Loading ...The investing geniuses who don’t believe in bear markets have borrowed over $500 BILLION against their existing stock holdings. This is the tinder for the coming wildfire. The way it works in the real world is – the market drops 2% to 4%. At the end of the day the margin lender assesses the position of their borrowers. If their collateral (stock holdings) has fallen below an allowable level, they make a margin call. The borrower must come up with cash immediately. Since they are hocked up to their eyeballs, they are forced to sell stock the next day to meet their margin call. The selling creates its own momentum. The selling accelerates and before long you have a crash in progress. It might not happen this week, but it will happen, just as a lightening strike ignites old dry tinder and creates a massive uncontrollable wildfire.
With margin debt at epic levels, the margin calls will be epic. Panic will set in quickly. All of the stock market geniuses will be trying to get out the same door at the same time. Bodies will be piled high at the exits. The 2% decline will not provoke the panic, but another plunge in the 3% to 5% range will create a waterfall effect. We are on the edge of panic. Can Yellen and her central banker cohorts keep the inevitable from happening? We’ll see.
http://www.theburningplatform.com/2015/06/29/on-the-edge-of-panic/