Thursday, June 2, 2011

Highest margin debt in years = greatest risk in years

My systems did a beautiful two entry short into the recent highs and covered yesterday at the close. Longer-term systems are short still and the market is hiding behind a Federal Reserve bubble of margin debt that is just waiting to contract. The early forewarnings can be seen in Silver and in Oil among many other commodities - and of which I have frequently referred. Silver is indeed on its way to below the breakout of the parabola and that is below 5 bucks. It will be destroying quite a lot of currency and margin debt as it does so. Meanwhile, all the dollar bears are grunting and chaffing and apparently unaware of what is about to befall them.
The reality is that we are now very close to the all time highs as far as margin debt is concerned. I wanted to bring this to the attention once again...margin debt is near the 2007 highs, we are near the recent highs for the markets and people are still clamoring to buy the dupe...there are a lot of people in trouble already and likely quite a few about to be in trouble...

Here is a graphic:

I am not one to be taking too much of a stand on the direction of rates, though yesterday looks a bit like an overthrow...but either way rates up or rates down - dollar will likely go up. However, if rates do end up going up here, then that poses another head wind for all the margin debt out there...I think there is a 50/50 shot that rates continue to be under pressure or rally. Either case is not good for equities at this point.
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