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.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
tellsometruth's picture

nice another good oppurtunity to buy some PM

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?

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?

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.

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.

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."

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.

snowball777's picture

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

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.


Nepenthe's picture

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

eurusdog's picture

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

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.

Just Observing's picture

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

flattrader's picture

Thinking the same thing myself.

In a big down draft everything gets sold.

And I'll be buying physical silver.

Sausagemaker's picture

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


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.


snowball777's picture

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

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.

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.



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.

plocequ1's picture

I am Elmer J. Fudd, Taxpayer.

snowball777's picture

My condolences on your recent loss.

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.


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.

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'.

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.  

Misean's picture

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

tellsometruth's picture

further diviergence from paper vs phys price?

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...

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.

LawsofPhysics's picture

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


hedge accordingly (ironic isn't it)

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. 

LawsofPhysics's picture

Agree.  Polishing the silver now.

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?

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?

treemagnet's picture

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

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. 

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!!

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?

snowball777's picture

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

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

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.

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?


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.


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.

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...