ES -- DX/CL -- isee -- cboe put/call -- specialist/public short ratio -- trinq -- trin -- aaii bull ratio -- abx -- cmbx -- cdx -- vxo p&f -- SPX volatility curve -- VIX:VXO skew -- commodity screen -- cot -- conference board

Monday, February 26, 2007

 

a deathly excess


the economist reports:

MARGIN debt in the American stock market has reached a new record of $285bn. In other words, more borrowed money is being used to buy shares than ever before.

As David Rosenberg of Merrill Lynch observes, margin debt has jumped by $40bn in the past three months, a similar rate to early 2000, when the markets were in frenzy. As a proportion of market value, margin debt is now at its highest since the late 1920s, an era that was a by-word for speculation (and resulted in the crash of 1929-32).

There are further signs that sentiment is getting overheated. The proportion of cash held in mutual funds has dropped to 3.9%, equal to its record low (although those lows were recorded only in 2005). Stockmarket analyst Alan Newman says we have gone almost 950 trading days without a 10% correction on Wall Street, the third-longest period in history.


note particularly that margin debt has jumped some $40bn in just the last three months -- a rate of expansion that annualizes to 83%. in the context of the chart included here, this would seem to indicate that we may be very near the top in the markets.

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