Trick or Treat?

If anyone doubted we are in the age of the central banker, today’s action by the Bank of Japan will leave no more room to wonder.   Worried about the pace of economic growth and deflation, the BoJ expanded its yearly asset purchases (similar to U.S. ‘QE’) by tens of trillion yen and will triple the pace of buying stock and property funds. Stocks around the world rose in response. Bloomberg: Kuroda Jolts Markets. Whether it’s the Bank of Japan, the European Central Bank or the U.S. Federal Reserve, no one doubts that central banks are large and in charge, no one doubts central banks influence on asset prices and no one doubts that all economic data is interpreted through the lens of central bank policy.  And because ultimately all success and failure of markets comes down to fundamentals; real earnings, cash flows and distributed dividends by corporations that make up ‘markets’, this view of central bank omnipotence is not healthy.  Ultimately this singular, one sided focus will create unwanted volatility and unwarranted risk.  Since the world is focused on this macro ‘central bank’ view, now is the time to make sure portfolios are situated to stand future tests.  These central banks apparently do not understand the ‘moral hazard’ risk they are playing with, and as they build the view of their omnipotence, whether deliberate or inadvertent, they may be setting markets up for a volatile future, when inevitably, that omnipotence will come into question. Quarterly Point of View: Impolitic Fed