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NYSE October Margin Debt Jumps To Highest Since Lehman Failure As Investor Net Worth Is At Lowest Since April Highs

Tyler Durden's picture




 

It is not just the stock market that is at the highest levels since Lehman. Probably just as importantly, NYSE margin debt has surged to $269 billion, an increase of $13 billion from the prior month, and the highest since September 2008 when it was at $299 billion, and subsequently tumbled as investors rushed to get out of all margined positions. And this has happened even free cash credit accounts and credit balance in margin accounts remained relatively flat. In other words, net NYSE available cash decreased by $10 billion M/M to ($34) billion, the lowest since April 2010, just before the market tumbled, and net cash surged by almost $50 billion in two months. We are confident that NYSE cash in November will be at the lowest level of the year, not to mention December, as hedge funds leveraged everything they could, in some cases hitting as much as 3-4x gross leverage, in pursuit of beta, now that unleveraged alpha strategies have ceased to work. Which means that with retail stubbornly missing from the picture, the only beneficiaries of the HFT and Fed facilitated melt up are the 1000 or so hedge funds, where average net worth is in the 6 digits, that will be profitable this year. Everyone else can drown their sorrows in McDonalds fries which are about to surge in price. Of course, what this means should some unexpected credit event occur, is that the forced selling that will follow this two year high margin debt unwind will lead to a comparable results as those seen after the Lehman collapse. For the sake of America, we can only hope that the centrally planning Chairman can sustain the lie for a few more months before the house of cards on the camel's back, which in turn is suspended on a ladder as the eye of the hurricane passes over, finally topples.

 

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Wed, 12/22/2010 - 18:19 | 824949 Djirk
Djirk's picture

wow debt fueled wealth, what a concept!

Wed, 12/22/2010 - 18:34 | 824981 mikla
mikla's picture

The more you owe, the richer you are!

Wed, 12/22/2010 - 19:32 | 825140 simonsito
simonsito's picture

instant classic!
the Bernank would be proud if he had coined that while sitting in some talkshow

Thu, 12/23/2010 - 05:52 | 825766 Djirk
Djirk's picture

don't worry this time it is different....."mortgage your house and get into equities now!" Oh wait....(quote above is real quote, circa 1998 from the equity strategist at the sell side bank I was working for) could have ended fantastically or tragically depending on timing...sound familiar? 

Wed, 12/22/2010 - 18:23 | 824959 lunaticfringe
lunaticfringe's picture

Put optionz bitchez!

Wed, 12/22/2010 - 18:37 | 824969 AUD
AUD's picture

What unexpected credit event?

According to the money market an event has been expected for the last 12 months at least. You need to dig a bit deeper ZH.

Any 'credit event' will come from the one place which is truly unexpected, by the majority at least and it ain't the euro.

Wed, 12/22/2010 - 18:40 | 824995 spongeBOB
spongeBOB's picture

 <For the sake of America, we can only hope that the centrally planning Chairman can sustain the lie for a few more months>

for the sake of America I hope the Chairman is hit by a bus as he is crossing the steet in the morning.

Wed, 12/22/2010 - 19:53 | 825187 mynhair
mynhair's picture

amen.

Wed, 12/22/2010 - 18:58 | 825041 irishlink
irishlink's picture

If we knew what the triggering event was we would not call it "unexpected". It's only in retrospectoin that we can understand any of this nonsence!But we are definately lining up all the pins for "whatever " event will come along to topple this totally skewed market and economy.

Wed, 12/22/2010 - 23:49 | 825531 SofaPapa
SofaPapa's picture

Nice metaphor.

Wed, 12/22/2010 - 19:00 | 825044 A_MacLaren
A_MacLaren's picture

I used to track Margin Debt as % of Stock Market Capitalization, which showed a dramatic surge in 2006-2007, corresponding to the spikes in red above.  If I was home now, I'd update my chart and pass it along.  Just guess-timating based on the red bar data above, I don't think the prior levels of leverage have been exceeded, but it wouldn't surprise me if is its even higher now.

Wed, 12/22/2010 - 19:14 | 825082 hedgeless_horseman
hedgeless_horseman's picture

Debt is dead! 

Long live debt!

Wed, 12/22/2010 - 19:22 | 825103 RunningMan
RunningMan's picture

I'm not sure how to interpret this. The headline is putting a bit of spin by relating this to the Lehman failure in timing, but in and of itself only says people are buying with credit. Which means they are *getting* credit. That seems an indicator that the lenders are comfortable to extend credit. Would be a good thing if banks were not also starved for attractive yielding assets. The bubble that will form is another equity bubble... this may be exactly what stock bulls like Robo and others are looking at. I'm thinking they may be right, and this could go on for a long while before it unravels. Look at the housing market - mean reversion was screaming as early as 2004 and yet it went on another three years. Hard to predict the timing of a bust without knowing the triggers and associated probability.

Wed, 12/22/2010 - 19:36 | 825152 simonsito
simonsito's picture

interesting thought indeed!

knowing about the trigger and associated possibility... NOW THE QUESTION REMAINS: IS THAT POSSIBLE???

Wed, 12/22/2010 - 19:50 | 825182 RunningMan
RunningMan's picture

Of course you can put together some scenarios and attach likelihood to them. That part is easy. The issue is that the range one gets for such an exercise is massive given the uncertainty. Take the muni market alone - will the Fed permit default or not? Bond market says probably, but the last two years says unlikely. Who is right?

Wed, 12/22/2010 - 20:36 | 825269 Bearster
Bearster's picture

How can you say the muni bond market is saying there will be defaults?  Munis are still trading quite high.

Wed, 12/22/2010 - 19:44 | 825166 razorthin
razorthin's picture

After 1 1/2 years of nothing, I've been getting a blitz of 0% balance transfer offers again starting a couple of months ago.  Yup, here we go again.

Wed, 12/22/2010 - 19:47 | 825174 Trimmed Hedge
Trimmed Hedge's picture

And anybody would be insane not to take them up on their offer.

I just got 0% APR on all purchases for 18 months, plus a $30 statement credit. No annual fee.

Free float... WOOT!

Wed, 12/22/2010 - 23:02 | 825469 Saxxon
Saxxon's picture

Buy gold wid dat cc.

Wed, 12/22/2010 - 20:00 | 825209 cosmictrainwreck
cosmictrainwreck's picture

sign me up! where's mine? whatyamean they checked my FICO?

Wed, 12/22/2010 - 22:33 | 825435 dehdhed
dehdhed's picture

but in and of itself only says people are buying with credit.

if you look at the relationship of net worth to the direction of the market you can easily see it's not buying with credit, it's shorting on margin.  in my humble opinion this won't end in another crash but the mother of all squeezes.

Thu, 12/23/2010 - 09:12 | 825824 doolittlegeorge
doolittlegeorge's picture

this is a very interesting thought.  "takes two to Tango" as they say and "borrowing cuts two ways."  It is hard to short a market empirically so "my first take is to say no way" and "given this a comment i'm sticking with my first thought."  Needless to say "the implications of a debt bubbble are quite different from yet another bubble in the equity markets."  Debt bubbles are "memorable" as they say and "involve guys  by the name of Stalin, Churchill, Roosevelt and Hitler."

Wed, 12/22/2010 - 19:47 | 825176 Id fight Gandhi
Id fight Gandhi's picture

1929 on steroids

Wed, 12/22/2010 - 19:52 | 825186 Cdad
Cdad's picture

...hope that the centrally planning Chairman can sustain the lie for a few more months before the house of cards on the camel's back, which in turn is suspended on a ladder as the eye of the hurricane passes over, finally topples.

LOL!  I CAN SEE IT!  Man, Tyler...you have a way with sarcasm.  Hat tip.

You know, one day criminal syndicate Wall Street bankers will also see it, Tyler.  Right now, and for whateve reason, they don't even seem to get that                 "I can seeeeeee uuuuuuuu." 

 

Wed, 12/22/2010 - 22:48 | 825450 dehdhed
dehdhed's picture

i think he got the central planning part right but the topple over is virtually eliminated from possibilities.   give the central planners another 6-12 months and they'll have enough of the market cornered to really put the pressure on the shorts. 

central plan 1: don't ban short selling; destroy short sellers

central plan 2: when they beg for mercy, respond 'no bailouts for you'

central plan 3: redistribute wealth from rich hedge fund investors back to the pension funds of america

plan seems to be working so far.  so take ZH's advice and sell your stocks to them and further enable them to corner the market.  my guess is you'll wish you hadn't

imho

Wed, 12/22/2010 - 23:01 | 825459 dehdhed
dehdhed's picture

an example would be the flash crash.  just look what happened, they pulled all the bids and let the shorts slam the market down.  but when they got down there they looked back up and saw no offers.  they must have been completely surprised which is why it snapped right back.  sure, for the next month everyone else was so completely scared shitless that it resulted in some capitulation.  but in my humble opinion, that day of the flash crash was just the first day of the mother of all bear traps.

Thu, 12/23/2010 - 09:13 | 825825 Translational Lift
Translational Lift's picture

When TPTB can cancel trades just because they may have exceeded someones idea or direction of what should be, take over banks, investment banks, insurance cos, auto cos, throw out bond and security holders at will, throw out contract law and GIVE unions 45% of said auto cos, print money out of thin air, allow the Treas-Fed-Banks to enslave US citizens for years if not generations with their bond scam, to hire thousands-tens of thousands of civil servants (sic) at an average wage of 100% higher than their civilian counterparts plus enhanced retirement and "health care".........Uh.....Houston.....we have a problem....

Wolfenson had an interesting comment this AM on Bloomberg...His idea at the World Bank was to forgive debts of countries that were unable to pay them back.  Reasoning that the new loans were just covering the interest on that debt and not improving the debtors situation.  Well guess what folks......we are in that same debt situation except we are also rapidly losing the protection of the "rule of law".  I think it is imperative that we as a nation insist that all US debt to the Fed be absolved in order to allow this nation to rebuild itself.  The member banks and money lenders have already  made more than enough off this Treas-Fed-Banks scam.

Thu, 12/23/2010 - 06:40 | 825778 hugovanderbubble
hugovanderbubble's picture

+1

Completly agree with u

 

 

Thu, 12/23/2010 - 01:15 | 825597 SheepDog-One
SheepDog-One's picture

Underpants gnomes!

Wed, 12/22/2010 - 19:58 | 825198 mynhair
mynhair's picture

"unexpected credit event" = dead PIIGS, or bond vigilantes waking up.

Wed, 12/22/2010 - 21:00 | 825323 Smiley
Smiley's picture

I love it, its like a giant game of JENGA and the more fucked it gets the lower the pieces they start grabbing for.

Wed, 12/22/2010 - 21:34 | 825351 dehdhed
dehdhed's picture

seems to me that the leverage must be used for shorting stocks.  otherwise how could net worth be declining in a rising market with rising margin.  (i'm just talking about the last 5 bars in that graph .. the rest makes perfect sense to me)  instead of concluding that selling will be eventual, perhaps it might be more wise to think in terms of the short covering (buying )that will ensue.

and i was wondering why pomo wasn't having the same affect anymore, but now it seems more clear.   don't fight the fed, but some people never learn i guess

just to be clear, i'm not bullish on stocks .. i'm not bearish either.  but i often wonder how long it will take before people use hindsight to see that the flash crash, besides being another manipulation to influence the vote on finreg that day, was more of a buy signal than a sell signal.   it looks to me that most people figured it out after only one month.

i mean, i haven't researched this but once i read a ZH post where there have been like 1000 or more? mini flash crashes in individual stocks since the may 6th market flash crash.   isn't it possible that each one of those would have triggered an enormous buying opportunity in each of those stocks?  it's possible isn't it?  maybe people don't deal in probabilities anymore .. but i often wonder myself.

Wed, 12/22/2010 - 22:08 | 825401 dehdhed
dehdhed's picture

the way i read that graph is

the users of margin were net short from jan 06 to about nov 07 which is why they were losing net worth.  then they got paid when the decline started but they switch to long too early and got wiped out as the market continued to decline.    they were nimble enough to switch back to short in time for (and to further enable) the following crash of 08.  the problem is they stayed short even when they got back to even with the may 6th flash crash.  and now they've been getting more short recently.

doesn't seem like smart money to me.  the dumb money is pulling their funds out of the prehistoric method of investing in mutual funds, and the smart money (leveraged players) seem to be a glutton for punishment.  

man oh man ... when the dumb money comes back and these jokers are forced to cover .. this could go to the moon alice.

no wonder the vix is so low, protection is already structurally built-in.   like jesse livermore wrote, and i paraphrase .. the value of huge short positions in a stock isn't in the squeeze that could happen but in the support it provides when prices go lower and the shorts who have been waiting desperately for a chance to get out, start to buy(cover).

Thu, 12/23/2010 - 00:38 | 825569 A_MacLaren
A_MacLaren's picture

the users of margin were net short from jan 06 to about nov 07 which is why they were losing net worth.  then they got paid when the decline started but they switch to long too early and got wiped out as the market continued to decline.

Dude, put the bong down...

Wed, 12/22/2010 - 21:46 | 825395 kornholio
kornholio's picture

Just buy the fucking dip.

Mon, 01/10/2011 - 07:54 | 825795 Clapham Junction
Clapham Junction's picture

(d)

Wed, 12/22/2010 - 22:52 | 825455 ThirdCoastSurfer
ThirdCoastSurfer's picture

Of course you only get the 15% tax rate for capital gains AFTER you've held the stock for a year. 

It's all well and good that the market has been on a tear for a year for some, or since August for most, but a 35% tax rate is a powerful 20% incentive to hold and pray. 

Sat, 12/25/2010 - 21:17 | 830082 Printfaster
Printfaster's picture

No.  It is a powerful incentive to set a collar, or short against the box.

That does create borrowing.

Wed, 12/22/2010 - 23:36 | 825512 buzzsaw99
buzzsaw99's picture

Thanks. I've been wondering about this for some time.

Thu, 12/23/2010 - 00:14 | 825551 RmcAZ
RmcAZ's picture

Not to worry, DOW 13k next year according to Cramer: http://www.thestreet.com/story/10953794/1/cramers-dow-30-prediction-13k-...

BUY BUY BUY

Thu, 12/23/2010 - 02:00 | 825650 Midwest Prepper
Midwest Prepper's picture

If that's what Cramer thinks, then I'm going all in.... I haven't had a chance to check my returns yet, but I bought a bunch of Bear Stearns on his advice and I am thinking of selling it to fund my retirement!

Thu, 12/23/2010 - 00:37 | 825563 daneskold
daneskold's picture

How many legions of money runners have gone broke calling market tops?

It can't go any higher....but it does.

When your rate of return exceeds your cost of capital, and you've got a TBTF backstop, it can indeed go much, much higher.

And the end game is Zimbabwean nominal prices, which means asymptotic indeces.  

Dow 36,000 won't be a happy event, and it'll be enjoyed for about five minutes before it hits 37,000 on the way to closing the day at 40,000+, and the week at 50,000+.

Thu, 12/23/2010 - 01:12 | 825595 SheepDog-One
SheepDog-One's picture

Well, so much for that 'wealth effect'. What now?

 

Thu, 12/23/2010 - 06:41 | 825779 hugovanderbubble
hugovanderbubble's picture

My wealth effect....diminishing returns law...

Fri, 12/24/2010 - 01:15 | 827599 dizzyfingers
dizzyfingers's picture

quote: ...sustain the lie for a few more months before the house of cards on the camel's back, which in turn is suspended on a ladder as the eye of the hurricane passes over, finally topples... unquote

You are the penultimate wordsmith's wordsmith. Your phrasing puts all others' to shame.

Wed, 12/29/2010 - 16:37 | 836446 Ken P
Ken P's picture

I've been getting those 0% credit card offers too, but most of them probably have 3-5% cash advance fees associated with them.  Then after the 1 year is up they are hoping you will continue paying off the loan at 20% or 30% interest.

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