The Big Picture

« NASD Firm Margin Levels Spikes to Record Levels | Main | Hedge Fund Capitulation? »

More on Margin

Thursday, September 18, 2003 | 03:30 PM

Jeff Opdyke has a WSJ article on Margin this am: Deja Vu: Buying Stock on Margin Is Back in Vogue. His reporting specifically notes a big increases in online broker's margin:

Wednesday, online firm E*Trade Group Inc. reported that margin debt had increased to $1.23 billion, an increase of about 25% this year. Jarrett Lilien, president and chief operating officer at E*Trade, says the margin growth his firm has seen "is growing orderly and responsibly."

Online competitor Ameritrade Holding Corp. saw margin activity increase 46% to $1.9 billion between March and June. Brown/Co, a unit of J.P. Morgan Chase & Co., says its margin balance has risen about 20% so far this year in accounts that have a margin balance.

The article quotes yesterday's research piece, and more importantly, repeats my complaint how incomplete the present margin data is:

The increase in margin debt "suggests that smaller investors have become extremely speculative again," says Barry Ritholtz, market strategist at Maxim Group, a medium-size brokerage firm in New York. "If I had to bet, I'd say a disproportionate amount of [buying on margin] is in tech, biotech and Internet stocks, just like last time."

Brokerage firms and regulatory agencies don't detail what stocks investors are buying on margin. But Ken Clipper, chief executive officer of Brown/Co, says anecdotal evidence shows that the Nasdaq 100 Index Tracking Stock, also known as the Triple Qs for its QQQ symbol, "is our No. 1 product." Mr. Clipper says it wouldn't be a stretch to think that "savvy customers are playing the Q's" on margin.

If you read yesterday's margin comments (NASD Firm Margin Levels Spikes to Record Levels), you'll note I reach a somewhat different conclusion than the other people quoted in the article. Because the total amount of margin -- NYSE and NASD firms combined -- has not really moved up much, and is still way below the bubble peak -- I doubt this signls an impending top or major reversal.