Hamish McRae: If the Bank of England ever buys equities, it'll be time to leave
Saturday 04 May 2013
There is a fine irony, is there not, in central banks buying equities? They have driven down the yields on government debt to such low levels that real yields in most major economies are now negative.
That leads into a debate about the effectiveness of the policy and even its morality: is it right to slash the value of pensions and corral savers into investments on which they are bound to lose money?
But if we savers are suffering from this policy, so too are central banks, for they have seen the return on their reserves savaged. Most central banks hold a mix of gold and foreign exchange in their reserves, and the foreign exchange element is largely in short-dated US treasury securities. Of course, gold yields nothing, while short-dated securities yielded something in nominal terms. That was the argument behind Gordon Brown's decision to sell most of our gold.
But now the hunt for yield is such that even central banks are desperately trying to diversify and global equities are the obvious choice. They have two advantages over treasuries: they offer a reasonable yield and are a sort of hedge against inflation if that is what the money-printing spree ends up causing.
So they are starting to buy. And it is not just the canny ones, such as the Swiss National Bank and the Bank of Israel that are doing so. In a survey by Central Banking Publications and the Royal Bank of Scotland, nearly a quarter of the 60 central banks polled either owned shares or planned to.
So what are the implications? An obvious one is that there is a new force underpinning global share values, an entirely new class of buyer. Another is that there is a new mechanism whereby money printing boosts share values and ought eventually to feed through into final demand. So this must be good for shares.
But a word of warning. Neither the US Federal Reserve nor the Bank of England have equity buying in their mandate. If, in the future, some chancellor (Ed Balls perhaps?) authorises the Bank to buy equities it would, on past form, be the moment to head for the door.
Emergency call 'started off dumb, but got pretty serious'
Britain First criticised for using actress's memory to draw attention to their 'hate-filled home page'
Thought you'd seen it all after the Jeremy Paxman interview?
Greatest mystery about the hit BBC1 show is how it continues to be made at all, writes Grace Dent
"History is violent," says the US Army tank commander Don "Wardaddy" Collier
- 1 This 'woman calls police to order pizza' story isn't going where you're expecting
- 2 Axe wielding man shot dead after attacking four New York policemen on busy street
- 3 Watch what happened when food critics were unknowingly served McDonald's
- 4 Jimmy Carr's controversial Oscar Pistorius joke goes a bit too far at the Q Awards
- 5 Ottawa shootings: Bruce MacKinnon's cartoon is the perfect tribute to soldier Nathan Cirillo
Renee Zellweger on plastic surgery rumours: 'I'm living a more fulfilling life and I'm thrilled that perhaps it shows'
This 'woman calls police to order pizza' story isn't going where you're expecting
FCKH8: YouTube reinstates provocative anti-sexism video showing young girls swearing
Axe wielding man shot dead after attacking four New York policemen on busy street
Diwali: What is the festival of lights – and how is it celebrated around the world?
Of course, teenage girls need role models – but not like beauty vlogger Zoella
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Support for EU membership 'at highest level since 1991' with most Brits wanting to stay 'in'
Thousands with degenerative conditions classified as 'fit to work in future' – despite no possibility of improvement
Residents should throw a street party and mix with immigrant neighbours, councils told
Attacks on 'Ukip Calypso' show how skewed people’s priorities are
iJobs Money & Business
£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...
£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...
£100 - 125k: Guru Careers: A CTO / Chief Technology Officer is needed to join ...