I previously reported that our sources were reporting that central banks were starting to buy shares to diversify their reserves. All of our sources in Asia and Europe have been reporting this trend. So while the talking heads keep preaching the crash and sell equities, the retail market may not be buying this market yet as brokers keep reporting to us that this is not retail boom yet.
More importantly, the talking heads on TV are so off base it is not even funny. The crisis in currency is very serious. Central banks have been forced into dollars because of the crisis in Europe and they are unable to diversify. They ONLY think they can do with interest rates moving even negative, is for themselves to buy equities. Central banks around the world, including China’s, have shifted decisively into investing in equities. Every source we have has been reporting this trend. As low-interest rates have hit their revenues and countries like Switzerland have suffering with the Euro and the collapse in gold, equities is rapidly becoming the new reserve.
The Swiss and Danish central banks have been the biggest buyer of equities in Europe among the central banks. The Swiss National Bank has an equity quota of about 15 per cent. Thomas Jordan, SNB’s chairman, has publicly stated they are buying mid- and small-cap stocks in developed markets worldwide. The Danish central bank’s equity portfolio was worth about $500m at the end of last year. Both have little choice.
Ironically, that is how the Fed began in 1913. It was to buy private assets – not public to provide a direct stimulation. The only way central banks can stimulate the economy is ironically to buy private assets – not public. The central banks have become major players on world equity markets and this has been the best kept secret. They actually have little choice, With the Sovereign Debt Crisis on the horizon and France saying 60% of its national debt is illegal and Austria saying they never guaranteed anything, central bankers may be silent, but they are not stupid.
Central banks have been very secretive.Some have been attending our World Economic Conferences. The bottom line is their reserves are hit from declining gold and interest rates with the greatest instability in sovereign debt thanks to Europe, that this has contributed to a serious loss in revenues in recent years. The central banks are being hit in the same manner as pension funds. The global financial crisis that we find ourselves in will twist the best minds we have.
We are approaching the $30 trillion level in reserves. Unknown to most people, but the largest public sector holder of equities is now China’s State Administration of Foreign Exchange. Their portfolio is now at almost $4 trillion compared to the old Japanese Postal Savings Fund that in 1989 was the largest with about $1.2 trillion. The People’s Bank of China has been directly buying minority equity stakes in important blue-chip companies.
This is the new age of capital movement. Things are different these days because the dollar is becoming a monopoly by default. This is forcing central banks to diversify into equities for they cannot trust the debt of nations any more. Hello! Welcome to the shift from Public to Private.
