Tuesday, March 20, 2007

Why Margin Debt Doesn't Matter / minyanville

this is a different view on the margin debt. click on the headline
hier mal ne andere ansicht in sachen margin debt. bitte auf die ├╝berschrift klicken

to be honest i find calling free credit = cash and putting up a bullish chart makes me not more comfortable with the amount of debt that is outstanding

um ehrlich zu sein finde ich die tatsache das der chart dadurch bullish aussicht das freie kredite als cash tituliert werden wenig vertrauenserweckend.

here is a good take from rodger rafter http://www.rebalancing.blogspot.com/

"you should relax less"

Bunch of hooey, if you ask me.

The title is a pretty good give away that it is an attempt to rationalize away the precarious situation of hoards of overleveraged small investors. The article isn't saying margin debt doesn't matter so much as it is saying those in cash will come to there rescue.

That's not how I expect things to shake out.The heavily marginated are ripe for a fall, just as they were in 2000. Sure, there's a bunch of cash sitting in accounts, but that will probably grow rapidly like it did from 2000-2002 if the market gets bearish enough. Look at the chart and you'll see it wasn't until the end of the bear market that the smart money went to work.

The real question should be why cash in accounts has been rising lately. Cash was on the rise from 1998 to 2000, as it has been lately. There's been too much liquidity flowing into the market, with not enough good buys left out there. LBOs have been putting cash into investor's hands at a ridiculous rate and many have had the sense to just sit on it rather than pay too much for what's out there.

People who are smart enough to be in cash now will probably be smart enough to wait out much of the coming downtrend as they did earlier in the decade.

thanks rodger!



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