Panic levels are reaching levels not seen since 1929. We are now in the 3rd. Phase of a de-leveraging process.

Some of you may remember the NYSE Margin chart I posted in late 2007. Basically, it showed that 2007 margin levels were starting to drop from an "extreme" level. Historically, every time we have reached extreme margin levels, they always got unwound. That is where we are now, in an accelerating Phase 3.

The hottest hedge fund sectors were leveraged 30 to 1 last year ... definitely an over leveraged condition. In this kind of environment, prices fall as fast as positions are unwound to meet margin calls.

The only good news right now, is that we are getting closer to the end than the beginning of the market's falling ... with the end being after enough leverage has been unwound.

Now, let me now share our NYSE Margin chart from last year, and the most current chart.

This is the chart we posted late last year. Note, that it showed margin peaking in July 2007 and then falling two consecutive months into September. That sizeable drop caused us to be concerned that we could be starting an unwinding process on excess margin levels. See the next chart ...

This is the current chart with the last margin update ... August, 2008.

Note that the margin debt has continued in a down trend, and an unwinding process since the July 2007 peak.

The release of NYSE margin numbers are delayed so we don't have up to the minute official numbers.

What I can tell you is that the unwinding of margin has accelerated this week, and when that happens, prices fall as fast as positions are being unwound to meet margin calls. Those who invest using extremely high leverage are speculators, and these kind of market conditions end up squeezing speculators out of the market.

(A more extensive discussion on the de-leveraging phases and the use as CDSs as a hedging tool by Institutional Investors is discussed on our paid subscriber site.)