Wednesday, June 11, 2014

Inflating a Stock Bubble- Margin and Stock Buybacks

Equity prices rise as economic growth remains lackluster. Although the market will probably continue to track somewhat higher, proceed with caution.

via David Stockmans Contra Corner

Following up on yesterday’s observations about valuations in stocks, margin debt declined in April for the second consecutive month. The absolute change across both March and April is not very large, amounting to $27 billion or 5%. Total cash balances were essentially unchanged, meaning that investors retired margined positions and reduced overall leverage in retail accounts.

ABOOK June 2014 Leverage Margin Debt

Since there was little disruption in the larger cap indices, such as the S&P 500, while smaller cap and momentum equities struggled significantly during those two months we can connect these changes in leverage to high beta investing. It would seem that small caps and “higher risk” names have attracted the most retail leverage since this latest bubble phase began.

The remaining article is available after the jump.

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