This is it!

NYSE-investor-credit-SPX-since-1980

NYSE-margin-debt-SPX-growth-since-1995

vix

SPX-10-yr-yield-and-fed-intervention

http://www.advisorperspectives.com/dshort/updates/NYSE-Margin-Debt-and-the-SPX.php

COM-Traders-Stampede-to-Cash-06282013

But who do we sell to?   (Let’s not forget the risks as new highs are made every-hour-of-every day since good news is good news and bad news is good news).

http://www.hussmanfunds.com/wmc/wmc130722.htm

9 responses to “This is it!

  1. DanielONRME@hotmail.com

    Pardon, I do not fully understand this post practicality. In a recent comment it seems you have advised that you are 100% invested. Following this post does it mean you liquidated all or you now have hedged in place?

    About the margin “peaks” that’s correlation and not necessarily causation. That is, whenever the market will “crash” it will cause a sharp drop in margin quantities for obvious reasons. It will also be followed by an increase in the number of “people jumping out of windows”, so we can make graphs with the market prices and “windows jumpers” and there could be a significant correlation. (yes, in this case it’s clear high margin debts are a huge rolling snow-ball when it starts, so my example is not 1:1)

    BTW did the graph adjusts for margin costs and accessibility? (e.g. easily and cheap margin accessibility via IB.)

    I’m not saying it is a healthy situation or that the market wont crash, just that it’s not very practical following this sort of stuff.. thanks for posting it though! It’s thought provoking.

  2. I don’t think anyone should pay attention to what I do or don’t do. Always make your decisions independent of others in regards to investing.

    The purpose of this post is to show the RELATIVE complacency vs. 2008/2009. How are risks lower today than in 2008/2009?

    Low vix with RELATIVELY high margin debt is not a situation that is conducive to future stability coupled with complacency—the Fed is in incontrol. Control of what?

  3. DanielONRME@hotmail.com

    Yes, for sure. I guess it’s just a bit confusing that some posts or about investing and some are a general macro/economics posts.

    • I think there can be many great arguments for investing even just before a bad market hits. Let’s say you find a wonderful investment opportunity in a business that has strong competitive advantages and even a great CEO that can allocate capital as well as Henry Singleton. It happens to sell at 50 cents on the dollar because of a unique situation, but you sense an impending market issue. Do you wait for it to fall to 30 or 40 cents on the dollar, or do you buy it at 50? I would personally just buy it and be ecstatic. I know I can’t predict the markets and have no clue when issues will happen, so I just focus on the difference between price and intrinsic value. Even if the author of this blog finds reasons for there to be a bubble today, it can make sense to invest if he’s buying things that are undervalued anyway and will continue to provide great returns.

      • Thanks Ankit:

        If I told you that the NASDAQ in March 2000 would decline by 60% would you invest at Berkshire at book value? I hope not.

        Today, I am not saying there is a stock bubble–only that with high margin debt and low volatility (VIX) and rising prices there may be higher unseen risks than most realize.

        Readers need to separate the general from the specific. I may point our forgotten risks in the stock market IN GENERAL, but that shouldn’t stop you from
        from buying a dollar for 50 cents.

        I am pointing out the psychology of general conditions.

        • Regarding the Berkshire comment – if I knew for certain that it would drop 60%, then yes, your point is correct, which is that I wouldn’t be buying it. In all reality though, we don’t know exactly how much or when a fall will be, and so I find it beneficial to simply continue buying $1 bills for 50 cents.

          • Yes if you knew for certain that the general stock market to be down 50% but only that you could buy Berkshire at book value, then buy Berkshire.

            The specific rules.

    • I get the impression from reading about investors like Buffett/Munger that although they don’t invest based on macro events, but they’re still aware of what is going on. If nothing else, maybe you can use it to your advantage to be especially cautious when the world seems complacent and remind yourself to focus on risk and valuation instead of reaching for yield, etc.

      Also, I can see how certain situations may be especially prone to macro risks if markets are overvalued. Let’s say you have a hypothetical CEF that has selling for a 15% discount to NAV and you’re guaranteed that the discount will disappear within 2 years time. Is it a good investment? What if you’re investing right before a downturn like in 2007/08?

      • Welcome to the world of Human Action. The future is uncertain. All you are trying to do is put the odds in your favor with low expectations, margin of safety, financial strength, panic prices from sellers, etc.

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