El Erian: ‘levered accounts will have to cover’

Mohamed El-Erian, Allianz chief economic advisor, shares perspective on the Brexit vote and what investors should be watching in the wake of the UK referendum. “There will be opportunity for those with cash.”  Here is a direct video link.

“Is this an opportunity to buy right now?” Well Becky, be my guest….Oh wait, CNBC and its mongrel hoard of long always guests, recommend that everyone be fully invested at all times, regardless of valuation or market cycle.  So buy with what Becky?

About those levered accounts “that will have to cover”…margin debt (borrowed to speculate on risk assets) hit an all time secular high in April 2015 (red line) and has been slowly working lower to date.  (To say nothing of the leverage piled on through other credit and derivative markets worldwide). But as shown below, the mean reversion toward prior cycle lows and the selling pressure this suggests for stocks (S&P in blue), has barely even started.

Shocks like last night’s ‘Brexit’ hit the overly confident and recklessly levered like a ton of bricks, as risk markets plunge in concert, paper equity vanishes and a cash crunch hits.

Margin and S&P


This entry was posted in Main Page. Bookmark the permalink.