I slept well on Thursday night. Could have slept longer, had the early morning rains on Friday in Singapore not intervened. There should be a ban on thunders at 5 A.M. But, whatever residual sleep I carried into my waking state vanished on seeing this report in Bloomberg:
In a survey of 60 central bankers this month by Central Banking Publications and Royal Bank of Scotland Group Plc, 23 percent said they own shares or plan to buy them. The Bank of Japan, holder of the second-biggest reserves, said April 4 it will more than double investments in equity exchange-traded funds to 3.5 trillion yen ($35.2 billion) by 2014. The Bank of Israel bought stocks for the first time last year while the Swiss National Bankand the Czech National Bank have boosted their holdings to at least 10 percent of reserves. “In the last year or so, I have spoken with 103 central banks on diversification,” Gary Smith, London-based global head of official institutions at BNP Paribas Investment Partners, which oversees about $649 billion, said in a phone interview. “If reserves are growing, so are diversification pressures. Equities are not for every bank tomorrow, but more are continuing down this path.” [Link]
Among central banks, big guys print and smaller guys buys equities. What chances do we have, watching fundamentals?
According to a Barclays Capital report that landed in my mailbox, here are the fundamentals:
1Q13 earnings season is roughly half complete, and the most striking feature is disappointing revenue growth (tracking 1.5%) despite reasonably soft expectations. International exposure once provided a considerable boost to US equities’ top-line growth, but is now in some instances a drag. Domestic growth also ended the quarter on a weak note. When we look for evidence of improvement in macroeconomic or corporate fundamentals, other than share prices in some global markets, though not those most leveraged to global growth, we generally come up empty.
Do they matter?
Let us see what Bank of England has been up to:
Enter the Bank of England (BoE), which in August 2012 launched an ambitious scheme, dubbed “Funding-for-Lending” (FFL), which is designed to improve credit conditions in the UK, particularly for small and medium-sized enterprises (SMEs).
Under the £80 billion FFL scheme, UK banks are permitted to borrow up to 5% of the value of their outstanding loans directly from the BoE at below market rates. And if banks increased their net lending, the amount they can borrow from the BoE would increase at the same rate….
To make matters worse, the spread between the price UK banks borrow money at and the rate that they lend money at has widened since the FFL scheme was introduced, suggesting that savers are being punished without borrowers receiving commensurate rewards.
So far, FFL seems to have been tentatively successful in re-inflating the UK housing market, albeit at a steep cost to savers. However, it has been next to useless in reviving the languishing business sector, which is the scheme’s intended target and the lifeblood of the UK economy.
Perhaps because of this failure, the BoE earlier this week announced that it would expand the FFL scheme, extending it to January 2015 from January 2014 and also increasing the amount that banks can borrow from the BoE. [Link]
Re-balancing is out (why only in the UK economy?)
I don’t think I’m the only one who has noticed this. It is hard to read current Treasury policy on the housing market as anything other than an attempt to drive down down the household savings ratio by encouraging more mortgage borrowing. Rebalancing, as I noted after the budget, has been all but abandoned.
Last week’s forecasts from the Item Club confirmed this. The International Business Times noted that rebalancing is ‘on hold’ whilst the “government’s influence on the housing market could spike consumer spending and engender a faster recovery than many UK businesses are currently anticipating”. [Link]
What is the Federal Reserve up to?
Debate among Federal Reserve policy makers is shifting away from the timing of a reduction in bond buying to the need to extend record stimulus as inflation cools and 11.7 million Americans remain jobless.
At their meeting last month, several members of the Federal Open Market Committeeadvocated slowing purchases and stopping them by year-end. Since then, seven have voiced support for maintaining the current pace, including five who vote on the policy making panel: Governor Daniel Tarullo, New York Fed President William C. Dudley, James Bullard of St. Louis,Chicago’s Charles Evans and Boston’s Eric Rosengren. [Link]
Just couple of days ago, I threw up my hands in a prayer. I need to borrow more hands. One of my friends wrote to me thus:
God has gifted you with the ability to analyze financial markets so well( as well as a wonderful ability to articulate what’s happening)…so if I were in your place, I would be grateful, as well as hope for a similar fate in my next birth too!!!
The trends and behaviour are so disgusting that it is hard on me. It has ceased to be a pleasant task. I do not find what is happening agreeable. Reporting on the disagreeable is possible if it remained exception. It has gone mainstream.
After posting this in my blogsite, I came across the Matt Taibbi article on how everything that can be ‘fixed’ is being fixed by bankers. The article is here. The jaw-dropping content in that piece is how, Lanny Bruer, former Justice Department Criminal Division chief, had migrated to the private sector and his firm represented Citigroup in the case brought by cities, local governments and pension funds against banks on their fixing of LIBOR.
Central banks print money; central banks buy equities; central banks buy bonds; Banks collude on inter-bank rates and now, apparently on swap rates too. They engineered a crash in gold, out of nowhere. The Federal Reserve helped by leaking the Minutes of the FOMC Meeting that apparently hinted at rolling back quantitative easing. Read the above now to note how transient and even blatantly misleading that was. Since then, many of the voting members at the FOMC have sung a different tune.
Financial markets have arrived at their final destination: it is one vast criminal enterprise.
What chances do the rest of us have?