Socialism, brought to you by people with $3000 watches (and no pitchforks)!

If you thought socialism might be brought about by large, angry crowds with pitchforks, hellbent on redistributing your unearned wealth, you’re out of sync. There’s a much more acute danger of the majority of the world going socialist (well ok, state capitalist – it’s more flexible as it gives more leeway for crony shenanigans) by way of central monetary and fiscal authorities buying up an ever larger chunk of global assets.

20% of the Swiss National Bank’s holdings (~$120B) are in equities, about half of that in US equities. China has about 6% (~$200B) of it’s foreign exchange reserves in US equities. Bank of Japan has about $85B invested in the Japanese large-caps and has plans in place to keep growing their equity portfolio in the form of ETF’s at a pace of more than $2B/month. And this is just a few central banks. Add in various sovereign wealth funds, like Norway’s Government Pension Fund Global, which has about $820B in assets under management, 60% of which (~$500B) is in global equities (and owns slightly less than 2% of the entire European equity market), and countless more quasi-governmental vehicles in various countries and you start seeing a pattern.

Public and quasi-public investors, in aggregate, are growing their total share of global equities, constantly. Some do it for “financial stability” or “stimulation” reasons, like Japan. Some do it for “proper reserve management” reasons, like the Swiss and probably the Chinese. But regardless of why it gets done, it’s almost certain that it’s EXTREMELY difficult to be undone. Even in the unlikely scenario that these turbulent times are replaced by a period of decent growth, so the policy objectives no longer necessitate buying of equities in large quantities, selling down these assets will be a monumental task carrying various risks, primarily undesired market moves. So it’s very likely that these stakes will never be sold. At best, they will not grow, until the next crisis or period of sub-optimal growth comes along and “requires” the monetary authorities to increase their equity stakes again.

And after a few decades, we might very well be in a situation where the central bank is the majority owner of anything quoted on exchanges and a lot of the buildings around us. They really need to pull the brakes on this madness before we all basically work for either the BOJ, Fed or Bundesbank.

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