Market Distortions
This Newsletter has predicted a stock market correction at the least if not a crash in the near future and favors gold as an investment. What has happened is that the FAANG stocks continue to ride high while the rest of the market generally limps along. The gold price suffers a setback every time it strikes northwards. If that was not enough to make one suspicious, inflation remains low despite huge injections of capital into the economy.
ZIRP and NIRP may help to explain low inflation, but the behaviour of the stock market and gold require an explanation. Market distortion can be blamed on the central banks, and it is known that the BIS, central banks and their proxies intervene on the gold market with the purpose of eliminating gold as a currency so that fiat currency has no competition. The result is a gold price so low that some miners have to cut back production so as not to go bankrupt.
With the arrival of crypto currencies that have so far proven relatively successful, one can expect governments to ban currencies that cannot be easily controlled. The US already requires a declaration of crypto currency for those travelling out of the US.
What is more telling is that central banks have been buying not only big tech stocks, and that includes the SNB (Swiss National Bank) as well as the BoJ for over a year. According to 13F filings as of 31 March 2017 SNB US stock holdings were over $80 billion. The results for Q2 will be available in July. The figure was only $60 billion for H1 2016.
In fact the balances of the ECB and BoJ have surpassed that of the Fed, which should sound an alarm for the global economy. The BoJ has perhaps gone the furthest in taking over markets. Mr Draghi at the ECB has cut down his buying spree to a mere €60 billion monthly. The combined balances surpass $13.5 trillion. It seems that the central banks want to monetize the world. And there are the UK and Sweden.
Since the central banks are empowered to create money by simply typing a number into a computer without even having to print bank notes to increase the amount of money in circulation and there is no limit to the amount of fiat currency that can thus be created, it may well be that this time is really different. The central banks can buy up every dip, buy up any and all bonds and sell paper gold in infinite amounts while governments will probably try to quash crypto currencies. What the effect of all this is going to result in is another topic.
Walter Snyder
info@swissfinancialconsulting.ch
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