Heinz,
Returning to my "black hole" analogy, here is some data to back it up (I'm sure you've seen this before, but this is the latest update):
cross-currents.net
Assuming that these statistics are correct, the ratio of mutual fund inflows to margin debt growth is particularly unsettling. Using the numbers in the report, margin debt increased $141 billion in 1999, versus mutual fund inflows of $186,8 billion. So we're talking about the same order of magnitude coming from each end! Stunning.
In November/December alone margin debt increased $46.3 billion, about 1,5x mutual fund inflows (using the annualized figures/12). Even more stunning.
If we add to this picture that mutual fund cash levels are at all-time lows, and the possibility of foreign selling once the cracks start to show, I can only conclude that major problems are just around the corner. The corner may be closer than we think.
The M2 to total market cap statistic in the report is also interesting, but we've been running at low levels since the early 90's. Hard to make a case from this analysis alone and I can't comment as to the relevance of M2 vs other liquidity measures for this type of argument.
I've been nibbling at shorts lately, and have been putting on option spreads to finance (from time decay) purchases of out of the money puts (DJX only since QQQ premiums are way too high, although the final slide down may be much more severe). If today's action confirms what we saw yesterday, I'll be back in with shorts.
Good trading.
Robert |
