ZeroHedge has an interesting post relaying an FT report that central banks and other government institutions around the world have invested $29.1 trillion in market investments such as equities and gold. The ZeroHedge article then gives this interesting chart:
Analysts who reject “conspiracy theories” might tell a plausible story about the above chart along the lines of, “As the conventional outlook on economic growth slipped, central banks around the world announced more aggressive measures to boost growth. This showed investors that central bankers were less worried about [price] inflation, and so investors revised their long-term forecasts to include stronger real growth as well as higher [price] inflation. The result was higher spot prices of stocks.”
Yet notice that even this type of “non-conspiracy” explanation still shows that global stock markets are rising because of central bank policy, not because of a healthy economy. Anybody who comes to the table with the idea that printing money doesn’t generate lasting prosperity should conclude that the stock market is overvalued.
Does that mean it will crash next Tuesday? Of course not; if it did imply that the market would crash next Tuesday, then people would try to get out beforehand and the market already would have crashed (and our heads would explode because I just contradicted my premise).
The “rational expectations” worldview keeps you honest, as it were, but it doesn’t actually mean the guys at ZeroHedge (or here at this blog) are wrong when we say, the stock market is very vulnerable.