CENTRAL BANKING VOODO

One of the sleeping time bombs that just recently is being discussed in the financial world is central banks getting into the equity-buying game.

Yea, we know, you most likely believe they only purchase bonds, so-called less risky assets. According to one recent report that is now coming to light, China's central bank apparently has been buying European equities with both hands. But they are hardly alone.
                                    
Some savvy investors might suggest that's like putting a put option under the market, lending support to keep equities from falling further. It could also be noted as a form of providing liquidity for sickly or flat markets, a kind of  let's-restore-the-public's-confidence ploy so they'll open their wallets more.

All well and good you say. But wasn't one of the central bankers main reasons for criticizing big banks the amount of risks the big boys and girls took on that could, so the story goes, have upset the entire global financial market? 

That's certainly one of the excuses we heard over and over for keeping interest rates this low for this long. They were preventing disaster.

Equity prices as most of us realize change. Now there's a revelation for you. One of the age-old Wall Street caveats is don't try to time the market. Only a few of the many reportedly do it successfully with any consistency. But even if one doesn't buy that rubric, there is another question here, a basic one about risk taking: Why would these bankers be any better at it than professionals who as it turns out in many years are not very good at it either?

Central bankers are known for being conservative, just ask the Dragster ECB President Mario Draghi. For a long time it looked like his vocabulary was devoid of  the word alacrity. Now the story, like many involving bureaucrats, gets even juicier.

A few years ago you may recall central bankers were unloading gold, most likely to keep a lid on the price. The excuse floated then is the old one, it doesn't yield anything. Well, today neither does any major currency. But they were selling into a scenario where the price was setting up to go much higher. And it did.

So here's the next question. Are those who brought a yield-starve feature to theaters near all of us now scrambling for yield? We'd bring up the word irony here, but that would be too obvious.

Central banks dabbling in stocks is not new. What might be new, however, is the magnitude. Among others, the problem is one of mixed messages and transparency. Are they going to ring a bell to let us all know they're selling on the second Tuesday of next week?

Oh yea, one more thing. We thought central bankers were suppose to be objective. Purchasing equities in itself is a form of favoritism. Which stocks don't you like?