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NYSE November Margin Debt Rises To Fresh Post-Lehman High
After we recently disclosed that surging NYSE margin debt is the latest indication of record euphoria (which presumably was sufficiently interesting that it made Alan Abelson's latest column), after it hit a post-Lehman high of $269 billion, we are happy to announce that as we expected, November margin credit grew by another $5 billion to $274 billion, which implies that investors continue to purchase stocks increasingly on margin, i.e., on credit, which is fantastic when stocks levitate, but leads to a circular sell off when sell offs generate collateral calls, forcing more sell offs, etc. And looking at net cash, it was flat M/M at ($34) billion meaning that there was no incremental real cash going into cash accounts, and the entire November outperformance was achieved as net cash remained flat, and every incremental point in gains was financed by net crediting. As before, we expect no change to this trend when December data is announced.
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My son is supposed to email me a chart from yahoo finance showing BAC and pimping a price target of $38. He is grounded though and is not allowed to troll this morning.
leave your son alone, he's enough of a loser already having bashed gold all the way to 1400.
Who's the father by the way?
comment deleted
Hey Tyler, but there is no volume.. so where is all that money going ?
PM???
Actually, yes.
Specifically, de-leveraging. People use any spare cash to pay down debt, or purchase commodities (including food and energy) which is going up in price (consuming more of your available income).
Specifically in reference to commodities: If you bought gold, guns, and ammo, or food for your basement, then that money effectively "disappears" because it is not listed in some account somewhere. It is not leveraged. It does not show up on your tax returns. Literally, the person "holding" those things is holding "wealth", but it's off-books wealth that is not leveraged.
So, this activity is deflationary. To the outside observer, the money simply "disappeared".
So when I buy a couch and put it in my basement next to my stash of PMs the money I used to buy the couch disappears? All this time I thought it was going to the retailer that sold me the couch and showing up as part of their bottom line.
Your couch is not leveraged. Similarly, your pile of PMs is not leveraged. If it was cash in some account, it would have been leveraged by the financial institution (whether you wanted to leverage it or not).
The company that sold you the couch could theoretically leverage that cash. However, in reality, it will not: To do so, it would need to increase corporate leverage based on its gross operating income (which increased because you bought your couch from them). In today's environment, it is not possible for any company to legitimately increase its leverage (either because it is not worthy of additional credit, or because it makes no business sense to increase its business credit).
Further, these "holdings" of wealth is a (significant) net drop in money velocity. When you buy PMs, gold, guns, ammo, and food-for-the-basement, you're effectively "removing" that wealth from the economic system: You're removing that future economic activity. While the couch is "consumption" (you are not buying the couch to sell it later), the PMs and food represents future (removed) economic activity: You will eat the food (thus foregoing future food purchases at some level), and you will trade the PMs for something you want later. Effectively, all these activities are "outside the bounds" of the economic system, and will not show up as economic activity.
More significantly, however, none of what is in your basement can be leveraged. Further, because these future economic transactions won't happen, or will happen "outside the bounds" of any possible reporting, those transactions similarly cannot be leveraged.
Most fundamentally, such things signify a "departure" from the economic system.
Lets say that I bought the couch on credit. That creates leverage through fractional reserve banking right?
Yes.
When you pay that back, or default on the loan and they Company performs proper accounting (write-downs), the result would be the opposite (de-leverage).
The assertion is that people are not *expanding* their use of credit. Further, they are *decreasing* their use of credit (through de-leveraging and defaulting). The net result from the consumer segment, then, is deflationary.
The "mess" is that we must now "figure out" if that deflationary activity is sufficiently offset through accounting fraud, Treasury bond issuance, and Fed monetization. In the short run, "no", and in the long run, "yes".
Of course, the "short run" is messy itself. Food and energy is going up, and margins are collapsing (inflationary), but consumers are not spending because they don't have jobs (deflationary).
So the PM dealer creates gold by stuffing dollars into the ground?
The dollars don't disappear when you buy PM's, folks.
They do, in either case resuting from PM (or any commodity) transaction:
Leveraged my couch X 2- cut it in half and now have a 2 piece sectional- it leans about 30 degrees starboard but hey Im kinda used to that considering the economy is totally upside down.
Nice input Mikla
Buying things like PMs decreases money velocity, but I don't agree with your notion of "money destruction" via debt retirement. The reason the FED is printing is to support price levels. Equilibrium price is determined, in aggregate, by the money supply, money velocity and the total supply of "things" that can be bought. Money velocity had been kneecapped by the "great recession" and the total supply of "things" for sale is likely unchanged. Therefore the money supply MUST rise to support prices. Now, money is NEVER destroyed, except irrationally. When money is used to retire debt, it is merely moved from one account to another. The bank created the credit for you, and you, via the efforts of your labor, earned the money with which to repay your creditor. If you are unable to repay the loan, the money is not destroyed; it is tied up in whatever you bought with the bank credit. I'll grant that how we define money is germane to to this disussion, but in a classical sense money is never destroyed.
The assertion is that if, "money is borrowed into existence", then something opposite that occurs during deleveraging.
We probably agree things are a mess, and lots of wild thrashing is occurring. Further, it might be a "devil in the details" issue regarding definition-of-terms, especially since IMHO it's hard to even understand what is relevant. (For example, if you never perform accounting, then are all debits and credits and even the concept of solvency now irrelevant?)
However, when I have-$100K-and-owe-$100K, I am leveraged. When I double that to have-$200K-and-owe-$200K, I similarly have a zero net worth, but have now double the leverage.
When we back down to have-$100K-and-owe-$100K, (from have-$200K-and-owe-$200K), do we want to call that construction/destruction of money or not?
I'm merely asserting the retail investor is exiting the equities market, and converting that cash into non-cash. The net result is de-leveraging, both because the consumer is *not* leveraging as much as before (debt is being retired or defaulted), *and* because the financial institution "managing the consumer accounts" is similarly not able to leverage the balance in the retail investor's accounts. The net result is a massive deleveraging in the economy for that segment represented by the retail investor.
However, as you point out, the slack has been "taken up" by the Fed and Primary Dealers. The Treasury is spending the money the Fed is monetizing, including Bond interest payments and SS/Medicare checks. So, it's a mess, but the retail investor isn't playing anymore.
Because the retail investor is "dumping dollars", the retail investor doesn't have dollars. That means there will be fewer iPads sold next year (on a relative basis). The pile of PMs in the basement represents a "departure from" the market, and cannot easily be converted to iPads next year (PMs have low velocity and high economic friction/inefficiencies according to that which we measure for economic activity).
Yes, the PM-seller has those dollars. However, if the PM-seller is not leveraging, then the result is still a massive de-leveraging.
The nominal dollars-for-PM-transaction is almost irrelevant compared to the collapse in leverage and the drop in velocity, IMHO, since we're talking about better than 100x leverage in the "real" world, and retail investors that merely "left the building".
But, I fundamentally concede the data is so terrible that it's quite impossible to *really* know what is going on.
http://research.stlouisfed.org/fred2/series/MZMV?cid=32242
"PMs have low velocity"
Depends on the situation. In certain environments, a gold coin will have a much higher velocity than a dollar bill, even if it's somewhat less liquid. We are experiencing this currently, actually. Velocity is all about valuation and supply. Dollar velocity is measured as nominal GPD/money stock. Commodity velocity is measured by price (in a currency)/supply of said commodity. Real estate has a pretty shitty velocity, whereas cotton has a pretty excellent velocity.
You don't seem to get it. The PM dealers don't sit on the dollars. They spend them. Buying PMs INCREASES monetary velocity, as does any transaction.
I agree on the second point, though. Paying down debt is deflationary.
You don't seem to get it. The PM dealers don't sit on the dollars. They spend them. Buying PMs INCREASES monetary velocity, as does any transaction.
*LOL*
No, Sir, YOU don't get it.
Are you aware that a woodpecker withstands up to 1200 g's every time it bangs its head against a tree? Like the woodpecker, I imagine you must have some excessively spongy cartilage behind your face that absorbs and redirects the continued impact of you falling on your face daily. That, or you wear a prosthetic beak while posting here.
Not all transactions increase velocity. House flipping increases velocity (housing bubble). Leveraging cash to lend increases velocity (credit bubble). Shorting a currency into a ditch increases velocity (hyperinflation in Zimbabwe). High frequency stock trading increases velocity (stock market bubbles). However, exchanging cash from a leveraged system for gold that is parked as wealth decreases velocity.
The money used to purchase the gold has been taken out of a highly leveraged system, and has been placed - in terms of velocity - at a dead end road. When cash is pulled out of a leveraged system, its multiplier is reduced from 10:1 (or so), to 1:1 (or so...you get the point).
Saw that last night, as well. Page 8 of Barrons.
I wonder why NewsCorp plugged you guys? That information is readily available, yet they made a specific effort to mention you.
lol
Probably the same reason why MSNBC productions like the Ratigan Show, and liberal media like the Huffington Post tend to cite from ZH rather consistently. But you obviously were far beyond making something as trite and trivial as a political partiality allegations...
No. Actually I don't think you guys would ever sell out to one party - that's definitely not your style, and one of the reasons why this site has such value.
But that plug in Barron's seemed suspiciously out of place, to be honest. There it was, in the middle of the article, without any real necessity behind it. Are you the only source for that info? Back in August, when NewsCorp wanted to talk about marginal debt, they simply referenced the NYSE, as everyone has in the past. Certainly Alan can find those NYSE charts, too.
http://online.wsj.com/article/SB1000142405274870344700457544976310861224...
Ratigan posts several editorials here, so it makes sense that he would reference ZH on his show. The other times ZH is mentioned, it is because of very notable stories that you "spearhead" like the Hindenburg Omen, or HFT.
But marginal debt on the NYSE?
My comment was more about NewsCorp, not you guys. When I read it, it made me feel like they were stretching a bit in order to use your name.
Will you let us know when NewsCorp calls and offers you funding? I'm sure your phone will be ringing soon.
Please don't sell. Not even one of those 10% deals.
It's called margin debt, not marginal debt. The meanings are different
That guy hasn't figured out that there really isn't 2 parties yet.
What has the current occupant @ 1600 Penn Ave. done differently?
If he had any balls we would be going back to a metal standard but then his
birthplace would REALLY be questioned, at the very least, right?
Somewhere in Kenya a village is missing it's idiot
Thanks. I know what margin debt is, and I thought marginal debt was the same.
Can you please explain the difference? And don't reference marginal productivity of debt, because that's not what I said.
Are you for real?
I question your reasons for posting here.
No value.
How are you able to fit all those dicks in your mouth? You should call Guinness. It seems like you have an infinite capacity for dick sucking, so long as the person who's dick you are sucking is some sort of authority figure. You do this while somehow simultaneously spitting on anyone you consider to be "beneath" you.
What a douchebag.
This is not the first time that you've taken a conversation and steered it toward homosexual images. Freud and Jung would say it speaks more about you, than me.
If you are wanting to take a shot at me, be witty or clever, rather than gay and lame. Giving everyone a homosexual image to consider is quite peculiar of you, especially since you do it frequently and without an impetus.
If you have repressed homosexual tensions in your subconscious, it's ok. No need to be ashamed, as it's probably not your fault. But rather than sharing those images with us, just work it through with a therapist. Ted Haggart was cured of his repressed homosexual urges in three short weeks.
Poor ol RedNeckRepugnicant...still actually believes there ARE 'parties'!
Tyler, my wish for ZeroHedge, either this week or in the New Year, is to see a detailed analysis of exactly how QE funds are making it into equity markets.
Before anyone prematurely balks or protests that "we've all seen this," we actually haven't in any concrete, irrefutable way.
We've read and heard implications, theories and such, but we've yet to come across a detailed analysis demonstrating or strong supporting how and where the QE are flowing in a method that supports equity levels.
I know that it is suggested that when The Fed buys Treasuries from Primary Dealers ('PD' or 'PDs'), giving the PDs a nice commission in the process (which is completely unecessary), that theory has it that the cash the Fed uses to buy those Treasuries ultimately flows, at least in part, into equity purchases.
My inclination is that this, in fact, is happening, but a detailed analysis would be fantastic if it showed correlation and causality.
The reason you haven't seen a "concrete" explanation of how QE money flows into the stock market is that money is not concrete. Money is fungible.
It's kind of like injecting water into a container and watching water come out at other points, the cause and effect is obvious enough but it's not the same water.
But I would say monetary dynamics are more like the dynamics of gases, able to compress for a while until they burst through a weak point.
Also, it may sound counterintutive, but stocks go up when money flows out of them or through them, not when money flows into them.
Money flows into stocks when net issuance is positive: companies are issuing more new shares than they are buying back. This depresses stock prices.
Money flows out of stocks when net issuance is negative: companies are buying back more shares than they issuing. This lifts stock prices. Negative net issuance was a major factor in this year's stock ramp, as low interest rates incentivized companies to borrow money to buy back shares.
You are probably thinking of a constant volume of stocks being bid up in price. But that doesn't actually absorb any money - the money merely passes through stocks to the sellers. If you have some stocks that you bought for $10 each and I buy them from you for $15 each, that stock is now counted as being worth an extra $5. But no money went into stocks. Almost all of the money went to you, which you can utilize however you wish, and a fraction went to Wall Street as transaction costs. When assets are being bid up, the money that passes through them in the process is mostly spent on elevated consumption.
Thats because RedNeckRepugnicant is a troll.
Hey Unabomber-one
When you bury gold under your house, do you:
A. Use a shovel
B. Go outside, push on the north side of the house. Roll it forward. Drop the gold. Then push on the south side of the house, and roll it back?
Curious...
NAH I've got a series of abandonded mines I use, just like the VC.
Unrelated topic...
As I mentioned a week ago, the deep water drillers are now getting bids from those that are front-running 2011's "catch up" gainers.
I think there are too many piled into the land-based drillers and profits are now being taken to buy NE, RIG, DO, etc. All are up 2%+ today with oil going nowhere.
Some people actually look at where oil will go, as opposed to looking at tick by tick moves on a historical chart.
Well played sir. RIG 6.50's of Novy '20 @ +230 if that is your thing (I hide my bloomy anywhere from my son)
When the OIH is outperforming WTIC, then that is a sign of strength for that sector, and I thought that it was worth mentioning, as well as the rotation from some of the outperformers (HAL, SLB) into the laggards. You know, those spread trades (long the leaders, short the laggards) don't last forever.
Post something before it moves for a change. You know you can watch sports and stocks with the sound off.
Can I get your post from tomorrow? I'm finding no takers when I bid yesterday's price.
Hope you got Mom some moustache wax for Christmas ...
RainBowTrader hows the 3G connection on that city bus? A bit hit and miss?
I start to get nervous when I hear analysts say that stocks are a buy, due to fundamentals support higher PE's. Just heard a soundbite on BBRadio saying just that. Makes me wonder if we are nearing a top.
More like we are nearing a bottom, of a funnel, that is. Our downward spiral is gonna get a lot more downward, while the spin tightens to vomit inducing level.
YMMV
Maelstrom! http://www.youtube.com/watch?v=L_43xShby30&feature=related
Have some more debt, and a donut.
Bitchez.
But the Market is going up so it must mean we on the right Track :) hahaha
Bob Pisani claiming a new school of technical analysis says that rallies can be sustained on light volume...
Sure rallies can now be sustained on -0- volume...well as long as Bernanke can keep ZIRP going and around $10 billion mainlined daily into the indexes to keep the zombie alive and trudging forward.
it appears to me, this post proves the PD's are not just taking Fed POMO money and ploughing it into stocks. cash is flat and credit is expanding. no new money is flowing into equities. so, where is the POMO money going?
hint: the TREASURY (so it can pay its monthly bills).
No doubt POMO is being used for many things, I suspect another POMO mission is going to mash down PM's as well as they can. FED is 50 BIP's away from insolvency...make no mistake the banks are preparing for armageddon.
Well, if it's all house money that's leveraged, why not? There's no such thing as a margin call when The Bernank's got yer back with his minion The Sack.
Of course, calling fraud a "new school of technical analysis" is a bit disingenuous, but hey, they got to spin it somehow, as it is CNBS, after all.
There was a 'new school of T/A' back in the DotCom bubble as well, back when Maria was a hot young thing she'd go on about how P/E's now mean nothing, its a new paradigm, just buy based upon 'eyeballs' and the fact that now everything just goes up daily.
Dang that deja-vu is a bitch!
Maybe someone can explain to Prof Krugman, how margin effects the price of ag products that are traded on exchanges by the big boys. remmeber this is just NYSDE margin, the extent of the margin is likley reflected in all exchanges.
But, big Bens plan all along has been to allow releveraging. period
Buying crap with debt.......you have to love it.......
Record low short interest, record low CBOE equity put/call ratios, AAII 60 % bulls, 24% bears-a post 2004 record, margin debt at post Lehman highs, media complacency. What's not to like?
No more shorts around to squeeze...uh oh who are they going to haircut now?
All this margin debt is institutional, prime broker stuff 15% down.
Funny, when short interest was high the game was 'short squeezes' daily to drive markets higher. Now that the shorts are gone, it just doesnt matter anymore, markets will zombie march higher anyway. Well I think theyll give a big quick haircut to the calm Hindu bulls here pretty soon. They have to shave someone and theyre ripe for the choppin.
A little insurance being bought today?
The $CPCI 10 day moving average is at YTD lows. Post that fool because I cant
Just sold the STVI bot yesterday at $1.50. Post that chart
I just want to know WTF is up with Pennsylvania debt. ?
Alot of the closed end Muni's are nearing their 52 week lows. After that who knows. ?
http://finance.yahoo.com/q?s=EIP
Stinky, Stinky stinky
Look at the volume
Can you say stampede !!!
The death of BAB tax free muni bonds hasnt even been factored into anything yet either...this is a runaway train straight over a cliff.
We MAY get a DOW 16,000, along with all states totaly bankrupt and food and gasoline riots with razor wire around the banks, Wall St, and DC. Enjoy.
Dont see Dow 16k with states folding like $3 beach chairs. Besides, a 30% Fed guarantee of principal under the BAB program looks a lot like the Fanny Freddy fool's game.
Right, well my only point is they can pump up indexes on nothing at no cost to themselves while the country is totaly imploding. Correlations are totaly unhinged.
The markets in late 2010 are no longer free or efficient. I find it hard to believe this transformation has happened without much protest, but it is what it is. Oh well, participation is still (for now) voluntary.
A post Lehman high? Kinda like having a triple vodka Bloody Mary with a meth chaser New Years day morning...
with a double snort of Glade air freshner
Oh wow man! I wish I could remember the last time I did that!
I picked a bad day to quit bonging salvia
The markets reaction: Debt, Debt, You magnificent bastard debt!!
Marginal debt has been applied to everything else and now including stocks once again from the good ole lehman days. Pay for nothing but consume and ramp up inflationary pressure on everything since nobody has to pay for it. We don't need no stinkin yobs maings, we just pay on credit like everything else. From whistle blowers to credit blowers to just plain bubble blowers from your bubble machine the FED. Brings a whole new meaning to bursting bubbles when nobody works for anything. Low interest rates on worthless paper tends to lead to overconsumption and reckless risk taking. Thank the FED for destroying conservatism and promoting policy that engages slavery of mankind to its own destruction of the creator itself, the FED.
FED about 50 BIP's away from insolvency itself.
I just asked myself a question. Self, is this like 1998 but for commodities?
Deja voodoo.
Can we get a quadroople zoom to may 2010 when investors were positive? looks like the monty carlo algos don't like that.
get your hard assets for your fiats while you still can.
We can already seeing gresham's law going into effect across the globe for the u.s. dollar and we are net importers...I'm not even 20 and I can see where this is going...britain in 40's,argentina, zimbabwe, germany? how about the second bank of the united states? the first? nothing new under the sun..same bullshit diffrent century.
Purchasing power in the dollar in the eye's of the boys who run the show is a bad thing. the government sanctioned monopoly men combined with the labor unions want nominal gains...More so the monopoly men..They buy the economically ignorant politicians to pander to the economically ignorant labor unions..either way the comsumer (formally known as the "customer", remember customers always right?) and taxpayer get fucked...and if the consumer doesn't get fucked hard enough the taxpayers will be forced to borrow more broomsticks from china..
We are in check and no looking back without "extreme" reprecussions so they will goose it till the dollar is worthless and foreigners check mate us and then no more imports. the bernank wants a liquidity rush he'll get it when foreigners fight with americans in the final minutes of another failed experiment in fiat fractional ponzinomics....
Because its "cool" for MSM to mention ZH.
"Post-Lehman High": aka Chasing The Dragon.
In many cases, this leads to overdosing & death, since the Pre-Lehman High feeling can never be achieved again, so more and more quantities of dope are used in its pursuit.
...sounds about right.
Source Data: http://www.nyxdata.com/nysedata/asp/factbook/viewer_edition.asp?mode=tab...
Regards--