WARNING: Markets Reaching Extreme Leverage
As investors’ bullish sentiment moves up to euphoric levels, the markets are reaching extreme leverage. This is terrible news because a lot of people are going to lose one heck of a lot of money. According to CNN Money’s Fear & Greed Index, the market is now at the “extreme greed” level and if we go by Yardeni Research on “Investor Intelligence Bull-Bear Ratio,” it’s also is the highest ratio in 30 years.
But, of course… this time is different. I continue to receive emails and comments on my blog that the Fed will continue to prop up the markets. Unfortunately, there is only so much the Fed can do to rig the markets. Furthermore, the Fed can’t do much to mitigate investor insanity in record NYSE margin debt or the massive $2 trillion in the global short volatility trade.
The record NYSE margin debt suggests traders have racked up a record amount of margin debt (33% more since 2007) and the largest short volatility trade in history. By shorting volatility, investors are betting that it will continue to move lower. A falling volatility index suggests more calm and complacency in the markets.
So, the market will likely continue higher and higher, until it finally POPS. And when it does, watch out.
I’ve put together some charts showing the extreme amount of leverage in the markets. While this leverage may increase for a while, at some point the insanity will end in one hell of a market correction-crash.
The Commercial Banks Are Betting On Much Lower Oil Prices
As I mentioned in previous articles and my Youtube video, Coming Big Oil Price Drop & Market Crash, the Commercial banks have the highest net short positions in the oil market in over 20 years. In the video, I explained how the Commercial net short position in oil increased from 648,000 to 678,000 contracts in just one week.
…click on the above link to read the rest of the article…
