Today seems like an opportune time to remind readers that as of March, margin debt, and specifically net leverage, were at near all time highs. Surely, selling off from a market that has more leverage now than almost ever, will lead to a perfectly orderly unwind.
The NYSE has released its monthly margin debt update for March. Not surprisingly, with everyone, and yes EVERYONE,
chasing nothing but levered beta, margin debt surged to a fresh 3 year
high at $315.7 billion, the highest since February 2008. But far more
troubling is that when netting out positive margin balances such as Free
Credit Cash Accounts and Credit Balances in Margin Accounts, the
investor net worth, or alternatively net leverage, as it is defined,
plunged by $18.2 billion to ($75.2) billion. This is the second highest net leverage ever seen on on the NYSE, only
lower compared to the $79 billion hit at the absolute peak of the
credit bubble in June 2007. We all know what followed after. Ironically,
when this kind of mass hysteria happens in commodities the CME can't
wait to hike margins to cool those evil, evil speculators. It is only
natural that the Globex will hike ES margins in 5....4....3.....