People assume that the new money from the Fed is flooding in to the stock market, but that is not happening. The new money from the Fed is sitting in excess reserves. The stock market was rising based on borrowed money. Obviously interest has to be paid on this, even if it is fairly cheap, say 6%. So unless the stock market keeps rising on an annualized basis by more than the interest rate, the whole process shifts in reverse, money flows out, and as the market drops, more margin calls are made. It is possible that one month is an anomaly, so we should wait to see what happens with the June numbers. But unless there is a new high in margin debt in June, we could see a crash in September or October.
For more info see http://advisorperspectives.com/dshort/updates/NYSE-Margin-Debt-and-the-SPX.php
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