Tuesday, November 5, 2013

margin debt at record high

Barry Ritholz had this on "The Big Picture" a few days ago on the record margin debt in the stock market.
Today was another quiet day as the averages held near record highs.

And all the talking heads could do was tell us why it is still a good time to buy.

New rumors of Fed support for the next several YEARS!

And the market just sat there.......

Lots of bubble talk, that is why the discussion on CNBC. Of course everybody is a contrarian nowadays and everybody wants to be the first one to spot the next bubble. A bubble being defined as a self reinforcing sustained rise in prices that have no connection to fundamental reality.

What is the fundamental reality of the stock market?
If one talks of corporate earnings they are at record levels. About 12% of U.S. GDP. Also a record.
But what of the underlying economy? Isn't that a fundamental? Unemployment levels remain high. Wages remain unchanged and have lost ground to inflation for how many years?
Personal and household debt levels remain high. Not at record levels due to the declines in the housing enthusiasm, but still high.
The economy is increasingly concentrated. Companies marketing to those who still have purchasing power. But across the board the word is that no companies have intentions to hire people. They make their profits by increased productivity....
A couple days ago Kellogg said they saw trouble on the earnings front, but when they announced a plan to decrease their workforce by 7% the stock went up....

Eventually the leveraged crowd will become pensive, and then wary, and then afraid of the economy that does not improve fast enough to justify the leveraged positions. That means there is some sort of "bubble". An sustained rise in prices unjustified by fundamentals. But it ain't a bubble 'till it pops!

The chart from the Big Pic:


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