Market Analysis

The Final Frontier

Final FrontierThe Fed may be tapering, but nobody else is. Margin debt and buybacks are in full swing and boy are they ever. June marked a substantial increase by over 5% to over $464B in margin debt from $438.5B in MayWowser. This means that just the increase in margin debt of $25.5B was larger than the FOMC’s entire POMO program in June. The combined flush of cash then largely explains the market’s increase in June doesn’t it? A simple comparison of the last 3 months shows are very direct correlation:

SPY debt

Of course none of these figures include the impact of corporate buybacks, but just the same they are piling massive hordes of cash (or rather more debt in most cases) into stocks at all time highs:

Share Buyback

Hey this data only goes till March. Any signs of a slowdown? I googled “announces buyback” for the last month. Here’s page 1:


Notice missed sales or earnings are followed by buyback announcements. Yup, this market remains a liquidity beast, and let’s be honest here: If they hadn’t pushed $75B in debt and balance sheet expansion down the market’s throat in May and June (not including buybacks) is there any doubt that markets wouldn’t be at different levels?

What’s it all mean? It’s artificial liquidity and debt that continues to push prices significantly higher than they should be and a change in liquidity flows (which can always happen rapidly) will likely cause a massive realignment in prices. In other words: The market is highly dangerous here and pushing the long button implies taking on faith that others will not push the exit button. A Ponzi scheme at its finest.

And so central banks, retail and corporations confuse price with value and all are buying stocks with debt at the final frontier: At all time highs.

Best of Luck.


Categories: Market Analysis

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