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How to Profit from the Latest Desperate Moves By the World's Central Banks

Stock-Markets / Stock Markets 2013 May 09, 2013 - 12:30 PM GMT

By: Money_Morning

Stock-Markets

Ben Gersten writes: ou already know central banks have been boosting markets through loose monetary policies the past few years.

Now it looks like they'll move markets in another way - by pouring record amounts of money into buying equities.


The stunning revelation comes in a survey by Royal Bank of Scotland Group Plc (NYSE ADR: RBS) and CentralBanking.com. The survey reveals that 23% of the 60 central bank respondents are buying stocks or plan to do so in the next five years.

In fact, this marked the first time in the survey's nine-year history central bankers were asked whether they bought or planned to buy stocks.

While it's not the first time central banks have ever bought equities, it is the most aggressive purchasing they've done.

"This time around, they're not just throwing in the kitchen sink; they're throwing in the garage, a couch, the guitar, the dog, anything they can get their hands on," said Money Morning Chief Investment Strategist Keith Fitz-Gerald.

What's Behind this Massive Shift for Central Banks

Central banks of the world hold nearly $11 trillion in reserves, and traditionally they have put that money into low-risk investments such as government bonds. But record low bond yields and talk of negative interest rates are forcing central banks to increasingly buy stocks, which would have been unthinkable just a few years ago.

The Bank of Japan has the second-largest reserves in the world, at $1.2 trillion, and currently $14.1 billion of it is in equity ETFs. The BOJ intends to more than double its bet on stocks, reaching $35.1 billion in equity investments by 2014.

The Bank of Israel last year bought U.S. equities, including Apple Inc. (Nasdaq: AAPL), for the first time and in April 2013 said it would double down on investments in U.S. and European stocks, with a target of having $4.5 billion invested by the end of the year.

Also, the Swiss and Czech National Banks each have more than 10% of their reserves in stocks.
And more central banks are expected to follow.

"I definitely see other central banks doing or considering equities," Jan Schmidt, the executive director of risk management at the Czech National Bank in Prague, told Bloomberg News.
The Czech National Bank has been buying stocks since 2008 and currently has $4.4 billion in equities.

In addition, the Bank of Korea has $18.6 billion in equities, and China said in January it will make "innovative use" of its $3.4 trillion in assets, the world's biggest reserves, but did not detail an investing strategy.

The Federal Reserve's charter forbids it from using its $42.6 billion in reserves to directly buy stocks, but there's nothing preventing the Fed from creating a special-purpose entity that could buy stocks through indexes or an ETF.

So with central banks making riskier and unprecedented moves, what should investors do?

Where to Invest in 2013: Don't Fight the Tape

Money Morning's Fitz-Gerald says the behavior of the otherwise risk-averse banks is just another example of why you need to be in this market.

"This is a sign of tremendous desperation, and I think ultimately there are two things we know about markets at this point in the financial crisis," Fitz-Gerald said.

"Number one is that big players are going to be the ones that make the most money in this game, and it's a tremendously self-serving game. The central banks are the only players large enough to move the markets. They have the money, the liquidity and capabilities to do so.

"Number two is that as an individual investor you have to be in the market. An old adage says, 'Don't fight the tape,' and if central banks have this much motivation and determination to see the market higher, it'll happen and investors sitting on the sidelines will be sorry."

Even though central banks seem determined to send markets higher, that doesn't mean investors should blindly go all-in stocks.

Instead, having an investing strategy that's balanced, disciplined and most importantly, not dependent on what the Fed does or doesn't do is key in today's complex investing world.

The Money Map Reportoffers investors just such a strategy, and it's delivered gains of 56% on a unique Bakken play, 59% on a tech powerhouse and 50% on a U.S. fund.

To learn where to invest in 2013 for double-digit gains like these, just click here.

Source :http://moneymorning.com/2013/05/08/where-to-invest-as-central-banks-make-this-unusual-move/

Money Morning/The Money Map Report

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