Investors currently face great difficulty in trying to limit risk while desperately searching for higher yields. …..
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ZIRP and NIRP have made bonds uninteresting even as central banks continue buying up what is available on the market with the result that yields are kept artificially low. Central bank acquisitions on the stock market have pushed equity prices so high that new records have been set. David Stockman is correct in asserting that price discovery has been eliminated.
Central bank meddling extends to the precious metals market. It is well-known and easily documented that gold and silver prices have been dampened by massive intervention in an effort to eliminate gold and silver as currencies with the purpose of making fiat currency the only alternative while China, Russia, Turkey and Iran amass great amounts of gold and favor IMF SDRs as the global reserve currency. Their purpose is to put an end to the reign of the petrodollar, which would have far-reaching consequences on America`s super-power global reach.
The result has been that investors have misallocated capital by acquiring higher-yielding risky corporate bonds and following the upward-trending FAANG stocks. Like lemmings they are all rushing to a speculative cliff. At a certain point stock prices will stop going up. As there is no point in buying equities that have no prospects of achieving higher prices and practically pay no dividends, investors will try to realize profits. At which point it is to be expected that the market will be subject to high volatility.
Here again the central banks might be tempted to intervene massively by buying the dip and even the trough in an effort to keep prices at a high level. As noted in a previous Newsletter, just the SNB has over $80 billion of US equities. The BoJ is buying up the entire country. Given that the central banks can create an unlimited amount of fiat currency simply by pressing keys on a computer keyboard and the same players have no inhibitions about intervening on bond and stock markets, it may well be that the central bankers have agreed among themselves to prevent any severe downturns in the markets. Even if there is a sudden fall in equity prices, the geniuses at the Fed can summon their peers and ask them to buy up any stock that is suffering more than is warranted for keeping investor confidence at a high level.
There is thus a contradiction between predicting that there will be a strong correction or crash on the stock market and asserting that central banks will come to the rescue of any stock whose price is heading south. This is a problem.