According to the latest data from the exchanges the bears are becoming an endangered species. As short interest craters investors are taking on record levels of debt to borrow at low rates and purchase equities. In essence, the Bernanke Put is spurring on another risk taking binge for Wall Street.
Yesterday, CNN reported on the decline in short interest. As you can see, total short interest in the S&P has declined as the seemingly unstoppable bull market forces shorts out of the bearish game:
This is perfectly normal during a bull market, however, there are more disturbing trends in margin data. While Ben Bernanke fails to keep rates low and induce business borrowing, he is in fact stoking a speculative boom at the Wall Street casino. According to Bloomberg Wall Street has been leveraging up in preparation for the Fed’s “wealth effect”:
Debt at margin accounts at the New York Stock Exchange minus cash and unused credit from margin accounts climbed to $46 billion, according to data released by NYSE yesterday. Hedge funds had $290 billion of debt from margin accounts in December, the largest sum since Lehman Brothers Holdings Inc. collapsed in September 2008.
"It makes a lot of sense given the low cost of borrowing and some equities' valuations," said Patrick Armstrong, who helps manage $356 million in multiasset strategies at Armstrong Investment Managers LLP in London. "There is a capital- structure arbitrage to be made by buying stocks with leverage."
We’re not yet back to 2007 levels, but as the rally progresses it becomes more and more clear that nothing has really changed in the USA. We are simply back to all the same gimmicks, policies and speculative games that got us into this mess. The Bernanke Put is only helping to reinforce this.
The solution for this mess comes through proper regulation (so far the silence is deafening). There’s an entire country full of people who think it’s admirable to get rich in the casino rather than actually WORK for it. The sad thing is that so many believe it to even be possible.
I believe it to be caused by regulatory capture creating an environment where real work is effectively punished while gambling in the uber-casinos operates under no gaming law whatsoever. Investment banks are far more interested in gaming everyone via billion dollar exotic derivatives than they are in actually funding US business. That’s not helped by the fact that most US manufacturing has emigrated to China.
Things have to change but it will take another huge collapse to provide the necessary anger to push it and the right people driving to ensure good outcomes.
There are some other interesting statistics which are arguably more relevant than plain and simple margin debt. “We’re not back to 2007 levels” is not accurate as prices are also not nearly at 2007 levels. Thus measuring margin debt relative to some benchmark (S&P500?) would create a clearer picture and I think you will find that since 2001 basically the stock market has been one big pyramid scheme of margin debt.
My take is that speculators are keeping prices high in the hopes that they can unload it onto a frenzied crowd later on and reduce the margin exposure, however if something goes wrong with the plan you get a frenzied panic, like we saw in April. This can happen again if anything important has the potential of devastating public morale (i.e. willingness to buy).
Boy, that was a quick 3% pull-back. Guess Tom Demark will have better luck next time. Next up, 1425-1450 on SPX, probably by April.
It’s a buy the dip scheme. FYI.
pretty impressive, b ferro. can’t disagree with you. about the only thing I can think of now that will derail it before that time is if violence spills into saudi arabia. otherwise, the bernanke put trumps all………
This is an incendiary comment, but nothing will send it lower – 0% probability of that now. EVERYTHING has been thrown at this now, including ME revolution LOL. The best you get is a 2-3% dip. Shorting this market is one of the most health debilitating things anybody can do. It is amazing – it takes massive, massive volume to send it lower and it levitates on no participation. I think gold, ole Laslo B is spot on and this thing goes to 2,000+. Look at the historical Dow or SPX charts, this rally is unprcedented in nearly every way but the massive secular bull during the 90s. I was running an analysis this morning looking at the ratio of cumulative 6 month volume on up days vs. that on down days – this week we registered the highest reading ever on the SPY dating back to 1993. It doesn’t matter though – it’s just another piece of analysis that is irrelevant. Something bigger is at work here. There are very powerful interests here that cannot stomach a market decline – the sell-side institutions, the long only buy-siders and the Fed – if the market heads sustainably lower here, I’m not sure any of them will survive…the ball must stay in the air.
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According to the latest data from the exchanges the bears are becoming an endangered species. As short interest craters investors are taking on record levels of debt to borrow at low rates and purchase equities. In essence, the Bernanke Put is spurring on another risk taking binge for Wall Street.
Yesterday, CNN reported on the decline in short interest. As you can see, total short interest in the S&P has declined as the seemingly unstoppable bull market forces shorts out of the bearish game:
This is perfectly normal during a bull market, however, there are more disturbing trends in margin data. While Ben Bernanke fails to keep rates low and induce business borrowing, he is in fact stoking a speculative boom at the Wall Street casino. According to Bloomberg Wall Street has been leveraging up in preparation for the Fed’s “wealth effect”:
Debt at margin accounts at the New York Stock Exchange minus cash and unused credit from margin accounts climbed to $46 billion, according to data released by NYSE yesterday. Hedge funds had $290 billion of debt from margin accounts in December, the largest sum since Lehman Brothers Holdings Inc. collapsed in September 2008.
"It makes a lot of sense given the low cost of borrowing and some equities' valuations," said Patrick Armstrong, who helps manage $356 million in multiasset strategies at Armstrong Investment Managers LLP in London. "There is a capital- structure arbitrage to be made by buying stocks with leverage."
We’re not yet back to 2007 levels, but as the rally progresses it becomes more and more clear that nothing has really changed in the USA. We are simply back to all the same gimmicks, policies and speculative games that got us into this mess. The Bernanke Put is only helping to reinforce this.
The solution for this mess comes through proper regulation (so far the silence is deafening). There’s an entire country full of people who think it’s admirable to get rich in the casino rather than actually WORK for it. The sad thing is that so many believe it to even be possible.
I believe it to be caused by regulatory capture creating an environment where real work is effectively punished while gambling in the uber-casinos operates under no gaming law whatsoever. Investment banks are far more interested in gaming everyone via billion dollar exotic derivatives than they are in actually funding US business. That’s not helped by the fact that most US manufacturing has emigrated to China.
Things have to change but it will take another huge collapse to provide the necessary anger to push it and the right people driving to ensure good outcomes.
There are some other interesting statistics which are arguably more relevant than plain and simple margin debt. “We’re not back to 2007 levels” is not accurate as prices are also not nearly at 2007 levels. Thus measuring margin debt relative to some benchmark (S&P500?) would create a clearer picture and I think you will find that since 2001 basically the stock market has been one big pyramid scheme of margin debt.
My take is that speculators are keeping prices high in the hopes that they can unload it onto a frenzied crowd later on and reduce the margin exposure, however if something goes wrong with the plan you get a frenzied panic, like we saw in April. This can happen again if anything important has the potential of devastating public morale (i.e. willingness to buy).
Boy, that was a quick 3% pull-back. Guess Tom Demark will have better luck next time. Next up, 1425-1450 on SPX, probably by April.
It’s a buy the dip scheme. FYI.
pretty impressive, b ferro. can’t disagree with you. about the only thing I can think of now that will derail it before that time is if violence spills into saudi arabia. otherwise, the bernanke put trumps all………
This is an incendiary comment, but nothing will send it lower – 0% probability of that now. EVERYTHING has been thrown at this now, including ME revolution LOL. The best you get is a 2-3% dip. Shorting this market is one of the most health debilitating things anybody can do. It is amazing – it takes massive, massive volume to send it lower and it levitates on no participation. I think gold, ole Laslo B is spot on and this thing goes to 2,000+. Look at the historical Dow or SPX charts, this rally is unprcedented in nearly every way but the massive secular bull during the 90s. I was running an analysis this morning looking at the ratio of cumulative 6 month volume on up days vs. that on down days – this week we registered the highest reading ever on the SPY dating back to 1993. It doesn’t matter though – it’s just another piece of analysis that is irrelevant. Something bigger is at work here. There are very powerful interests here that cannot stomach a market decline – the sell-side institutions, the long only buy-siders and the Fed – if the market heads sustainably lower here, I’m not sure any of them will survive…the ball must stay in the air.
Notify me of follow-up comments via e-mail
© 2009 pragcap.com · Register for PC
According to the latest data from the exchanges the bears are becoming an endangered species. As short interest craters investors are taking on record levels of debt to borrow at low rates and purchase equities. In essence, the Bernanke Put is spurring on another risk taking binge for Wall Street.
Yesterday, CNN reported on the decline in short interest. As you can see, total short interest in the S&P has declined as the seemingly unstoppable bull market forces shorts out of the bearish game:
This is perfectly normal during a bull market, however, there are more disturbing trends in margin data. While Ben Bernanke fails to keep rates low and induce business borrowing, he is in fact stoking a speculative boom at the Wall Street casino. According to Bloomberg Wall Street has been leveraging up in preparation for the Fed’s “wealth effect”:
Debt at margin accounts at the New York Stock Exchange minus cash and unused credit from margin accounts climbed to $46 billion, according to data released by NYSE yesterday. Hedge funds had $290 billion of debt from margin accounts in December, the largest sum since Lehman Brothers Holdings Inc. collapsed in September 2008.
"It makes a lot of sense given the low cost of borrowing and some equities' valuations," said Patrick Armstrong, who helps manage $356 million in multiasset strategies at Armstrong Investment Managers LLP in London. "There is a capital- structure arbitrage to be made by buying stocks with leverage."
We’re not yet back to 2007 levels, but as the rally progresses it becomes more and more clear that nothing has really changed in the USA. We are simply back to all the same gimmicks, policies and speculative games that got us into this mess. The Bernanke Put is only helping to reinforce this.
The solution for this mess comes through proper regulation (so far the silence is deafening). There’s an entire country full of people who think it’s admirable to get rich in the casino rather than actually WORK for it. The sad thing is that so many believe it to even be possible.
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