Need to Know: Weak hands may be signalling a ‘major market decline,’ fund manager warns

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Investors, knocked around by the latest stretch of volatility VIX, +0.45%  , are wiggling out of their risky margin positions in a big way.

Margin debt, the most current figures show, fell $90 billion in the fourth quarter, marking the fastest pace since the financial crisis. Now, at $554.3 billion, it’s at its lowest level in more than a year, according to the FINRA.

The numbers mean different things to different Wall Street types.

MarketWatch columnist Mark Hulbert a few months back made the case that declining market debt isn’t necessarily the bull market death knell many pundits make it out to be, though December happened shortly after he made that case.

There there’s Brad Lamensdorf of the AdvisorShares Ranger Equity Bear ETF HDGE, +0.13%  , a fund that is still licking its wounds after January’s nasty stretch for the bears. In our chart of the day, he used this illustration from the Sentiment Trader blog to sound a warning for bulls:

“Very high margin often precedes major market declines,” he said. “It also means a lot of stock is in the hands of weak-handed investors who are taking outsized risks that would subject them to market calls and outsized losses when the markets decline.”

In fact, as Lamensdorf explains, high margin accelerates market declines, making the bad turn worse for those crushed in the rush to the exits.

“That’s because leveraged investors are forced to sell stock into down markets to meet margin calls,” he wrote. “Note that margin spiked in March 2000 at the time of the dot.com crash. It also spiked before the financial crisis in 2007.”

No sign of those weak hands running for the doors this morning, with stocks down just slightly in premarket action.

The market

Futures on the Dow Jones Industrial Average YMH9, +0.38%  , S&P 500 ESH9, +0.42%  and Nasdaq Composite NQH9, +0.55%  aren’t showing much direction early, though they are leaning lower. Gold GCH9, -0.46%  is off just a bit, as is crude oil CLH9, -0.64%  .

Asia markets ADOW, +0.12%  closed mostly mixed as traders look ahead to a fresh round of trade talks with the U.S. this week in Beijing. Markets in China and Taiwan, reopening after a week-long Lunar New Year break, ticked slightly higher. The Shanghai Composite SHCOMP, +1.36%  tacked on over 1%.

Europe SXXP, +1.01%  was up the early part of its session.

The buzz

The whole Jeff Bezos and National Enquirer story is far from over, so look for more twists this week. On Sunday, the attorney defending AMI’s David Pecker scoffed at the accusations in the wake of the Amazon AMZN, -1.62%  boss’s Medium post last week. “It absolutely is not extortion and not blackmail,” Elkan Abramowitz told “This Week.”

Read: Jeff Bezos’s nightmare could happen to anyone

With Brexit just slated to happen on March 29, the British government asked lawmakers on Sunday to give Prime Minister Theresa May more time to rework her divorce deal with the European Union. Communities Secretary James Brokenshire said Parliament would get to pass judgment on May’s Brexit plan “no later than Feb. 27.”

Back in the States, Minnesota Sen. Amy Klobuchar on Sunday joined the growing number of Democrats aiming for the presidency. With the snowy afternoon doing little to ice her enthusiasm, Klobuchar spoke of the need to “heal the heart of our democracy and renew our commitment to the common good.” The president shared his thoughts on her speech, highlighted in ‘the tweet’ below.

The call

Which company will be the leaders of tomorrow? CB Insights, in collaboration with the not-really-failing New York Times NYT, +2.48%  , put together a list of 50 future unicorns (companies they predict will reach $1 billion in valuation). The median company on the list is valued at $111.4 million, so there’s a long way to go.

As you can see from the list, no single industry is dominant, though the two most common can be found in accounting and finance software as well as business intelligence tools. India has five companies on the list, which is more than any other company besides the United States. there are 22 in California alone.

This study has done pretty well in the past. In 2015, for instance, 48% of the potential unicorns have already become actual unicorns. Well, not actual mythological unicorns, but start-up unicorns.

The quote

“By the time we get to 2020, Donald Trump may not even be president. In fact, he may not even be a free person.” — Elizabeth Warren, throwing jabs.

The stat

73 million — That’s the number of Americans born between 1981 and 1996, otherwise known as millennials. According to Pew Research, this cohort will become the single-biggest age group in the U.S. this year, and despite how millennials often get dragged by older generations, we could see a marked acceleration in productivity growth over the next two years. Read more from Barron’s.

The tweet

With the climate change stuff again?

The economy

Monday promises to be a pretty quiet day on the data front, but there’s some notable numbers on tap for the rest of the week, including the consumer price index on Wednesday and retail sales results due out on Thursday.

Read: Inflation? What inflation?

Random reads

The inside story from ESPN on why legendary broadcaster Bob Costas was dropped from the Super Bowl. He might’ve missed out on a few bucks, but at least he didn’t have to watch the game.

The Himalayas are a lot less cold than they used to be.

This brave fellow tried to cut Amazon, Facebook FB, +0.57%  , Google GOOG, -0.33%  , Microsoft MSFT, +0.38%  and Apple AAPL, +0.12%  out of his life. The verdict: It was hell.

Leaders of the Southern Baptist Convention have for years declined to create a list of sexual predators from affiliated churches. So two local papers decided to do it for them, and the results are horrific.

Cardi B, the rap star who has been busy sticking it to the government on social media lately, made history at the Grammys.

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