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"Major Risk Should The Market Drop": BofA On Fresh Record Low In NYSE Investor "Net Worth"

Tyler Durden's picture




 

While we have argued previously that looking at NYSE margin debt in isolation is quite meaningless for two simple reasons: i) in the New Normal hedge funds and algos, not retail and certainly not traders on "lit" venues like the NYSE but instead in dark pools, are the marginal traders, and ii) the relevant trading leverage is obtained from the "shadow banking" and repo markets, not plain vanilla margin debt from exchange clerks, monthly NYSE trading stats do provide some sense of just how levered the individual investor is, and what it may portend for the market should there be a selloff. Which is why we were not surprised to see that based on August data, the trend has continued: while NYSE margin debt rose once again, from $460 billion to $463 billion, just shy of the record set in February when it hit $466 billion and well above the previous bubble peak, it is the investor "Net Worth", or Net Free Credit as some call it: the difference of total free credit + cash balances and margin debt, that for the second consecutive month sank to a fresh record low of ($183) billion.

Why is this important? Here is BofA's just released explanation:

Risk: NEW LOW for Net free credit at -$183b is major risk should the market drop

 

Net free credit [ZH: aka "investor net worth"] is free credit balances in cash and margin accounts net of the debit balance in margin accounts. Net free credit dropped to -$183b and moved to a new low below the prior record of -$178b in February. This measure of cash to meet margin calls remains at an extreme low or negative reading below the February 2000 low of $-129b. The risk is if the market drops and triggers margin calls, investors do not have cash and would be forced to sell stocks or get cash from other sources to meet the margin calls. This would exacerbate an equity market sell-off.

Which, incidentally, is why the NY Fed can not afford a sell-off, as what would start as a contained modest drop of 1, 2, 3% or thereabouts, will promptly cascade into a full blown rout as uber-margined investors, who are trading now almost entirely on credit, get their margin yanked from under them as their equity accounts are wiped out. Which should also explain why after yesterday's "rout" which pushed stocks a whopping 2% below their all time highs, things should be quickly back to their low-volume, USDJPY-driven levitating normal.

 

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Fri, 09/26/2014 - 08:03 | 5259137 ekm1
ekm1's picture

Every single asset is leveraged up as collateral for gambling

 

Dow, oil, bonds, copper etc cannot drop, they can only crater

Fri, 09/26/2014 - 08:06 | 5259140 svayambhu108
svayambhu108's picture

The financial system is to rigged too even make sense better look at the policical events keep your eyes on Saudi Arabia: where the chicken come home to roost!

I use the disconnect and dibelief of the Saudi elite to predict that just a few months and Saudi Arabia will burn its 1001 nights.

Fri, 09/26/2014 - 08:06 | 5259147 ekm1
ekm1's picture

Pentagon + Saudi alliance makes and breaks, basically

Fri, 09/26/2014 - 08:12 | 5259158 Headbanger
Headbanger's picture

FUCKING HILARIOUS!

Fri, 09/26/2014 - 08:22 | 5259183 wallstreetapost...
wallstreetaposteriori's picture

More leveraged than ever in history.  Individuals, corporations & Governments....  This is the cancer that is eating our societies around the world.  This is the cancer that wil be root cause of the coming war, as globalization inevitably fails. Good bye Keyens....and hello friedman.

Fri, 09/26/2014 - 09:09 | 5259310 101 years and c...
101 years and counting's picture

there's only so much credit/leverage to go around.  when margin can no longer be used, there will simply be no buyers left.  the Fed can stop a wipe out WHEN it happens.  THEY REALLY CANT.  

Fri, 09/26/2014 - 08:06 | 5259145 GetZeeGold
GetZeeGold's picture

 

 

The printers are in control.....they'll bill your grandkids for it.

Fri, 09/26/2014 - 08:08 | 5259148 ekm1
ekm1's picture

Not at all.

Money is not edible

Grandkids won't pay for us, they will let us die violent deaths

Output not enough for all

Youngsters will simply refuse to work for low wages

Fri, 09/26/2014 - 08:16 | 5259164 GetZeeGold
GetZeeGold's picture

 

 

Youngsters will simply refuse to work for low wages

 

Yeah....they'll demand $15/hr to work at Burger King.....good luck with that.

Fri, 09/26/2014 - 08:21 | 5259180 ekm1
ekm1's picture

supply chains are breaking down right now

World trade is being reduced

World output is lower

 

Output is consumable, not money

Fri, 09/26/2014 - 15:35 | 5260132 KnuckleDragger-X
KnuckleDragger-X's picture

Excellent point, globalism is not magic and when the ship is sinking it's every man for himself and damn the women and children.

Fri, 09/26/2014 - 08:17 | 5259171 somecallmetimmah
somecallmetimmah's picture

"Youngsters will simply refuse to work for low wages"

After which their Chinese masters will pull out their fingernails & teeth with a pair of pliars.

Fook-a-me?  Fook-a-yu!

Fri, 09/26/2014 - 08:24 | 5259186 ekm1
ekm1's picture

Chinese current account surplus is just 2% or something now, as oppose 10% years ago

They are no longer exporting massively in exchange for electronic USD

 

Who will produce the output for elderly to consume?

Fri, 09/26/2014 - 08:27 | 5259198 GetZeeGold
GetZeeGold's picture

 

 

Pretty sure that's you....are you going take on AARP all on your own?

 

Let us know how that works out for you.

Fri, 09/26/2014 - 08:48 | 5259246 negative rates
negative rates's picture

The who?

Fri, 09/26/2014 - 08:52 | 5259262 GetZeeGold
GetZeeGold's picture

 

 

Won't get fooled again.....turns out.....they did.

Fri, 09/26/2014 - 08:27 | 5259196 Mensch
Mensch's picture

"Youngsters will simply refuse to work for low wages"

Already happened...

 

Fri, 09/26/2014 - 09:12 | 5259318 astoriajoe
astoriajoe's picture

"Youngsters will simply refuse to work for low wages"

lol, tell that to the kids in thailand selling their bodies to Australian tourists in Phuket.

Fri, 09/26/2014 - 08:10 | 5259154 Ruffmuff
Ruffmuff's picture

any asshole who margins up deserves to have his asshole handed to him.

fuck it, let the fur start flying. what would a life be without fear?

Fri, 09/26/2014 - 08:13 | 5259159 ekm1
ekm1's picture

Either financial wipeout to extinguish multiple claims on real collateral, or world abandons USD, which would basically be the death of globalization and world trade

 

Blood will flood the streets and I'm speaking literally

Fri, 09/26/2014 - 08:50 | 5259254 negative rates
negative rates's picture

Yours included i'm sure.

Fri, 09/26/2014 - 13:09 | 5260127 Professorlocknload
Professorlocknload's picture

In the long run, ekm, the long run. The assumption by the state of the means of production is a long drawn out process, one industry or sector at a time, not an event. Think USSR.

This process could drag on for decades, even a century.

Fri, 09/26/2014 - 13:14 | 5260145 KnuckleDragger-X
KnuckleDragger-X's picture

global trade won't go away, it'll just degrade to the 17th century....

Fri, 09/26/2014 - 08:20 | 5259176 stocktivity
stocktivity's picture

It's all Bullshit!!!

Fri, 09/26/2014 - 08:20 | 5259177 rabbitusvomitus
rabbitusvomitus's picture

"Plunge Protection Team Powers Activate!"

"Form of...... another round of QE!" 

 

There, all fixed!

Fri, 09/26/2014 - 08:20 | 5259181 AdvancingTime
AdvancingTime's picture

Most investors think that even if things go downhill fast that they will be smart enough to get out of the markets. After the debacle in 2008 where they saw the market do nasty and violent swings they learned a few things, this time they figure they will make the right moves before it is to late. But what if it hits like the flash crash on steroids?

 For a long time I have been trying to develop a scenario for a market "super crash" and a reasonable map that would arrive at such a situation. Below you will find more on why this scenario could happen. We know that can't happen because circuit breakers have been put in place to arrest panic style moves, but imagine a market that falls, trade is halted, and the market simply does not reopen for days, or even weeks.

http://brucewilds.blogspot.com/2013/01/flash-crash-on-steroids.html

Fri, 09/26/2014 - 08:24 | 5259189 ekm1
ekm1's picture

Stock market will MANUALLY be triggered to collapse. Circuit breakers will be disabled

Fri, 09/26/2014 - 09:14 | 5259326 astoriajoe
astoriajoe's picture

I would only be slightly surprised if there is a physical switch, something like a light switch, on a wall or a desk somewhere.

Fri, 09/26/2014 - 10:27 | 5259524 cart00ner
cart00ner's picture

The chain above the shitter?

Fri, 09/26/2014 - 08:05 | 5259143 Sudden Debt
Sudden Debt's picture

What's actually funny is that it seems like nobody actually own shares anymore.

Or people are writing calls

Or people buy the options

 

so...

who actually owns the stock?

 

Fri, 09/26/2014 - 08:51 | 5259264 negative rates
negative rates's picture

Not me, who wants to get caught with blood on their hands??

Fri, 09/26/2014 - 08:09 | 5259151 AdvancingTime
AdvancingTime's picture

That is a jaw dropping mother fucker of a chart!

Fri, 09/26/2014 - 08:13 | 5259160 d edwards
d edwards's picture

This scenario sounds a lot like the Crash of '29!

Fri, 09/26/2014 - 08:17 | 5259172 GetZeeGold
GetZeeGold's picture

 

 

That is a jaw dropping mother fucker of a chart!

 

Geez Bruce!

Fri, 09/26/2014 - 08:27 | 5259195 AdvancingTime
AdvancingTime's picture

Did I overreact? If so most sorry.

The chart blew me away because in highlights just how vulnerable we are. Many people have taken on far more risk than they think.

Fri, 09/26/2014 - 08:31 | 5259202 GetZeeGold
GetZeeGold's picture

 

 

It's OK.....at least you finally said something I couldn't hear on CNBC.

 

 

It's nice to see you break out of your shell.....just be aware that CNN is gonna punk you for it.

Fri, 09/26/2014 - 08:42 | 5259224 Pee Wee
Pee Wee's picture

There is no risk, only bullshit and fraud.

Nothing Yellen cannot paper over.

Your fear is totally misguided.   Fascism already won.

Fri, 09/26/2014 - 08:46 | 5259235 Ban KKiller
Ban KKiller's picture

That gets my vote. Folks behind the curtain will pull the strings...tight.

Fri, 09/26/2014 - 08:13 | 5259161 AdvancingTime
AdvancingTime's picture

I contend the primary reason that inflation has not raised its ugly head or become a major economic issue is because we are pouring such a large  percentage of wealth into intangible products or goods. If faith drops in these intangible "promises" and money suddenly flows into tangible goods seeking a safe haven inflation will soar. Like many of those who study the economy I worry about the massive debt being accumulated by governments and the rate that central banks have expanded the money supply.

The timetable on which economic events unfold is often quite uneven and this supports the possibility of an inflation scenario. A key issue being one of timing. If the price of gas jumps to $8 a gallon overnight do you buy gas and not make your car payment or stop driving the twenty miles to work? Answer, it could be months before your car is repossessed so you buy gas.

 It is important to remember that debts can go unpaid and promises be left unfilled. If this happens where does it  leave us? Chaos and major disruption would result from such a scenario. As we have seen from the economic crisis of 2008 and following many other unsettling developments legal actions can continue to drag on for years.  More in the article below.

http://brucewilds.blogspot.com/2014/04/inflation-seed-of-economic-chaos....

Fri, 09/26/2014 - 12:05 | 5259849 silverer
silverer's picture

There is no fat left in most people's wallets.  One out of three Americans out for collection.

  http://www.usatoday.com/story/money/personalfinance/2014/07/29/america-d...

  This whole place is insane.

Fri, 09/26/2014 - 08:19 | 5259173 yogibear
yogibear's picture

The Federal Reserve is bent on controlling all markets. No matter how distorted it becomes.

Their off-balance sheet garbage must be huge. Mark to fantasy, just like their member banks.

Fri, 09/26/2014 - 08:47 | 5259237 Ruffmuff
Ruffmuff's picture

Who gives a shit about their off balance sheet. That's there printing machine that they appear to be honest about. If you want to control it, then you need to own it and when you need to own it you need to buy it. So they did. But they know it is getting bloated so they will make the free money from selling with the free money they bought it with and then let their members, which they own and control make money shorting it. Then they will call the bottom and start buying a again. Rinse and repeat for beginning of the ponzi affair.

Fri, 09/26/2014 - 08:29 | 5259200 TabakLover
TabakLover's picture

WS message to CBs.............. DO NOT fuck with us.

Fri, 09/26/2014 - 08:48 | 5259247 Ruffmuff
Ruffmuff's picture

WS message to CBs.............. DO NOT fuck with us, until you pay us moar.

Fixed

Fri, 09/26/2014 - 08:32 | 5259203 Racer
Racer's picture

They are trying to unicycle a tightrope at 50,000 metres

Fri, 09/26/2014 - 09:07 | 5259290 djcando
djcando's picture

With bald tires and a frayed rope.

Fri, 09/26/2014 - 08:42 | 5259226 himaroid
himaroid's picture

Another day like yesterday and the freaking out starts.

I think maybe so.

Fri, 09/26/2014 - 09:02 | 5259289 insanelysane
insanelysane's picture

I am amazed that B of A has any customers left after all of the shenanigans they pull but then again Goldman still has customers.

Fri, 09/26/2014 - 09:40 | 5259373 shovelhead
shovelhead's picture

Somebody out there can buy the market back up by sending credit 0s & 1s to a seller.

Pretty neat trick, huh? After all, everything we buy is just swapping IOU's to each other.

Most of us have to do something useful to somebody to get them. The lucky guys get to get them by pushing buttons.

That could go on much longer than most of us could believe.

Fri, 09/26/2014 - 10:30 | 5259532 Honey Badger
Honey Badger's picture

I'm saving this article and filing it under "no shit."

Fri, 09/26/2014 - 11:52 | 5259814 silverer
silverer's picture

Didn't Jon Corzine do the actual demonstration?

Fri, 09/26/2014 - 13:40 | 5260266 Professorlocknload
Professorlocknload's picture

Meanwhile, GDP 4.6. When the Fed bumps that up to 7 or 8, it will likely start to let the air out.

Such is the way of Centrally Planned economic systems. They goal seek.

If they begin to sense a loss of control, the pentagon stands at the ready to break however many windows necessary to pump GDP to "desired" levels.

Syria? Just the beginning. A thousand smart bombs a day dropped on mud huts in obscure poverty stricken regions over seas would eventually put even Detroit's industrial production back on the map. Let alone pave the streets of Silicon Valley with gold.

Boeing moves to Chicago. Chicago boys move to DC. Coincidence?

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