Tabell’s Market Letter – July 17, 1981

Tabell’s Market Letter – July 17, 1981

Tabell's Market Letter - July 17, 1981 page 1
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————————————————————————– TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW VORK STOCK EXCHANoe,lNC MEMBER AMERICAN STOCK EXCHANGE July 17, 1981 JheN ew YorkoStock)lxctHl-'lgeJeleaedLetlytheiI' m()nthly figur.sn-.!bel'XE Jirms carrymg customers' stock margin accounts .. Since.figures. have been avSilable, debit baJances of margin accounts in aggregate terms have generally moved in the same direction as stock prices, but at a more exaggerated rate. The chart on the opposite page shows this to be true, until the Dow Jones Industrial Average from its 1976 high declined to its February, 1978 low. Uncharacteristically, since that time, margin debt has increased with minor interruptions to new highs through June of this year. Margin customers of the NYSE member firms added 170 million to their indebtedness bringiIlg the total margin debt to a record of 14,870 million at the end of June. This is the third month in a row customers' margin debt posted an all time high in the series that dates to January, 1965. The NYSE reported that margin accounts totaled 1,320,000 in June, also a record in the series. Because of the speculative nature of the market and the level of the DJIA coupled with the extraordinarily high cost of broker loans used to finance the stock purchases, the number of accounts and the amount of margiIl debt are indeed remarkable. In the following exhibit we will try to put these figures in perspective by comparing the behavior of margin accounts to margin debt. Also, we have taken the highs and lows of the margin accounts /debt and compared them to corresponding major highs and lows of DJIA. EXHIBIT I Margin Debt(mil) Accounts(thou) Ratio Date Dow-Jones June, 1968 High 6690 940 14.05 11729768 985.08 July, 1970 Low 3780 770 20.37 5/26/70 631.16 Dec. 1972 High 7900 Dec —' .-197.41——.r.ow——-391.01-.., 750 9.49 1/11/73 1051.70 625 —…….15 ..98..;1..2.. /6JJ4 -557..7…s011 June, 1981 High 14870 1320 8.88 4/27/81 1024.05' . From 1965 to date the range of this ratio is 20.37 high on July, 1970 and 7.94 low on October, i978. The ratio tends to be high at major market bottoms (July, 1970 and December, 1974) and low at market tops (December, 1972). The relatively high ratio in June, 1968, a market high, can obviously be attributed to the large amount of speculation in the market. Also, the ratio tends to peak before market highs and after a market low. If these observations are valid, the recent or a subsequent high in customer margin debt would iIldicate the DJIA could be higher at a later date. EXHIBIT II June, 1968 July, 1970 Dec. 1972 Dec. 1974 June, 1981 Margin Debt High 6690 Low 3780 High 7900 Low 3910 High 14870 Total Market Value 641037 531077 872000 511054 1225000 Percentage 1.043 .712 .906 .765 1. 214 Date 11/29/68 5/26/70 1/11/73 12/ 6/74 4/27/81 Dow-Jones 985.08 631.16 1051. 70 577.60 1024.05 Another way we are able to analyze the customers' stock market debt is to compare it to the total market value of equities listed on the NYSE. From 1965 to date the range of the percentage of margin debt to total NYSE market value has been 1. 53 percent high on October, 1978 and .597 percent low on January, 1971. The observations seem' to be the same – the higher the percentage of margin debt to market value, the higher the averages, and, conversely, the lower the percentage, the lower the averages. Although the above exhibits would allow for stock prices to go higher, one set of figures released by the NYSE would argue this point. The number of customers carrying margin accounts under 40 percent equities totals 13 percent. This figure represents an alarmiIlg 25 percent of total margin debt, a figure in excess of 3.7 billion. In simplest terms, this means the quality of credit has deteriorated during the month of June, with 25 percent of the debt in accounts in the lowest equity class. It should be remembered that in August-September of 1974, this ratio reached a high of 23 percent, a series record, representing 58 percent of total margin debt and was thought to be a major contribution to the decline in late 1974. Dow-Jones Industrial Average (1200 p.m.) 956.62 S & P Composi1e1200 p.m.) 130.66 Cumulative Index (7/16/81) 1141. 51 ROBERT J. SIMPKINS, JR. DELAFIELD, HARVEY, TABELL RJS rs No statement or expreSSion of oplOIon or (lny other molter herCln contomed IS, or IS to be deemed to be, directly or indirectly, on offer or the OII(llollon of on off!)! to buy or sell any security referred to or mentioned The moiler IS presented merely for the tonvenlence of the subscriber While e believe the sourtes of our informa- tion to be reliable, we In no way represent or guarantee the acturacy thereof nor of the statements mode herem Any Ottlon to be token by the subscriber should be based on hiS own Investigation and information Janney Montgomery Scali, Inc, as a corporation, and Its offICers or employees, may now hOVII, or may loter take, positions Of trodes IfI respect 10 any securlhes mentioned In thiS ar any future luue, ond such position may be different from any views now or hereafter expressed In thiS or ony other Inue Janney Montgomery Scott, Inc, which IS registered With the SEC as on Investment adVisor, may give adVice to lIS mvestment adVisory and othel customers mdependently of ony statements made In thiS or In any other Issue Further mformotlon on any security mentioned herein IS available on request .. II . I,, -''J '- , i III II \ I pnn 11l1ll- ,I I I I 1200 1 1100 Innn I v-a -, gOD- Cl 1/ Vvv8nn 7nn ' I V .6nn Ie; 14 11 j) z(f) 11 0 In – -m 9 , mwI- B Cl z 7 -Q a L 6 Ir 5 4 !/rt r V trVI I V- 1000 900 IV BOO I- 700 OJ R . I , 600 j Ii 15 ;A U/J'i 14 I ,I I– 13 12 V'I\! 11 10 1/ I, , 1– 9 B 7 , I )Ir NY E 6 I' 5 4 l MRRGIN DEBT 3 1968 1969 1970 1971 1972 1973 1\ 197'-1 ,I 1975 1976 1977 1978 1979 1980 1981 II'II 3 II I –

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