Level of Investor Margin Suggest Its Time to Lower Stock Exposure (+2K Views)

Lorimer Wilson April 29, 2013 Comments Off on Level of Investor Margin Suggest Its Time to Lower Stock Exposure (+2K Views) 3,439 Views

Some times in history, investors feel so confident about the future of stocks, they actually use up all their available cash and then borrow money to invest in the stock market. Now is one of those times – and it suggests that now is the time to lower one’s stock exposure. Here’s why.

So writes Chris Kimble (http://blog.kimblechartingsolutions.com) in edited excerpts from his original post* entitled Margin debt hitting levels only seen ONE other time in history!.

(NOTE: This post is presented by Lorimer Wilson, editor of www.munKNEE.com and the free Intelligence Report newsletter (see sample here). The article may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. These paragraphs must be included in any article re-posting to avoid copyright infringement.)

The chart below was created by Doug Short... CLICK ON CHART TO ENLARGE Positive net worth takes place when.….Investors have little money borrowed and plenty of cash in their brokerage accounts. (2003 & 2009) Negative net worth takes place when.…Investors have large amounts of money borrowed (on margin) and little cash in there brokerage accounts. (2000, 2007, 2011 & now) The above chart reflects that only one other time in history has negative net worth been this low, which was the tech bubble back in 2000. The prior two times that negative net worth was this low was 2007 (50% S&P 500 decline) and 2011 (17% S&P 500 decline). The above chart of Credit Balance/Net Worth shouldn’t be used as a market timing tool, yet it history holds true, it has reflected times when investors should load up the truck in stocks (Positive net worth was high at the 2003 & 2009 lows) and it did reflect times when investors should have lowered stock exposure (Negative net worth was low in 2000 & 2007). I believe the top will be in when…. high yield funds, shoe box indicator (only available to members) and advance/declines show weakness in combination with the above net worth figures! Stay tuned to see if its different this time!

(Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)

*http://blog.kimblechartingsolutions.com/2013/04/margin-debt-hitting-levels-only-seen-one-other-time-in-history/

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