I've started on this post a dozen times

[Spartacus]

and it seemed too far-fetched to really post. Now comes the "equities to be considered for CB reserves" and I realize I should have posted it.

Thinking about one of the rationales for Central Bank gold sales, to wit - gold provides no income or return, I started wondering - are CB reserves becoming Speculative Capital (SC)?

And if so, would this SC be turned, as most SC eventually seems to turn, to high-leverage, high-risk investments?

The other role (besides Speculation) CB reserve funds are playing today is illustrated by, for example Chinese reserves vis-a-vis the US - as political capital, or IOW Speculative Capital with which to threaten or bribe - Speculative Capital which provides a political return, as it were.

(should have picked a better title for the post - looks like there's no way to change it. Drat.)

[jk]

Re: I've started on this post a dozen times

even if cb reserves themselves are not [yet] speculative capital, the low interest rate environment in general, and the yen carry trade in particular, has provided plenty of speculative capital.

[bart]

Re: I've started on this post a dozen times

even if cb reserves themselves are not [yet] speculative capital, the low interest rate environment in general, and the yen carry trade in particular, has provided plenty of speculative capital.

1. Some CB reserves are beyond any doubt already being used as "speculative" capital. The first example that comes to mind is the ECB and their gold trading - millions of ounces have been traded in many weeks during the last 6 years.

2. That $4.5 trillion of CB reserves is an understatement of total CB reserves available (it does not include China for example to the best of my knowledge), and I estimate the actual total as closer to $6.5 trillion currently.

3. Just moving 10% of it into world stock markets would cause a lot more than a 10% gain in them in my opinion

(part of the "funding" of the next bubble... Bueller?). ;)

[Finster]

Fentoid Time

Just moving 10% of it into world stock markets would cause a lot more than a 10% gain in them in my opinion.

There's no such thing as "moving money into the stock market". Every share bought must also be a share sold.

What actually happens is that if very large buyer decides to buy stocks, the clearing price rises due to the transient surplus of demand over supply. The new clearing price that results matches supply to demand so that the number of shares sold equals the number bought. The seller, however, no longer has that money "in the stock market", so there is no net "money moved into the stock market".

[bart]

Re: Fentoid Time

There's no such thing as "moving money into the stock market". Every share bought must also be a share sold.

What actually happens is that if very large buyer decides to buy stocks, the clearing price rises due to the transient surplus of demand over supply. The new clearing price that results matches supply to demand so that the number of shares sold equals the number bought. The seller, however, no longer has that money "in the stock market", so there is no net "money moved into the stock market".

Picky, picky, picky... and I feel so much better now that I've had my first New Year *fin*... ;)

[Finster]

Re: Fentoid Time

Picky, picky, picky... and I feel so much better now that I've had my first New Year *fin*... ;)

Just moving 10% of it into world stock markets would cause a lot more than a 10% gain in them in my opinion.

Nevertheless, this explains why your conclusion that there is no simple, fixed relationship between the amount of money so deployed and the resultant price change is correct.

...now that may be my last nice-guy comment for the year ... ;-)

[bart]

Re: Fentoid Time

...now that may be my last nice-guy comment for the year ... ;-)

Be still my beating heart... :eek:

[Spartacus]

Re: I've started on this post a dozen times

First time I saw Star Wars some guy jumped up and shouted

"You can't hear sound in space!!!!!!!!"

I guess I now know who that was ; )

[Spartacus]

Re: I should be writing a news letter - Central Bank reserves ARE Speculative Capital

PBOC to use foreign exchange reserves to invest in US Private Equity giant.

And 1 year ago when I read Nasser Saber's books again, and the thought occurred to me, "could the CBs use their reserves as speculative Capital?" and I dismissed it as too wild.

and it seemed too far-fetched to really post. Now comes the "equities to be considered for CB reserves" and I realize I should have posted it.

Thinking about one of the rationales for Central Bank gold sales, to wit - gold provides no income or return, I started wondering - are CB reserves becoming Speculative Capital (SC)?

And if so, would this SC be turned, as most SC eventually seems to turn, to high-leverage, high-risk investments?

The other role (besides Speculation) CB reserve funds are playing today is illustrated by, for example Chinese reserves vis-a-vis the US - as political capital, or IOW Speculative Capital with which to threaten or bribe - Speculative Capital which provides a political return, as it were.

(should have picked a better title for the post - looks like there's no way to change it. Drat.)