authored by

John Kierans
July 2013

The world financial system remains a Ponzi scheme. The 2008 global financial crisis is still in full flow. It is very difficult to measure your wealth in Dollars, Euros, Yen, Francs or Pounds when central banks create ten thousand million Dollars’ ($10Bn) worth of new currency units every business day of the week. The USA and Japan alone count for about $6Bn every business day. This new money is lent to governments, given to banks and now increasingly used to buy companies listed on the stock market.

In a recent survey of 60 central banks, 23% said they own stocks or plan to buy them. The Swiss National Bank has allocated over 12% of its reserves to equities. The Bank of Japan, always innovators in quantitative easing, already owns $15.7Bn of equities and plans to increase its holding of shares to $36Bn before the end of 2014.

The investment in sovereign bonds and now stocks by central banks is having a negative effect on privately held wealth. Pension funds traditionally put the larger portion of their assets into government bonds. However, with interest rates crushed, pension funds are struggling to make sufficient returns to meet their obligations. It is a worldwide problem. Pension fund managers face a dearth of prudent investments.

Quantitative easing has distorted financial markets so much that the investment / trading community hope for downbeat economic reports and poor data releases. The logic is simple. While the news is bad the central banks will keep on printing. More printing means higher asset prices. The central bank chairmen are like rock stars in the financial markets. We hang on every word they say. We ask ourselves will they taper or will they not? When will the next round of quantitative easing take place? Who will be more aggressive, Bank of Japan or the ECB?

This is the financial environment in which all money managers are operating.

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