Center for Strategic Assessment and forecasts

Autonomous non-profit organization

Home / Economy and Finance / Markets: estimates and projections / Other
Found "mysterious", the Central Bank, frightening the markets
Material posted: Publication date: 15-08-2017
In the second quarter this year, data on capital flows, unlike the first quarter, showed a persistent and rather strange outflow from US stock market to European and emerging markets.

There were rumors that while institutional traders sold stocks and retail investors invested in ETFs, "the secret" the Central Bank quietly supported the prices of risky assets, aggressively buying shares.

And no, it wasn't the Japanese Central Bank: its intervention in the stock market is already familiar to all, and for the most part he intervenes locally, mainly supporting Japanese companies ' stocks included in the Nikkei 225 or Topix.

The answer came recently when the hedge Fund known as the Swiss national Bank, published the latest report in form 13-F. It showed that according to rumors, the Swiss national Bank in the second quarter had another aggressive buying after record purchases in the first quarter the Central Bank increased their positions to a record high of $84.3 billion, which is 5%, or $4.1 billion, higher compared to $80.4 billion at the end of the first quarter.



The Swiss national Bank has accumulated foreign currency in the amount of 714,3 billion francs (more than $740 billion) due to the ongoing interventions to suppress the Swiss franc and "invested" the funds are created virtually out of thin air, in stocks and bonds. At the end of the second quarter, he had 20% in stocks, most of which were in American securities.



And although this is a controversial question of whether to discuss the intervention of Central banks in the equity markets, it should be noted that, in contrast to the Japanese Central Bank, which distorts at least only the local markets, the Swiss national Bank, which also "creates money out of thin air" (then sells them for dollars in an attempt to weaken the Swiss franc), produces a significant distortion of prices in the stock market in the United States.

Despite the fact that hardly anyone will investigate the situation now, when the stock markets are at record levels, we look forward to hearings in the U.S. Congress, which will take place after the collapse of the markets when they start looking for scapegoats and "shocked" to learn that Central banks are responsible for inflating the biggest asset bubble ever seen the world directly by buying shares.

That still showed the Swiss national Bank in its report 13F? Two major points.

First, as can be seen from the graph below, this 20 companies in which the Swiss national Bank clearly did not hesitate to invest the most ambitious.

This is especially true of the upper positions which increased as a result of the appreciation and new purchases.

And although we have yet to learn whether Warren Buffett active frontrunner of the Swiss National Bank during the quarter, as well as in the first quarter when he doubled down on the shares of Apple entered into a five owners of this technological giant, it is enough to look at the position of the Swiss National Bank in Apple, which rose from 18.9 million to 19.2 million shares, making it more a large shareholder, even larger than Schwab and Franklin Resources (from 18.3 million and 17.8 million shares, respectively), and second only to AllianceBernstein. And now I understand why the Nasdaq, until recently, every day was hitting all new highs.



The above chart may also explain why Goldman, despite growing concerns about record-low volatility, maintains a bullish tone regarding Nasdaq100: in the end, when the Central Bank creates money out of thin air, then spends them to buy shares of a handful of companies that have the greatest impact on the broader market, pushing the Nasdaq and other indexes above, what's the point to talk about any "risk"?



RELATED MATERIALS: Economy and Finance