Of course leverage is being increased. That's the point. The
masses - or, as Goldman would put it, muppets - always lever up
high and then panic out low. It's a contrarian indicator at peaks.
And, yes, peaks are processes, so it's not a timing mechanism; the
charts will guide on that.
Posted by sonofrebel on 24th of Apr 2015 at 03:17 pm
I have seen this chart a lot - good marks for marketing.
However...
Errors in presentation (starting points not aligned and linear
scale to show growth) make me wonder about analysis behind it...
e.g. what deflator has been used?
Aside from that, if you analyze the swings you find (eyeballing
numbers);
First upswing - S&P up 275%, margin debt up 380%
Second upswing - S&P up 165%, margin debt up 250%
Third upswing - S&P up 350%, margin debt up 250%
Does not seem to me that margin debt is the driver of recent
upswing.
Although a turn down in margin debt will cooncide with a
pullback in the market, what is the true correlation?; seems more
likely to me that a market pullback causes a (forced) reduction in
margin debt.
As "it is different this time" in the growth ratios, it seems to
me that this misses the effect of ZIRP and "cost-free" debt
entirely.
Hey, go all in at highs if you think human nature is different
this time. I only post the chart as a general observation that
investors get overlevered at highs and the levels are certainly
there, especially given the steadily decreasing volume of this
bull. Again, should anyone use it for timing? No. But it should
give caution on swing longs.
Posted by sonofrebel on 24th of Apr 2015 at 04:24 pm
I was not saying it is different and so to go all in -
I am saying it is different in ratio of presumed debt growth
to index growth, most likely because of the explosion of
the Central Bank balance sheets in this cycle - I draw no
conclusion other than this analysis is incomplete and a proper
analysis of the growth rates would have told the author that.
Not sure I understand your objections - there's no analysis in
the chart (raw #s in the chart I posted - no deflator) - it's just
data drawn from nyxdata website juxtaposed against the index. As to
linear vs % vs constant dollar, etc., they slice it all ways and
the basic point of margin peaks correlating to (no one's making a
causal argument) index peaks holds. Your point about market
corrections leading to reductions in margin exactly fits my point:
high prices attract buyers; higher prices get them levered up;
lower prices get them liquidated. Interest rate fixing certainly
exacerbates the problem and sets up the conditions for a bigger
fallout this time.
All time high margin debt
Posted by sbaxman111 on 24th of Apr 2015 at 01:32 pm
NYSE margin debt hits all-time high
http://www.advisorperspectives.com/dshort/updates/NYSE-Margin-Debt-and-the-SPX.php
this is very bullish news! markets rise when margin debt rises
Posted by torvix on 24th of Apr 2015 at 02:37 pm
thanks for sharing
Until they don't - peak
Posted by a_l_ on 24th of Apr 2015 at 02:48 pm
Until they don't - peak margin levels correlate very well with peak markets.
this looks a similar breakout to the last time a few years ago
Posted by torvix on 24th of Apr 2015 at 02:51 pm
Clear breakout and both moving up, so leverage is being increased NOT decreased
Of course leverage is being
Posted by a_l_ on 24th of Apr 2015 at 02:57 pm
Of course leverage is being increased. That's the point. The masses - or, as Goldman would put it, muppets - always lever up high and then panic out low. It's a contrarian indicator at peaks. And, yes, peaks are processes, so it's not a timing mechanism; the charts will guide on that.
I am just reading what I see not what I feel or think
Posted by torvix on 24th of Apr 2015 at 02:52 pm
Chart is poor analysis IMHO
Posted by sonofrebel on 24th of Apr 2015 at 03:17 pm
I have seen this chart a lot - good marks for marketing. However...
Errors in presentation (starting points not aligned and linear scale to show growth) make me wonder about analysis behind it... e.g. what deflator has been used?
Aside from that, if you analyze the swings you find (eyeballing numbers);
First upswing - S&P up 275%, margin debt up 380%
Second upswing - S&P up 165%, margin debt up 250%
Third upswing - S&P up 350%, margin debt up 250%
Does not seem to me that margin debt is the driver of recent upswing.
Although a turn down in margin debt will cooncide with a pullback in the market, what is the true correlation?; seems more likely to me that a market pullback causes a (forced) reduction in margin debt.
As "it is different this time" in the growth ratios, it seems to me that this misses the effect of ZIRP and "cost-free" debt entirely.
Hey, go all in at
Posted by a_l_ on 24th of Apr 2015 at 04:02 pm
Hey, go all in at highs if you think human nature is different this time. I only post the chart as a general observation that investors get overlevered at highs and the levels are certainly there, especially given the steadily decreasing volume of this bull. Again, should anyone use it for timing? No. But it should give caution on swing longs.
current trend is up
Posted by torvix on 25th of Apr 2015 at 03:19 am
I was not saying it
Posted by sonofrebel on 24th of Apr 2015 at 04:24 pm
I was not saying it is different and so to go all in - I am saying it is different in ratio of presumed debt growth to index growth, most likely because of the explosion of the Central Bank balance sheets in this cycle - I draw no conclusion other than this analysis is incomplete and a proper analysis of the growth rates would have told the author that.
Not sure I understand your
Posted by a_l_ on 24th of Apr 2015 at 07:18 pm
Not sure I understand your objections - there's no analysis in the chart (raw #s in the chart I posted - no deflator) - it's just data drawn from nyxdata website juxtaposed against the index. As to linear vs % vs constant dollar, etc., they slice it all ways and the basic point of margin peaks correlating to (no one's making a causal argument) index peaks holds. Your point about market corrections leading to reductions in margin exactly fits my point: high prices attract buyers; higher prices get them levered up; lower prices get them liquidated. Interest rate fixing certainly exacerbates the problem and sets up the conditions for a bigger fallout this time.
Here's another view in inflation adjusted %'s.
Mission accomplished!
Posted by windyjazz on 24th of Apr 2015 at 04:08 pm
todays only mission...get$SPX at an
all time closing high...I think they did
it....that will print very well in the
Sunday papers.