On Thursday (26th October), Mario Draghi outlined the ongoing monetary easing that the European Central Bank (ECB) will provide to the European economy. He announced that the ECB will buy assets at a rate of €30bn per month in the first nine months of 2018 (at least) which is a reduction from the current pace of €60bn per month.
Another, and perhaps not so tendentiously related, event also occurred yesterday. A Rolex watch that had been owned by the actor Paul Newman made the highest price ever achieved for any watch at auction. You were too polite to ask, but the watch was sold for $17,752,500. No guarantee is made to its time-keeping.
Mario Draghi, as far as we are aware, did not buy the watch. However, he and other global central bankers are involved in the process which has resulted in the present elevated level of asset prices.
The size of global central bank balance sheets is around $20trn, an increase of $15trn over the past 10 years.
In the first instance, central banks bought government bonds, then they bought corporate bonds and mortgage backed bonds, and the Bank of Japan has also bought equities.
For the sellers of those assets the money has to go somewhere. Cash isn’t an option as low or negative interest rates are the norm. The move into riskier assets and out of monetary assets into real assets has driven many markets to all-time-high levels.
So how does Leonardo relate to all this? A re-discovered Leonardo painting will be offered at Christies New York on November 15. The painting had a hard life and suffered from unsympathetic restoration over the years. As such it was not considered an original. It sold at auction in 1958 for £45 and then re-surfaced in the US where it was sold as a Leonardo copy in 2005 for $10,000. The estimate in the upcoming sale is around $100mn.
Sounds like a lot? It is a lot. However, at that price it would not make it into the top 10 prices paid for a work of art in the past ten years.
QE – the money finishes up somewhere.