Tabell’s Market Letter – February 18, 1972

Tabell’s Market Letter – February 18, 1972

Tabell's Market Letter - February 18, 1972
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– – – – – .i I, TABELL'S MARKET LETTER '-. ' 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGE, INC MeMBER AMERICAN STOCK EXCHANGE February 18, 1972 We touched lightly a few weeks ago on the recent behavior of margin debit balances. We think these figures are of more than passing interest at the moment by reason of their behavior, both over the pastfew months and the past few years, and also for their implications as to market action in 1972. 'Let us first dispose of the most recent'action'; In December,-1971-, margin-debt held bycNYSE member firms advanced 490 million, which rise constituted the largest month-to-month rise since the series has been computed. Performance in January was almost equally spectacular with an additional 300 million being added to total debit balances. This sharp advance of almost 800 million over two months was especially interesting in that it may suggest a reversal of the way the margin speculator has been behaving ever since 1968. This post-1968 behavior moreover itself constituted a dramatic change in the way the debit balances series had acted prior to the 1968-1970 bear market. Date High No. Months Next High as of Date High Date …!&!y. Decline Exceeded Later of Previous High Jan. 1957 2,918 Dec. 1957 2,550 13 May 1958 5 147 Dec. 1961 4,294 Jul. 1962 3,592 16 Feb. 1963 7 123 Jun. 1966 5,310 Jan. 1967 4,850 9 Jun. 1967 5 125 Jun. 1968 6,690 July 1970 3,780 43 Never 22 (to date) The table above outlines the behavior of NYSE margin debt shown in millions of dollars during and sub- sequent to each of the major bear markets from 1957 to date. As can quite clearly be seen, each of the first three downswings involved some liquidation of margin debt, with declines between 9 and 16 taking place during each market drop. In general, debit balances tended to peak out almost coincidentally with the market's high and to reach their bottom a few months after the low was made. As the table shows, how- ever, liquidation of margin debt in the bear market of 1968-1970 was a great deal mor!, extensive, with a decline of 43 being posted. The sharp drop of that period involved the liquidation of almost 3 billion of sucfi -debt, certainlytne iiITgeSt such-liquidation ever seen in the post\Var period 'The- decline in nUl11ber of margin accounts was equally dramatic. From a high of 945,000 such accounts in the Fall of 1968 the total continued to drop to 650,000 as recently as November, 197L The table also shows, quite obviously, that the recovery from the lows of July, 1970 has been far les s dramatic than that of previous bull markets. Invariably in the past, the debit balance series recovered all of their los ses within five to s even months of their low. Now, 22 months into a bull market, NYSE margin debt remains almost 1 billion below its high of June 1968. The current debit balance figure appears even lower when viewed as a percentage of total market value of all listed stocks. At the 1957 and 1961 highs, the old net debit balance series reachedl.3 of total mar- ket value and, at the 1966 and 1968 highs, the slightly-lower NYSE margin debt series peaked out at 1.1 of total market value. For January, 1972, debit balances of 5.7 billion constituted just. 7, of an estimated 800 billion total market value. Thus, were the series to rise to the l.1 figure attained 'in 1966 and 1968, it would mean some 3 billion of new purchasing power for common stocks. It will also involve a rise in margin debt to some 130 of the old 'high, a figure which the table above shows to be in line with past action. Another confirmation of the potential inherent in margin accounts is found in NYSE figures on potential buying power in such accounts. For January, un de r the stimulus of the recent margin requirement reduc- tion, this figure jumped to almost 10 billion, by far a new record. Moreover, the number of accounts had recovered to only 685,000 at the end of January vs. the old high of 945,000. Thus, if the December and January figures are any indication of a desire on the part of the margin spec- ulator to return to a market where he has obviously been a minor factor over the past few years,.the impli- cations could be important. One might almost say, in fact, that it is crucial that he does return. Net new purchases by mutual funds for 1972 will likely be little different from 1971, and there is reason to suspect that growth in pension fund net purchases may also slow. Meanwhile, new issues of common stock are expected to continue at record levels. Thus, a further awakening of public stock interest could be the crucial factor in determining the course of prices over the next year. If the margin speculator does return,moreover, it will have important implications for the character of market leadership. Historically, he has tended to prefer low-priced stocks to high-priced stocks, secondary issues to blue chips, and has shown a greater-thaverage interest in the American Stock Exchange. If his purchases continue to increase, these preferences should become manifest in market action. NOTE Statistical series on debit balances have been revised three times in the recent past. The old Cus- tomer's Net Debit Balance series was superseded in 1965 by the NYSE Margin Debt series which, in turn, was slightly revised in May, 1970. All figures above represent the series in use at ,the time. It is believed that the statistical comparisons are valid. ANTHONY W. TAB ELL Dow-Jones Industrial (1200 p.m.) 917.37 DELAFIELD HARVEY TABELL K&MP(1200p.m.)105.15 ' ' 0 statement or expreUlOn of opinion or any other matter here'n contolned IS, or '5 to be demed to be, directly or indirectly, on offer or the sollcltotlon of on offer to buy or sell ony security referred 10 or mentioned The moiler 15 presented merely for Ihe convel'!lenC'f of the subscriber While we belleve the Ources of our information to be rellOble, we In no way represent or guarantee the accuracy thereof nor of Ihe statements mude herein Any actIOn to be token by the subscrober should be hosed on hls own Investigation and information Janney Montgomery Scott, Inc, as a corporation, and Its officers or employees, may now have, or moy loter toke, positions or trades in respect to any seamlles mentioned In thiS or any future Issue, and such position may be different from any views now or hereafter expressed In thiS or any other Issue Janney Montgomery Scoll, Inc. which IS registered With the SEC as on Investment adVisor, may give adVice to Its Investment adVISOry and othe, customers mdependently of ony statements mode m th,s n In any other Issue further mformahon on any secuflty menhoned herein '5 ava.lable on request

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