Tuesday , 23 October 2018


WARNING: Markets Reaching Extreme Leverage

[There is an]…extreme amount ofstockcrash-2 leverage in the markets and, while this leverage may increase for a while, at some point the insanity will end in one heck of a market correction-crash.

The original article by Steve St. Angelo has been edited here for length (…) and clarity ([ ]) by munKNEE.com to provide a fast & easy read.

As investors’ bullish sentiment moves up to euphoric levels, the markets are reaching extreme leverage. This is terrible news because a lot of people are going to lose one heck of a lot of money. According to CNN Money’s Fear & Greed Index, the market is now at the “extreme greed” level and if we go by Yardeni Research on “Investor Intelligence Bull-Bear Ratio,” it’s also at the highest ratio in 30 years but, of course, this time is different – or is it?

As investors’ bullish sentiment moves up to euphoric levels, the markets are reaching extreme leverage.

…The $600 billion in NYSE margin debt suggests traders have racked up a record amount of margin debt (33% more since 2007) and the largest short volatility trade in history. By shorting volatility, investors are betting that the VIX Index (Volatility Index) will continue to move lower. A falling volatility index suggests more calm and complacency in the markets so the market will likely continue higher and higher, until it finally POPS, and when it does, watch out!…

…Here’s what has taken place in some of the Dow Jones Industrial stocks:

  • Caterpillar’s stock price was $137 on Nov 5th and has increased from $161 to $170 in just the past two weeks….so, in just two and a half months, Caterpillar’s stock price is up a staggering 24%.
  • …From 2000 to 2012, Home Depot’s share price averaged approximately $25 a share but on Jan 5th it was trading nearly eight times higher at $192. If we look at its current price, it is NOW trading more than eight times higher at $201…According to Home Depot’s financial reports, their revenues grew from $70 billion in 2012 to over $100 billion in 2017. Furthermore, Home Depot’s net income has increased from $3.8 billion in 2012 to $6.8 billion in the first three quarters of 2017, but does a $30 billion increase in revenues and $6 billion increase in profits translate to a 700% increase in Home Depot’s stock price over the past five years?
  • …On Jan 5th, Boeing was trading at $308… nearly three times higher than the $112 it was trading at the beginning of 2016…In the past two weeks Boeing’s stock price has gone up 10% in just two weeks. well beyond bubble territory. to a new record high of $337.
  • United HealthCare’s stock has surged from $53 in 2012 to $223 on Jan 5th…and has up another 6%, to $243, in just the past two weeks.

United HealthCare and Boeing’s stocks represent a market that has gone completely insane. Unfortunately, the leverage in the market will likely increase from the current extreme levels to “outrageously” extreme… if there is such a term…[and] the Fed and Central Banks realize that by rigging the market higher, it can only go in that direction. Ever since the 2008 U.S. Housing and Banking Market collapse, the world has been living on borrowed time, money and a massive amount of debt. By increasing the value of Stocks, Bonds, and Real Estate, the Fed and Central Banks not only give investors the impression that they are wealthier, so they spend more, it also allows governments to collect more taxes.

While inflated asset values allow governments to collect more taxes, they still aren’t enough to keep the economic and financial systems from collapsing…If the Fed and Central Banks lose control over the markets (yes, they will), then the ensuing collapse will make 1930’s Depression and the 2008 economic meltdown look quite tame indeed…

Conclusion

While the leverage in the market will move from extreme to outrageously extreme before it crashes, the timing of this event is not years or decades away as some more wishful thinking investors have deluded themselves into believing.

Huge market corrections are normal, and stock market crashes have occurred many times in the past, however, the present leverage in the market is now beyond bubble territory. When the markets finally crack, if you own some physical gold and silver, you will be one of the few 1% that will have protected your wealth as most individuals watch their investment bubbles pop.

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