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Hmmm. Margin calls. Haven’t heard that phrase in a while. A few commentators last week uttered it to try and explain the up and down volatility occurring in the stock market on a daily basis, particularly Jim Cramer from CNBC’s Mad Money show , who talked about it as the reason for the down drafts occurring in the last half-hour of trading on a couple of days.

The phrase made me think of the James Cagney/Humphrey Bogart Movie “The Roaring Twenties”, when Cagney the gangster got a margin call from his stockbroker and ended up selling all his taxicabs, except one, to Bogart, because he had to cover the call before the market closed, and the broker would have to sell his shares. The main difference between then and now is that you could buy stocks with 10 % margin, and 90% loans. Now it’s generally 50% percent margin.

Nonetheless, it’s a phrase I haven’t heard in a while. And it could add to additional violability and pain if the market doesn’t “stabilize’ soon. Especially when you consider that, market data firm, Haver Analytics reports that “net borrowing by U. S. investors in margin accounts is at record levels” And the WSJ points out that “margin debt balances of nearly $290 billion at the end of November 2017, were more than double the levels of early 2000 ahead of the dot-com crash”

Maybe there’s no need to panic just yet, but if the end of day see-saw continues, banks and other margin lenders could limit new margin lending, call in a few loans, make some investors sell their stocks and taxicabs to cover….lol

All in all, the DJIA visited correction territory (down 10 % or more) by falling 5.2% last week. The last two weeks the DJIA has lost more than 2,400. The S & P 500 and the Nasdaq Composite were both down as well. Plus, you haven’t heard too much talk recently about the Chump rally either.

However, most disturbing to me has been the pickup in volume. Almost 55 billion shares traded hands last week. That’s the highest volume level in nearly seven years. Something up. Somebody’s nervous.

The so call smart folks are trying to figure it out. Some say rising bond yields and the threat of inflation is the cause. The bell weather 10 year Treasury-bond (the 30 year use to be the standard) hovering around 2.8% could be the culprit. If it goes over 3% more damage to the market could be done. Why invest in stocks when you can get a safe 3% + return from the U.S. government.

Inflation concerns could also prove to be of concern, but it’s still seems to be right around the Federal Reserve’s 2% target. And with gold posing it’s largest price drop in two months last week, it’s traditional hedging status seems to indicated fear hasn’t yet reared its ugly head.

Still a guy like me will hold on to my stock positions for a while, sit out the options market for the time being, because this violability would glue me to my screen and cause me not to get anything else in my business life done.

But for you stout hearted market players, my suggestion is to look at the Deal Stocks. It looks

like Broadcom really want QUALCOMM, ADM and some other folks have a hard-on for Bunge and the sharks are circling SUPERVALU. All may be worthy of a look.

THIS WEEK’S EARNINGS WATCH:

TUESDAY: DaVita; Martin Marietta; Met Life; Occidental; PepsiCo

WEDNESDAY: Cisco; Marriott

THURSDAY: CBS; Waste Management

FRIDAY: Coca Cola; Deere & Co.

WEEKS’S IMPORTANT ECONOMIC REPORTS:

WEDNESDAY: Consumer Price Index; Retail Sales: Business Inventories

THURSDAY: Capacity Utilization; Industrial Production; Producer Price Index; Philadelphia

Fed Survey

FRIDAY: Building Permits; Housing Starts; U. of Michigan Consumer Index.

POTPOURRI:

…..AIG reported a 6.66 billion 4th quarter loss. There’s that number again. And remember these guys from the last debacle.

…..Annual auto sales drop 1.8%. First annual drop in 8 years.

…..New tax law changes federal historic tax credit, eroding value and investment return.

…..Crude oil prices have fallen double digits in the last two weeks.

….And the new folks over at the consumer Financial Protection Bureau have wiped out all new regulations curtailing predatory lending.

But hey, no reason to despair. J. P. Morgan said “you can go broke betting on hard times”

Later

Carlton Jones

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