Central Banks Buying Stocks

When the most conservative investors in the world start buying stocks because bond yields are so low, you have to wonder when the spiral comes to an end. Now is the time to start looking for safe havens. “Central banks, guardians of the world’s $11 trillion in foreign-exchange reserves, are buying stocks in record amounts as falling bond yields push even risk-averse investors toward equities.” That's the lead sentence from a recent Bloomberg article. If it doesn't scare you, it should.

o be fair, it isn't as if the banks have completely lost their heads and gone 100% into equities. Of the banks that have said they own or plan to own equities, the percentages are relatively low. The percent increase, on the other hand, is large. For example, Japan was reported to be on the way to doubling its equity exposure, via exchange traded funds (ETFs), over the next year or so. When the most conservative investors start to make the shift to equities to find higher returns and the market is at or near all time highs, you have to start thinking about downside risk. Unfortunately, if you are trying to live off of dividend income, you need to be invested.

Source: Motley Fool

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