Registered Investment Adviser Caleb Lawrence
The major averages struggled in early trade entering the final hour with small gains on little real news. While the geo-political situation remains tense there’s little rhetoric today.
The New York Institute of Supply Managers report on business conditions slipped ½ point in March to 54, despite a notable gain in employment.
In the post bust period more than a few pundits, including central bankers and economists remarked on the hazards posed by excessive leverage, frankly this shouldn’t have been a surprise, but there you go. At this point it has been very well documented that excessive leverage, or debt, causes a self-reinforcing feedback loop that drives up prices and encourages more leveraged speculation until the whole mess collapses under its own weight compliments of ridiculous overvaluation. We saw this in 2000 and again during the last crisis from 2007-2009. Along comes 2018 and the latest data on margin shows that we have a new all-time record high of 665.7 billion Dollars, following a 22.9 billion surge in January and a 112.2 billion jump in the 12 month’s prior. Similar huge gains were seen just prior to the Dot-Com collapse in mid 2000 and of course just before the Great Financial Crisis. As per Financial Industry Regulatory Authority or FINRA and the New York Stock Exchange or NYSE. In fact FINRA went so far as to warn on the dangers of excessive margin debt on January 18th. The Standard and Poors 500 Index topped out 8-days later, while the NASDAQ peaked on March 12th. It has been said that they don’t ring a bell at market tops, but FINRA’s warning could go down as a reasonable facsimile of one.