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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club
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To: marc ultra who wrote (6550)7/3/1999 5:58:00 PM
From: marc ultra   of 15132
 
Charles Biderman of liquidity trim-tabs surprised that margin rose when he was predicting would fall a lot from internet washout. Note in particular "Officially, we are now worried about the audacity and lack of fear of individuals in leveraging up their equity holdings to rates not seen since 1987".



Liquidity Trim Tabs
520 Mendocino Ave., Santa Rosa, Calif. 95401
JUNE 28 ~ Margin debt at all NYSE member firms (which includes almost all margin debt secured by Nasdaq stocks) rose $5.1 billion, or 2.9%, in May to $177.9 billion despite a 2.2% drop in the market cap of all stocks trading in the U.S. and a 33% peak-to-trough decline of Internet stock indexes. We had guessed early in June that May margin debt plunged due to the huge 50% drops of many Internet favorites. Obviously we were wrong. Margin debt as a percent of the Trim Tabs Market Cap rose to 1.20% at the end of May-the highest level since 1987-just 15% below the 1.38% peak at the end of September 1987. Officially, we are now worried about the audacity and lack of fear of individuals in leveraging up their equity holdings to rates not seen since 1987.
There could be two other reasons why margin loans rose in May that have nothing to do with the stock market. One: Individuals are substituting margin debt for more expensive credit cards. Two: Less mortgage refinancing as interest rates rise. Still, the more individuals borrow against stocks means there's more "greed" than "fear" in the market. The end result: a bigger and more explosive downside move-when it happens.
-- CHARLES BIDERMAN
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