Dumb—and Dumber—Money Keeps Pouring In

The comments above & below is an edited and abridged synopsis of an article by John Rubino

Someday, stock, bond and real estate valuations will matter again. The mechanism by which this return to sanity is achieved will probably be the torrent of money now flowing in from people who, for various reasons, don’t care about (or understand) the prices they’re paying.

Millennials, for instance, may have reached the ‘beginners’ mistakes’ phase of their financial lives. They’re major buyers of recreational vehicles and are now opening stock brokerage accounts at a startling pace.

Investors are borrowing money against existing stock portfolios to buy more shares. Meanwhile, corporations continue to buy up their own shares even as market averages break records. The previous record for corporate share repurchases occurred about a year before stock prices fell off a cliff.

But the dumbest money is not in the private sector. It’s sitting around central bank conference tables making clueless bets on equities with taxpayer (make-believe) money, and the Bank of Japan is leading the way.

Last month, Bank of Japan Governor Haruhiko Kuroda told reporters that it is ‘possible in theory’ to reduce the BOJ’s ETF purchases before inflation reaches the target. But it was ‘generally unthinkable’ that the BOJ would remove a part of its easing program, and it had no intention of treating ETF purchases differently from other elements of the program.

This is happening with most major equity indexes at or near record levels; that is, levels that have in the past preceded huge crashes. Which is how these guys came to be known as dumb money.