...Average investors are taking money out of stocks even as the bull market continues apace. Global investment in stocks is down even as the major indices are hitting record highs. What gives? Where is this money coming from?
We've been examining the utterly irrational run up in the equities markets in the US (and elsewhere) in these pages for a number of years now. Since the nadir of the markets in July 2009 (DJIA: 8146.52 and S&P: 879.13) we have now seen nearly five straight years of virtually uninterrupted run up in the markets (DJIA: 16,772.69 S&P: 1936.86).
This bull run makes no sense from any rational perspective. Despite continuing signs of economic distress (negative Q1 GDP figures, flagging labor participation rate, declines in real hourly wages, etc.) the markets continue their rocket ride to record close after record close. Even more puzzling, new research published in the Financial Analysts Journal show that equities account for the lowest percentage of global investable assets since record keeping of this kind first started in 1959.
At the end point of the last two largest secular bull markets (in the late 1960s and the late 1990s) investment in equities was, predictably, at all time highs; over 60% of global investable assets were held in stocks. Yet now, after one of the longest secular bull markets in history, only 37.7% of global investment is in equities. Last December, new data emerged showing that the majority of Americans (53%) said they had no money at all invested in equities, down from a 2007 peak of 65%.
So average investors are taking money out of stocks even as the bull market continues apace. Global investment in stocks is down even as the major indices are hitting record highs. What gives? Where is this money coming from?
We've long pointed the finger squarely at the world's central banks, with the Federal Reserve's quantitative easing programs being the prime examples of how money is being thrown hand over fist into the economy to try to stimulate economic activity...and how this is instead leading to another stock bubble. But now we have some pretty convincing proof of this from a pretty mainstream source: the Official Monetary and Financial Institutions Forum, a financial think tank with deep ties to the central banks themselves. The OMFIF just released a new report detailing how “Central banks around the world, including in Europe, are buying increasing volumes of equities as part of diversification by official asset holders that are now a global force on international capital markets.” According to the report, a survey of 157 central banks, 156 public pension funds and 87 sovereign funds identified investments totaling $29.1 trillion, including $13.2 trillion held by central banks alone. Motivated by recession-induced declines in interest rates (and thus decreasing profitability of reserves), public institutions are flocking into stocks. In its most chilling statement, the report notes how, in the aftermath of the 2008 crisis, various forms of “state capitalism” have come to the fore. “State capitalism” being, of course, more commonly known as fascism.
As Zero Hedge notes: Another conspiracy theory has become a conspiracy fact. Central banks are propping up the markets behind the scenes, not just through unprecedented expansion of the money supply itself, but through direct (and largely secretive) investment. Rest assured the talking heads will dutifully continue to trumpet the virtues of the market and the stupidity of mom and pop investors for not taking advantage of the current bull run, but given that the current bubble has been almost exclusively a creation of unaccountable central banks (and the banksters who own them), how could any sane person be expected to invest in such an obvious ponzi scheme?