The world’s top 6 central banks have now monetized, which means purchased with “printed” money, total assets worth almost $20 trillion (40% of global GDP). Since they’re running out of government bonds to buy (you know, since they’ve pushed yields negative), they’ve moved on to corporate bonds and stocks.
The Swiss National Bank (SNB) is now the world’s eighth largest public “investor,” all with freshly printed money. The central banks are basically swapping investment securities for cash. Then investors take the cash and look around for something new to invest in that presumably had a higher yield than the security they sold…but they’re searching through a market with reduced supply since the central banks have been buying and thus removing securities from the market. This is how the whole “chase for yield” mania has unfolded the past few years with a total disregard for fundamentals. Somehow, the term “unprecedented” doesn’t seem to do this justice.
If you’re a client and your mindset is: “Nick, I pay you to figure this out so I don’t have to worry about it” then you can stop reading here.
If you prefer to be informed on the intricacies of the precarious state of the global financial system, here are two absolutely fantastic pieces that sum it all up:
NorthmanTrader: Time to Get Real: Part 1
Ben Hunt: Magical Thinking
Yes, I’ve been increasing our position in gold this year. Have a great weekend!
-Nick