A Brief Update of Rydex Ratios

There is no need to say much to this, except to state that the Rydex ratio indicator has reached fresh heights of absurdity … almost 25 times more assets are now invested in bull & sector funds than in bear funds. This is a full seven times more than at the peak in early 2000, and frankly, at the time we thought we would never see such data points again. As we noted in a previous update already, the recent surge in the bull-bear ratio could only be achieved with sizable inflows – price gains alone cannot possibly explain it. We conclude that everybody was, or rather remains, absolutely certain that the market will rally into year-end and beyond,because that is what it almost always does.

Naturally, no-one has ever seen the market decline sharply in December (although a few major market peaks have indeed occurred in early December, but even that is rare), not least because the last time it happened was exactly a century ago, in 1914. At the time it was decided to simply close the exchange for a few months instead of risking even more carnage. Meanwhile, the “war to end all wars” was raging and laid the foundation for another, even bigger war.

First a look at the leveraged Rydex ratio (comparing assets in leveraged bull vs. leveraged bear funds). This particular ratio has just pulled back a bit from the record high recorded less than two weeks ago:

Pulling back from the December 1 record high of 15 – which was approximately a million light years from every previous record except the one made at the end of 2013 – click to enlarge.

But the total Rydex ratio is really the piece de resistance though…we have left our annotations from last time unchanged, but the data are updated:

Click on picture to enlarge

Rydex ratios: bear assets decline to a new all time low, and bull assets climb to nearly 25 times bear assets, another record high – click to enlarge.