Recently in the FT Rick Rieder, a BlackRock executive, called for the ECB to begin purchasing equities as part of its QE program, sparking new debates around the invasiveness of Central Banks. He was accused outright of a conflict of interest, though, because he’d probably benefit from the idea. Others point out that such equity purchases distort price signals and the ‘invisible hand’, and won’t do much to fix the structural issues at play in the Eurozone. In this blog piece, Roger Farmer offers some support for Rieder. He argues that while asset markets do well at allocating capital across industries, they are inefficient when it comes to allocating it across time. Plenty of theoretical and empirical research documents the usefulness of a policy tool that controls the share prices of a European index fund. Farmer suggests it as a complement to the conventional interest rate tweaks.
Why does this matter? So far, much of the debate around ECB policy has revolved around further QE or deeper rate cuts into negative territory, but it could make sense to try something different like buying equities. Moreover, the BoJ has already done it and it could also boost efforts to create a capital union in the EU.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)
For full access to Macro Hive's insights produced by some of the most experienced researchers in the market today