Have you ever wondered why stocks just seem to keep going up no matter what happens? For years, financial markets have been behaving in ways that seem to defy any rational explanation, but once you understand the role that central banks have been playing everything begins to make sense. In the aftermath of the great financial crisis of 2008, global central banks began to buy stocks, bonds and other financial assets in very large quantities and they haven’t stopped since. In fact, as you will see below, global central banks are on pace to buy 3.6 trillion dollars worth of stocks and bonds this year alone. At this point, the Swiss National Bank owns more publicly-traded shares of Facebook than Mark Zuckerberg does, and the Bank of Japan is now a top-five owner in 81 different large Japanese firms. These global central banks are shamelessly pumping up global stock markets, but because they now have such vast holdings they could also cause a devastating global stock market crash simply by starting to sell off their portfolios.
Over the years I have often been asked about the “plunge protection team”, but the truth is that global central banks are the real “plunge protection team”. If stocks start surging higher on any particular day for seemingly no reason, it is probably the work of a central bank. Because they can inject billions of dollars into the markets whenever they want, that essentially allows them to “play god” and move the markets in any direction that they please.
But of course what they have done is essentially destroy the marketplace. A “free market” for stocks basically no longer exists because of all this central bank manipulation. I really like how Bruce Wilds made this point…
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