Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Confirmed: Central Banks Now Buying Stocks

Friday, April 26th, 2013
By for Profit Confidential

Central Banks Now Buying StocksAs of April 22, 67% of the companies in the key stock indices that reported their corporate earnings were able to beat earnings estimates, but only 44% of them were able to exceed the revenue expectations of Wall Street analysts. (Source: Reuters Alpha Now, April 22, 2013.)

Looking at all this, you have to ask: why are the key stock indices rising when the underlying reasons for their rise (corporate earnings and growth) are diminishing?

The key stock indices aren’t climbing because of fundamental reasons. The harsh reality is that the yields from other investments are too low, so investors are forced to take higher risks to earn a decent rate of return. Just look at the yields on bonds of stronger governments around the world—most are barely beating inflation.

Even the most conservative investors, central banks, are rushing toward the stock market. According to a survey done by Central Banking Publication and Royal Bank of Scotland Group PLC of 60 central banks, 23% of them said they either own equities or plan to purchase them in the future. (Source: Bloomberg Businessweek, April 25, 2013.)

The central bank of Israel bought stocks for the first time last year. Similarly, the central bank of Switzerland and the Czech National bank have increased their stock holdings to at least 10% of their reserves.

The Japanese central bank has done the same. The Bank of Japan, the central bank with the second most reserves, expects to boost its holdings of equity exchange-traded funds (ETFs) to 3.5 trillion yen (about US$35.2 billion) by 2014.

  • Re: Lifetime Oil Pension Checks

    Oil Pension Checks could pay you up to eight-times more than Social Security and have no income or maximum age restrictions.

    The monthly checks can outlive you and continue to generate steady income for your heirs five, ten, even twenty years out.

    Oil companies do not advertise them; that's why most investors have never heard of the Oil Pension Check program.

    To activate your account and to get your own Oil Pension Checks coming in monthly...

    Click here now to learn more.

Dear reader, central banks around the world usually hold safer asset classes in their reserves, such as gold, and government bonds, which they can sell in order to intervene in any major currency move (or to implement their monetary policy).

But since investment yields have collapsed in the global economy, central banks’ reserves are in danger. Some central banks have actually seen the value of their reserves decline! For example, the central banks of Taiwan and Singapore saw a collective decline of US$1.0 billion in their assets in 2012.

Looking ahead, this is troublesome for the key stock indices. The reason: as the most conservative investors, central banks, move toward the stock market, even just a little downward movement in equity prices will cause losses in their reserves.

When everyone is rushing to buy stocks, it’s not a good sign.

Michael’s Personal Notes:

The fourth-biggest hub in the eurozone, Spain, is facing a severe economic slowdown. According to Spain’s National Statistics Institute in Madrid, the unemployment rate in the country has surpassed the 27% mark, with more than six million people jobless—the highest number since 1976. (Source: Bloomberg Businessweek, April 25, 2013.)

Furthermore, the Bank of Spain reported that the Spanish economy contracted 0.5% in the first quarter of this year after witnessing a decline of 0.8% in the last quarter of 2012. The International Monetary Fund (IMF) expects this eurozone nation to contract 1.6% this year.

While Spain seems to be at the forefront of headlines about the eurozone, other nations like Portugal are witnessing a severe economic slowdown as well. The country has been experiencing a recession for three years, with its unemployment rate at a record high of 17%. (Source: Wall Street Journal, April 23, 2013.)

The situation in the eurozone is very critical; but if you look at the key stock indices, they do not portray this.

Even though Ford Motor Company (NYSE/F) was able to earn a profit in North America in the first quarter of 2013, its losses in Europe are piling up. The company posted a loss of $462 million in the first quarter in Europe, an increase of more than 210% compared to the same quarter of last year. (Source: Wright, R., “Ford reveals deeper European losses,” Financial Times, April 24, 2013.)

Ford is just one example of how U.S.-based multinational companies can face severe losses in the eurozone as the economic slowdown continues to take its toll on Europe. Even with all the austerity measures and bailouts by the European Central Bank, the eurozone is deteriorating further.

More troublesome is the fact that strong eurozone nations are starting to show weaknesses. Take a look at the two biggest economies in the region: France and Germany. Their growth is anemic at best, and the economic slowdown in those countries seems to be strengthening.

As I have been harping on about in these pages over the past few months, the eurozone’s economic slowdown is far from over, and I expect it to continue for a long, long time. Eventually, just like Ford, U.S.-based companies, especially the 40% of them listed on the S&P 500 that have sales in the eurozone, will see their losses mount—and stock prices reflect as much.

What He Said:

“What group of stocks are next to fall in light of the softening U.S. housing market? The stocks of companies that sell retail products to the American consumer, I believe, are next on the hit list. Many retail stocks are already reporting soft sales. In my opinion, they haven’t seen anything yet in respect to weaker sales.” Michael Lombardi in Profit Confidential, August 30, 2006. According to the Dow Jones Retail Index, retail stocks fell 42% from the fall of 2006 through March 2009.

VN:F [1.9.22_1171]
Rating: 10.0/10 (1 vote cast)
VN:F [1.9.22_1171]
Rating: -1 (from 1 vote)
Confirmed: Central Banks Now Buying Stocks, 10.0 out of 10 based on 1 rating

This is an entirely free service. No credit card required.

We hate spam as much as you do.
Check out our privacy policy.

Michael Lombardi - Economist, Financial AdvisorMichael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Some of the stock recommendations in Michael's various financial newsletters have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland. Follow Michael and the latest from Profit Confidential on Twitter or Add Michael Lombardi to your Google+ circles

The Great Crash of 2014

A stock market crash bigger than what happened in 2008 and early 2009 is headed our way.

In fact, we are predicting this crash will be even more devastating than the 1929 crash…

…the ramifications of which will hit the economy and Americans deeper than anything we’ve ever seen.

Our 27-year-old research firm feels so strongly about this, we’ve just produced a video to warn investors called, “The Great Crash of 2014.”

In case you are not familiar with our research work on the stock market:

In late 2001, in the aftermath of 9/11, we told our clients to buy small-cap stocks. They rose about 100% after we made that call.

We were one of the first major advisors to turn bullish on gold.

Throughout 2002, we urged our readers to buy gold stocks; many of which doubled and even tripled in price.

In November of 2007, we started begging our customers to get out of the stock market. Shortly afterwards, it was widely recognized that October 2007 was the top for stocks.

We correctly predicted the crash in the stock market of 2008 and early 2009.

And in March of 2009, we started telling our readers to jump into small caps. The Russell 2000 gained about 175% from when we made that call in 2009 to today.

Many investors will find our next prediction hard to believe until they see all the proof we have to back it up.

Even if you don’t own stocks, what’s about to happen will affect you!

I urge you to be among the first to get our next major prediction.
See it here now in this just-released alarming video.