Leverage & Deleveraging

[winston]

Reckless central banks have pushed debt to a mind-blowing new level

Source: Bloomberg

http://thecrux.com/must-see-reckless-ce ... new-level/

[winston]

The Scariest Margin Call Since 1792 By Louis Basenese

It’s St. Patrick’s Day, and apparently too many investors are feeling lucky.

In the last week, a cacophony of warnings erupted from financial pundits over the latest margin debt figures.

Why? Because the amounts of cash that investors are borrowing from their brokers to reportedly buy up more stocks topped $451 billion in January.

That’s the fifth month in a row that margin debt levels hit new all-time highs. (My colleague, Alan Gula, recently discussed the uptick inmargin debt, too.)

Source: Wall Street Daily

http://www.thetradingreport.com/2014/03 ... ince-1792/

[winston]

Warning: This Year's Spike in Margin Debt Is a Huge Red Flag for the Market

By David Zeiler

Source: Money Morning

http://moneymorning.com/2014/03/20/warn ... ag-market/

[winston]

Debt warning: This indicator “called” the stock market tops in 2000 and 2007

Margin debt reaching all-time highs, can be viewed as a sign of excessive confidence in the markets… yet knowing this hasn’t been that helpful when it comes to portfolio construction.

What has happened in the past that has been helpful when it comes to margin debt is this…

When margin debt was hitting all-time highs and turned lower (which in did back in 2000 & 2007), the S&P 500 was near a peak in price.

Doug Short updates us in the chart above, reflecting that margin debt – for the second month in a row – has decreased from the highest levels in history at (1).

Does this mean that “the top” is in for the S&P 500? Not in my opinion.

Does it send a word of caution towards very large portfolio exposure to the stock market? The patterns would suggest it does.

Source: Kimble Charting Solutions

http://thecrux.com/debt-warning-this-in ... -and-2007/

[winston]

by behappyalways

BIS chief fears fresh Lehman from worldwide debt surge


http://www.telegraph.co.uk/finance/mark ... surge.html

[winston]

Deleveraging? What Deleveraging?

There’s a great new study out from Geneva Reports on the World Economy 16 (ICMB — International Center for Monetary and Banking Studies) called Deleveraging? What Deleveraging?

This prestigious group of economists is saying the same thing we’ve been saying and they’re backing it up with the most comprehensive and global analysis we’ve seen yet.

Economists, who want to pretend that things are okay, and that things are getting better, often state that we’ve seen a period of deleveraging and now consumers, corporations and banks are in much better shape.

The truth is that the private sector in the U.S. has deleveraged a little — from $40.9 trillion from 2008 down to $38.2 trillion… that’s 10% less. But since then our total government debt has gone up 53%. From $13.5 to $20.6 trillion.

Foreign debt has risen from $1.5 to $3.1 trillion…

We’ve subtracted $2.8 trillion, but added $8.6 trillion of debt. That’s not deleveraging.

We now have private and government debt of $61.9 trillion vs. $56.1 trillion in 2008. We have more debt, not less… $5.8 trillion more.

As a percent of GDP it has gone down a little as the chart below shows for both the U.S. and the euro zone.

See larger image

Please note that in the two major developed regions of the world total debt has gone sideways, even as a percentage of GDP. This is also true for the entire developed world as well. This isn’t fair.

An unprecedented government stimulus has artificially inflated the GDP to higher levels.

I’ve circled where the GDP peaked before falling for the U.S. and for the euro zone. When GDP falls rapidly, as it did in mid-2009, it temporarily distorts debt to GDP ratios.

In the U.S., we started around 384% total debt in comparison to the GDP and now we’re at 371%. We’re a tiny bit better off by this measure at 3% lower. If you measure that from 360% in 2008 in the euro zone, total debt is actually about 7% higher than at the beginning of the financial crisis.

If we go back to 1929 when the last debt and financial bubble peaked, the total debt ratio was about 180% of GDP. Government debt was only about 30% with private debt at 150%.

Here’s the clincher… private debt fell from that 150% of GDP to 50% between 1930 and 1945. Let me point out one thing — that is deleveraging. Private debt at 67% as a percentage of GDP disappeared!

Government debt went up massively, initially due to the depression and to deficits.
The big kick came with World War II. Government debt went from 30% to 115% as a percentage of GDP. If you do the math, that’s up 283%. That’s more than we’re likely to see in the deep financial crisis ahead.

The key here is that private debt can deleverage massively. What if our private debt, peaking at $42 trillion, deleverages by even 50% vs. the 67% in the last winter season?

That would mean that $21 trillion of debt would disappear! Now you see it, now you don’t.

Debt is like magic with money created out of thin air by the fractional reserve system.

When money disappears from writing down or canceling debts, you get deflation: less money chasing the same goods.

The U.S. government has printed about $4 trillion dollars in the last six years. Which is bigger: adding $4 trillion or $21 trillion disappearing? That’s how you get deflation despite money printing.

I’m going to cover this topic in much more depth in the November issue of The Leading Edge. I will include some new charts from this Geneva report along with some updated charts from our research.

It’s not just debt that’ll disappear in a deep crisis ahead; it’ll be even more in financial assets: stocks, real estate and commodities, etc. Financial assets do bubble even more than debt and it creates more money in the chase.

When the bubble bursts, those assets deflate rapidly and destroy the money and wealth that consumers, and businesses, were planning on using in their future.

In this last time central banks reflated most financial assets but the next time they won’t have the public’s confidence to do so again. People will lose faith in the concept that a financial crisis and debt bubble can be remedied by simply filling in the crater with free money…

We all know you don’t get something for nothing.

When I add up all of the debt and financial assets that could deflate I come to the conclusion that there simply is no way the government can print enough money to fill in the next, and even bigger, crater that is coming.

Prepare your portfolio for deflation, not inflation.

Now is not the time to listen to the gold bugs, even though many are as astute as we are in looking at the debt, leverage and financial reality. They just haven’t thought through what happens when the bubble deleverages.

History clearly shows that deflation follows, not inflation.

Source: Economy & Markets

[winston]

Margin Debt Highest Ever: “This Is Total Insanity”

The last six years for the U.S. stock market have been an indomitable buying orgy fueled by the Federal Reserve’s zero interest rate policy, causing the S&P 500 to triple in value. One metric says it may have gone too far.

Borrowing to buy stocks, as measured by the NYSE monthly margin debt figures, ended 2014 at its highest level relative to the size of the U.S. economy since 1929. In absolute terms, it’s the highest ever.

“If this doesn’t count, then we might as well throw away everything we’ve ever learned about risk because there is none,” said Alan Newman, who sent this data to customers of his Crosscurrents newsletter last week.

“The manias of 2000 and 2007 now both look like small potatoes by comparison. This is total insanity."

Source: CNBC

http://www.cnbc.com/id/102303708

[winston]

The Truth About This "Meltdown" Indicator

By KEITH FITZ-GERALD

Source: Money Map Report

http://moneymorning.com/2015/01/19/the- ... dium=email

[winston]

The Truth About This "Meltdown" Indicator

By KEITH FITZ-GERALD

Source: Money Map Report

http://moneymorning.com/2015/01/19/the- ... dium=email

[winston]

Remember the last time people got paid to borrow money? It didn’t end well.

By Simon Black

Source: Sovereign Man

http://www.thetradingreport.com/2015/03 ... -end-well/