Don’t be fooled by the central bank’s ability to reflate the intangible financial economy and recover from a crash. If a crash occurs in financial assets then rhetorically speaking one can allege that prices are somehow unknowable or shrouded in an undiscoverable mystery so it’s somehow OK for central banks and governments to manipulate markets and artificially prop up asset prices. When stocks, bonds, real estate, and banks collapse, the central bank can print money and buy these assets at artificially high prices while the government and legislature can decree that “mark to market” accounting is suspended and that people must use the high water mark for valuation purposes.  This ability to create a miraculous “recovery” has fooled investors into thinking there is no downside risk to speculation, thus encouraging morale hazard that leads to even worse risk taking, which wastes resources, making society poorer, which in turn, eventually leads to deeper crashes.
The great danger is that people incorrectly leap to the conclusion that if central banks can “fix” a financial asset crash then they can also fix a “real world” crash where non-financial companies are unable to sell goods and are forced to liquidate. If non-financial operating companies are unable to make a profit then no amount of inflation of the price of financial assets will overcome that problem. Additionally, artificially low interest rates create deflationary conditions for those who are retired and for working age people who are planning ahead and saving for retirement. As they become discouraged by negative rates they realize they are actually poorer, on a risk-adjusted basis, and thus cut back on consumption and consumer confidence.
If central banks prop up stock prices to absurd heights, while the operating P & L of companies decline and fail and the companies liquidate, that won’t stop a recession. Eventually people will wake up and lose faith in central banking and in the government’s ability to cure a recession. If so then we will experience a replication of the 19th century era when there were several long lasting, deep crashes. In such an environment the risks of stocks became more apparent, resulting in a higher risk premium (thus lower stock prices).
Capitalism flourishes when property rights, including protection from governmental violations of rights, are protected. A property right includes being able to save money in a currency that is stable compared to other currencies, that doesn’t have confiscatory negative yields, etc. When these rights are taken away capital flees, and risk premiums rise to “shutdown” levels where the economy becomes disfunctional. Central banks are encroaching on property rights with ever-more bolder attempts to provoke savers to abandon saving and engage in reckless consumption in hope of stimulating the economy.
The optimal level of intervention by central banks should be a modest and relatively stable amount of interference because excessive, radical interference (such as negative interest rates) disrupts the plans of business and consumers, leading to a higher risk premium, thus lowering intrinsic stock and real estate values. A stepped-up central bank intervention in the form of significantly lower interest rates can act to temporarily counteract these rising risk premiums, but ultimately the market will realize the rising risk premiums contain more information and are more valid than data from manipulated interest rates, and then the market will no longer allow asset prices to be inflated by low interest rates. Thus eventually artificially inflated asset prices bubbles will burst, despite low interest rates.
The central bank of Japan has been using negative interest rates, QE, devaluations, and purchases of stocks, and is unable to make the Nikkei stock index get above 24,270 even though the high was 40,000 in 12-31-1989. That’s a 39% drop after 29 years. (The low point was an 80% drop in 2009). Germany’s bank stocks are no higher than 32 years ago.
Don’t be fooled by central bank manipulation of intangible financial assets. That doesn’t actually fix an economy broken by Secular Stagnation or trade imbalances.
Investors need independent financial advice about investing during the era of central bank excessive manipulation.