Danger At The Margin / Contrary Investor On Margin Debt

I assume there will be more margin calls down the road....

Man muß kein Hellseher sein um zu erahnen das es demnächst eine Menge Margin Calls geben wird.........

Danger at the margin FT Alphaville
ContraryInvestor.com is also concerned. In their latest Market Observations The "Other" Credit Market report for December they take an detailed look at the “other” credit market. Their first point is that historically margin debt has been a coincident, not a leading, indicator of a stock market peak

The latest spike in margin debt has corresponded with a big run in equity markets from summer 2006 to summer 2007, they note. It looks unsustainable.

But it’s not just the nominal debt balances that are pointing to trouble. ContraryInvestor.com looks also at the year on year rate of change in NYSE margin debt.

That growth rate has only spiked over 60 per cent on five occasions in the last fifty years - and one of those, in January 1993, was thanks to a change in methodology made late in the previous year.

The latest two growth peaks are showing in the next chart, below right.
NYSE margin debt passed the 60 per cent year on year growth mark in December 1999, and peaked in March 2000

In 2007, the rate of change level was breached in June. “The history of margin debt relative to equity market price movement over the last half-century is suggesting to us we’re at a high risk juncture right here,” says Contrary Investor.
Looking back through the corridors of history, the report adds that, excluding the anomalous 1993 spike, the S&P finished both nine and 12 months lower after all of the three other 60 per cent plus occurrences.

We’re living peak number five. The NYSE’s margin data seems to hold a warning from multiple viewpoints.

Going With The Flow? / Contrary Investor

Always a pleasure to read the brilliant stuff from Contrary Investor. This is only a small summary. Make sure you click on the headline to read the entire piece. Not a pretty picture.....

Immer wieder ein Genuß die treffenden Analysen von Contrary Investor zu lesen. Die nachfolfenden Charts sind nur ein kleiner Auszug. Kann jedem empfehlen den kompletten Report lesen (Überschrift klicken). Nicht sehr rosig.......

The first in this series is the very simple relationship between household cash and household liabilities. You may remember that our definition of household cash is as broad as can be. We include all household "banking products", per se, but also include all household holdings of bonds, inclusive of Treasuries, Agencies, corporates, muni's and mortgage backed paper. Implicitly, we are assuming bond holdings could be converted to cash at a moments notice. So what follows is simply total household cash less total household liabilities over the last six decades.

Next in the hit parade is this same household liability number now set against disposable personal income. In one sense, it's a measure of how much debt households have been able to support relative to their income at any point in time. And quite understandably, as interest rates in general have fallen since the early 1980's, households have been able to support ever larger total debt relative to their ongoing and growing income streams.

> Too bad that the US consumer can´t raise the debt limit like the government......

> Zu blöd das der Konsument nicht wie die US Regierung beliebig die Verschuldungsgrenze weiter nach oben schrauben kann...


Paulson: US should boost debt limit
Treasury Secretary Henry Paulson on Monday said the United States may be unable to pay its bills this fall unless Congress raises the government's borrowing authority, now capped at $8.965 trillion.

Congress has already boosted the statutory debt limit several times during President Bush's tenure. The last time Congress upped the government's borrowing authority was in March 2006 when it agreed to raise the debt ceiling by $781 billion.

In the past, Treasury has resorted to numerous accounting maneuvers to pay its bills while the government waited for Congress to expand its borrowing authority. Paulson argued against being forced to use such measures, saying they "would create unnecessary uncertainty for the financial markets and result in costs to the government." Such actions, he said. "should be reserved only for extraordinary circumstances, and should be avoided."

> And all this at times when Bush & co wants to make the public believe the deficit is improving......

WARNING: make sure you have no coffee in your mouth when you click on the link to see the chart for "Forecast US Budget Balance" :-)

> Und all das passiert zu Zeiten wo von Seiten der Regierung immer wieder zu hören ist das sich die Kassenlage entspannt......

WARNUNG: Ihr solltet besser keinen Kaffee im Mund haben wenn Ihr den nachfolgenden Chart "Forecast US Budget Balance" sehen werdet :-)

got Gold....?

Deficit Attention Syndrome / Contrary Investor "Hall of Fame"

i highly recommend to read the full piece! please click on the headline this is only a very small extract. excellent!

lege jedem die volle dosis ans herz. bitte auf die überschrift klicken. wirklich brilliant!


...Quite importantly, it's this change in the rate of growth in goods imports that we believe may be a key tell regarding the broader economy. First, is it really any wonder that the rate of change in goods imports has been falling as of late when the annual rate of change in retail sales has slowed to levels last seen in early 2003? Of course not, as so many consumer goods are imported. Having said all of this, the following two charts are probably the most important in this portion of the discussion. First, the long-term picture of the year over year rate of change in US goods imports lies directly below.


As you will clearly see in the chart, there has only been one time in the last three and one half decades where we have fallen below the current rate of change level and the US has not entered or already been in an official recession. That exception was the mid-cycle economic slowdown of the mid-1980's. We suggest that the current possibility of a rate of change break below current levels may be more important than ever given the sheer nominal dollar magnitude of the current goods deficit as part of the overall trade numbers. As we're sure you know, the US runs a services surplus (tourism and travel related). The goods deficit is really larger than the headline US trade deficit. THAT's how important changes in goods imports and exports really are in the current environment.

The next chart is really the important one in terms of defining and characterizing the US trade deficit, as we know it today. What we are looking at is the percentage of the total US trade deficit being driven by both imports of crude oil and imports from China. We've delineated each separately as well as presented their ongoing combined value in the blue columns. The message is clear. In 2006, 66% of the US trade deficit is accounted for by crude imports and the trade deficit with China. It's no wonder China/US trade circumstances are such a perceptual political flash point. Unless something acts to change the trajectory of these trends, it will probably only be a year or two until crude and China account for three-quarters of the total US trade deficit. Outside of crude and China, it almost seems trade with the rest of the planet is an afterthought in terms of the overall US deficit specifically. ....

make sure you get the last paragraph from hank paulsen.....(click headline)

achtet besonders auf den letzten absatz von hank paulsen...(überschrift klicken)

It's Delightful, It's Delovely, It's Deleverage! / contrary investor

usa = asset inflation nation :-). make sure you read the full piece and click on the headline. this is only a very small part of the very good analysis

lege euch die volle dosis ans herz. diese hier ist nur ein kleiner ausschnitt. bitte auf die überschrift klicken.

....US economy itself, otherwise known as the Asset Inflation Nation!

real estate and equity price inflation has driven two thirds of the increase in household net worth in the current decade. ....The largest number we've seen in six decades at least...

And at this point, clearly in numbers too big to ignore.
Without belaboring the point, this change in character of household net worth creation over the last three decades has indeed influenced household consumer behavior as is clearly depicted in the chart below. Quite simplistically, have the drivers of household asset inflation beginning in the early 1980's influenced consumption patterns and the character of the US economy since that time? If the following graphical view of life doesn't answer that question, then we just don't know what does.

as always great stuff from http://www.contraryinvestor.com/index.html

We're Swimming In Liquidity, Aren't We? / contrary investor

another fantastic piece from http://www.contraryinvestor.com/index.html. make sure you read the full piece with lots of great charts and commets. click on the headline!

genial. unbedingt den kompletten bericht lesen. auf die überschrift klicken!

Owners equity as a percentage of the market value of residential real estate directly from the Fed Flow of Fund data. Thank you Fed. Very simple question that really reflects on household net worth and prompts a few questions about household leverage. In one of the greatest residential real estate price acceleration periods of a life time, how come there has been absolutely no increase in relative owners equity as a percentage of market values since the real estate mania's inception early this decade, let alone since the baby boomers came of age in the early 1980's?

With the type of price increases we have seen just this decade, we would have expected this to perhaps have turned up a bit vertical. As you know, there's only one explanation. Household residential real estate leverage in aggregate accelerated at a greater rate than did prices during the current cycle. And here we thought nothing could have moved faster than real estate prices in recent years. Wrong. This shows us just how meaningful "liquidity extraction" has been in the land of residential real estate for households this decade.

Again, what's next in terms of a meaningful household asset that can be inflated and borrowed against? At least for real estate, it's now a "been there, done that" asset class, isn't it?

Attack Of The Fifty Foot Woman / contrary investor

contrary investor is spot on. this month they are digging into the hope that the slump in the fed funds rate will boost stocks further like in the past. make sure you read why this time it is unlikly. the yields will only fall to levels needed to support further gains in the stockmarket when there is a severe recession and not in the goldilocks scenario that the bulls are praying for...(even they have to admit that in a recession the best accounting can´t boost earnings plus stocks .........) plus they revisted the carrytrade. make sure you read the whole stuff and see the charts! a must read!!!!

contrary investor bringt es mal wieder auf den punkt. diesen monat nehmen sie die hoffnung der bullen aufs korn warum ein fallen der 10jahres bonds diese mal nicht ausreichen wird um aktien weiter zu treiben. der nötige level dürfte erst bei ne happigen rezession erreicht werden. (das wiederum sollte die gewinne pulveresieren....). zudem noch neus zum carrytrade. empfehle dringend den ganzen artikel zu lesen. großartig!

whole story/komplette geschichte http://www.contraryinvestor.com/mo.htm