These ideas won't all be right, and in fact they may all be wrong, but here are some themes that I think are worth watching... Surprise disruptive upshot in rates over the next 30 to 90 days likely, yield of the 5-year is the biggest gainer, 30-year is the laggard Long high yield trade begins to unravel Short vol trade begins to unravel Equities unravel, choppily, downside bias (prepping for an ugly 2018) Short term bottom in commodities (30 to 90 days), but not necessarily commodity-related equities
so more or less a reversal of last 6 months. You may be dead on but, as Steve M asks, what is your rational and the catalyst ? thanks
The catalyst will be the fact that with interest rates lowest in history did not do any good, debt was at insane levels already - it has exploded 5 fold since. The next crash which is looming on the horizon will make 2008 look like a dressed rehearsal. Retail is leveraging at insane levels - there is not going to be any more $ to prop up this corpse soon. SP500 Margin June 21, 2017
My thoughts... By historical standards, there is presently excessive optimism reflected in the COT of the 5-year and 10-year notes. Commercial hedgers in the treasury market are net negative, and when that happens, rates tend to rise. Commercials are usually right, and it would imply then that longer-dated interest rates are about to jump. That would be a trend reversal amid a market that is keying off of softening macro data and believes the longer-dated treasuries are likely to drop. Last time commercial hedgers were short bonds this much was the summer of 2016. That marked the low point in rates for the last five years. Disruptions like this are a negative for the high-yield market, and equity prices are extremely sensitive to these sort of disruptions. This is especially the case for commodity-related equities because they're so dependent on borrowing during a time of depressed-commodity prices. Counter-trend interest rate increases linked to the treasury markets preceded the equity sell-offs in fall 2016, winter 2016, and fall 2015. High yield and equities both sold off sharply and volatility spiked.
The picture you're displaying suggests that margin debt is primarily a function of equity prices, not interest rates. Margin debt is far more correlated with equity prices than bond prices. If equity prices increase as they have, it would make sense that margin debt increases as well. Margin debt on the Nasdaq was actually higher in 2008, when the index traded at half it's present value. So it may be a stretch to conclude that margin debt is actually causing stock's value to rise. Correlation and causation aren't the same thing.
My reasoning/guess is that as the value of equities rises, more margin debt becomes available. And the reverse happens when equity values decline.
%% I wonder if its more debt than that?? Options, ETFsX2, ETFsX3, home equity loans......A bear market is so overdue-I'm not worried about it.As the UK[United Kingdom] fund manger said ''Don't run out of bullets-then the elephant walks by''