According to the latest data from the exchanges the bears are becoming an endangered species. As short interest craters investors are taking on record levels of debt to borrow at low rates and purchase equities. In essence, the Bernanke Put is spurring on another risk taking binge for Wall Street.
Yesterday, CNN reported on the decline in short interest. As you can see, total short interest in the S&P has declined as the seemingly unstoppable bull market forces shorts out of the bearish game:
This is perfectly normal during a bull market, however, there are more disturbing trends in margin data. While Ben Bernanke fails to keep rates low and induce business borrowing, he is in fact stoking a speculative boom at the Wall Street casino. According to Bloomberg Wall Street has been leveraging up in preparation for the Fed’s “wealth effect”:
Debt at margin accounts at the New York Stock Exchange minus cash and unused credit from margin accounts climbed to $46 billion, according to data released by NYSE yesterday. Hedge funds had $290 billion of debt from margin accounts in December, the largest sum since Lehman Brothers Holdings Inc. collapsed in September 2008.
“It makes a lot of sense given the low cost of borrowing and some equities’ valuations,” said Patrick Armstrong, who helps manage $356 million in multiasset strategies at Armstrong Investment Managers LLP in London. “There is a capital- structure arbitrage to be made by buying stocks with leverage.”
We’re not yet back to 2007 levels, but as the rally progresses it becomes more and more clear that nothing has really changed in the USA. We are simply back to all the same gimmicks, policies and speculative games that got us into this mess. The Bernanke Put is only helping to reinforce this.
Read Some Related Articles on Pragmatic Capitalism -
Is the Global Financial Asset Portfolio the Perfect Indexing Strategy?
If there was such a thing as an indexing purist that person would simply buy all of the outstanding available financial assets in the world and call it quits. In ...read more
All-Time Highs in the Stock Market are Perfectly Normal
“If you think the market’s “too high” wait ’til you see it 20 years from now.” – Nick Murray ...read more
Is a Big Equity Correction Imminent? Not Yet
Many investors think US stocks are due for a correction: They feel that the market has run too far, that the Fed has been slow to act, that complacency has ...read more
This isn't a Stock Market Bubble, but it Could Become One
Last year I asked if we are in a stock market bubble. My answer was no. Much of the basis for that thinking was that sentiment was just too bearish ...read more