You can find a much more detailed analysis on the subject matter here….

NYSE Margin Debt Falls Again: More Confirmation of a Major Market Turning Point Last Year?

The chart above is truly stunning. As most things in today’s FED induced “bubble everything” financial environment. For our purposes we have to concentrate on two things.

1. Margin debt is now in a clear downtrend. We saw similar formations at 2000 and 2007 tops.
2. Just stop for a second and think about how massive today’s imbalances are. 2015 margin debt peak was about 40% higher than 2000 and 2007 tops. I am sorry, but my vocabulary is limited to only one word……insanity.

To conclude, we are witnessing a bubble of historic proportions. Not only in margin debt, but in the over equity markets. As has been discussed here so many times before.

We sold short 5 contracts of Sugar on April 1 at $0.1542 and covered on April 13 at $0.1430 for a 7.2% gain in 13 days. Why? 

To learn more about Demeter Research and Matt’s trading/analytical framework please Click Here.

The Dow topped out on October 11th, 2007 at 14,280. By March 6th, 2009 it was sitting at 6,460 or with a 55% loss. But here is what’s interesting. The imbalances we are witnessing today are exponentially greater than what we saw in 2007-2009. Consider the following……

2007 Imbalances: 

• U.S. government debt (as narrowly defined) stood about $8 trillion.

• The Federal Reserve’s balance sheet was under $800 billion.

• 10-year Treasuries yielded approximating 4.5%, giving the Fed had some leeway to cut interest rates if necessary to fight a crisis or business downturn.

• The subprime-mortgage bubble peaked at about $1.3 trillion.

• Aggregate government debt was under $10 trillion.

• The derivatives market’s notional value was $182 trillion.

• A homeless man named Johnny Moon was reportedly able to get some $600,000 of mortgages to speculate in the U.S. housing market.

As bad as all of that was, consider Today’s Imbalances:

• U.S. government debt totals about $19 trillion, or some $11 trillion more than it was in 2008.

• The Fed’s balance sheet is approaching $5 trillion vs. $800 billion in 2008.

• Short-term interest rates are 0.25% compared to 4.5% back in the day.  With interest rates at near-record lows, there’s little opportunity for the Fed to further expand its balance sheet.

• The derivatives market is currently larger than $500 trillion vs. $182 trillion in 2008.

• Central-bank capital has dropped to 0.8% of assets from 4.5%.

• The size of the subprime bubble was $1.3 trillion, but the size of sovereign borrowing is $7 trillion today.

• Our government has to borrow money to simply pay interest, and monetary policy is hamstrung by near-zero interest rates.

• There are no more homeless people getting mortgages to buy homes, but there’s a Danish sex therapist whose bank is paying her interest (instead of the other way around) on a loan that’s financing her matchmaking Web site.

Not a big deal???

I would certainly disagree. The imbalances above will have to be addressed one way or another. They will not simply go away. We do not live in a magical world where the FED geniuses have created a perpetual money machine.

If anything, it is highly probable, especially if you consider today’s general overvaluation levels, that the imbalances above will be addressed in a violent fashion. And I would say sooner rather than later.

4/18/2016 – A positive day with the Dow Jones up 105 points (+0.59%) and the Nasdaq up 22 points (0.44%). 

Before we get to that, consider the following.

• There’s another sign the US could be headed for recession
• Get ready for return of volatility: Bernstein CIO
• By this measure, the S&P 500 is overvalued by 72%

“The reality is, there should be a relationship between GDP growth and profit growth, and that has largely been absent. We’ve been supporting profits growth with things like share buybacks and other unsustainable factors, and fooling ourselves into thinking that that’s actually sustainable profits. What this is pointing out is that… we are paying too much for the growth that we can expect to get out of the S&P 500,”

Now, let’s take a look at the following valuation metric. Shiller’s Adjusted S&P P/E Ratio.

Coincidentally, both metrics tend to agree. The market is overvalued by 50-75%.

Now, an argument can be made that today’s zero interest rates, future earnings, lower anticipated dollar, etc…. justify current valuation levels. I don’t believe that such a “This Time Is Different” notion is appropriate here. Today’s environment is NOT that different.

Long-term metrics that measure internal health and valuation levels of the market agree. The overall stock market is in a clear bubble territory. Reminiscent of the 1929, 2000 and 2007 tops.  If so, long-term investors should anticipate no further gains from this point on. If anything, they should prepare for a big drop…..if history is any guide. Invest accordingly.

This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2015-2017. In fact, when it starts it will very quickly retrace most of the gains accrued over the last few years.  If you would be interested in learning when the bear market of 2015-2017 will start (to the day) and its internal composition, please CLICK HERE.

(***Please Note: A bear market might have started already, I am simply not disclosing this information. Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. April 18th, 2016  InvestWithAlex.com

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