'Tuned Out' Investors Under Spell of QE: BIS … Equity markets shrugged off weak economic data and uncertainty in recent weeks and continued to extend their "relentless" gains fueled by the prospect of further stimulus, leaving them more vulnerable to shocks, the Bank of International Settlements (BIS) said on Monday. – CNBC
Dominant Social Theme: The BIS is very worried about the average investor.
Free-Market Analysis: Actually, the BIS is doing what central bank executives do all the time, which is meet to create the problem its representatives then publicly identify from the podium.
In other words, say you are a central banking boss. You meet and decide how much money to print and where to set rates. Then you walk outside, address the multitudes and worry publicly that price inflation is creeping up. Under this scenario, central banks have "hawks" and "doves" – as if we are to gather from this divide that the reality of price fixing is negated by diverse opinions about how much ought to take place.
Compare such currency price fixing to … hmm … murder! (Well, it DOES murder the economy.) You end up with a fairly apt, if possibly exaggerated metaphor, in our humble view. You see, it is only the style and speed of the execution that is being debated, not its necessity.
And so it is with the BIS. Having set the current market bubble in motion with the connivance of the central bankers that meet regularly in its august halls, those who run the BIS are now publicly fretting about a market bubble. A little too late, eh?
The bank, which acts as a hub for the world's central banks, said markets are "under the spell of monetary easing" and warned that increasingly accommodative monetary easing has helped market participants to "tune out" signs of a global growth slowdown.
Indices were lifted to fresh highs off the back of further policy easing, despite a "spate of negative economic news," but such rapid gains have made equity markets increasingly vulnerable, the BIS said. The BIS also said this "new phase" of monetary easing has helped create an environment that favors risk taking.
"This new phase of monetary policy accommodation in the major currency areas spilled over to financial markets around the world. With yields in core bond markets at record lows, investors turned to lower-rated European bonds, emerging market paper and corporate debt to obtain yield," the report said.
So markets are "under the spell of monetary easing." Who cast the spell in the first place? We've pointed this out a number of times in the recent past. Monetary easing does little for the larger economy, at least not right away, but it does evidently and obviously lift equity markets if it is applied long enough and hard enough.
What the top men at the BIS are really fretting about is that they have set another bubble in motion. When you print enough money (and debase the currency enough) to virtually double stock market averages, people are apt to sit up and take notice.
That's why we've pointed out that stocks, certain stocks and stock averages anyway, are perhaps a good short-term investment – assuming you have the skills and facility to time the market – given the amount of "easing" that is taking place.
In the long term, these markets are bound to collapse … for nothing grows to the sky. Those who run the BIS are probably well aware that – like the ChiComs in China – they may be running out of time and excuses. Another serious crash would likely jeopardize not just people's savings but also perhaps the system itself.
Possibly … somewhere … there is a plan of this sort. Induce further crashes and then introduce a more globalized currency regime. But this is truly a dangerous game, if it is being played in this Internet era. Too many understand the manipulations taking place and no doubt this is one reason the BIS made the obligatory statement of concern.
If those at the BIS are indeed concerned, it is likely they are worried about their own job security and fiefdoms, not the fate of the average investors.