Guest Post by Martin Armstrong
I wrote about that explaining that the central banks have been buying equities since 2014. The Swiss National Bank posted its latest 13-F holdings showing it has been buying equities at a stepped up pace during the first quarter 2017. Their total equity holdings have now reached $80.4 billion, up $17 billion from the $63.4 billion at the end of 2016.
The central banks are trapped. Lowering interest rates to virtually zero reduced their yield on reserves and they cannot sell off government securities. The only viable hedge is US treasuries in the bond world against the chaos of the Eurozone. That offers no diversification just more government debt. The ECB owns 40% of European government debt. The Swiss are buying US equities as a hedge against the Euro and political unrest. This is not manipulation. They lost a fortune trying to maintain the peg the franc with the Euro. They cannot use pegs, so the only alternative to just buying US Treasuries is private equities.
The central bankers understand what our model is warning about. As confidence continues to decline in governments, the central banks can go bankrupt UNLESS they too diversify out of government bonds.
Granted, nobody wants to talk about this yet in public. This is NOT manipulation – this is cover your ass time. We have been recommending this trade to institutions for the past 5 years.
How is the Swiss National Bank listed on the SEC form you linked to?
” Cover your ass time “With what ? Vaseline
Crash already!
This is interesting, and explains why the S&P, Nasdaq and Dow won’t ever go down more than a fraction. It has to do with market cap. these indices are market cap weighted, which basically means the biggest baddest have the most influence on the ‘average’. Apple, is a major player in these indices, especially the Naz and S&P. When Apple goes up, these indices shoot up, even if the majority of underling stocks are flat or even down.
Now, one of the biggest holdings of the SNB is Apple. If they are buying equities, you can bet that Apple, Google etc. are being bought heavily, and they are not price sensitive buyers, so what happens, the market goes up, and every trader is scratching their head of why? Because, you have a non price sensitive buyer, with money out of thin air, buying a heavily weighted set of equities. Now, the problem comes in that because these have such an out sized influence, it tends to make market players who don’t understand this, figure ‘hey, everything must be ok, lets buy too’ and you have mass delusion.
What happens when even the SNB can no longer out sell the sellers (who BTW are selling to the SNB the shares available in float), you have, just like the bond market, 70% of the market being one buyer. That is great until there is something ugly, perceived or otherwise, then watch out. No liquidity will take on a whole new meaning. Like a fuse to a stick of dynamite in a box. You hear the hiss, but don’t know if the fuse is 1 inch from the stick, or a coil of 6 feet. Who knows when it blows?
I got a solution.
Yodel like the Japanese Central Bank… That’ll work!
https://www.youtube.com/watch?v=Ppm5_AGtbTo
Why Central Banks Are Buying Equities?
Since there is nobody willing to buy US equities with their own money, someone else had to step up and prop equity prices up, so we can continue pretending Depression 2.0 isn’t in full swing?
At least, presumably, until whoever controls the various central banks has unloaded their equity holdings – and, I imagine, bought something that will retain value over the long haul with the proceeds, and fled to some safe haven somewhere, surrounded by a nice big wall.
I suppose you could use inflation to try to match the dollar amount on the books to the actual underlying value of the equities, while pretending that 80%+ of the original purchase value hadn’t evaporated. That would really suck for savers – I wonder what it would take to rouse Germans into a nice genocidal rage?
For those interested, today is a great example of the above in motion. Notice that Apple is up parabolically this morning, while the rest of the S&P is flat or sideways. The world is saved because Apple is good. The S&P is flat, to down a tad. A couple of questions for your consideration:
1. Where do you think the S&P would be IF Aapl had opened down or sideways? Who do you suppose woke up on a Monday morning and said: “Gee, I think today is a good day to buy 20 Million Shares of Aapl in the first 2 hours” (current market volume for aapl on Level II)? Most hedge funds and traders I have worked with try their best to HIDE their trading activity, only someone trying to induce panic buying (for fear of missing out) to make a statement or an absolute IDIOT would place this type of order so quickly, and in this volume in one day, let alone 2 hours.
2. The bigger question though is – Why with aapl, and google both up this morning on large volume, is the S&P STILL down to sideways? This type of move in aapl previously would have caused a gap open of about 15 points on the S&P, now, just a touch under even. THAT should make someone worry about now. Not to say tomorrow will be ugly, because the stability the big move in aapl has done today, will mean that even a little bump in some other, not so large player (CAT, JPM, BA etc.) would cause a positive move, but the bigger picture is that aapl must continue opening like this, each day to maintain that stability. If it does not, and goes sideways or (gasp) down, then the others will have to go parabolic MORE to equalize it. Math is a bitch, and when it goes against you, even the BIGGEST players are going to have a real tough time making things look good. That day comes closer in an exponential way with each move like this. Next time it will take 40 million bought to equal the same move, then 80, then 160….well, you get the picture.
But what about the derivatives? Are these too bought and sold to influence the indexes? I don’t know enough to know
The BOJ owns more Japanese stock that the Japanese do.
Meanwhile the trade that shall not be named is the FED buying Corporate bonds with FIAT and the Corps. using the FIAT to buy their own stocks back. Combined with low volume trading days and up we go.