Confirming just how leveraged hedge funds and general investors were exiting February is the latest margin debt data from the NYSE, which indicates that the recent trend of pursuing beta on ever increasing margin continues.Total margin debt jumped by a whopping $21 billion from $289.6 billion to $310.3 billion, the highest it has been since July of 2008. It should, however, be kept in mind that this is a gross leverage number. To get the far more accurate net number, one needs subtract the margin debt from Free Credit Cash Accounts and Credit Balances in Margin Accounts, or in other words, the “net worth” of the investor (the less the supporting cash, the lower the “capitalization ratio” of the speculator). And here things get very concerning. The Net Free Credit (or net margin debt depending on whether one puts the + or – sign in front), calculated as Total Free Credit less Total Margin Debt jumped from ($46) billion to a massive ($57) billion. This is the third lowest net worth reading ever reported by the NYSE. Only the ($67.8) billion in May 2007 and ($79) billion in June 2007 are worse, and confirm that everyone is levered to the gills at virtually the same level as when the market was at its all time highs. We all know what happened next.
You can’t trade off that data, but it is interesting.