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Where Are The Naked Swimmers?

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Perhaps the most famous (if also useful) quip attributed Warren Buffet is “Only when the tide goes out do you discover who’s been swimming naked.”. Using leverage in the form of margin-debt is the degree of that nakedness. It appears that the naked players have all but run out of the pond, as of this writing. In the past this has been a strong indicator of major bottoms in the US equities markets.

The graph below indicates the long-term variations in the margin-debt as it coincided with the S&P500 index (slid black, upper panel). The lower panel shows the rate of change and the dotted line in the upper panel shows the gross margin-debt. The rate of change is approaching 20 years lows, while the “premium” of the gross margin-debt over the index is tightening (upper panel). If this is a gross signal to accumulate equities positions, the seasonality of equities suggests traders have at least all of January-2023 (and beyond) to do so.

Source; BofA Global Research

Although the upside is (for the time being) somewhat limited due to the near certain recessionary events already underway, the recession-chatter will provide the proverbial wall-of-worry. This confirms previous recommendation on concentrating in value stocks (who recently welcomed shipping-containers to their boring party) , Fixed-income and metals especially Gold, Silver, platinum and Uranium.