Happy Halloween! It’s banks rig-the-market week

It has become a Halloween ritual. A year ago, the Federal Reserve ended its quantitative easing bond-buying scheme, which started in 2008 and ballooned its balance by $3.5 trillion. In response, world equity markets, which had been volatile all month in anticipation of the end of QE3, continued to fall. 

Some 48 hours after the Fed’s announcement to end its money pumping scheme, in a tightly coordinated central bank maneuver, the Bank of Japan showered the sagging markets with a heavy dose of monetary candy.

The headline on CNN Money read: “Money Halloween treat: Record stock market close…Who needs candy on Halloween when the stock market is giving out such big treats.”

Here’s how CNN summed up the news on Halloween, 2014:

“Those who stayed in the market despite the turmoil earlier in the month are having an extra Happy Halloween … .

Like the house that gives out the giant candy bars to trick-or-treaters, the Bank of Japan gave the market an extra large boost Friday by announcing additional stimulus measures. The move was unexpected, and markets around the world are surging on the news.”

New Year, Same Game

Tuesday the Dow closed at 17,581, basically where it was last year when it was infused with “candy on Halloween.” And now, with expectations that the Federal Reserve will maintain its Zero Interest Rate Policy for at least another month, the market mood remains subdued. 

However, it’s “candy” time, and there are more central bank announcements building on the recently announced ones.

Just last week, for example, the European Central Bank signaled it’s ready to ramp up its 1 trillion euro quantitative easing program, and possibly deploy a negative deposit rate policy come December. 

Twenty-four hours later, the Peoples Bank of China’s cut interest rates for the sixth time since last November, and again lowered the amount of cash banks must hold as reserves.

Over the weekend, Bank of England Governor Mark Carney, and Swiss National Bank Vice Chairman Fritz Zurbruegg, both wrote opinion pieces signaling that their banks would respond as needed to market turmoil and economic uncertainty.

And now, with Japan in recession despite two rounds of “Abenomics” – massive monetary stimulus and increased government spending – expectations are high that the Bank of Japan will announce at the end of the week, as it did last Halloween, another round of Abenomics. 

Trend Forecast: Capitalism is dead. It has been replaced by Bankism, one of our Top Trends for 2015. The principles of free market economics, price discovery and fiscal discipline have been replaced by central bank policies that artificially pump up failed economies and equity markets with cheap money rather than let them take their natural course. Bankism policy has created a global debt bubble estimated at $225 trillion. When it bursts and economic chaos prevails, gold, we forecast, will emerge as a safe haven asset.

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