Friday, May 24, 2013

Margin Debt reflecting “Highway to the Danger Zone” at hand?

by Chris Kimble


Sir John Templeton first alerted me to the dangers of excess margin debt in the late 1990′s and I’ve been a fan of keeping in touch with this key indicator ever since.

Fresh Margin debt numbers have just been released.  My good friend Doug Short shared the above chart, reflecting the margin debt continues to move higher, reaching levels where the S&P 500 has struggled to move much higher!.

Are we on the “Highway to the Danger Zone” due to these historically high debt

levels?  Will it be different this time?  Was a Danger Zone level in the past, lets see if its any different this time around!

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The Fed’s Hands Are Tied… Right as the Financial System Begins to Crack

by Graham Summers

The Fed would do well to look at Japan.

Japan’s Nikkei, after rallying over 70% since November, just collapsed 11% in less than two days. Looking at the chart, it’s pretty clear where this thing is heading: the same as the NASDAQ in 2000.

This is the problem with economic policy that focuses on pushing stocks higher: eventually the collapsing economy comes home to roost and stocks implode. We saw this in 2000 and 2008. We’re currently seeing it in Japan. And it’s only a matter of time before it his the US.

Indeed, Bernanke’s whole life work has been based on the belief that the Fed didn’t do enough during the Great Depression. So he’s opted to expand the Fed’s balance sheet to over $3 trillion and to monetize most of the US’s debt issuance via QE to battle the Financial Crisis.

Altogether, the Fed has monetized QE equal to 15% or so of the US’s GDP. Doing this has already put stocks back in a bubble and damaged the economy to no end. Marginal debt is back at record highs, housing has not bottomed, and Bernanke is still talking about a “recovery” FIVE years after the Crash. At this point based on the business cycle alone we should be in a roaring growth spurt.

QE doesn’t work. It never has. Look at Japan.

Japan has monetized an amount equal to well over 25% of its GDP via QE. And at that point its bond market began to crash. It’s not coincidence that the Fed is beginning to talk about tapering QE now that this is happening. Even a career academic can look at what’s going on in Japan and know that more QE won’t help the US.

So the Fed is essentially handcuffed at this point. Increasing QE in any way risks a Japan-bond market style rout.

Can you imagine what would happen if the financial system faces another Crisis? The Fed has already thrown everything including the kitchen sink at the system. If the system collapses now the Fed will be powerless to stop it.

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Declines of 30% to 60% have taken place EVERY TIME here for 20-years!

by Chris Kimble


The hottest index on the planet, up over 50% more than the S&P500 over the past year is facing a resistance line that has saw it decline from 30% to 60% every time for the past 20 years.

Many of these declines have ended up impacting the S&P500.

Can the Nikkei do something different this time at (2)?

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Will Japan Trigger a Global Financial Meltdown?

by Graham Summers

Japan’s bond market is officially losing control.

We have definitely taken out the multi-year trendline here, making a new high higher after a higher low. This is BAD news as it indicates that Japan’s bond market could be entering a cyclical downturn.

If this happens then the great global bond market rig of the last five years is coming to an end. Most analysts have been ignoring bonds because stocks are at record highs.


As Japan has indicated, when bonds start to plunge, it’s not good for stocks. Today the Japanese Bond market fell and the Nikkei plunged 7%. The entire market down 7%… despite the Bank of Japan funneling $19 billion into it to hold things together.

This is what it looks like when a Central Bank begins to lose control. And what’s happening in Japan today will be coming to the US in the not so distant future.

If you think the Fed is not terrified of this, think again. The Fed has pumped over $1 trillion into foreign banks, hoping to stop the mess from getting to the US. As Japan is showing us, the Fed will fail.

Investors, take note… the financial system is sending us major warnings…

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