Two weeks ago I wrote a brief blog post saying the PBoC was buying across the board – equity index futures, forex, bonds —all to stop a stock market drop. It worked for a few hours. link here Turns out the ECB and BoJ were busy as well.
The ECB turned its QE printing press to 11 for a few hours and vacuumed up European bonds in an effort to keep credit spreads -that would more accurately depict risk- from blowing out.
While the ECB was busy trying to make European credit markets appear calm, the BoJ also turned its QE currency printing press to 11 in order to buy equity ETFs to make the stock market look like there’s nothing to see. Its buying spree pushed the BoJ to set a record month in terms of buying the Japanese stock market.
Here’s how central bank QE buying bonds is different from buying equities – bonds mature and payback automatically (unless the debtor defaults). But equities have to be sold. Put your thinking cap on and tell me how the BoJ sells its equity ETF position when it owns most the the Japanese stock market -in terms of ETFs.
I’ve been observing central banks stop stock market crashes -and quantifying their efforts since 2005 (data going back to January 1999). It is true that central banks have repeatedly stopped stock market crashes -surely you know this. One of the most frequent comments I receive on the blog is that central banks are limitless –they can stop all crashes because they just have to print money from thin air and buy whatever needs buying to create the appearance of a healthy economy. Let me suggest you take another look at the chart above and tell me how the BoJ unwinds that position. It does have to be unwound, it won’t do it on its own.