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While margin debt, by historical standards, remains subdued; I believe there
is ample evidence of extreme consumer leverage (consumer installment debt,
mortgage debt, lease obligations, etc.) in the economy.
The public has been well indoctrinated with "buy and hold" and "buy on the
dips". The public won't sell until it gets scared and that will not happen
on a large scale until securities bought on the dips fall to significantly
(20%) lower levels and it won't happen on a massive scale until prices drop
to levels at or below the average cost of acquisition. Around a year ago,
Ned Davis Research had that calculated at around S&P 850. I would imagine
that level has risen somewhat.
Earl
----- Original Message -----
From: BruceB <bruceb@xxxxxxxxxxxxx>
To: Earl Adamy <eadamy@xxxxxxxxxx>; RealTraders Discussion Group
<realtraders@xxxxxxxxxxxx>
Sent: Friday, October 15, 1999 6:07 AM
Subject: Re: FOMC meeting?
> Earl, the point of the info is that investors (speculators) had access to
> enormous amounts of leverage for the vast majority of time the market
went
> through its meteoric rise in the 1920's, ranging from 3% to 20% margin
> rates. As the info points out, margin rates didn't hit 20% until just a
few
> months before the crash (sorry, I said "after" in my previous post).
> Whether you choose to accept the "conventional" figure of 10% as an
average
> margin rate for that period is up to you.
>
> Once again, the important point of this whole subject for all investors is
> that the 1929 market was built on massive leverage. History has clearly
> shown that leveraged money is the fuel for market crashes (on this point
> Norman and I agree completely). Our current market, while reaching
> valuations comparable to the 20's, doesn't have a fraction of the leverage
> built into it. No leverage, no crash. It's that simple.
>
> When the market "corrected" last fall to the tune of 20+%, who was it that
> sold? It was hedge funds, who were heavily leveraged and had to sell to
> cover margin calls. The average investor sat on his hands and was well
> rewarded for his resolve.
>
> Bruce
>
> ----- Original Message -----
> From: Earl Adamy <eadamy@xxxxxxxxxx>
> To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxx>
> Sent: Friday, October 15, 1999 6:06 AM
> Subject: Re: FOMC meeting?
>
>
> > The material Bruce attached was interesting and carried some eerie
echoes
> > including the Fed's easing of rates in 1927 to help the Europeans.
> However,
> > I didn't find much in the way of specific info regarding call rates
except
> > for two passages:
> >
> > a) "The practice of buying a large number of shares of stock with a very
> > small amount of one's own money (as little as 3% during the 1920's) and
> > borrowing the rest from the broker."
> >
> > b) "On Tuesday, March 26, 1929, the trend intensified and the rate on
call
> > money went to 20 percent."
> >
> > The first is pretty generic as it applies to an entire decade while the
> > later is more specific as it applies to the period some months before
the
> > big one let loose. There is no indication regarding the length of the
> period
> > to which the 20% applies but I see nothing which refutes Norman's
> statement.
> > While I have extensive historical data, one item I do not have is call
> rates
> > back to the 20's ... if anyone has monthly call rates for 1929 we could
> put
> > this part of the discussion to be and move on to new material.
> >
> > Earl
> >
> > ----- Original Message -----
> > From: BruceB <bruceb@xxxxxxxxxxxxx>
> > To: <ericrogers@xxxxxxxxxxxxx>; BruceB <bruceb@xxxxxxxxxxxxx>
> > Cc: <droex@xxxxxxxxxxxx>; Earl Adamy <eadamy@xxxxxxxxxx>; RealTraders
> > Discussion Group <realtraders@xxxxxxxxxxxx>
> > Sent: Thursday, October 14, 1999 10:05 PM
> > Subject: Re: FOMC meeting?
> >
> >
> > > Sorry Norman. After a grand total of 5 minutes of searching on the
> > > internet, I found enough info to invalidate your opinion. Attached is
a
> > > text file containing passages from two different sites on the web
> > discussing
> > > the 1929 crash. The first passage makes it clear margin rates for
> > investors
> > > in the twenties got as low as 3%. The second passage makes clear that
> the
> > > broker call rate (referred to as the "Call Market") did not go to 20%
> > until
> > > AFTER the crash was underway.
> > >
> > > Now, if margin rates got as low as 3% during the twenties, and didn't
> > reach
> > > 20% until after the crash, is it really so hard to believe that the
> market
> > > spiraled upwards at an average margin rate of 10% before crashing?
> >
> >
> >
> >
>
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