"We risk becoming the best informed society that has ever died of ignorance"
- Rubén Blades

"You can't make up anything anymore. The world itself is a satire. All you're doing is recording it"
- Art Buchwald

"It's getting exciting now, two and one-half. Think of everything we've accomplished, man. Out these windows, we will view the collapse of financial history. One step closer to economic equilibrium"
- Tyler Durden

"It is your corrupt we claim. It is your evil that will be sought by us. With every breath, we shall hunt them down."
- Boondock Saints

Thursday, May 1, 2014

Margin Credit Drops For First Time In 8 Months

Since May, United States Margin Credit accounts have been increasing on a monthly basis according to NYXData.com.  As stock investors have continued to borrow to fund their purchasing of equities, Investor Net Worth as measured by the difference between Total Free Credit and Total Margin Debt as grown to historic levels.   

This means that should brokerages decide they don’t want the interest from margin lending and decide to call in margin accounts, those without the proper levels of cash in their accounts will be forced to liquidate their holdings to appease their brokerages.

It is this relationship that many have speculated has caused a floor during broad US market index contractions as margin calls haven’t come and those holding US equity assets with borrowed cash weren’t forced to sell.  Now that we have seen a slight contraction in margin credit, recent history shows that a contraction like this precedes a broad market sell off:

Here is the chart showing the valuation Investor Net Worth which again is the difference between Total Free Credit and Total Margin Debt:

You can see that Margin Credit levels are currently at all-time highs, which has sparked cause for concern among investors: