Margin Levels Hit New Record

Thursday, February 22, 2007 | 11:32 AM

Here's a data point to make you stop and think: As of today, more people have borrowed money from their their brokers to buy stocks than ever before.

That number was reached this past month, with Margin debt hitting an all-time high, passing even the days of the tech/telecom/internet boom.

According to the NYSE, margin totaled $285.61 billion in January, up from $275.38 billion in December and passing the previous peak of $278.53 billion.

Although the previous all time high was set in March 2000 -- just as the Nasdaq Comp Index hit its apex — there were prior highs to the penultimate one. This doesn't mean the top is in or even imminent, but it is a factor well worth watching over the coming weeks.

I haven't figured out yet how to adjust the present high relative to the March 2000 peak for inflation; At the very least, it implies more room for margin debt to increase in order to reach comparable levels to the 2000 margin highs. Add to that the lower costs of borrowing versus 2000 (i.e., lower interets rates) and while this is a worrisome stat, it is not necessarily the bell that gets rung at the top. 

In fact, Marketbeat points out that there has seen a "veritable who’s who of “bad news” indicators come and, for the time being, go" -- all without any major market disclocation:

• The VIX, commonly known as the “fear index,” is hovering around 10, a low point, suggesting a lot of carefree folks out there these days. This level is often a turning point, a calm before the storm, so to speak.

• The Treasury yield curve inverted months ago, suggesting a recession was on the way. It hasn’t happened.

• The Dow industrials, transports and utilities all closed at new highs on the same day last week — something that became a routine occurrence in just two years, 1929 and 1986, both preludes to big market falloffs.

• The current rally is now the third longest since 1900 without a 10% correction.

Fascinating stuff.  None of this stuff matters, until it does. Than it matters a whole lot.

>


Sources:
NYSE

Buying (and Buying) on Margin
David Gaffen
WSJ, February 20, 2007, 3:27 pm
http://blogs.wsj.com/marketbeat/2007/02/20/buying-and-buying-on-margin/

Thursday, February 22, 2007 | 11:32 AM | Permalink | Comments (37) | TrackBack (1)
de.li.cious add to de.li.cious | digg digg this! | technorati add to technorati | email email this post

bn-image

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c52a953ef00d8351bc94169e2

Listed below are links to weblogs that reference Margin Levels Hit New Record:

» Margin Debt and Sentiment from A Dash of Insight
Margin debt tracked by the New York Stock Exchange has hit a new record high. Traditionally, this is viewed as a sentiment indicator reflecting extreme bullishness. The interpretation is bearish and contrarian. It is a risky thing for stocks if [Read More]

Tracked on May 7, 2007 10:41:12 AM

Comments

Yes, that's true.

But as Helene Meisler notes,

"margin debt may be at an extreme, but it seems like people are borrowing on margin to buy puts. I have never seen such a consistently high put/call ratio when the market is at its highs -- and certainly not on a day when the market has come back from its lows."

They hate these cans! ("The Jerk")

Posted by: Fred | Feb 22, 2007 11:52:24 AM

The comments to this entry are closed.



Recent Posts

December 2008
Sun Mon Tue Wed Thu Fri Sat
  1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31      

Archives

Complete Archives List

Blogroll

Blogroll

Category Cloud

On the Nightstand

On the Nightstand

 Subscribe in a reader

Get The Big Picture!
Enter your email address:


Read our privacy policy

Essays & Effluvia

The Apprenticed Investor

Apprenticed Investor

About Me

About Me
email me

Favorite Posts

Tools and Feeds

AddThis Social Bookmark Button

Add to Google Reader or Homepage

Subscribe to The Big Picture

Powered by FeedBurner

Add to Technorati Favorites

FeedBurner


My Wishlist

Worth Perusing

Worth Perusing

mp3s Spinning

MP3s Spinning

My Photo

Disclaimer

Disclaimer

Odds & Ends

Site by Moxie Design Studios™

FeedBurner