Investors Pull The Most Money From Domestic Mutual Funds Since September As Margin Debt Deleveraging Begins

Two notable observations in market technicals: first, from the NYSE, May margin debt declined for the first time since the May 2010 flash crash, and after peaking at $320.7 billion in April, the May sell off saw hedge funds and other levered investors modestly contract their gross leverage to $315.4 billion. Additionally, net leverage, or total net credit aka investor net worth, increased modestly from an all time record low of ($75) billion to ($67) billion. Still, leverage is at very precarious level should the ongoing drop in asset prices be met with an actual cash outflow in the form of redemptions. Which brings us to the second observations: according to ICI, domestic equity mutual funds, saw an 8th straight week of outflows in the week ended June 15, with the mount hitting $6.9 billion, or the highest in not only 2011, but the highest since September of 2010. Year to date nearly $10 billion in redemption requests have hit funds, meaning the only saving grace to an all out liquidation would be an increase in asset prices, which however now that additional monetary easing is off the table, will be a very difficult accomplishment. Incidentally, since the beginning of 2010, equity mutual funds have seen total withdrawals to the tune of $108 billion: not a great amount in the grean scheme of centrally planned things, but quite substantial nonetheless.

NYSE Margin debt summary:

Domestic equity mutual funds flows:


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