Margin Debt Rises To 18 Month High As Net Free Credit Plunges To -44 Billion: Keep The Margin Calls Away

Tyler Durden's picture

A month ago, just before the market tumbled only to be rescued by a completely idiotic goal-seeked narrative on November 16 that Congress and the President were close to a compromise on the Fiscal Cliff, since repeatedly refuted, we presented an update of NYSE margin debt and net investor net worth. The data was disturbing as it showed that just as the market had hit its 2012 peak so far, investors were truly "all in" stocks, and that "Margin Debt as of 9/30 hit $315 billion: a jump of $30 billion from the prior month, and the highest since March 2011, just before the market tanked. And confirming that there is simply no cash on hand to pay for margin calls when they start pouring in after today's massive sell off, is the total Net Worth, which in September was the lowest since April. Because with record complacency, and the Fed guaranteeing no further shocks are possible, who needs to hold cash?" Today we get the October data, and find that things have gone from bad to worse, because Margin Debt rose once more, this time to $318 billion, the highest in a year and a half, but more troubling is that Net Free Credit (i.e. real disposable cash to meet margin calls) sank even deeper into the red, at a whopping ($44) billion, the lowest since the summer of 2011.

This simply means that like last month, if and when the margin calls start coming in, speculators will have no choice but to commence liquidating levered positions as there is simply not enough cash to fund capital losses. Which probably explains the resilience of the S&P: one or two 1% down days and Congress will get a far greater impetus to get a Fiscal Cliff deal done. Which, paradoxically, is precisely what needs to happen.

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hedgeless_horseman's picture



Doesn't matter anymore, as The Bernanke will never get a margin call.  The "money" The Fed uses to buy securities is created out of thin air...a mere balance sheet entry.

The CBs will not pop the bubble until they are damn good and ready to buy up all hard assets at deep discounts.


CPL's picture

To short a market you need morons holding stocks on Margin to borrow from.  


This is great news for me.  240 hedge funds acting like dumbfuck retail investors is fine with me.  I'll take their money gladdly and count on the math behind the situation to make sure my wish comes true.

hedgeless_horseman's picture



...and count on the math behind the situation to make sure my wish comes true.

The calculus to be sure is simple.  You are either an insider, or you are not. 

i=1, or i=0?

In today's market, most other investing is really just gambling.  The best the i=0 can hope for, over any length of time, is to create real wealth through work, or theft, and to preserve wealth through intelligent ownership.

CPL's picture

True, but I am an opportunist by nature.  I see no moral or ethical challenges taking money from fools.  Attempting to rationalize a purist standpoint in playing with stocks is an illusion.  You either make money or you don't.  It's binary.  Two choices.


Now what would lead you to believe that intelligent ownership of equities exists or any other strategy the Fed is using (prnt moar muny) is an "insider scoop".  

Plain as day on the Russel what's going to happen.  

Plain as day in food and energy prices what's going to happen.  

Plain as day with only 240 hedge funds running versus 19000 of them in 2007.  I would discuss that the banking sector is 1/16th the size it once was in 2007.  It's tiny now in comparison.

Measurable in terms of charting and fundemental investing strategies, they throw money at the problem and it amplifies the underlying problem with a shorter and shorter half life each time they print.  Not a couple of times all 87 times they've printed in the past five years.  Only reason they haven't dropped the football of a 16 trillion dollar bailout (yet) is because if they do the outcome is market volume will be 1/8th of what it is today.

The more tptb print, the tighter they paint themselves into the corner.  The tighter they get, the sloppier they get.  So for a moment think like a predator.  All that meat backed up into the wall, nowhere to run or hide.  Unable to hide in a herd of retail investors because their numbers have dwindled to nothing.  I only need to wait for the "smartest" of the herd to panic and make a mistake.  

Right now that mistake is borrowing money to hold equities.  Next mistake they make is unwinding their trades.  I position my short between borrowing and the unwind.


hedgeless_horseman's picture



I only need to wait for the "smartest" of the herd to panic and make a mistake.

Ah yes, that accursed wait.  Indeed, brass balls, irrational versus solvent, and all of that sort of thing.  As long as you can tolerate the squeeze.  Stay skinny and pray that The Bernanke's handlers give him the red light, and soon, because he is not going to stop easing until he is so instructed.  I feel comfortable gambling that, like every instance before, the i=0 do not get the memo, but the i=0 do.

Have you ever noticed how frequently waiting, gambling, and prayer go together?

CPL's picture

We are already at QE infinity.  I only need to wait until someone gets sick of it and I see some European Central banker hanging by a noose and disemboweled by an overly enthusiastic "protester" (terrorist?).  Once blood is spilled watch the attempts and back peddling.  The "I'm so sorry's" that fall on deaf and disinterested ears.  We're already watching it in slow motion.  CIA heads getting cast out.  DoD building it's own intelligence group.  DHS hiring and banging their heads against a wall at the quality of candidates (DoD takes all the best ones).  FBI and the SEC are being eyeballed for the chopper because there is still some money left in their pensions that nobody has any intention of paying.


So Short squeezes are fine by me.  If I buy in a short position I actually buy it cash and not bet the farm on it.  Shorting is for quick bursts of daily trading not long bear holds.  

Margin is one of the worst credit facilities on the planet, it's cheaper putting a short purchase on a credit card with a 30% interest rate.  0.25% a day with TD waterhouse, eTrade is 0.35%...seriously people BUY equities to put them on margin and are all so very surprised when their asses are eaten out by the principal interest on their short term loan.


What I'm betting on is what JPM is betting on for Jan 23rd.  The complete and total destruction of economy of either Europe and/or the USA.  Have you seen their prospectus releases lately.  It's there in black and white.  JPM can't even figure out if the payout will be in USD or Euros or bits of string.  There is no "insider" anymore.  Those rules are all gone and dead, even the crooked ones.  There aren't any suckers left except themselves to the point MDAX is now a "viable" option to trade on (lol, whatever).


Currency Business Day:
A “currency business day” is a day on which (a) dealings in foreign currency in accordance with the practice of the foreign exchange market occur in The City of New York and the principal financial center for the Underlying Currency (which is London, England for the European Union euro) and (b) banking institutions in The City of New York and that principal financial center are not otherwise authorized or required by law, regulation or executive order to close.
Observation Date:
January 17, 2013
Maturity Date:
January 23, 2013

Anycase, grab some popcorn.  Read the SEC filings from July this year and the picture becomes clear that nobody has a clue how to tame their beast anymore.

Dr. Engali's picture

Well first SAC then Diamondback...I wonder which hedge fund will blow up next praying for that Santa Clause rally?


Joe moneybags's picture

We are already into 2 1/2 weeks of Santa's rally.

Quinvarius's picture

Isn't margin used for shorting too?

CPL's picture

Yes, but you don't purchase into margin, you purchase into your cash account.

Make sure you've got your short sitting in the right place or that daily interest rate will eat your profits.  Shit hole trade companies like eTrade have it set up to slip it by their users.  Remember all these assholes want something for nothing with your money.  They aren't your "friends".

jcaz's picture

Ya, but look for better numbers next month- lot of that is getting zeroed out on this AAPL move.....

The trend is your friend's picture

money managers which need actual money vs Algo's that can be turned on and off by the likes of GS, JPM with an unlimited pool of funds courtesy of the taxpayer.  Anyone who has ever played poker knows who wins

SheepDog-One's picture

Right, when you sit down at the poker table and look around and can't figure out who the sucker is, it's you.

ebworthen's picture

Debt, debt, debt.

FHA loans with 3% down, now Margins of 3% collateral to gamble with AAPL, Green Mountain Coffee, and Dollar/Euro?

I seem to recall Interactive Brokers advertising 1% collateral to spin the roulette wheel of FX.

Whose bright idea was this? 

When are they going to install some "Lucky 7's" and "Wheel of Fortune" slot machines on the floor of the NYSE to add an air of honesty to the place?

LongSoupLine's picture

Balanced price discovery in a well run capitalist market system.



Now, if you'll excuse me, it's time for my fucking Unicorn's breakfast and fairy dust bath.


astoriajoe's picture

mmm, unicorn steak and golden goose eggs..

Oldballplayer's picture

Not unicorn bacon....its magic beans and fairy dust.

I love dragging my doughnuts through that fair dust....grind up some of them beans for a nice cup of coffee.

Unicon meat and some Obama cheese for lunch.

Does it get better than this?

hugovanderbubble's picture

BUND 1,30% yield?


DAX 7,500?¿

WHAT THE F.K MARKET IS THIS? jhahahahahahç


DAX is overbought,overcrowded , high, expensive...



NaiLib's picture

Well something is certainly cooking. Dax and S&P are fighting hard to stay up as the Euro falls shapely and creates a head and shluld in the 1 hour charts. Someone is badly in need of rising indexes before any outcome of the non stated "talks".

Catullus's picture

Today we get the October data, and find that things have gone from bad to worse, because Margin Debt rose once more, this time to $318 billion, the highest in a year and a half, but more troubling is that Net Free Credit (i.e. real disposable cash to meet margin calls) sank even deeper into the red, at a whopping ($44) billion, the lowest since the summer of 2011.

Yet the boner about this is the negative repo rates on the 10s ZH reported. Still paying people to get their hands on the 10s.

Water, water everywhere, but not a drop to drink.

World is running out of safe assets.

SheepDog-One's picture

A 1% down day is now enough to panic clowngress into selling out yet again?

This is just fuking ridiculous now.

ShrNfr's picture

Unfortunately, Mr. Obama has upped the ante on the cliff to getting rid of that pesky debt ceiling. In this simple act, he gives the President and one chamber of the Congress a potential pass on ever having to limit the debt again. This will not end well.

hedgeless_horseman's picture



...a potential pass on ever having to limit the debt again.


Mike in GA's picture

Why do we "NEED" to "get a deal done"?

Our so-called 'leadership' will never cut any spending of their own accord, so we NEED more automatic across-the-board spending cuts to happen, not less.

Tombstone's picture

If you get a margin call, simply dial 1-800-FED BUCK and ask for the janitor, Mr Benny.  He will QE (Quickly Expedite) all the phoney dollars you need.

Hubbs's picture

I think that both sides will compromise and agree to postpone the fiscal cliff for another two years because the "economy is too fagile right now" for spending cuts or tax hikes.


The fact that nothing "appears" to have happened  (at least to those who were the majority that relected Obama) in the last few years despite QEs, etc only reinforces the idea that the politicians can just keep doing the same old.