Skip past the menu Skip to accessibility controls

Margin Mania: Investor Borrowing for Speculation at All-Time High

The Felder Report  ( Original )
FEB 26, 2018

Individual investors are a fickle lot, and they’re notoriously bad at market timing. When markets are at their most expensive, melting up day after day into nosebleed-territory (like now), they can’t invest fast enough. Confidence reigns and it seems like the party will never end. During crashes, when incredible bargains abound, they panic and sell everything.

Then there’s margin. The peak of overconfidence. Paying interest to borrow money to invest in the stock market. And margin borrowing

There may be no better representation of the moral hazard created by interventionist monetary policy than the chart below. Ever since the “Greenspan put” came into existence just after the 1987 crash investors have embraced risk taking like never before and today’s it’s reached a new extreme.

Margin reliably ramps at the very, very end of bubble bull markets. The dotcom crash, the 2008 crisis, and now…now whatever is about to trigger the coming crash. There is $600B in margin right now, the most ever, and when the market next crashes, so come the margin calls. Forced selling. Which triggers further margin calls. More forced selling. And so on and so on and so on.

The only safe conclusion to draw from this “index of the volume of speculation” hitting new record highs is that downside risk, due to the prospect of forced liquidations, is as high as it has been in at least 89 years.

ORIGINAL SOURCE: The ‘Index Of The Volume Of Speculation’ Hits A New Record High by Jesse Felder at The Felder Report on 2/22/18