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Personal debt by itself doesn't mean much. Is 400K in debt a lot
compared to 190K in 1980? No, it isn't. In fact, it's exactly the
same after deflating it by the annual CPI numbers. What's more
relevant is the ratio of debt to income, i.e., the ability to service
and repay debt. I suspect that this ratio expands and contracts in
direct relation to the degree of consumer confidence. I don't have
any of this raw data but I wish I did so that I could see if I'm
talking out my elbow.
This stock option corporate game is such bs. My sister-in-law just
received 1000 IBM stock options. Given IBM's price, she was ecstatic
until she realized that if IBM's stock price dropped below the level
that it was at the time she received the options, they were worthless.
Depending on how your AOL friends options work, they may be in for a
big surprise. And they're nuts to spend a promise of things to come.
Regards,
Mike
---
Aboard 35' Edel Cat "Moongate" in New Bern, NC - the hurricane capital
of North America
----- Original Message -----
From: Howard Hopkins <hehohop@xxxxxxxxxxx>
To: <bruceb@xxxxxxxxxxxxx>; <eadamy@xxxxxxxxxx>;
<realtraders@xxxxxxxxxxxx>
Sent: Sunday, October 17, 1999 3:25 PM
Subject: Re: FOMC meeting?
> I've been following your discussion over the past few days.
>
> I have a question and I wonder if anyone knows the answer. Although
margin
> debt is not at the % of net worth that it was in the late 20's, how
is
> personal debt today compared to then? I live in the Wash, DC area
and have
> two friends that work for AOL. They make good money, but they
believe they
> are paper millionaires (even though they are not... yet)through
thier stock
> options. And they spend accordingly to that "inevitable" windfall
that they
> are "entitled" to.
>
> Many of my thirty-something friends have $400,000 in home, car, and
credit
> card debt. Isn't this just as important in evalutating how
precariously
> perched this game of cards really is?
>
> Thanks for any feedback,
> Howard
>
>
> >From: "BruceB" <bruceb@xxxxxxxxxxxxx>
> >To: "Earl Adamy" <eadamy@xxxxxxxxxx>, "RealTraders
Discussion Group"
> ><realtraders@xxxxxxxxxxxx>
> >Subject: Re: FOMC meeting?
> >Date: Fri, 15 Oct 1999 08:07:38 -0400
> >
> >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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