Wall Street remains confused

The markets continue to be uncertain. Today, the Dow ended higher, with the Nasdaq and S&P closing lower. This continued confusion on Wall Street may be a symptom of a reversal, but it's more likely that they are waiting on clarity about the stimulus and the vaccine. When that comes, we could see another bullish run. Sometimes the simplest patterns can be the most powerful. Take moving averages for instance: it's a common indicator that any trader can use on any chart, but most traders overlook its real power. Markay wants to change that, and she's teaching a class tomorrow at 1:00 PM ET to tell you how she uses moving averages every day to find her trades. [Click here to reserve your seat now]( Clicking automatically registers you for the event as well as periodic updates from Markay Latimer. ([Privacy policy]( Clicking automatically registers you for the event as well as periodic updates from Markay Latimer. ([Privacy policy]( Starting next week, Dr. Bauer will be launching his own free daily newsletter with his US colleague, economist Garrett {NAME}. Their goal in Haven Investment Letter is to give you an inside edge on major opportunities misunderstood or undiscovered by Wall Street analysts and media insiders. [CLICK]( to sign up today]( (automatically opts you in - [privacy policy]( You‘ll also get immediate access to their latest report on the energy sector gamechanger you need to know about before the mainstream catches on. [SIGN UP NOW]( (automatically opts you in - [privacy policy](. Everyone's in the Game Dear Reader, When a poker player has a particularly good hand that's likely to win, he goes "all in." That is, he puts all of his chips into play. This is what a lot of investors on the stock market are doing right now, particularly on Wall Street. But there are consequences to this.   The motivation The interest rates for bonds, savings accounts, and term deposits will remain at zero for many more years due to enormous global debt rates. Many investors who are normally risk-averse have given up their defensive positions in the last 12 months and started trading stocks, desperately trying to get some returns on their hard-won savings. Since this has proven to be a successful maneuver, more and more savings have been transferred recently into the stock market. The lust for success Success in stock investing can lead to lust for profit. The more you earn in financial markets, the greedier and more reckless you're likely to become. The following chart provides an impressive visual representation of this effect. It shows call purchases of retail investors. By purchasing calls, they are betting on rising prices, but risking far less money and getting more leverage. The red verticals at the beginnings of 2018 and 2020 show how speculation with this type of instrument has been consistently growing since 2017. But since the beginning of 2020, it's exploded! In the past 13 months, the number of call contracts opened by retail investors and the volume of invested capital has more than quadrupled! The pressure to perform Institutional investors are also engaged here. Investment funds and hedge funds always hold a cash reserve in case they need to pay out to investors, so they don't have to close any of their current positions to do so. The cash level usually hovers around 4–6% of the managed capital. A lower cash level means that the funds are heavily invested. Below, you can see the changes in cash reserve levels for American mutual funds. Mutual funds are investment funds that only invest in stocks. As you can see, between 1995 and 2005, mutual funds never had cash reserves of less than 4%. After the financial crisis, these fund managers got bolder. The cash levels are currently at only 1.5%! This is also a consequence of the enormous pressure on fund managers to perform.    The greed Unseasoned investors who grow bolder from success do not only enter riskier trades, they also invest all the capital they can raise. And when that isn't enough anymore, there's money to borrow—cheaply, since the interest rates are so low. But this type of securities lending almost always uses the portfolio as collateral. Every market day, the collateral values are updated. For stocks, it's usually 50% of their list price. For derivative instruments like futures, options, warrants, and certificates, it's usually set at 0%. If the collateral value of a portfolio sinks below the sum of the debt due to falling stock prices, the borrower has to make up the difference by paying in more money or selling off positions. If they don't do it fast enough, their portfolio will be subject to "forced liquidation." The following chart shows changes in margin debt since 1959, measured from each yearly low point. The red line at the current level lets us compare it to historical levels. The current rise in margin debt has only been exceeded three times: 1985, 2000 (dot-com boom), and 2007 (financial crisis). The furious finale Imagine a crowded swimming pool on a hot summer day. The pool is only accessible from one side, and is almost entirely full of people. Some of the bathers have floats. Due to the crowd, the water level rises. The water volume sinks as it spills over the side. The water in the pool is the capital invested in the stock market. Some of it disappears (spills over) as profit for those who leave the pool early. Now imagine that a panic breaks out among the bathers. Most want to get out of the pool as quickly as possible, and the one exit becomes a bottleneck. Some are further hindered by their floats (the securities loans). Others remain calm and stay in the pool, hoping to have more room now that everyone has panicked and left. Eventually, these people realize that the water in the pool now only reaches to their knees.   Sincerely, Dr. Gregor Bauer Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. You may lose more than you invest. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading. The information on this website is intended as educational in nature and we do not recommend that you buy or sell any specific financial instrument.   Daily Profit Publishing , 1800 Hughes Landing Blvd. Ste. 200, The Woodlands, TX 77380, United States [Update your subscription]( — [Unsubscribe](