Everyone Is Chasing Levered Beta: NYSE Reports Third Highest Net Margin Debt Amount Ever

Tyler Durden's picture

Confirming just how leveraged hedge funds and general investors were exiting February is the latest margin debt data from the NYSE, which indicates that the recent trend of pursuing beta on ever increasing margin continues.Total margin debt jumped by a whopping $21 billion from $289.6 billion to $310.3 billion, the highest it has been since July of 2008. It should, however, be kept in mind that this is a gross leverage number. To get the far more accurate net number, one needs subtract the margin debt from Free Credit Cash Accounts and Credit Balances in Margin Accounts, or in other words, the "net worth" of the investor (the less the supporting cash, the lower the "capitalization ratio" of the speculator). And here things get very concerning. The Net Free Credit (or net margin debt depending on whether one puts the + or - sign in front), calculated as Total Free Credit less Total Margin Debt jumped from ($46) billion to a massive ($57) billion. This is the third lowest net worth reading ever reported by the NYSE. Only the ($67.8) billion in May 2007 and ($79) billion in June 2007 are worse, and confirm that everyone is levered to the gills at virtually the same level as when the market was at its all time highs. We all know what happened next.

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Mercury's picture

And what percentage of that net number is made up of primary dealer funds generated by participation in the Fed's print-POMO-flip campaign I wonder?

101 years and counting's picture

Looks like all gains since Sept have been built on  increasing leverage and shorts covering.  POMO money doesn't touch equities.  The PERCEPTION that POMO is a put under equities encourages this kind of risk taking.  When there is a REAL CORRECTION, there will be no shorts to cover (buying equities) when the leverage gets wiped out.

Mercury's picture

Well, we know POMO money touches equities directly in Japan (the central bank buys ETFs) so, its in the Keynesian playbook. 

YouBetYourLife's picture

Good thing the windows in most Wall Street buildings now are the kind that can't be opened, because when the real correction comes, folks are going to want to jump, like they did in '29.

Guess they could take the stairs to the roof, though. 

jkruffin's picture

Actually, I used to work at the Nuclear Regulatory Commission Headquarters in Rockville, MD which has one 21 story building and one 11 story building and the roof doors were padlocked, and so were the hatches.  Only way to get them open was to call security to open the doors and you had to radio them whenever you went out onto the roof to work.

But having said that, they did have a security guard jump off there one time many years ago. Which resulted in the padlocks, so its not a fail proof system by any means.

Manthong's picture

I'd like to see that chart done for a snapshot of the same thing across '27 - '30.

kaiserhoff's picture

What's more fungible than money?  Got Priceline?

jkruffin's picture

The nuclear financial bomb is just waiting to explode....what's in your wallet?  Hopefully, not stocks....

kridkrid's picture

but it all depends on QE3, no?  It just needs to be bigger and badder than QE2... and their hands are tied, no... they eventually have to do it.  Tea Partiers will make an issue of QE3... it will be delayed... markets will crash... fingers will be pointed... Krugman will say that he was right... QE3 will ramp the sucker back up. 

Mercury's picture

When it starts happening to daily necessities instead of just publicly traded equities it will become obvious that daily price appreciation isn't synonymous with a good investment.

Cdad's picture

When the equity market perpetually rewards the dumbest trader in the room, the idiot that rushes long into the futures market as the closing bell rings...it is no longer a market.  It is officially a Ponzi scheme.

It is pretty simple.  It does not take a criminal syndicate Wall Street banker to understand this.  And Ponzi schemes eventually go...well, to put it in terms that a folks understand...they go Madoff.

Hello....are they any stupid bankers out there that secretly follow ZH that would like to argue this point? Please respond.  Calling Jim Rohr...Jamie Dimon...Beuller....Beuller...

hamurobby's picture

Sorry, they are too busy trying to cheerlead retail back in.

Fool me once shame on you, fool me twice, shame on me.

TruthInSunshine's picture

When you ride with Bill Margin, you're taking the elevator down. Bill Margin has no time for escalators or stairs.

Tense INDIAN's picture

count in me toooo....trading only Nifty options...haha....

Cdad's picture

Great.  That's just great.  Bulltards...I think that is the word.  The truly dumb money...the criminal syndicate money piling in every single day on the wings of Ben Bernanke's destructive wave of money printing, each syndicate firm certain that they can guess the day when all of that ends...and exit flawlessly.  The soon to be next wave of capital destruction.

I'll say it again...especially on a morning during which the Ministry of Truth [CNBC] treated me to three hours of Jim Rohr, CEO of PNC...yet another 3 hour long infomercial [thanks Becky]...which leads a fellow to one place of thought only........

Fire 100,000 criminal syndicate Wall Street bankers...........please.  Cull the leeches from the pond.  We cannot recover with this same crew in charge, their ranks still far exceeding their ever dwindling market cap representation within our fraudulent markets.  

A paradigm change has occurred...but the syndicate apparently never got the message.  Americans no longer have faith in geeked up bankers playing fraudulent markets on margin.  None of us care anymore about your stupid intraday explanations of why oil is up, or what MENA means for the economy.  You have all been revealed as the idiots in our midst, the thieves that ripped off our mortgage market, the economic spin doctors that have front run and pulled forward every potential future economic transaction for the next decade...or two.

Commence with the layoffs, please.   Our nation needs to heal from all of this, and a much needed culling of morally bankrupt people from this sector is the signal we need to see before we can again consider capital formation and investment.

Chasecran's picture

 My dollars are starting to look a lot nicer.  Keep um coming Benny B. 

falak pema's picture

One interesting point that comes from this graphic, if I understand it correctly, is that we are now close to market top of july 2007...the coming months will tell...but decision for continuing QE-2-->3, will influence that for sure. That is the new thrill of false deal making on WS chimera in 2011, which lacked in 2007 pre-crash scenario!

b_thunder's picture

Total margin debt ($310B) doesn't seem to be too out of whack considering APPL market cap is $320B.


Robslob's picture

Now I know why the banks are NOT extending credit to borrowers....they must be extending credit to themselves? How appropriate....

snowball777's picture

C'mon 7 or 11....baby needs a new pair of shoes.

Robslob's picture

Baby will be lucky to have a can of dried milk to suck on when this is over...

RunningMan's picture

TD - Is there a better way to show the linkage of this to the Fed POMO and PD activity? There was a chart showing the "correlation" of the Fed balance sheet with the S&P and Commodities index,  but it was just a time series not a true regression. I just wonder if it is possible to show more deterministically what the impact will be of a reversal - for example, ending QE or a sudden withdrawal of investors from a specific asset class like Treasuries or equities en masse like October 2008. 

pragmatic hobo's picture

what are the chances of QE3 happening? Last week ZH mentioned something about a leak pointing to QE3 but that was probably a FUD spread ahead of quarter end. Personally I think QE3 will not happen as it will bring home the revolution.

BigJim's picture

Jesus, Tyler. You had me going there for a minute.

$21 billion? $289.6 billion, $310.3 billion, ($46) billion, (57) billion, ($67.8) billion...? It's like when Dr Evil demands... One Million Dollars!

The Bernanke uses that much to wipe himself in the morning.

topcallingtroll's picture

This has got to be a market top here!  Everything is so toppy!  Time for a risk off inflection point.


However if I call a top then it won't happen.

So I'm not calling a top.  Just something to think about

williambanzai7's picture

Can you run the same chart for September 2008? I would but I don't know where to start.

MrSteve's picture

If a ring girl were walking around the canvas inside the ropes with a sign announcing the next round, it would say "15". Can the BankChamp survive?

Pepe's picture

The US stock market: The greatest Casino ever. The house always wins. The world always looses