Tabell’s Market Letter – March 09, 1984

TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 9249660 March 9, 1984 The JlewS.or1!.Stock .lixcl1/tTlge .l'Iill.sh2Jty release rnontIDyi!gure.Jor Februaryn tl1eXSE firms carrying customers' stock margin accounts which should' show continual expansionof the NYSE margin debt. Since these figures have been avsilable, debit balances of margin accounts in aggregate terms have generally moved in the same direction as stock prices but at a more exaggerated rate. The single exception is the period from the 1976 high to the 1978 low on the DJIA, when margin debt increased with minor interruptions to new highs through June, 1981. This correlation with the long-term trend of the market can be clearly seen from the chart on the opposite side. Margin customers of NYSE member firms increased their margin debt in January by 150 million to 22.87 billion, the largest monthly figure recorded to date since the start of the present series which began in 1965. The New York Stock Exchange also reported the number of stock margin accounts in a debit status to be at an all-time new high level of 840,000. This, in spite of a recent decline of 11.85 perc'ent from the January high of 1286.64 on the DJIA, and the high cost of broker loans to finance stock purchases, is indeed remarkable. It now becomes apparent, during the rise in the stock market from the fall of 1982 to date, that margin debt provided for the individual investor an accessible source of new funds for investing which he clearly utilized. This can be seen on the chart on the reverse side. From September,1982, margin debt rose from 10.950 billion to 22.870 billion in January, 1984, more than doubling in the short period of sixteen months. EXHIBIT Margin Debt (mil) Total Market Value Percentage Date Dow-Jones June, 1968 High 6690 641037 1.043 11/29/68 985.08 J.ulyc, 9.7.0.Low .. o. 37.80….,,-53107,7-'.'.''–.U2;f5-J/'lJil2JJ -!.6!.JI1—- ;,. Dec., 1972 High 7900 872000 .906 1/11/73 1051.70 Dec., 1974 Low 3910 511054 .765 12/6/74 577.60 June, 1981 High 14870 1224000 1.215 4/27/81 1024.05 Sept., 1982 Low 10950 1120000 .978 8/12/82 776.92 Jan., 1984 High 22870 1605000 1.425 11/29/83 1287.20 In the exhibit above we try to put these figures in perspective. This is done by analyzing the customers' stock market debt compared to the total market value of equities listed on the NYSE. Treated as a ratio the historical parameters are instructive. From 1965 to date the range of the percentage of margin debt to total NYSE market value has been 1. 53 percent high in October, 1978 and .597 percent low in January, 1971. The observations seem to conclude the higher percentage of margin debt to market value, the higher the averages, and, conversely, the lower the percentage the lower the averages. It is interesting that the current ratio has increased sharply and is now at the highest level since 1978, 1. 425 percent. From these studies recent history tells us that the current position of margin debt, although high on an absolute basis, is not unusual or necessarily bearish. The major question to be resolved is will the market behave like the June, 1981 period when margin debt peaked out after a market high was reached a few months earlier, like previous periods such as June, 1968 and December, 1972 when the margin debt figures peaked out prior to a market top, or like the 1976-1978 period and increase to new highs without a correction. A subset of figures released by the NYSE concerning margin debt is the customers carrying margin accounts under 40 percent equity. In simplest terms this tries to measure the quality of credit. This figure currently equals 10 percent of the total margin accounts. Taken by itself is fine, DUt this data represents an alarming 43 percent of the total margin debt, a figure in excess of 9.78 billion. This means the quality of margin continues to gradually deteriorate. Although there have been few margin calls to date, it should be remembered that in the fall of 1974 this ratio reached a high of 23 percent, a series record, representing 58 percent of total margin debt. At those levels, it was thought to have triggered the decline in 1974. We should, therefore, continue to pay close attention to the current margin debt statistics, as they could provide an important clue to the future behavior of the stock market. RJSlt ROBERT J. SIMPKINS, JR. DELAFIELD, HARVEY, TABELL INC. Dow-Jones Industrials (1200 p.m.) 1136.61 S & P Composite (1200 p.m.) 154.23 Cumulative Index (3/8/84) 1929.84 -,/ No statement or expresSion of opinion or any otner matter herein contained,s or IS to be deemed to be, directly or indirectly an oller or the soliCItation of an offer to buyor sell any security relerred to or mentioned Tho malter IS presented merely for tht' convenience of the subSCriber While we oclleve Ihe sources of our information to be reliable we In no way represent Of guarantee the accuracy thereof norolthe statements made herein Any acllon 10 be taken by the subSCriber should be based on hiS own Investigation and Information Delafuld, Harvey, TaOOll Inc, as a corporation and I\S officers or employees, may now have, or may laler lake, posItions or trades In respecllo any secunlles menhoned In thiS or any future Issue, and such posH Ion may be different from any views nowor heleafler e;opressed In thiS or any other Issue Delafield Harvey. Tabell Inc which IS registered With the SECas an Investment advisor, may give adVice 10 115 InveStment adVISOry and other customers Independently of any statementS made In thiS or In any other Issue Further mformatlon on any security mentioned herem IS avallabte on request ,–,,–.-,,-,–.-.,-,–,,–.–.'-.–.-r1300 1200 1100 1000 900 800 700 WL-L L-L————-600 11 17 1G 15 14 13 12 11 10 -9 8 7 6 5 I (SC I Il3. 119G8 11969-'7119N70m-11971-'11972-r11.973'-11 g74–11975–11T97G.n1H-l77-IH1778 Nm11-979 !J1B9T80 I1I 1198.1 -1198,2 -1198-3 -1984 3 I ,, .;;,