Does deleveraging causes an excessive bull market with some delay ?

[TrAndy2022]

Because of higher interest rates, leverage gets more expensive. If we go as far as 7% or higher than leverage for certain strategies does not make any sense anymore. So that will cause a kind of deleveraging. I would say that is healthy for the markets. But does this cause a kind of excessive bull markets later in stock markets (because anyone is seeking for higher returns or something like that) ? Any studies to that you are aware of ? (On lot of retail brokers except IB you already pay ca. 9% interest p.a. for leverage, so for them lot of leveraged strategies does not make sense anymore.)(And not anyone is able to do daytrading.)

 

[murray t turtle]

Because of higher interest rates, leverage gets more expensive. If we go as far as 7% or higher than leverage for certain strategies does not make any sense anymore. So that will cause a kind of deleveraging. I would say that is healthy for the markets. But does this cause a kind of excessive bull markets later in stock markets (because anyone is seeking for higher returns or something like that) ? Any studies to that you are aware of ? (On lot of retail brokers except IB you already pay ca. 9% interest p.a. for leverage, so for them lot of leveraged strategies does not make sense anymore.)(And not anyone is able to do daytrading.)

%%
Most likely,
+ took 10 months for a OCT bear rally.
I would not call this the start of a bull market \ even though OCT has done that before LOL[Delayed edit/ that may knock out some day trades but plenty left some times. Its like sometimes in REALTY, location, location+ broker price opinion >> than bank rate]

 

[FreeGoldRush]

You are asking if interest rates correlate with future stock prices. It's easy enough to take data and answer. But you'll need a reasonable sample size and that will require decades of data since interest rates don't go up and down every year. I'd say that whatever happened in the 1970s to 1990s isn't highly relevant. Market forces and stresses were different. Leverage was not as high. Not as many things were financialized. So your linear regression analysis is going to have suspect value.

 

[newwurldmn]

You are asking if interest rates correlate with future stock prices. It's easy enough to take data and answer. But you'll need a reasonable sample size and that will require decades of data since interest rates don't go up and down every year. I'd say that whatever happened in the 1970s to 1990s isn't highly relevant. Market forces and stresses were different. Leverage was not as high. Not as many things were financialized. So your linear regression analysis is going to have suspect value.

Do you think the financialization will add volatility or subtract it from the relationship?

 

[FreeGoldRush]

Do you think the financialization will add volatility or subtract it from the relationship?

Sometimes it adds and sometimes it substracts. You get both.

 

[newwurldmn]

Sometimes it adds and sometimes it substracts. You get both.

where do you think it will add and where do you think it will subtract?

 

[FreeGoldRush]

where do you think it will add and where do you think it will subtract?

Example of adding vol: The fed obviously creates boom and bust cycles. Examples of removing vol: fed bailouts, circuit breakers, uptick rule, locate requirement, etc.

 

[piezoe]

Because of higher interest rates, leverage gets more expensive. If we go as far as 7% or higher than leverage for certain strategies does not make any sense anymore. So that will cause a kind of deleveraging. I would say that is healthy for the markets. But does this cause a kind of excessive bull markets later in stock markets (because anyone is seeking for higher returns or something like that) ? Any studies to that you are aware of ? (On lot of retail brokers except IB you already pay ca. 9% interest p.a. for leverage, so for them lot of leveraged strategies does not make sense anymore.)(And not anyone is able to do daytrading.)

The answer to your question: YES. Said another way, "what goes down goes up, and what goes up goes down. Your problem as a trader is to figure out when down will change to up, and up will change to down. I recommend reading George Soros's "The Alchemy of Finance" for more on this topic.

 

[newwurldmn]

Example of adding vol: The fed obviously creates boom and bust cycles. Examples of removing vol: fed bailouts, circuit breakers, uptick rule, locate requirement, etc.

Those aren’t financialization. Most of those are regulatory or government policies.

I was thinking more like derivatives, insurance, LBO’s, etc.

On one had its transferring risk to willing parties (who can hold it better), on the other hand it allows participants to run lower margins of safety.