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The stock market has had an incredible rise since it bottomed in the first quarter of 2009 after the real estate market crashed in 2008. Despite this rise, I don’t think this bull market is likely to end soon. Short-term market corrections can happen at any time for various reasons, but I don’t expect a true bear market to begin in the near future.
The fact is, there are still too many people sitting on the sidelines and too many investors are still in cash. Per a recent Gallup survey, one half of all Americans don’t own any stocks and Blackrock reports that investors are sitting on $70 trillion dollars, a record amount of cash.
I believe that today there is an even more powerful demand driving stock prices higher. Central banks around the world are printing money and buying assets. They have purchased so many bonds that interest rates in many sovereign bonds around the world have fallen to zero or are even below zero.
With bond prices so high and interest rates so low, central bankers can’t continue buying bonds. Therefore, they have been buying stocks. In the first five months of 2017, central banks, mostly the European Central Bank and the Japanese Central Bank, printed $1.5 trillion that they used mostly to buy stocks.
As of 2017, the Swiss National Bank owns more shares of Facebook than Mark Zuckerberg, the company’s founder.
Per Bloomberg, The Bank of Japan is on track to be the No. 1 buyer of Japanese stocks.
China’s Central bank is now one of the top 10 shareholders in the biggest, most well-known Shanghai stocks.
U.S. Federal Reserve Chair Janet Yellen recently said, “There could be benefits to allowing the U.S. central bank to buy stocks.”
This unprecedented stock buying by central banks is likely to continue. Per a recent survey by Invesco, 80 percent of central banks plan to purchase even more stocks in 2017.
While central bankers are providing a great deal of demand for stocks, they have a reputation for overdoing their intervention, inadvertently causing inflation or economic recessions. I would caution investors to allocate savings to stocks only with an understanding of the volatility in stock market investments. In addition, investors need to be aware of the potential for inflation should central banks overdo economic stimulation or a recession should they stop their intervention too quickly.
I recommend investors stay diversified and liquid. Consider using index Exchange Traded Funds (ETFs) to improve liquidity and keep your costs down. Get professional advice to help you properly allocate your investment portfolio consistent with your attitude toward risk and investment objectives. Own some physical gold and/or silver as insurance.
I also suggest that everyone start getting familiar with Bitcoin, other crypto-currencies and the concepts of blockchain technology. Blockchain technology is what Bitcoin and other crypto-currencies are based on. Go to YouTube.com and search these subjects, many educational videos are available there.
Vern Sumnicht is founder and CEO of iSectors and Sumnicht & Associates, both in Appleton.