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There is no question as to who is responsible for the various stock market, art, property and bond market bubbles.
We have spoken about various government backed schemes and central bank interventions over the years. 2015 has been no different. The sample of central bank milestones for this year given below is not a complete list. If I were to give a complete list of new moves, schemes and actions of central banks it could go on for pages.
The Swiss National Bank (SNB) increased the amount of Swiss francs in existence 5 fold since 2007 from about CHF110 billion to about CHF 577 billion. It now owns CHF91 billion of foreign stocks. So it goes like this – create francs – covert to dollars – buy Apple shares! They own $1.1Bn of Apple shares.
The Bank of Japan (BoJ) holds 30% of all issued Japanese government bonds. Now it is buying Exchange Traded Funds (ETFs) in stocks. "Japan's central bank already owns more than half of the nation's market for exchange-traded stock funds." – Bloomberg, October 28.
Almost one quarter of all Eurozone sovereign debt trades at negative interest rates.
Switzerland and Sweden have joined the Eurozone party by issuing negative yielding bonds in 2015. The Swedish are negative out to two years and the Swiss are negative out to 10 years.
Japanese bond yields are negative out to 5 years.
According to Reuters no fewer than 43 central banks eased monetary policy in 2015.
Virtually every central bank on the planet is working vigorously to prop up prices for property, stock and bond markets. We know that without the central bank support prices would be lower. That is why I call them bubbles. They have succeeded – so far.
The Federal Reserve might seem like an outlier because it raised interest rates in 2015. It is highly likely that they will reverse course and cut rates when their stock market declines again. Alternatively they may just buy junk bonds or stock directly. Either way I cannot see the Fed allowing rates to ‘normalise’ again. Remember they still own 20% of the US national debt. The Fed owns their stock, bond and property market bubbles. They created them and they will not let them burst.
Read Part II - Wealth – Demand and Supply
