermath of the 2008 pullback start to crumble under their own weight. There are signs that this is already happening in our high-yield markets, in China and in many corporate securities- some investment grade.
There are also many major warning signs in state and municipal budgets that are being ravaged by higher expenses and falling tax bases.
Many people say that the market “should have” pulled back hard because of Brexit, North Korean threats, etc. Many people also say that gold and silver “should have” spiked up in price because of these same issues.
While I agree that in a “normal” market this may be a normal outcome these circumstances just reiterate to me that all of the markets are being managed by central planners to give what I believe to be a false sense of security.
If gold and silver rise that is a bad reflection on the US dollar and other fiat currencies. If stock markets fall people may start to ask questions about the unemployment rate, inflation rate, jobs numbers, GDP reports which are all managed to give the best look possible.
Isn’t it amazing that the jobs numbers are almost always “just right” and are always subject to birth/death models that appear to skew the numbers higher? Isn’t it amazing that 93 million people are assumed to just not exist while reporting the U3 unemployment report and that 4% unemployment rate is reported with a straight face? Isn’t it amazing that 70% of our economy is consumption based but our retail stores are closing at a frightening and record pace but GDP grows? Of course, the massive increase in costs for health insurance and health care help to drive that number along with revisions on HOW GDP is reported- like a couple of years ago when R&D was added to GDP calculations where previously it was not. This added around 3% growth to GDP- and we are growing at around 2%-Get the picture?
If the stock markets are faltering there appears to always be someone in the background to pick it up. If gold starts moving up too quickly there appears to be someone else (or maybe the same person or entity) that is there to sell a few billion in notional (not real but paper) gold to bring the price down. There have been three such instances in just the past 2 weeks with the latest “hit” taking the gold price below the 200 day moving average and inducing more selling.
It has been reported that the Japanese Central bank has been seen adding positions on days that the Nikkei index has a bad day. (Zerohedge/Bloomberg) This has led to The JCB owning 75% of all Japanese ETFs and being a top 10 holder in 70% the Nikkei 225 stocks. (6 months old info-probably higher now).
The most interesting part about this to me is that these games have likely been going on for years but it appears that now those who are manipulating virtually all markets have no shame and no fear of retribution. Anyone looking at the charts should, in my opinion, be able to see clearly what is being done and there is no mistaking that trades are not being made to profit (in the gold market) but to manipulate the price lower.
Banks have been found guilty of manipulating LIBOR (interest rates), gold, silver, and other assets. According to Fortune .com (3-3-2017) banks across the world have paid $321 billion in fines since 2008.
Many have accused me in the past of conspiracy theories. Do you think the banks would have paid $321 billion for a theory?
My opinion is that these “markets” and I use that term VERY loosely- will continue as they have until they don’t. At that time the exit doors are likely to be extremely crowded and anyone wishing to get out may have a hard time finding a buyer on the other side.
The way the markets have “melted up” is reminiscent of 1999 to me and the underlying “market” appears to have the same shortcomings. Those “investing” also seem to have the same shortcomings- believing it’s different this time- earnings don’t matter, etc.
At this time it appears that those touting these ideas are correct. They are likely not and will be exposed just as those in 1995-1999 were when 2000 rolled around and the party was over. Nothing mattered- until it did.
Since this bubble appears to entail virtually all assets and engulfs the entire world I expect that this time WILL be different. It will take a lot more ingenuity to recover after this one. Central banks have likely already used up their bag of tricks. I expect many assets being propped up will fall (revert to the mean) and many assets being artificially repressed will reprice at far higher levels.
Let’s also not forget that the commodity and metals sectors are already far from all-time highs unlike stock, bond and real estate markets. What is that old saying? Buy low- sell high!
Mike Savage, Financial Advisor
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