Invest in equities – you can’t lose!

Moorad Choudhry
The Dow closes over 15,000 for first time on May 7, 2013.
Getty Images

We should caveat this exhortation. One can't lose, provided one gets the timing right.

This week's record highs in the Dow and the are based on one thing, and one thing only: the belief that the U.S. Federal Reserve will keep the money printing going for "years to come", as The New York Times quoted.

It's a win-win for equity investors: if markets go up, they gain. And if markets go down, well then the central banks, led by the Fed, will loosen the liquidity taps still further and markets will go back up again. One can't lose!

(Read more: Is the fed really driving up stock prices)

One would be right to wonder if this is just another asset bubble building. At the turn of the century and for sometime after, the Fed maintained a loose money policy (in the form of low interest rates) partly in response to millennium bug fears.

That didn't transpire, but no-one now argues against the charge that the persistently low Fed rate was a causal factor of the crash. Is this happening again?

Fortunes can be made in the equity market before the next crash, of that there is no doubt. Hence there commendation at the top of this article may not, in fact, be all that bad. But this isn't a column on personal finance, it's meant to be one on macroeconomics and labor markets. At least that's what I tell myself!

And here is the problem. Central banks appear to be dangerously close to making the public sector the semi-permanent underwriter of the private sector. It is even entering the lexicon of their public pronouncements. What else to make of BoE Governor Mark Carney's statement that the Bank of England is "open for business"?

(Read more: Has the UK become the 'number 1' place to start a business?)

For the time being, one can't lose. But this is not a permanent solution for stagnant economies. Far from it. Unless we decide that the role of central banks has changed, and is no longer one of striving for price stability, but rather to support the private sector will guarantees of unlimited liquidity.

That is not necessarily a bad thing. But it is difficult to see how it is sustainable over the long term, essentially because the public sector doesn't produce output of matching value to the private sector.

Short of central banks operating currency boards, or more unfeasibly still, returning to the gold standard, it simply can't. And yet that's what stock markets are rising on today, the assumed long-run backing of the public sector. The longer this goes on, the more painful it will be to withdraw this backing.

Buy now while stocks last, it would seem.

(Read more: Global equities to rally another 13 percent by end-2014: Citi)

Professor Moorad Choudhry is at the Department of Mathematical Sciences, Brunel University and author of The Principles of Banking (John Wiley & Sons 2012).