Some charts for a quick review. First Money Market Funds.
March 31, 2009 to July 31, 2013:
December 31, 2010 to July 31, 2013:
Following that up with a review of Margin Credit I put on Sang Lucci [3] (my other material [4]) earlier in the week:
It's time to drop a little Margin Credit insight on you guys again, mainly because it's just horrendous at this point, especially when you consider we're ripping all-time highs when Detroit files bankruptcy. It's not just the level of actual credit being lent that is the problem, it's the patterned behavior tied to the hubris of rallies that allows people to rationalizing borrowing without the liquid assets to back it up. What I mean simply is this: people have borrowed to the point that they don't even have enough Free-Cash (red histogram bars below) in their accounts to cover any Credit Balances (Green Area on chart below). Also note, keep your eyes on your broker's margin call announcements and keep this in the back of your head that once we start selling and the calls come in, as you will see in the 3rd chart, people don't have the cash to cover and they will be selling into a sell off.
January 2005 to June 2013 you can see we're flirting at the highs, for the past four months:
Zoom from January 2009 to June 2013:
Now, Investor Net Worth shows the ability of investors to meet margin calls through the use of Free-Cash in their accounts. When this is negative, as it has been, borrowers don't have enough cash to cover the calls so they will need to sell whatever they bought with the borrowed monies:
And lastly, as for the correlation of the S&P 500 Price Only Index to margin credit, here you go:
Keep this in mind when we sell off next, without margins call coming along with lower prices, we'll see some resilience to any selling pressure.
