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Liquidations Coming: Hedge Fund Margin Debt Surges - Total Free Cash Lowest Since July 2007, Just Prior To Quant Wipe Out

Tyler Durden's picture


The NYSE has released its January margin debt data. Not surprisingly, total margin debt hit a peak of $290 billion, the highest since September 2008, but the one category that shows just how much purchasing is occurring on margin is total Free Credit less Total Margin Debt drops to the lowest since the all time credit bubble peak in July of 2007! At ($45.9 billion) this number is just below the ($52.8) billion last seen just before the August 2007 quant wipe out which blew up Goldman's quant desk, and arguably was the catalyst for the beginning of the end. In other words, as we have shown, everyone is now purchasing on margin and the level of investor net worth is the lowest in over 3 years. Which means that should the market decline from this week persist and the Fed be unable to stop it, the margin calls will start coming in fast and furious, and unwinds in otherwise stable products like gold and silver are increasingly possible as hedge funds proceed to outright liquidations.


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Thu, 02/24/2011 - 12:59 | 993535 tellsometruth
tellsometruth's picture

nice another good oppurtunity to buy some PM

Thu, 02/24/2011 - 13:03 | 993561 unwashedmass
unwashedmass's picture

well, this will give us all a good look at how much power JPM has over the government and Ben...

their tits are in the wringer over the gold/silver situation at the Comex....

so, crash the market, force the hedge funds to liquidate and dig JPM out over at the Comex.....

what do we think?

Thu, 02/24/2011 - 13:32 | 993577 Sean7k
Sean7k's picture

Easy profits on the OI and Blythe needs them. Win-Win.

Anyone else notice that Blythe has less money to spend on gold than silver the last three days?

Thu, 02/24/2011 - 15:07 | 994093 The Fonz
The Fonz's picture

I have noticed something is different. I have watched gold and silver closely for the last few months and when there is a raid it is perfectly coordinated most of the time. When silver bombs down rapidly so will gold at the very same moment. The last three days though silver is being hit hard separately from gold. Also silver seems to be much more volatile than what is normal for it. Unfortunatly I am starting to consider seriously that the market crash will be in march to drive money to treasuries and provide enough liquidation for JPM to get out of their shorts at a profit. 

Though I am a bit confused, I had been considering for some time that the govt was just going to forgive JPM for their shorts and arrange for them to be wiped from the slate. I don't see much point in crashing the market to get JPM out if you intend to simply give them a get out of jail free card.

Thu, 02/24/2011 - 13:21 | 993652 famousamos
famousamos's picture

So we're down big three days in a row... What have the POMO #'s been for the last three days? Just curious. I guess the wankin' f'ing bankers will blame Libya for the selloff if it continues. And if we get the sell off and the deflation, the Bernak can say "See, I told you 'the deflation' was a real threat, and we tried to avert another crisis - it's all this austerity talk. Need to raise the debt ceiling immediately and commence QE3." plus it bails out JPM, plus since all the banks know about it, they will make money on the way down.  I can see a selloff happening - sure.

Thu, 02/24/2011 - 13:35 | 993715 famousamos
famousamos's picture

Should have said "coordinated sell off". If the Feds ever want to nationalize 401k's, they will need another crash to convince everyone. It's a lot of money just sitting out there, and I realize nationalizing 401k's is a little 'out there' and I don't think it's going to happen - BUT they would need a crash in order to float the idea... "Markets unstable... to provide stability of retirements... invest in US treasuries... etc, etc."

Thu, 02/24/2011 - 14:25 | 993903 cxl9
cxl9's picture

Why do you think it isn't going to happen? Can you think of any large pool of wealth that the politicians do not try to get their hands on? Of course they'll seize pensions, sooner or later. Maybe not this year or next year, but eventually they will take them.

Thu, 02/24/2011 - 17:28 | 994779 snowball777
snowball777's picture

Why couldn't they just reference the pain of 2008 without rubbing people's noses in it?

Thu, 02/24/2011 - 23:38 | 995357 Founders Keeper
Founders Keeper's picture

[If the Feds ever want to nationalize 401k's, they will need another crash to convince everyone.]---famousamos

Thanks for your post, amos.

IMO, government confiscation of all private and public retirement plans (pensions, 401k, IRAs, etc.) is a lock.

I'm not just shooting off at the mouth, here. This is serious business. I liquidated my retirement savings back in 2008 and 2009. Paid the hefty early distribution penalty and subsequent taxable income. Now my IRA is truly an "individual" retirement account. Worth every penalty penny.

Confiscation plans have already been drawn up and awaiting the right moment, as you said---a moment when people feel their security is more important than their liberty.


Thu, 02/24/2011 - 13:37 | 993720 Nepenthe
Nepenthe's picture

POMO for the 4 day week, planned from $17.5 to $24.5 billion.

Thu, 02/24/2011 - 14:05 | 993832 eurusdog
eurusdog's picture

29 billion  7 year 2.835% - Treasury Notes. Is this what you were looking for?

Thu, 02/24/2011 - 13:29 | 993686 flattrader
flattrader's picture

I think you are dead-on.

They can't afford to let another big investment bank blow-up.

I can't help thinking that there's a controlled demolition underway anyhow and Uncle Benny is running around trying to pull the fuses out of the charges.

Thu, 02/24/2011 - 14:03 | 993826 Just Observing
Just Observing's picture

Don't know about WE, but I think you're right on the money.

Thu, 02/24/2011 - 13:05 | 993570 flattrader
flattrader's picture

Thinking the same thing myself.

In a big down draft everything gets sold.

And I'll be buying physical silver.

Thu, 02/24/2011 - 13:07 | 993585 johnQpublic
johnQpublic's picture



Thu, 02/24/2011 - 14:03 | 993827 Sausagemaker
Sausagemaker's picture

I'd like to propose a new acronymn: "B(PMs)TFD"


Thu, 02/24/2011 - 17:29 | 994785 snowball777
snowball777's picture


Thu, 02/24/2011 - 13:09 | 993595 unwashedmass
unwashedmass's picture

me too, by the bucketload

Thu, 02/24/2011 - 13:24 | 993669 flattrader
flattrader's picture

I keep hearing "Midnight Rider" in my head.

Well, I've got to run to keep from hidin',
And I'm bound to keep on ridin'.
And I've got one more silver dollar,
But I'm not gonna let 'em catch me, no,
Not gonna let 'em catch the Midnight Rider.


Thu, 02/24/2011 - 17:29 | 994789 snowball777
snowball777's picture

From who? Inventories have been gettin' skimpy around the globe, que no?

Thu, 02/24/2011 - 14:07 | 993841 Math Man
Math Man's picture

Actually, the hedge funds are so levered long to PMs that you'll see a collapse in those too.


How quickly we forget what happened to PMs when Lehman went under.

Thu, 02/24/2011 - 17:43 | 994831 pitz
pitz's picture

Long PM's, but short mining stocks?  Pretty hard to sit back here and believe that the market isn't screwed when good quality stocks like ABX go down or stay flat when the prices of PM's double.



Thu, 02/24/2011 - 12:59 | 993537 gwar5
gwar5's picture

"There's no place for fiat to go but gold" -- Alan Greenspan.

Things always seem to keep circling back to PM's and "real money" for some reason.

Thu, 02/24/2011 - 13:01 | 993540 plocequ1
plocequ1's picture

I am Elmer J. Fudd, Taxpayer.

Thu, 02/24/2011 - 19:42 | 995185 snowball777
snowball777's picture

My condolences on your recent loss.

Thu, 02/24/2011 - 13:03 | 993557 ZeroPower
ZeroPower's picture

Funds "don't want to be under-invested" and, consequently, the more their AUM goes up, the more they tag on leverage for extra alpha.

It'll keep working, until it doesn't.

This is not however the fall you are looking for.


Thu, 02/24/2011 - 13:31 | 993658 AccreditedEYE
AccreditedEYE's picture

I keep hearing "5% correction" tossed around, and after that BTFD. Funny thing is, when everyone is looking for the same outcome, the market rips out everyone's throat.

They can't break pension/retirement promises, have western nations sovereign debt defaultacross the board and initiate a world currency WITHOUT world markets in a massive crisis. It's coming soon.

Thu, 02/24/2011 - 13:33 | 993707 ZeroPower
ZeroPower's picture

Depends what you mean by soon.

Soon = ~ every 10 years , '87, '99, '08

I dont see the apocalypse happening in 2012, if thats what you mean by 'it' and 'soon'.

Thu, 02/24/2011 - 14:00 | 993816 AccreditedEYE
AccreditedEYE's picture

You could be right, but they are running out of options. QE3 will destroy interest rates, which will push defaults around the world, which destroys the banking cabal and equities in general. If Fed "manufactured" economic growth continues, commodity prices continue to surge and crush consumer spending and profit margins. Which way out? I don't see one.  

Thu, 02/24/2011 - 13:03 | 993558 Misean
Misean's picture

We have BTFD-HFT's now. This won't be a problem.

Thu, 02/24/2011 - 13:09 | 993592 tellsometruth
tellsometruth's picture

further diviergence from paper vs phys price?

Thu, 02/24/2011 - 13:03 | 993566 Scottj88
Scottj88's picture

This is why you buy physical for everything, and when you do buy stocks, buy them in cash...

At least for the average investor...

I believe that silver miners will do very nicely in the future, as stocks such as Great Panther (GPL) show the way for many other miners very soon I would imagine... especially as the US Dollar is devalued...

Thu, 02/24/2011 - 13:11 | 993606 unwashedmass
unwashedmass's picture


god, i love great panther. had some a year or so back and made some money,

and then, i remembered them about a month ago and bought a few thousand shares when silver really started to rocket.

its now my favorite stock.....nothing like booking 5K in a little under three weeks. for something you barely noticed.

Thu, 02/24/2011 - 13:05 | 993573 LawsofPhysics
LawsofPhysics's picture

All part of the plan for banks to recover gold and silver at lower prices. 


hedge accordingly (ironic isn't it)

Thu, 02/24/2011 - 13:09 | 993593 Sean7k
Sean7k's picture

Only works if people think you have it. That is being questioned right now. This could drive a huge divergence spike between physical and paper. 

Thu, 02/24/2011 - 13:19 | 993645 LawsofPhysics
LawsofPhysics's picture

Agree.  Polishing the silver now.

Thu, 02/24/2011 - 13:08 | 993581 gordengeko
gordengeko's picture

TD, so you think this is to get the large, long paper positions in gold/silver to unwind so they can get the physical price down to help them with their short positions for the March deliveries set to expire here shortly?  Somehow I'm not buying into the fact silver/gold will drop in the next few weeks.  With the amount of physical being taken off the market already, if the price fell back to 30-31 there would be a huge amount of physical orders flooding the non-existent market.  No?

Thu, 02/24/2011 - 13:12 | 993604 Tyler Durden
Tyler Durden's picture

Merely a question of eligible collateral (which gold now is). Funds have no cash....Or the lowest cash they have had since 2007. What else will they pledge?

Thu, 02/24/2011 - 13:16 | 993628 gordengeko
gordengeko's picture


Well, it's going to be an interesting ride for the next few weeks.

Thu, 02/24/2011 - 13:27 | 993679 treemagnet
treemagnet's picture

the grease that'll really get it rolling is the lack of shorts to support the fall

Thu, 02/24/2011 - 13:38 | 993734 gordengeko
gordengeko's picture

With the amount of people that know this is all bullshit (thanks to the likes of people such as ZH, Max and Sprott), there is only one way for silver to go. 

Thu, 02/24/2011 - 13:47 | 993772 Chicken_Little
Chicken_Little's picture

All the old Bear shorts were backed by the Fed when JPM took it over and made it a bigger bank to fail. When Comex defaults this year in silver, I bet somehow JPM, GS, DB, and HSBC are long. Get physical people!!

Thu, 02/24/2011 - 13:18 | 993644 tellsometruth
tellsometruth's picture

first born male child?  You can't print more but you can make'em...

but great point TD...anyone have some other idea's?

Thu, 02/24/2011 - 19:46 | 995195 snowball777
snowball777's picture

You can't make multiple 1st-born without multiple wives. How much alimony are you planning on shelling out?

Thu, 02/24/2011 - 13:15 | 993622 tellsometruth
tellsometruth's picture

i'm thinking there be too much excitment w/ short squeeze and backwardation so well known...but hey wtf do i know

Thu, 02/24/2011 - 13:51 | 993788 koot
koot's picture

Correct.  Just look at todays action between NEM and CEF.  One a large producing miner the other a bullion vault with certified audit.

Thu, 02/24/2011 - 13:10 | 993589 Jerry Maguire
Jerry Maguire's picture

It's more fun to read about the bankster bailouts and the failure of the media to report important news, isn't it?

I mean, we know the liquidations will be coming fast and furious as this whole thing goes down the tubes, right?


Thu, 02/24/2011 - 13:17 | 993633 TruthInSunshine
TruthInSunshine's picture

This is not only a fair question, but a question of paramount importance, and yes, TD should address it.

I read your thoughts and they were very concisely and rationally presented.


Thu, 02/24/2011 - 13:30 | 993693 koot
koot's picture

Makes one wonder whats in the minds of those supposedly in control of the Central banks and their operatives.  Something tells me they are not synchronized or in agreement and either looking for or waiting for leadership which has not nor likely will come.  Hate and avarice fill their minds to be sure.

Thu, 02/24/2011 - 13:09 | 993590 Cult_of_Reason
Cult_of_Reason's picture

This market is begging to be shorted.

Here is a potential short trade (wait for them to report earnings early next week -- the expectations are high to the moon, but good probability they will disappoint.)

Head & Shoulders -- Heavy Overhead Resistance

There is too much of heavy overhead resistance (limited upside).

1. Heavy overhead resistance at $20.50-20.65

2. Heavy overhead resistance at ~$21 (shoulders area of the bearish head and shoulders)

3. Heavy overhead resistance at ~$23 (head area of the bearish head and shoulders)

And if TIE breaks down below the head and shoulders neckline of $16.50, look out below...

Thu, 02/24/2011 - 13:38 | 993727 topcallingtroll
topcallingtroll's picture

If you dont have option or margin privileges on your account (like an ira account) but you want to short the market try spxu, the triple short S&P 500 etf.. It gives you just enough leverage for some excitement. Heck max out your credit cards. That is poor man's margin. Tell your wife or significant other an anonymous troll told you to do it.

Thu, 02/24/2011 - 13:10 | 993599 Terminus C
Terminus C's picture

My bullion dealer is still buying over silver spot.

The spread between bid and ask has shrunk by over $2 from two weeks ago.

Thu, 02/24/2011 - 13:14 | 993620 Sean7k
Sean7k's picture

Tulving monster box buy sell is .50. Someone thinks silver is going higher.

Thu, 02/24/2011 - 13:12 | 993611 buzzsaw99
buzzsaw99's picture

Negative net worth is no biggie, everyone is under water these days. the bernank will lend out another $280B. Rally time!

Thu, 02/24/2011 - 13:12 | 993612 RobotTrader
RobotTrader's picture

PM stocks now getting thrown out the window along with everything else.

Nasdaq, however, is showing relative strength at the moment.

Thu, 02/24/2011 - 13:39 | 993735 lieutenantjohnchard
lieutenantjohnchard's picture

ever notice how the old catfish mouth robo uber bull bear wannabe conveniently fails to follow up on his investing thesis of the nanosecond.

remember when he told us the consumer was back with the zlc chart. check it out. or general motors. check it out. or west texas intermediate proving that inflation was under control. check it out. or silver and gold. check them out.

btw: are we fighting the fed city hall today or not?


Thu, 02/24/2011 - 13:15 | 993624 falak pema
falak pema's picture

What's copper doing. There's tons of it in China where a lot of HF are involved.

Thu, 02/24/2011 - 13:19 | 993641 TruthInSunshine
TruthInSunshine's picture

Bernanke isn't losing control.

He's already lost control.

The first, solid proof is starting to roll in.

When the majority realize it, there will be blood.

Thu, 02/24/2011 - 13:20 | 993647 FoieGras
FoieGras's picture

Liquidations don't increase after a mere 4% market decline. Follow up on this post once the S&P drops sub 1000, then the margin clerks will be busy.

Thu, 02/24/2011 - 13:20 | 993650 firstdivision
firstdivision's picture

Hey look at the magical 1300 bounce, same time as yesterday.  Are the PD's trying to just scare the Fed into QE3 but not allow a drop big enough to scare retail (what's left of retail)?

Thu, 02/24/2011 - 13:28 | 993671 Caviar Emptor
Caviar Emptor's picture

NYSE market cap and Wilshire total market index as a percent of GDP are both above the level where Allan Greenspan gave his "Irrational Exuberance" speech in 1996. And that's above the 1929 peak market valuation. And closing on the dot com all-time dizzy peak.

It's pretty simple market physics: The more free money is available, the more sophomoric the allocation of such money. Classic malinvestment lessons that this country will repeat over and over until it's really over. Why spend money building quality cars or fuel efficient engines when you can dress like Lady Gaga? 

Thu, 02/24/2011 - 13:27 | 993673 barliman
barliman's picture

Passed this along to F&F yesterday as a tipoff on Fed intentions:

Why Stocks Just Tanked (It's Not Just Libya)

Remember Timmeh said the could deal with high oil prices ...

and Tyler's predictions about another flash crash to seal the QE to Infinity & Beyond deal.

The sad part is that Ben still thinks HE is in control.


Thu, 02/24/2011 - 13:41 | 993747 plocequ1
plocequ1's picture

JMHO, There was  a time when Denninger, Schiff and i believe Tyler said there will come the moment where all the QE in the world will not work. This could be that moment.

Thu, 02/24/2011 - 13:45 | 993761 topcallingtroll
topcallingtroll's picture

Not yet. We are only in the 4th inning.

Thu, 02/24/2011 - 15:21 | 994143 The Fonz
The Fonz's picture

I agree, the end of POMO II only marks the very last moment we might have engineered a soft landing. The commencement of POMO III marks the begining of our inability to live the next few decades as Japan did.  Next up is the U.S. doing something assinine and our creditors explaining we really don't get to do what we want anymore. 

Thu, 02/24/2011 - 13:35 | 993713 Judge Judy Scheinlok
Judge Judy Scheinlok's picture

What it means is; buy this dip and buy it like you mean it.

No black schwan's in sight. The FED will back-stop anything that can put skin in the game. Nothing will fail.

Go for it. Buy this equity dip with conviction and you will thank Judge Judy.

Thu, 02/24/2011 - 13:43 | 993752 topcallingtroll
topcallingtroll's picture

No way.
Sold cds cuz that stuff is too scary, but i am still shorting the market. This suckah is going down! It will be epic. Maybe even 5 percent! A real growler of a bear market.

Thu, 02/24/2011 - 14:14 | 993857 Judge Judy Scheinlok
Judge Judy Scheinlok's picture

Please tell me your exact trade so I can analyze how much I expect you to lose.

Thu, 02/24/2011 - 13:41 | 993746 Clockwork Orange
Clockwork Orange's picture

They are using the POMO to short this week.  They have collected their longs for weeks into Feb OpEx.  Now, they're cleaning them out.  Once they collect enough shorts, they'll POMO long again ... assuming of course Libya does not turn into WW3.

Thu, 02/24/2011 - 13:47 | 993768 apberusdisvet
apberusdisvet's picture

Blythe throwing everything at silver today (probably including her cobwebbed twat), but she can't break $33.  Today's Kitco charts are better than a porn movie starring Money McBags favorite bimbos.

Thu, 02/24/2011 - 14:23 | 993883 tellsometruth
tellsometruth's picture

lol Money McBags loves hoes more than most... loved his libya headline two days back.

Big Flaps in Mid East May Require Libyaplasty


Thu, 02/24/2011 - 13:47 | 993769 koot
koot's picture

I think the important question is, where is this leverage being applied?  The dollar is on the ropes right now, but past moves to give support have not accomplished any long term solutions to the US overall economy or its failing governments when in fact it made things much worse.  These failed attempts have set off geopolitical events which compound problems and confidence declines accelerating the negative feed back loop.

Thu, 02/24/2011 - 13:51 | 993787 themosmitsos
themosmitsos's picture

Tyler I think that with debt-ceiling raise & QE3 just around corner, a big liquidation is unlikely, PMs will be *aggressively* bought on any real dips imo. But, I find your suggestion of forced liquidations very intriguing, as I do believe the S&P crashes. But, I've thought that since 1180 :(

Thu, 02/24/2011 - 14:38 | 993794 TruthInSunshine
TruthInSunshine's picture

QEueffing isn't working anymore.

That raises the whole point of how the market needs to be 'free,' eventually.

Bagholders will reap the catastrophic economic and monetary policy effects The Bernanke has sewn.

Thu, 02/24/2011 - 14:13 | 993852 6 String
6 String's picture

On a collateral pledge, ala 2008/2009 when the PM's went down too, shorting the most over-valued asset class--and perhaps the most sustepable to high oil prices--the Russell 2000 against PM's might be a good position.

Thu, 02/24/2011 - 14:32 | 993930 yipcarl
yipcarl's picture

Umm POMO?  It's all out the window. 

Thu, 02/24/2011 - 14:42 | 993965 MrBoompi
MrBoompi's picture

If Fed "manufactured" economic growth continues, commodity prices continue to surge and crush consumer spending and profit margins. Which way out? I don't see one.
There's always a way out. It's called war.

Thu, 02/24/2011 - 15:06 | 994084 TruthInSunshine
TruthInSunshine's picture


The only problem we have now is that our conventional forces are horribly overstretched and very worn, as they've been fighting two ridiculous wars, for fabricated reasons, for a decade now.

So that leaves "I'll take unconventional weapons for $2,000, Alex."

Thu, 02/24/2011 - 15:04 | 994061 JonTurk
JonTurk's picture

"the margin calls will start coming in fast and furious, and unwinds in otherwise stable products like gold and silver are increasingly possible as hedge funds proceed to outright liquidations"


should see dollar strength for that..


Thu, 02/24/2011 - 15:33 | 994212 10kby2k
10kby2k's picture

One big fucking game of chicken!

Do NOT follow this link or you will be banned from the site!